SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of
Securities Exchange Act of 1934
for Quarter ended January 31, 2002
Commission File Number 0-13301
RF INDUSTRIES, LTD.
(Exact name of registrant as specified in its charter)
Nevada 88-0168936
(State of Incorporation) (I.R.S. Employer Identification No.)
7610 Miramar Road., Suite 6000, San Diego, California 92126-4202
(Address of principal executive offices) (Zip Code)
(858) 549-6340 FAX (858) 549-6345
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days
Yes X No
---
State the number of shares outstanding of each of the issuer's classes of common
stock at the latest practicable date.
As of January 31, 2002, the registrant had 3,409,354 outstanding shares of
Common Stock, $.01 par value, issued. Transitional small business disclosure
format
Yes No X
---
Part I. FINANCIAL INFORMATION
RF INDUSTRIES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31 October 31
2002 2001
----------- ----------
(Unaudited)
ASSETS
-------------
CURRENT ASSETS
Cash and cash equivalents ............................ $1,212,451 $ 915,538
Investments in available-for-sale securities ......... 1,774,305 1,744,851
Trade accounts receivable, net of allowance
for doubtful accounts of $42,000 ..................... 1,058,459 981,803
Notes receivable ..................................... 12,000 12,000
Income tax refund receivable ......................... 165,192 216,192
Inventories .......................................... 4,489,077 4,746,125
Other current assets ................................. 180,780 111,214
Deferred tax assets .................................. 150,595 155,700
---------- ----------
TOTAL CURRENT ASSETS ............................ 9,042,859 8,883,423
---------- ----------
PROPERTY AND EQUIPMENT
Equipment and tooling ................................ 1,055,473 1,050,922
Furniture and office equipment ....................... 243,357 243,357
---------- ----------
Fixed assets, at cost ........................... 1,298,830 1,294,279
Less accumulated depreciation ................... 778,464 737,279
---------- ----------
NET FIXED ASSETS ................................ 520,366 557,000
---------- ----------
Goodwill, net of accumulated
amortization of $11,646 ............................. 163,052 163,052
Note receivable from stockholder ..................... 70,000 70,000
Other assets ......................................... 11,471 11,471
---------- ----------
TOTAL ASSETS $9,807,748 $9,684,946
========== ==========
See Notes to Condensed Consolidated Unaudited Financial Statements
RF INDUSTRIES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31 October 31
2002 2001
----------- ----------
(Unaudited)
LIABILITIES AND
STOCKHOLDERS' EQUITY
-----------------------
CURRENT LIABILITIES
Accounts payable ..................................... $ 234,897 $ 107,145
Current portion of notes payable ..................... 41,663 50,000
Accrued expenses ..................................... 208,183 278,407
---------- ----------
Total current liabilities ...................... 484,743 435,552
Notes payable, net of current portion ................ 39,163
Deferred tax liabilities ............................. 25,700 25,700
---------- ----------
TOTAL LIABILITIES ............................... 510,443 500,415
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock - authorized 10,000,000 shares
of $.01 par value; 3,441,054
shares issued ...................................... 34,410 34,410
Additional paid-in capital............................ 4,695,147 4,695,147
Retained earnings .................................... 4,625,564 4,543,376
Unearned compensation ................................ (23,490)
Accumulated other comprehensive loss ................. (890) (7,986)
Receivables from sale of stock ....................... (1,715) (1,715)
Treasury stock, at cost - 31,700 ..................... (55,211) (55,211)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY ........................ 9,297,305 9,184,531
---------- ----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY ......................... $ 9,807,748 $ 9,684,946
========== ==========
See Notes to Condensed Consolidated Unaudited Financial Statements
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
January 31
-----------------------
INCOME: 2002 2001
--------- ---------
Net Sales ......................................... $ 2,184,917 $ 2,348,601
Cost of Sales ...................................... 1,149,680 1,220,164
----------- -----------
Gross profit ..................................... 1,035,237 1,128,437
----------- -----------
Operating expenses:
Engineering ..................................... 164,035 115,729
Selling and general ............................. 769,983 651,555
----------- -----------
Totals .................................... 934,018 767,284
----------- -----------
Operating income ................................... 101,219 361,153
----------- -----------
Other income:
Commissions ................................... 8,215 18,073
Interest ...................................... 23,754 31,508
----------- -----------
Totals .................................. 31,969 49,581
----------- -----------
Income before provision for income tax ............. 133,188 410,734
Provision for income tax ........................... 51,000 165,500
----------- -----------
Net income
$ 82,188 $ 245,234
=========== ===========
Basic earnings per share ........................... $ 0.02 $ 0.07
=========== ===========
Diluted earnings per share ......................... $ 0.02 $ 0.06
=========== ===========
Basic weighted average shares outstanding .......... 3,409,354 3,402,554
=========== ===========
Diluted weighted average shares outstanding ........ 3,843,766 4,027,473
=========== ===========
COMPREHENSIVE INCOME:
Net income ......................................... $ 82,188 $ 245,234
Unrealized gain (loss)on available-for-sale
securities ....................................... 7,096 (20,761)
----------- -----------
$ 89,284 $ 224,473
Total comprehensive income ................... =========== ===========
See Notes to Condensed Consolidated Unaudited Financial Statements
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended January
----------------------------
2002 2001
----------- ------------
OPERATING ACTIVITIES
Net income .............................................. $ 82,188 $ 245,234
Adjustments to reconcile net income
to net cash provided by (used in)operating activities
Inventory deposit write-offs ....................... 30,294
Depreciation and amortization ...................... 41,185 27,111
Amortization of unearned compensation .............. 23,490 23,514
Changes in operating assets and liabilities, net of
acquisition:
Trade accounts receivable ......................... (76,656) 381,308
Inventories ....................................... 257,048 (859,369)
Other assets ...................................... (18,566) (6,734)
Accounts payable .................................. 127,752 (217,607)
Accrued expenses .................................. (70,224) (129,602)
----------- -----------
Net cash provided by (used in) operating activities 366,217 (505,851)
----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of (investment in) securities .. (17,253) 473,377
Capital expenditures .............................. (4,551) (16,548)
Payment for acquisition, net of cash acquired ..... (147,078)
----------- -----------
Net cash provided by (used in) investing activities (21,804) 309,751
----------- -----------
FINANCING ACTIVITIES
Payments on loans payable ......................... (47,500) (150,572)
Proceeds from exercise of common stock options .... 1,561
----------- -----------
Net cash used in financing activities ............. (47,500) (149,011)
----------- -----------
Net increase (decrease) in cash
and cash equivalents ............................ 296,913 (345,111)
Cash and cash equivalents at the
beginning of the period ......................... 915,538 557,923
----------- -----------
Cash and cash equivalents at the end of period .... $ 1,212,451 $ 212,812
=========== ===========
SUPPLEMENTARY CASH FLOW DATA:
Taxes paid ........................................ $ 255,000
===========
Noncash investing and financing activities:
Fair value of assets acquired ..................... $ 496,504
Liabilities assumed ............................... (207,341)
Seller financing .................................. (139,163)
-----------
Cash paid ......................................... $ 150,000
===========
See Notes to Condensed Consolidated Unaudited Financial Statements
RF INDUSTRIES, LTD. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Unaudited interim financial statements:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with
the instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month periods ended January 31,
2002 are not necessarily indicative of the results that may be expected for
the year ending October 31, 2002. The unaudited condensed consolidated
financial statements should be read in conjunction with the financial
statements and footnotes thereto included in the Company's annual report on
Form 10-KSB for the year ended October 31, 2001.
Note 2 - Components of inventory
January 31, 2002 October 31, 2001
----------------- ------------------
(Unaudited)
Raw material and supplies ..... $ 763,143 $ 822,180
Finished goods................. 3,725,934 3,923,945
----------- -----------
TOTALS $ 4,489,077 $ 4,746,125
=========== ===========
Note 3 - Earnings (loss) per share:
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share", which requires the presentation of
"basic" and "diluted" earnings per common share, as further explained in
Note 1 of the notes to the audited financial statements of the Company,
included in Form 10-KSB for the fiscal year ended October 31, 2001.
Basic earnings per share is computed by dividing net earnings by the
weighted average number of common stock outstanding during the period.
Diluted earnings per share is computed by dividing net earnings by the
weighted average number of shares of common stock increased by the effects
of assuming that other potentially dilutive securities (such as stock
options) outstanding during the period had been exercised.
The following table summarizes basic and diluted shares:
Three Months Ended
January 31
2002 2001
---------- ----------
Weighted average shares outstanding for
basic net earnings per share .............. 3,409,354 3,402,554
Add effects of potentially dilutive securities-
assumed exercised of stock options ........ 434,412 624,919
--------- ---------
Weighted average shares for diluted net
earnings per share ...................... 3,843,766 4,027,473
========== =========
Note 4 - Segment Information
Net sales and income (loss) before provision for income taxes for the three
months ended January 31, 2002 and 2001 follows:
Intercompany Common/
Connector Neulink Sales Bioconnect Corporate Total
----------- --------- ------------ ------------ ---------- ---------
2002
-----------
Net sales .............. $1,770,750 $349,232 $(105,478) $170,413 $2,184,917
Income (loss) before
provision for income
taxes .............. 212,089 64,480 (167,135) $23,754 133,188
Depreciation and
amortization ........ 23,393 5,001 12,791 41,185
Total assets ........... 8,593,051 1,105,355 109,342 9,807,748
Additions to property
and equipment ....... 3,747 804 4,551
2001
-----------
Net sales .............. $2,053,276 $245,254 $50,071 $2,348,601
Income (loss) before
provision for income
taxes ............... 624,042 (141,294) (67,328) $(4,686) 410,734
Depreciation and
amortization ........ 18,357 3,318 5,436 27,111
Total assets ........... 8,000,742 1,240,142 444,062 9,684,946
Additions to property
and equipment ....... 16,548 16,548
Note 5 - New accounting policy
The Company has elected early adoption of SFAS No. 142, "Goodwill and Other
Intangible Assets", which requires that goodwill and certain intangible
assets, including those recorded in past business combinations, no longer
be amortized against earnings, but instead be tested for impairment at
least annually. The Company believes there isno material impact on the
financial statements.
Item 2: Management's discussion and analysis of financial condition and results
of operations
This report contains forward-looking statements. These statements relate to
future events or the Company's future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "except," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither the
Company, nor any other person, assumes responsibility for the accuracy and
completeness of the forward-looking statements. The Company is under no
obligation to update any of the forward-looking statements after the filing of
this Quarterly Report on Form 10-QSB to conform such statements to actual
results or to changes in its expectations.
The following discussion should be read in conjunction with the Company's
financial statements and the related notes and other financial information
appearing elsewhere in this Form 10-QSB. Readers are also urged to carefully
review and consider the various disclosures made by the Company which attempt to
advise interested parties of the factors which affect the Company's business,
including without limitation the disclosures made under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," under the caption "Risk Factors," and the audited financial
statements and related notes included in the Company's Annual Report filed on
Form 10-KSB for the year ended October 31, 2001 and other reports and filings
made with the Securities and Exchange Commission.
Liquidity and Capital Resources
Management believes that existing current assets and the amount of cash it
anticipates it will generate from current operations will be sufficient to fund
the anticipated liquidity and capital resource needs of the Company for the
fiscal year ending October 31, 2002. The Company does not, however, currently
have any commercial banking arrangements providing for loans, credit facilities
or similar matters should the Company need to obtain additional capital.
Management believes that its existing assets and the cash expected to be
generated from operations will be sufficient during the current fiscal year are
based on the following:
o As of January 31, 2002, the amount of cash, cash equivalents, and
available-for-sale securities was equal to $2,986,756 in the aggregate.
o As of January 31, 2002, the Company had $9,042,859 in current assets, and
only $484,743 of current liabilities
o As of January 31, 2002, the Company had only $41,663 of outstanding
indebtedness (other than accounts payable and other current liabilities).
The Company does not believe it will need material additional capital equipment
in fiscal 2002. In the past, the Company has financed some of its fixed asset
requirements through capital leases. No additional capital equipment purchases
have been currently identified that would require significant additional leasing
or capital obligations during fiscal 2002. Management also believes that based
on the Company's financial condition at January 31, 2002, the absence of
outstanding bank debt and recent operating results, the Company would be able to
obtain bank loans to finance its expansion, if necessary, although there can be
no assurance any bank loan would be obtainable, or if obtained, would be on
favorable terms or conditions.
Net cash provided by operating activities for the first three months of 2002 was
$366,217 whereas cash used in operating activities for the first quarter of 2001
was $505,851. Non cash outlays for inventory deposit write-offs, depreciation
and amortization, and amortization of unearned income for the first quarter were
$64,675 compared to $80,919 the previous year. Trade accounts receivable
increased $76,656 compared to a decrease of $381,308 the previous year. The
increase is due to some slow paying accounts due to our economy. Accounts
payable increased $127,752 compared to an decrease of $217,607 the previous
year. Accrued expenses decreased $70,224 compared to an decrease of $129,602 the
previous year. This is attributable to the Company's good cash position.
Net cash used in investing activities was $21,804 for the first quarter ended
January 31, 2002, and consisted of investments in securities of $17,253 and
capital expenditures of $4,551.
Net cash used in financing activities was $47,500 for the quarter ended January
31, 2002, and consisted of payment on the loan payable to Bioconnect.
As of Janurary 31, 2002 the Company had $1,212,451 in cash and cash equivalents
and $1,774,305 in investments, as compared to $915,538 in cash and cash
equivalents and $1,744,851 in investments at October 31, 2001.
Three Months 2002 vs. Three Months 2001
Net sales decreased 7%, or $163,600, to $2,185,000 from $2,348,600 in the first
three months of fiscal 2002. RF Connectors sales decreased 14% to $1,770,750,
compared to $2,053,300 for the same period last year, due to overall slow down
in our industry. Sales at RF Neulink increased 42% to $349,200 compared to
$245,250 last year. This increase can be attributed to stronger sales in new
application areas. Bioconnect's first quarter sales were $170,400, including
$105,500 in intercompany sales, compared to $50,000 for December and January
last year.
Cost of sales decreased 6%, or $70,000 to $1,150,000 from $1,220,000 last year.
The decrease is due to the decrease in sales.
Engineering expenses increased $48,000, or 41%, from $115,700 last year. This
increase can be attributed to added personnel and expenses associated with the
expansion of our engineering departments to meet the increased business demands
and development of product.
Selling and general expenses increased 18% or $118,400, to $770,000 from
$651,600 last year. The increase is due to increased travel, advertising,
insurance expenses and development of a new catalog.
Net interest income decreased $7,700 to $23,800 from $31,500 the previous year.
Commissions for the Neulink divisions sales were $8,200 compared to $18,000.
MATERIAL CHANGES IN FINANCIAL CONDITION:
Cash increased $296,913 to $1,212,451 compared to the October 31, 2001 fiscal
year balance of $915,538. Cash and investments are $ 2,986,756 at January 31,
2002.
Trade accounts receivable increased $76,656, or 8% to $1,058,459 compared to the
October 31, 2001 balance of $981,803. This increase is due to some slow-down in
payment habits of a few customers.
Inventories, as of January 31, 2002 were $4,489,077, as $257,048 decrease from
$4,746,125 on October 31, 2001. As part of its business strategy, and because of
its off-shore manufacturing arrangements, the Company normally maintains a high
level of inventory. Due to an overall slow-down in our industry, inventory
levels are decreasing to maintain the correct level of customer demand.
Other current assets, including prepaid expenses and deposits, increased $69,800
to $181,000, from $111,200 on October 31, 2001. This increase is due the annual
invoice for accounting and insurance expenses that are expensed throughout the
year, but invoiced in the first quarter as a prepaid expense.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2-5 Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Description
None
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RF INDUSTRIES, LTD.
Dated: March 17, 2002 By: /s/ Howard F. Hill
------------------------------
Howard F. Hill, President
Chief Executive Officer
Dated: March 17, 2002 By: /s/ Terrie A. Gross
------------------------------
Terrie A. Gross
Chief Financial Officer