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 April 30, 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 April 30, 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
April 30 October 31
2000 1999
----------- -----------
ASSETS (Unaudited) (Note 1)
CURRENT ASSETS
Cash ................................................ $ 879,077 $1,100,816
Investments in available-for-sale securities ........ 2,195,020 2,043,959
Trade accounts receivable less allowance
for doubtful accounts of $42,000 .................... 828,652 757,665
Notes receivable .................................... 12,000 12,000
Inventories ......................................... 3,092,935 2,413,123
Prepaid expenses and deposits ....................... 265,456 247,391
Deferred tax assets ................................. 74,000 74,000
---------- ----------
TOTAL CURRENT ASSETS ........................... 7,347,140 6,648,954
PROPERTY AND EQUIPMENT
Furniture and office equipment ...................... 181,510 184,002
Equipment and tooling ............................... 666,200 481,768
---------- ----------
Property and equipment, at cost ............. 847,710 665,770
Less accumulated depreciation and amortization ...... 562,994 530,935
---------- ----------
NET PROPERTY AND EQUIPMENT ..................... 284,716 134,835
Note receivable from stockholder .................... 70,000 70,000
Deferred tax assets ................................. 78,000 78,000
Other assets ........................................ 4,900 4,900
---------- ----------
TOTAL ASSETS ................................... $7,784,756 $6,936,689
========== ==========
See Notes to Condensed Financial Statements
2
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CONDENSED BALANCE SHEET
April 30 October 31
2000 1999
----------- -----------
(Unaudited) (Note 1)
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------------
CURRENT LIABILITIES
Accounts payable ................................... $ 194,536 $ 88,496
Accrued expenses ................................... 420,542 357,843
----------- -----------
TOTAL LIABILITIES ............................ 615,078 446,339
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock - $.01 par value
Authorized - 10,000,000 shares
Issued and outstanding 3,402,054 and
3,148,59 shares................................. 34,021 31,486
Additional paid-in capital ......................... 4,686,161 4,400,868
Retained earnings .................................. 2,850,631 2,348,351
Unearned compensation .............................. (164,574) (211,602)
Receivables from sale of stock ..................... (183,708) (25,900)
Treasury stock, at cost (29,400 shares) ............ (52,853) (52,853)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ................... 7,169,678 6,490,350
----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY ...................... $ 7,784,756 $ 6,936,689
=========== ===========
See Notes to Condensed Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
----------------------- ----------------------
2000 1999 2000 1999
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net sales ................................... $1,892,453 $1,492,019 $3,652,979 $2,822,817
Cost of sales ............................... 865,837 747,537 1,711,092 1,409,142
---------- ---------- ---------- ----------
Gross Profit ........................... 1,026,616 744,482 1,941,887 1,413,675
---------- ---------- ---------- ----------
Operating expenses:
Engineering ............................ 73,110 74,905 138,591 140,498
Selling and general .................... 521,417 436,269 1,030,143 848,089
---------- ---------- ---------- ----------
Total ................................ 594,527 511,174 1,168,734 988,587
---------- ---------- ---------- ----------
Operating income ....................... 432,089 233,308 773,153 425,088
Interest income ............................. 33,568 31,861 64,127 63,309
---------- ---------- ---------- ----------
Income before provision
for income taxes ....................... 465,657 265,169 837,280 488,397
Provision for
income taxes ........................... 185,000 107,000 335,000 196,000
---------- ---------- ---------- ----------
Net income ............................. $ 280,657 $ 158,169 $ 502,280 $ 292,397
========== ========== ========== ==========
Per share data:
Basic earnings per share ............... $ 0.08 $ 0.05 $ 0.15 $ 0.09
========== ========== ========== ==========
Diluted earnings per share ............. $ 0.08 $ 0.04 $ 0.14 $ 0.08
========== ========== ========== ==========
Basic weighted average
shares outstanding ................ 3,343,838 3,078,598 3,247,035 3,078,598
========== ========== ========== ==========
Diluted weighted average
shares outstanding.................. 3,705,794 3,578,598 3,685,798 3,578,598
========== ========== ========== ==========
</TABLE>
See Notes to Condensed Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
April 30
---------------------
OPERATING ACTIVITIES 2000 1999
-------- --------
<S> <C> <C>
Net income ............................................... $ 502.280 $ 292,397
Adjustments to reconcile net income
to net cash provided by (used in) operations
Depreciation and amortization ....................... 32,059 19,724
Amortization of unearned compensation ............... 47,028 56,892
Changes in operating assets and liabilities:
Trade accounts receivable ...................... (70,987) 166,001
Inventories .................................... (679,812) 136,505
Other assets ................................... (18,065) 58,188
Accounts payable ............................... 106,040 (135,681)
Accrued expenses ............................... 62,699 (209,323)
----------- -----------
Net cash provided by (used in) operating activities .... (18,758) 384,703
----------- -----------
INVESTING ACTIVITIES
Purchase of available-for-sale securities ....... (151,061) (37,102)
Capital expenditures ............................ (181,940) (12,841)
----------- -----------
Net cash used in investing activities ................... (333,001) (49,943)
----------- -----------
FINANCING ACTIVITIES
Purchase of treasury stock ..................... 0 (52,853)
Proceeds from exercise of common stock options.. 130,020 0
----------- -----------
Net cash provided by (used in) financing activities ..... 130,020 (52,853)
----------- -----------
Net increase (decrease) in cash and cash equivalents.. (221,739) 281,907
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 .......... $ 879,077 $ 1,491,050
=========== ===========
</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 April 30, 2000, and its results of operations and cash flows
for the three and six months ended April 30, 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
Statements and the other information also included in the 10-KSB.
Note 2 - Interim reporting
The results of operations for the three month and six month periods ended April
30, 2000 and 1999 are not necessarily indicative of the results to be expected
for the remainder of the year.
Note 3 - Components of inventory
April 30, 2000
----------------
(Unaudited)
Raw material and supplies....................... $ 371,150
Finished goods.................................. 2,721,785
--------------
TOTAL........................................... $ 3,092,935
==============
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
market 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.
6
<PAGE>
Net sales and other related segment information for the six months ended April
30, 2000 and 1999 as follows:
Connector Neulink Total
----------- ----------- ---------
2000
----------
Net sales ......................... $3,372,449 $ 280,530 $3,652,979
Income (loss) before
provision for income taxes......... 860,216 (22,936) 837,280
1999
----------
Net sales ......................... $2,238,545 $ 584,272 $2,822,817
Income (loss) before
provision for income taxes......... 523,778 (35,381) 488,397
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 April 30, 2000 and the changes in the number of shares
subject to options during the six months ended April 30, 2000 is set forth
below:
[TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY]
---------------------------------------
Number of Range of
Shares Exercise Price
------------------ -----------------
Options outstanding, November 1, 1999....... 917,233 $.10 - $5.75
Granted..................................... 100,000 $1.50
Exercised................................... (253,456) $.10 - $5.75
Canceled.................................... 0 0
---------- ------------
Options outstanding, April 30, 2000......... 763,777 $.10 - $5.75
========== ============
(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 2000 condensed statement
of cash flows. The notes will mature at various dates through October 31, 2000.
7
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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 Six Months Ended
April 30 April 30
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerators:
Net income (A)................................. $280,657 $158,169 $502,280 $292,397
======== ======== ======== ========
Denominators:
Weighted average shares outstanding for
basic net earnings per share (B)............. 3,343,838 3,078,598 3,247,0355 3,078,598
Add effects of potentially dilutive securities -
assumed exercise of stock options............ 361,956 500,000 438,763 500,000
----------- ----------- ----------- -----------
Weighted average shares for diluted net
earnings per share (C)...................... 3,705,794 3,578,598 3,685,798 3,578,598
=========== =========== =========== ===========
Basic net earnings per share (A) / (B)................ .08 .05 .15 .09
=== === === ===
Diluted net earnings per share (A) / (C).............. .08 .04 .14 .08
=== === === ===
</TABLE>
Note 7 - Lease commitments:
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.
8
<PAGE>
THREE MONTHS 2000 VS. THREE MONTHS 1999
Net sales increased 27%, or $400,434, to $1,892,453 from $1,492,019 last year.
RF Connectors sales increased $565,149, or 46% to $1,758,183, compared to
$1,193,034 for the same period last year. The increase is due to higher Cable
Assembly sales and increased sales of coaxial connectors. Sales at RF Neulink
decreased 55% to $134,270 compared to $298,985 last year.
Cost of sales increased $118,300, or 16%, to $865,837 from $747,537 last year.
As a percent of sales, cost of sales declined to 47% from 50% last year. The
improvement in gross margin is attributable to the record sales level and to
increased sales of higher-margin cable assembly products.
Engineering expenses decreased $1,795, or 2%, to $73,110 from $74,905 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 to increased sales
levels.
Selling and general expenses increased $85,148, or 20%, to $521,417 from
$436,269 last year. The increase is due to higher travel, advertising and
insurance expenses. As a percent of sales, selling and administrative expenses
declined to 28% from 29% due to the Company's record second quarter sales.
Interest income increased $1,707 to $33,568 from $31,861 last year due to higher
average cash balances and higher interest rates.
SIX MONTHS 2000 VS. SIX MONTHS 1999
Net sales increased $830,162, or 29%, to $3,652,979 from $2,822,817 for the same
period last year. RF Connectors sales increased 51% to $3,372,449 from
$2,238,544 last year. Neulink sales were $280,530, down 52% from $584,273 in the
same period last year. Neulink is being repositioned as a Value-Added
distributor of wireless modem solutions.
Cost of sales increased $301,950, or 21%, to $1,711,092 from $1,409,142 last
year. Cost of sales declined to 47% of sales from 50% last year due to record
sales and increased sales of higher margin cable assembly products.
Engineering expenses decreased $1,907, or 1%, to $138,591 from $140,498 last
year. This minor reduction is due to lower Neulink R & D expenses.
Selling and general expenses increased $182,054, or 21%, to $1,030,143 compared
to $848,089 last year. The increase is due to higher expenses for travel,
advertising, insurance and trade shows. Selling and general expenses decreased,
as a percentage of sales, to 28% from 30% for the same period last year.
Interest income increased $818 to $64,127 from $63,309 last year due to higher
overall cash and cash equivalent balances.
The provision for income taxes remained at approximately 40% of income for all
periods.
The increase in basic and diluted weighted average shares outstanding is
attributable to the issuance of and to the increased exercise of employee and
non-qualified employee stock options.
9
<PAGE>
MATERIAL CHANGES IN FINANCIAL CONDITION:
Cash decreased $221,739 to $879,077 compared to the October 31, 1999 fiscal year
balance of $1,100,816. Cash and cash equivalents are $3,074,097 at April 30,
2000, compared to $3,144,775 at October 31, 1999. Cash was used to acquire new
equipment to support the growing Cable assembly business and to expand
inventories to support the Company's growing distributor base. The Company also
transferred additional cash into the investment account.
Trade accounts receivable increased $70,987, or 9% to $828,652 compared to the
October 31, 1999 balance of $757,665. This increase is attributable to a higher
sales rate in the first six months of fiscal 2000.
Inventories increased $679,812 compared to the October 31, 1999 inventory of
$2,413,123. This increase is necessary to support new distributors and higher
sales levels.
Prepaid deposits and expenses increased $18,065 compared to the October 31, 1999
balance of $247,391. The increase is due to increased prepaid trade show and
inventory expenses.
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 April 30, 2000.
10
<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: March 14, 2000 By: /s/ Howard F. Hill
----------------------------------
Howard F. Hill, President
Chief Executive Officer
Dated: March 14, 2000 By: /s/ Terrie A. Gross
----------------------------------
Terrie A. Gross
Chief Financial Officer
11
