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, 2001
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., Bldg. 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, 2001, the registrant had 3,403,054 shares of Common Stock,
$.01 par value, issued and outstanding.
Transitional small business disclosure format
Yes No X
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS RF INDUSTRIES, LTD.
AND SUBSIDIARY
CONDENSED CONSOLIDATED
BALANCE SHEET
January 31 October 31
2001 2000
------------ -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................ $ 212,812 $ 557,923
Investments in available-for-sale securities ..... 1,714,420 2,208,558
Trade accounts receivable, net of allowance
for doubtful accounts of $42,000 ................. 978,670 1,313,935
Notes receivable ................................. 12,000 12,000
Inventories ...................................... 5,064,567 4,165,242
Other current assets ............................. 196,248 174,779
Deferred tax assets .............................. 166,000 166,000
---------- ----------
TOTAL CURRENT ASSETS ........................ 8,344,717 8,598,437
PROPERTY AND EQUIPMENT
Furniture and tooling ............................ 936,373 733,150
Furniture and office equipment ................... 192,048 190,867
---------- ----------
Fixed assets, at cost ....................... 1,128,421 924,017
Less accumulated depreciation ............... 630,334 605,164
---------- ----------
NET FIXED ASSETS ............................ 498,087 318,853
Intangible assets ................................ 174,698 0
Less amortization reserve ........................ 1,941 0
---------- ----------
NET INTANGIBLE ASSETS ....................... 172,757 0
Note receivable from stockholder ................. 70,000 70,000
Deferred tax assets .............................. 94,000 94,000
Other assets ..................................... 11,471 11,471
---------- ----------
TOTAL ASSETS ................................ $9,191,032 $9,092,761
========== ==========
See Notes to Condensed Consolidated Unaudited Financial Statements
2
RF INDUSTRIES, LTD.
AND SUBSIDIARY
CONDENSED CONSOLIDATED
BALANCE SHEET
January 31 October 31
2001 2000
------------ -----------
(Unaudited)
LIABILITIES AND
STOCKHOLDERS' EQUITY
-------------------------
CURRENT LIABILITIES
Accounts payable ............................... $ 213,909 $ 403,530
Line of credit and notes payable ............... 167,902 0
Accrued expenses ............................... 383,628 513,186
----------- -----------
TOTAL LIABILITIES ........................ 765,439 916,716
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock - authorized 10,000,000 shares
of $.01 par value; 3,403,054 and
3,402,054, respectively shares issued ......... 34,031 34,021
Additional paid-in capital ..................... 4,687,712 4,686,161
Retained earnings .............................. 3,914,101 3,668,867
Unearned compensation .......................... (94,032) (117,546)
Accumulated other comprehensive loss ........... (61,651) (40,890)
Receivables from sale of stock ................. (1,715) (1,715)
Treasury stock, at cost - 29,400 shares ........ (52,853) (52,853)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ................ 8,425,593 8,176,045
----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY ................... $ 9,191,032 $ 9,092,761
=========== ===========
See Notes to Condensed Consolidated Unaudited Financial Statements
3
ITEM 1: FINANCIAL STATEMENTS (continued)
RF INDUSTRIES, LTD.
AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
January 31
------------------------
2001 2000
----------- ----------
INCOME:
Net Sales .......................................... $ 2,348,601 $ 1,760,526
Cost of Sales ...................................... 1,220,164 845,255
---------- ----------
Gross profit ..................................... 1,128,437 915,271
---------- ----------
Operating expenses:
Engineering ..................................... 115,729 65,481
Selling and general ............................. 651,555 508,726
---------- ----------
Totals .................................... 767,284 574,207
---------- ----------
Operating income ................................... 361,153 341,064
---------- ----------
Other income:
Commissions ................................... 18,073 0
Interest ...................................... 31,508 30,559
---------- ----------
Totals .................................. 49,581 30,559
---------- ----------
Income before provision for income tax ............. 410,734 371,623
Provision for income tax ........................... 165,500 150,000
---------- ----------
Net income ......................................... $ 245,234 $ 221,623
========== ==========
Basic earnings per share ........................... $ 0.07 $ 0.07
========== ==========
Diluted earnings per share ......................... $ 0.06 $ 0.06
========== ==========
Basic weighted average shares outstanding .......... 3,402,554 3,148,648
========== ==========
Diluted weighted average shares outstanding ........ 4,027,473 3,707,526
========== ==========
COMPREHENSIVE INCOME:
Net income ......................................... $ 245,234 $ 221,623
Unrealized loss on available-for-sale securities ... 20,761 0
---------- ----------
Total comprehensive income ................... $ 265,995 $ 221,623
========== ==========
See Notes to Condensed Consolidated Unaudited Financial Statements
4
ITEM 1: FINANCIAL STATEMENTS (continued)
RF INDUSTRIES, LTD.
AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
January 31
------------------------
2001 2000
--------- ---------
OPERATING ACTIVITIES
Net income ....................................................... $ 245,234 $ 221,623
Adjustments to reconcile net income
to net cash provided by (used in) operations
Inventory deposit write-offs ................................ 30,294 0
Depreciation and amortization ............................... 27,111 14,149
Amortization of unearned compensation ....................... 23,514 23,514
Changes in operating assets and liabilities, net of
acquisition payment:
Trade accounts receivable .............................. 381,308 62,895
Inventories ............................................ (859,369) (216,061)
Other assets ........................................... (6,734) 2,610
Accounts payable ....................................... (217,607) 93,653
Accrued expenses ....................................... (129,602) 87,278
----------- -----------
Net cash provided by (used in) operating activities ........ (505,851) 289,661
----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of (investment in) securities ........... 473,377 (14,592)
Capital expenditures ....................................... (16,548) (48,431)
Payment for acquisition, net of cash acquired .............. (147,078) 0
----------- -----------
Net cash provided by (used in) investing activities ........ 309,751 (63,023)
----------- -----------
FINANCING ACTIVITIES
Payments on loans payable .................................. (150,572) 0
Proceeds from exercise of common stock options ............. 1,561 0
----------- -----------
Net cash used in financing activities ...................... (149,011) 0
----------- -----------
Net increase in cash
and cash equivalents ..................................... (345,111) 226,638
Cash and cash equivalents at the
beginning of the period .................................. 557,923 1,100,816
----------- -----------
Cash and cash equivalents at the end of period .............. $ 212,812 $ 1,327,454
=========== ===========
SUPPLEMENTARY CASH FLOW DATA:
Taxes paid .................................................. $ 255,000 0
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
5
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, 2001
are not necessarily indicative of the results that may be expected for
the year ending October 31, 2001. 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, 2000.
Note 2 - The merger and other matters
On December 1, 2000, the Company acquired all the outstanding stock of
Bioconnect, Inc. for a total consideration of $289,163, of which
$89,163 was financed by seller.
The acquisition has been accounted for pursuant to the purchase method
and, accordingly, the net assets acquired were recorded at estimated
fair values on the date of acquisition. A summary of the allocation of
the cost of the acquisitions to the net assets acquired follows:
Cash ................................. $ 2,922
Accounts receivable .................. 76,337
Inventory ............................ 39,956
Property and equipment ............... 187,855
Intangibles and other assets ......... 189,434
---------
Total assets acquired ................ 496,504
Accounts payable and other liabilities (207,341)
---------
Net assets acquired .................. $ 289,163
=========
The condensed consolidated financial statements include the accounts
of RF INDUSTRIES, LTD. (the "Parent") and its wholly-owned subsidiary,
Bioconnect, Inc. (collectively, the "Company"). All significant
intercompany accounts and
6
transactions are eliminated in consolidation.
Note 3 - Components of inventory
January 31 October 31
2001 2000
---------- ----------
(Unaudited) (Audited)
Raw material and supplies... $ 876,170 $ 559,786
Finished goods ............. 4,188,397 3,605,456
---------- ----------
TOTAL ..................... $5,064,567 $4,165,242
========== ==========
Note 4 - Earnings (loss) per share:
Effective October 31, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, Earnings per
Share, which requires the presentation of "basic" and "diluted"
earnings (loss) 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, 2000.
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.
Note 5 - Segment Information
Net sales and income (loss) before provision for income taxes for the
three months ended January 31, 2001 and 2000 follows:
Common/
Connector Neulink Bioconnect Corporate Total
----------- ---------- ------------ ----------- ---------
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
2000
------
Net sales ................ $ 1,614,266 $ 146,260 $ 1,760,526
Income (loss) before
provision for income
taxes ................ 434,313 (62,690) 371,623
8
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, 2000 and other reports and filings
made with the Securities and Exchange Commission.
Liquidity and Capital Resources
Management believes that cash generated from operations will be sufficient to
fund the anticipated growth of the Company in fiscal 2001. Management believes
that any financing requirements can be met through a combination of cash and
investments held as of January 31, 2001, internally generated cash flow and
advance payments from customers. The Company does not currently have any
commercial banking arrangements providing for loans, credit facilities or
similar matters.
The Company does not believe it will need material additional capital equipment
in fiscal 2001. In the past, the Company has financed some of its fixed asset
requirements through capital leases. No additional capital equiment purchases
have been currently identified that would require significant additional leasing
or capital obligations during fiscal 2001. Management also believes that based
on the Company's financial condition at January 31, 2001, 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.
9
Net cash used in operating activities for the first three months of fiscal 2001
was $505,851 whereas cash provided by operating activities for the first quarter
ended January 31, 2000 was $289,661. Non cash outlays for inventory deposit
write-offs, depreciation and amortization, and amortization of unearned income
for the first three months of 2001 were $80,919 compared to $37,664 the previous
year, an increase of $43,255. Inventories increased $889,663, and other assets
increased $6,734 in the first quarter of 2001. Trade accounts receivable
decreased by $381,308. Accounts payable and accrued expenses increased by
$347,209.
Net cash provided by investing activities was $309,751 during the first quarter
ended January 31, 2001, compared to $63,023 used in the previous year. Current
year investing activities included capital expenditures of $16,548 and payment
for acquisition of Bioconnect of $147,078. Proceeds from sale of securities was
$473,377.
Net cash used in financing activities was $149,011 for the first quarter ended
January 31, 2001, and consisted of proceeds from exercise of stock options of
$1,561 and payments on loans payable of $150,572.
As of Janurary 31, 2001 the Company had $212,812 in cash and cash equivalents
and $1,714,420 in investments, as compared to $557,923 in cash and cash
equivalents and $2,208,558 in investments at October 31, 2000.
Three Months 2001 vs. Three Months 2000
Net sales increased 33%, or $588,075, to $2,348,601 from $1,760,526 in the first
three months of fiscal 2001. RF Connectors sales increased 27% to $2,053,276,
compared to $1,614,266 for the same period last year, due to continuing strong
order rates for coax connectors and cable assemblies. Sales at RF Neulink
increased 68% to $245,254 compared to $146,260 last year. This increase can be
attributed to stronger sales in new application areas. Bioconnect's first
quarter sales were $50,071. Cost of sales increased 44%, or $374,909 to
$1,220,164 from $845,255 last year. The increase is due to the increased sales.
Engineering expenses increased $50,248, or 77%, from $65,481 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.
Selling and general expenses increased 28% or $142,829, to $651,555 from
$508,726 last year. The increase is due to increased travel, advertising, and
insurance expenses. As a percent of sales, selling and administrative expenses
declined to 28% from 29% due to the increase in sales.
Net interest income increased $949 to $31,508 from $30,559 the previous year.
Commissions for the Neulink divisions sales were $18,073. This is the first time
we have earned any income from commissions.
10
MATERIAL CHANGES IN FINANCIAL CONDITION:
Cash decreased $345,111 to $212,812 compared to the October 31, 2000 fiscal year
balance of $557,923. Cash and investments are $1,927,232 at January 31, 2001.
Trade accounts receivable decreased $335,265, or 26% to $978,670 compared to the
October 31, 2000 balance of $1,313,935. This decrease is due to the continued
collection efforts.
Inventories increased $889,663 compared to October 31, 2000 inventory levels.
This increase is in response to the current demand and the anticipated backlog
requirements, and includes $37,500 in Bioconnect inventory.
Other current assets, including prepaid expenses and deposits, increased
$21,469, to $196,248, from $174,779 on October 31, 2000. This increase is due
the annual invoice for accounting expenses that is expensed throughout the year,
but is invoiced in the first quarter as a prepaid expense. There are also the
added Bioconnect deposits for their building and equipment.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In August 2000, the Company was notified that the Securities and Exchange
Commission ("SEC") issued a formal order of investigation to determine whether
violations of certain aspects of the federal securities laws may have occurred
in connection with matters related to the Company. The formal order of
investigation indicates that the SEC is examining the conduct of persons or
entities, including the Company, who may have made improper statements regarding
the Company's order backlog, manufacturing and design capabilities, and
ownership of the Company's stock. The SEC is also examining whether the
Company's filings with the SEC may have contained improper statements
concerning, among other things, the Company's financial condition and results of
operations.
The SEC has indicated that this investigation is a fact-finding inquiry and
should not be construed as a conclusion by the SEC or its staff that any
violation of law has occurred or that the SEC or its staff has a negative
opinion of any person, entity or security. The Company is cooperating with the
SEC in connection with this investigation and its outcome cannot yet be
determined.
Items 2-5 Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Description
2.1 Agreement of Purchase and Sale of Stock dated as
of December 1, 2000 between the Company and
Richard Roberts, Leonard Malena, Phillip Booker,
and Richard R. Roberts, Inc.dba Bioconnect, Inc.
10.1 2000 Stock Option Plan
10.2 Terrie Gross Employment Agreement made as of
November 5, 1999
(b) Reports on Form 8-K
None
11
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 26, 2001 By: Howard F. Hill
-----------------------------
Howard F. Hill, President
Chief Executive Officer
Dated: March 26, 2001 By: Terrie A. Gross
-----------------------------
Terrie A. Gross
Chief Financial Officer