SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FOR 10-QSB
Quarterly Report Under Section 13 or 15 (d) of
Securities Exchange Act of 1934
for Quarter ended July 31, 2000
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
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant (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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of July 31, 2000, the registrant had 3,402,054 shares of Common Stock, $.01
par value, issued and outstanding.
1
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1: Financial Statements CONDENSED BALANCE SHEET
July 31 October 31
2000 1999
ASSETS ----------- ----------
---------------------- (Unaudited) (Note 1)
CURRENT ASSETS
Cash and cash equivalents ............................ $1,030,523 $1,100,816
Investments in available-for-sale securities ......... 2,217,289 2,043,959
Trade accounts receivable less allowance
for doubtful accounts of $42,000 ..................... 768,099 757,665
Notes receivable ..................................... 12,000 12,000
Inventories .......................................... 3,496,801 2,413,123
Prepaid expenses and deposits ........................ 287,693 247,391
.
Deferred tax assets .................................. 74,000 74,000
---------- ----------
TOTAL CURRENT ASSETS ............................ 7,886,405 6,648,954
PROPERTY AND EQUIPMENT
Furniture and office equipment ....................... 184,002 184,002
Equipment and tooling ................................ 675,380 481,768
---------- ----------
Property and equipment, at cost ................. 859,382 665,770
Less accumulated depreciation and amortization ....... 583,587 530,935
---------- ----------
NET PROPERTY AND EQUIPMENT ...................... 275,795 134,835
Note receivable from stockholder ..................... 70,000 70,000
Deferred tax assets .................................. 78,000 78,000
Other assets ......................................... 11,471 4,900
---------- ----------
TOTAL ASSETS .................................... $8,321,671 $6,936,689
========== ==========
See Notes to Condensed Financial Statements
2
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CONDENSED BALANCE SHEET
July 31 October 31
2000 1999
----------- ----------
(Unaudited) (Note 1)
LIABILITIES AND
STOCKHOLDER'S EQUITY
-----------------------------
CURRENT LIABILITIES
Accounts payable .................................... $ 274,202 $ 88,496
Accrued expenses .................................... 465,028 357,843
----------- -----------
TOTAL LIABILITIES ............................ 739,230 446,339
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock - $.01 par value
Authorized 10,000,000 shares
Issued 3,402,054 and 3,148,598 shares ............ 34,021 31,486
Additional paid-in capital ......................... 4,686,161 4,400,868
Retained earnings .................................. 3,231,430 2,348,351
Unearned compensation .............................. (141,060) (211,602)
Receivables from sale of stock ..................... (175,258) (25,900)
Treasury stock, at cost (29,400 shares)............ (52,853) (52,853)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ................... 7,582,441 6,490,350
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ..................... $ 8,321,671 $ 6,936,689
=========== ===========
See Notes to Condensed Financial Statements
3
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CONDENSED STATEMENTS OF INCOME
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
---------------------- ----------------------
2000 1999 2000 1999
---------- --------- --------- ----------
Net sales .................. $2,311,667 $1,598,851 $5,964,646 $4,421,668
Cost of sales .............. 1,091,539 618,884 2,802,631 2,028,026
---------- ---------- ---------- ----------
Gross profit ............... 1,220,128 979,967 3,162,015 2,393,642
---------- ---------- ---------- ----------
Operating expenses:
Engineering ........... 83,153 73,065 221,744 213,564
Selling and general ... 535,272 441,912 1,565,415 1,290,000
---------- ---------- ---------- ----------
Totals .............. 618,425 514,977 1,787,159 1,503,564
---------- ---------- ---------- ----------
Operating income ........... 601,703 464,990 1,374,856 890,078
Interest income ............ 33,097 31,041 97,223 94,350
---------- ---------- ---------- ----------
Income before provision
for income taxes ...... 634,800 496,031 1,472,079 984,428
Provision for income taxes.. 254,000 202,000 589,000 398,000
---------- ---------- ---------- ----------
Net income ................. $ 380,800 $ 294,031 $ 883,079 $ 586,428
========== ========== ========== ==========
Basic earnings per share ... $ .11 $ .10 $ .27 $ .19
========== ========== ========== ==========
Diluted earnings per share.. $ .10 $ .08 $ .24 $ .16
========== ========== ========== ==========
Basic weighted average
shares outstanding ..... 3,402,054 3,093,581 3,299,085 3,083,745
========== ========== ========== ==========
Diluted weighted average
shares outstanding ...... 3,735,175 3,593,581 3,708,455 3,583,745
========== ========== ========== ==========
See Notes to Condensed Financial Statements
4
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<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended July 31
----------------------------
OPERATING ACTIVITIES 2000 1999
----------- -----------
<S> <C> <C>
Net income .................................................. $ 883,079 $ 586,428
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization .......................... 52,652 45,971
Amortization of unearned compensation .................. 70,542 80,406
Changes in operating assets and liabilities:
Trade accounts receivable ......................... (10,434) 161,018
Inventories ....................................... (1,083,678) 81,493
Other assets ...................................... (46,873) (4,386)
Accounts payable .................................. 185,706 (69,078)
Accrued expenses .................................. 107,185 (159,781)
----------- -----------
Net cash provided by operating activities ................ 158,179 722,071
----------- -----------
INVESTING ACTIVITIES
Purchase of available-for-sale securities .......... (173,330) (895,022)
Capital expenditures ............................... (193,612) (24,784)
----------- -----------
Net cash used in financing activities ...................... (366,942) (919,806)
----------- -----------
FINANCING ACTIVITIES
Purchase of 29,400 treasury stock ................. (52,853)
Proceeds from exercise of 162,220 and 70,000
common stock options ............................ 138,470 27,700
----------- -----------
Net cash provided by (used in) financing activities ........ 138,470 (25,153)
----------- -----------
Net decrease in cash and cash equivalents .................. (70,293) (222,888)
Cash and cash equivalents at the
beginning of the period ............................... 1,100,816 1,209,143
----------- -----------
Cash and cash equivalents at the end of period ............. $ 1,030,523 $ 986,255
=========== ===========
</TABLE>
See Notes to Condensed Financial Statements
5
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1 - Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited condensed financial
statements reflect all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position of RF Industries, Ltd. (the
"Company") as of July 31, 2000, and its results of operations for the three and
nine months ended July 31, 2000 and 1999, and cash flows for the nine months
ended July 31, 2000 and 1999. Information included in the condensed balance
sheet as of October 31, 1999 has been derived from, and certain terms used
herein are defined in, the audited financial statements of the Company as of
October 31, 1999 and for the years ended October 31, 1999 and 1998 (the "Audited
Financial Statements") included in the Company's Annual Report on Form 10-KSB
(the "10-KSB") for the year ended October 31, 1999 that was previously filed
with the Securities and Exchange Commission (the "SEC"). Pursuant to the rules
and regulations of the SEC, certain information and disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from these financial
statements unless significant changes have taken place since the end of the most
recent fiscal year. Accordingly, these unaudited condensed financial statements
should be read in conjunction with the Audited Financial Statements and the
other information also included in the 10-KSB.
Note 2 - Interim results
The results of operations for the three month and nine month periods ended July
31, 2000 and 1999 are not necessarily indicative of the results to be expected
for the remainder of the year.
Note 3 - Components of inventory
July 31, 2000
--------------------
(Unaudited)
Raw material and supplies ......... $ 437,101
Finished goods..................... 3,059,700
--------------
TOTAL............................. $ 3,496,801
==============
Note 4 - Segment information
As further explained in Note 6 of the notes to the Audited Financial Statements,
the Company reports segment sales in the same format reviewed by the Company's
management (the "management approach"). Management identifies the Company's
segments based on strategic business units that are, in turn, based along market
lines. These strategic business units offer products and services to different
markets in accordance with their customer base and product usage. Accordingly,
the Company's two business segments are centered on the operations associated
with the RF CONNECTOR Division and the NEULINK Division.
Net sales and other related segment information for the three and nine month
periods ended July 31, 2000 and 1999 as follows:
6
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Three months ended July 31, Connector Neulink Total
----------- ----------- ---------
2000
------------
Net sales ........................... $2,118,336 $ 193,331 $2,311,667
Income (loss) before
provision for income taxes........... 790,042 (155,242) 634,800
1999
----------
Net sales ............................ $1,316,153 $ 282,698 $1,598,851
Income before
provision for income taxes............ 401,898 94,133 496,031
Nine months ended July 31,
2000
--------
Net sales ............................ $5,490,785 $ 473,861 $5,964,646
Income (loss) before
provision for income taxes............ 1,650,258 (178,179) 1,472,079
1999
--------
Net sales ............................ $3,554,698 $ 866,970 $4,421,668
Income before
provision for income taxes............ 925,676 58,752 984,428
Note 5 - Stock options:
The Company's stock option plans are described in Note 8 of the notes to the
Audited Financial Statements. The number of shares subject to options as of
November 1, 1999 and July 31, 2000 and the changes in the number of shares
subject to options during the nine months ended July 31, 2000 is set forth
below:
Number of Range of
Shares Exercise Price
----------- --------------
Options outstanding, November 1, 1999.............. 917,233 $.10 - $5.75
Granted ........................................... 100,000 $ 1.50
Exercised (A) ..................................... (253,456) $.10 - $5.75
------------
Options outstanding, July 31, 2000 ................ 763,777 $.10 - $5.75
============ ============
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(A) The Company received total consideration of $287,828 from the exercise of
the options of which $130,020 was paid in cash and $157,808 was paid through the
issuance of notes. The issuance of shares in exchange for notes is a noncash
transaction that is not reflected in the accompanying condensed statement of
cash flows for the nine months ended July 31, 2000. The remaining notes will
mature at various dates through October 31, 2000.
Note 6 - Earnings per share:
The Company presents basic earnings per share and, if appropriate, diluted
earnings per share as further explained in Note 1 of the notes to the Audited
Financial Statements. The following table summarizes the calculation of basic
and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31 July 31
--------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerators:
Net income (A) ............................. $ 380,800 $ 294,031 $ 883,079 $ 586,428
========== ========== ========== ==========
Denominators:
Weighted average shares outstanding for
basic net earnings per share (B) .......... 3,402,054 3,093,581 3,299,085 3,083,745
Add effects of potentially dilutive securities-
assumed exercise of stock options ....... 333,121 500,000 409,370 500,000
---------- ---------- ---------- ----------
Weighted average shares for diluted net
earnings per share (C) ................. 3,735,175 3,593,581 3,708,455 3,583,745
========== ========== ========== ==========
Basic net earnings per share (A) / (B) ........... .11 .10 .27 .19
========== ========== ========== ==========
Diluted net earnings per share (A) / (C) ......... .10 .08 .24 .16
========== ========== ========== ==========
</TABLE>
8
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Note 7 - Lease commitments:
Effective June 1, 2000, the Company entered into a new lease for its facilities
in San Diego, California. The lease expires in May 2005 and requires minimum
annual rental payments that are subject to fixed annual increases.
Minimum lease payments under this lease for the years ending October 31, 2000
and thereafter are as follows:
Year Ending
October 31,
----------------------
2000 $ 49,000
2001 120,000
2002 124,000
2003 129,000
2004 135,000
2005 80,000
--------------
Total $ 637,000
=========
Item 2: Management's discussion and analysis of financial condition and results
of operations
This report on Form 10-QSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company intends that such forward-looking
statements be subject to the safe harbors created thereby. This report should be
read in conjunction with the Company's report on Form 10-KSB for the year ended
October 31, 1999.
Three Months 2000 vs. Three Months 1999
Net sales increased 45%, or $712,816, to $2,311,667from $1,598,851 last year. RF
Connectors sales increased $806,991, or 61% to $2,118,336, compared to
$1,316,153 last year. The increase is due primarily to higher Cable Assembly
sales and increased sales of coaxial connectors. Sales at RF Neulink decreased
32% to $193,331 compared to $282,698 last year.
Cost of sales increased $472,655, or 76%, to $1,091,539 from $618,884 last year.
As a percent of sales, cost of sales increased to 47% from 39% last year. Cost
of sales, which was unusually low in the third quarter last year due to a highly
favorable product mix, returned to its typical range of 45% - 50% for the third
quarter this year.
Engineering expenses increased $10,088, or 14%, to $83,153 from $73,065 last
year. As a percent of sales, engineering expenses declined to 4% from 5% of
sales last year. The decline as a percent of sales is attributable primarily to
record sales in the quarter.
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<PAGE>
Selling and general expenses increased $93,360, or 21%, to $535,272 from
$441,912 last year. The increase is due primarily to higher travel, advertising
and insurance expenses. As a percent of sales, selling and administrative
expenses declined to 23% from 28% due to record quarterly sales.
Interest income increased $2,056 to $33,097 from $31,041 last year due primarily
to higher average cash balances and higher interest rates earned on cash and
invested securities.
Income before taxes increased $138,769, or 28%, to $634,800 from $496,031 last
year. The increase is due primarily to higher gross profits due to the record
sales.
Net income increased $86,769, or 30%, to $380,800 from $294,031 last year. As a
percent of sales, the net margin was 16% compared to 18% last year. Net income
last year benefitted from unusually strong gross margins due to a very favorable
product mix for the quarter.
Per share earnings were $0.11, comparted to $0.10 last year. Basic and diluted
weighted average shares outstanding increased 10% to 3,402,054, compared to
3,093,581 last year, and 4% to 3,735,175, compared to 3,593,581 last year,
respectively. The increase in basic weighted average shares outstanding is
primarily due to the exercise of 253,456 stock options during the second and
third quarters of fiscal 2000.
Nine Months 2000 vs. Nine Months 1999
Net sales increased $1,542,978, or 35%, to a nine month record $5,964,646 from
$4,421,668 for the same period last year. RF Connectors sales increased 54% to a
nine month record $5,490,785 from $3,554,698 last year. Connector record sales
are due to the growing wireless industry, the addition of new distributors, new
products and the growing cable assembly program. Neulink sales were $473,861,
down 45% from $866,970 in the same period last year. Neulink is being
repositioned as a Value-Added distributor of wireless modem solutions.
Cost of sales increased $774,605, or 38%, to $2,802,631 from $2,028,026 last
year. As a percent of sales, cost of sales increased to 47% of sales from 46%
last year. Cost of sales were unusually low in the third quarter last year,
contributing to the lower expenses for the comparable nine month period.
Engineering expenses increased $8,180, or 4%, to $221,744 from $213,564 last
year. As a percent of sales, engineering expenses declined to 4% compared to 5%
of sales due to record sales.
Selling and general expenses increased $275,415, or 21%, to $1,565,415 compared
to $1,290,000 last year. The increase is due primarily to higher expenses for
travel, advertising, insurance and trade shows. Selling and general expenses
decreased, as a percentage of sales, to 26% from 29% for the same period last
year in response to the Company's record sales.
Interest income increased $2,873 to $97,223 from $34,350 last year due primarily
to higher overall cash and cash equivalent balances and higher interest rates
earned.
Income before taxes increased $487,651, or 50%, to $1,472,079 from $984,428 last
year. The increase is attributable primarily to higher gross profits related to
record sales.
10
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The provision for taxes was approximately 40% in both periods.
Net income increased $296,651, or 50%, to $883,079 from $586,428 last year. As a
percent of sales, the net margin was 15% compared to 13% last year. The increase
in net margins is due primarily to higher gross profits from the Company's
record sales.
Per share earnings were $0.27, compared to $0.19 last year. Basic and diluted
weighted average shares outstanding increased 7% to 3,299,085, compared to
3,083,745 last year and 3% to 3,708,455, compared to 3,583,745 last year,
respectively. The increase in shares outstanding is due to the exercise of
253,406 stock options during the first nine months of fiscal 2000.
Material changes in financial condition:
Cash decreased $70,293 to $1,030,523 compared to the October 31, 1999 fiscal
year end balance of $1,100,816. Cash and cash equivalents increased $103,037 to
$3,247,812 at July 31, 2000, compared to $3,144,775 at October 31, 1999. Cash
was used primarily to acquire new equipment for the growing Cable assembly
business and to expand inventories to support the Company's record sales levels
and growing distributor base. The Company also transferred additional cash into
the investment account.
Trade accounts receivable increased $10,434, or 1% to $768,099 compared to the
October 31, 1999 balance of $757,665. This minor increase is attributable to a
higher sales rate in the first nine months of fiscal 2000.
Inventories increased $1,083,678, to $3,496,801, compared to the October 31,
1999 inventory of $2,413,123. This increase is necessary to support new
distributors and record sales levels.
Prepaid deposits and expenses increased $40,302 compared to the October 31, 1999
balance of $247,391. The increase is due primarily to the Company prepaying
insurance for cargo shipments.
Increased capital expenditures for property and equipment reflect higher levels
of equipment and tooling, which increased $193,612 to $675,380 at July 31, 2000
from $481,768 at October 31, 1999. This increase is primarily for production
equipment to support the Company's growing cable assembly business.
Current liabilities increased $292,891 to $739,230 at July 31, 2000 from
$446,339 at October 31, 1999. This is primarily due to a $185,706 increase in
accounts payable to $274,202 at July 31, 2000 compared to $88,496 at October 31,
1999. This increase is due to higher expenses for inventory and other costs
connected with the Company's rapid sales growth.
11
<PAGE>
PART II. OTHER INFORMATION
Items 1-4: Not applicable
Item 5: Information required in lieu of Form 8-K
None.
Item 6: Exhibits and Reports on 8-K
(a) None required
(b) Reports on Form 8-K
No reports on Form 8-K were filed during fiscal
quarter ended July 31, 2000.
12
<PAGE>
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: September 12, 2000 By: /s/ Howard F. Hill
-----------------------------------
Howard F. Hill, President
Chief Executive Officer
Dated: September 12, 2000 By: /s/ Terrie A. Gross
-----------------------------------
Terrie A. Gross
Chief Financial Officer
13
