SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended October 31, 1999
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)
(619) 549-6340 FAX (619) 549-6345
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g)
of the Act: Common Stock, $.01 par
value.
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
Yes X No
The issuer's revenues for the year ended October 31, 1999 were $6,140,128.
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The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant as of December 31, 1999, based on the average
of the closing bid and asked prices of one share of the Common Stock of the
Company, as reported on December 31, 1999 was $5,559,253 . As of December 31,
1999, the registrant had 3,148,648 outstanding shares of common stock, $.01 par
value.
Number of Pages/ Index to Exhibits
This Form 10-KSB consists of a total of 42 pages. The Index to Exhibits can be
found on page 22.
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PART I
Forward-Looking Statements:
Certain statements in this Annual Report on form 10-KSB, and other oral and
written statements made by the Company from time to time are "forward looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, including those that discuss strategies, goals, outlook or
other non-historical matters, or projected revenues, income, returns or other
financial measures. These forward-looking statements are subject to numerous
risks and uncertainties that may cause actual results to differ materially from
those contained in such statements. Among the most important of these risks and
uncertainties is the ability of the Company to continue to source raw materials
from its suppliers.
Other factors and assumptions that could generally cause the Company's actual
results to differ materially from those included in the forward-looking
statements made herein include, without limitation, the effects of general
economic conditions in the United States or abroad, changes in competitive
market conditions, changes in the Company's business strategy due to
unanticipated changes in general economic conditions, competitive market
conditions or other factors. The Company assumes no obligation to update these
forward-looking statements to reflect actual results or changes in factors or
assumptions affecting such forward-looking statements.
ITEM 1. BUSINESS
General:
RF Industries, Ltd. (hereinafter the "Company") has two operating divisions, the
RF Connector Division, and the RF Neulink Division, both of which are involved
in the design, manufacture and/or sale of communications equipment. The Company
considers these Divisions to be separate business segments.
The Company's principal executive office is located at 7610 Miramar Road,
Building #6000, San Diego, California.
RF Connector Division
The Company, through its RF Connector Division, is engaged in the design,
manufacture and distribution of coaxial connectors used in radio communication
applications as well as in computers, test instruments, PC (Personal Computer)
LANs (Local Area Networks) and antenna devices. Coaxial products are distributed
through approximately 70 major domestic and international distributors. RF
Connector has introduced subminiature SMA, SMB, MCX, Semi-Rigid/Flexible cable
connectors; in series and between-series adapters; cellular connectors;
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connectors for large diameter, low-loss cables and corrugated cable
applications. RF Connector is also engaged in the manufacturing and distribution
of RF cable assemblies. Cable assemblies are manufactured per end user
specifications and are sold through distribution or directly to major OEM
(Original Equipment Manufacturer) accounts. There is also a standard cable
assembly line with over 3,900 cable assemblies.
RF Neulink Division
The Company, through its RF Neulink Division, designs and manufactures wireless
digital transmission products, commonly known as RF Data Links and Wireless
Modems. A few of the many applications for these products include industrial
monitoring and control of remote sensors and devices (SCADA ), wireless linking
of remote weather and seismic sites, multipoint military training range
information systems, infrastructure linking of Public Safety communications
networks and Automatic Vehicle Location systems.
Product Description:
The Company's products fall into three main categories which are produced by two
"Strategic Business Units" as follows:
RF Connector:
1. Coaxial connectors for radio communications equipment, PC LANS, antenna
devices, instruments and other radio frequency devices are designed and
distributed by the Company's RF Connector Division. The Company entered
the coaxial connector design, production and distribution business in
May 1987 with the acquisition of the assets of RF Industries, a
division of Hytek International, Hialeah, Florida. Coaxial connectors
have applications in industrial, scientific and military markets.
The types of RF connectors offered by RF Industries include 3.5mm, 7-16
DIN, BNC, MCX, MHV, Mini-UHF, MMCX, N, SMA, SMB, TNC and UHF. These
connectors are offered in several configurations for both plugs and
jacks. There are hundreds of applications for these connectors
including, but not limited to, digital applications, cellular and PCS
telephones, cellular and PCS base stations, GPS (Global Positioning
Systems), cable and dish radio/TV systems, aircraft, video surveillance
systems, cable assemblies and test equipment.
The RF Connectors Division also manufactures a variety of connector
kits and hand tools used by lab and field technicians, R&D technicians
and engineers.
2. Coaxial cable assemblies for test equipment, LANs, and other RF
applications are produced by the Company's Cable Assembly Group, which
is located at RFI's corporate headquarters in San Diego, CA. The
Company entered the cable assembly business to provide a "total RF
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solution" for the Company's distribution network. Cable assemblies are
made with a variety of sizes and combinations of RFI coaxial connectors
and coax cabling. Cabling is purchased from a variety of major
suppliers. Coaxial cable assemblies have thousands of applications
including local area networks, wide area networks, Internet systems,
PCS/cellular systems, TV/dish network systems, test equipment and
entertainment systems.
RF Neulink:
3. The wireless data transport products available from the RF Neulink
Division come in a variety of configurations to satisfy the
requirements of the various vertical markets. Transmitter and receiver
modules come in a wide range of power output and frequency ranges and
are used to convey data or voice from point to point. Additionally,
dumb or smart programable modems are available in a wide range of
speeds and frequency/price ranges. Accessory modules have been
developed for the purposes of remotely controlling and monitoring
electrical devices.
Neulink's product line includes:
o RF9600 UHF and VHF wireless modems
o DAC9600'S incorporating RF9600's with Digital, Analogue, and Relay
I/O modules
o SS9600 2.4 Ghz Spread - Spectrum wireless modems requiring no user
FCC licensing
o RCL inexpensive, speech or data link transmitters and receivers in
VHF and 900MHz frequencies.
Current applications in use world-wide for our Neulink products are
various and include:
o seismic and volcanic monitoring
o industrial remote censoring/control in oil fields, pipelines and
warehousing
o lottery remote terminals
o various military applications
o remote camera control and tracking
o perimeter and security system control/monitoring
o water and waste management
o inventory control
o HVAC remote control and monitoring
o biomedical hazardous material monitoring
o fish farming automation of food dispensing, water aeration and
monitoring
o remote emergency generator startup and monitoring
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Product Enhancements:
RF Connector Division
RF Connectors continues to broaden its connector offerings. In addition to its
already expansive line of connectors, RF Connectors has introduced a full line
of MMCX connectors, which are used for applications restricted by minimal space
such as cellular telephones, PCS telephones, miniature transmitters and
receivers, and mobile radio systems. Additionally, RF Connectors introduced
reverse polarity and reverse thread connectors which are designed to meet the
requirements of the new government regulations for part 15 of the FCC.
Applications for these connectors include nonlicensed, low wattage transmitters
used in areas such as convention center broadcast systems. MHV connectors, 75
Ohm SMB connectors, used in areas such as microwave telephone and other
nondefense applications, and 3.5mm connectors which are used in precision
military applications, satellite applications and other high frequency
applications.
RF Connectors plans to address the exploding new digital and home entertainment
markets with new connector product offerings for fiber optic and high-end
coaxial cable assemblies.
The RF Cable Assembly Division is part of RF Connectors. During 1999, Cable
Assembly commenced shipments of over 3,900 standard cable assemblies and has
produced a 30-page catalog offering these cable assemblies for immediate
delivery. Response to the product and catalog have been encouraging.
Approximately 80% of RF Connectors' sales are through distributors. We are
encouraged that our distributors appear to have entered 2000 with a fair amount
of momentum. Five new distributors were acquired in 1999 and we expect to
continue adding new distributors in 2000. During 2000 we expect to revamp and
expand our Rep program to increase overall OEM business.
RF Neulink Division
Design efforts have been completed for the software and hardware products which,
in combination with existing products, will enable Neulink to market complete
wireless solutions. New software enables RF Nuelink's RF9600 wireless modems, in
conjunction with our I/O modules, to configure a SCADA system. The Software,
named EZ-SCADA, creates a simple user-defined graphics screen that visually
displays the status, analogue values and trends. Hardware changes include
addition of Analogue 'C' module, allowing system design for a full range of
sensing and monitoring devices, digital, analogue and relay control.
During 1999, Neulink's standard RF 9600 radio modem was field proven for a new
application for monitoring seismic and volcanic activity. Transmitting data on
seismic and volcanic activity enables scientists and public safety agencies to
improve disaster prevention and response.
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Neulink is reviewing the addition of a number of new products to serve existing
and potential new customers. Two of these new products are enhancements of the
SS9600 Spread-Spectrum 2.4 Ghz radio modem. Introduction of over-the-air rate of
up to 19.2Kbps and enhancement with a TCP/IP engine module will offer low-cost
Ethernet or Internet access to data collected at the host PC of
Host-to-Multipoint networks of 3 to over 250 remote modules. This product meets
part 15 FCC requirements for end users unlicenced use.
New products added to the Neulink Division include our SS9600, a long range,
2.4GHz, SpreadSpectrum wireless modem line. With an over-the-air rate of 9600
bps point-to-point or host-to- multipoint networks fall within the unlicenced
FCC requirements for users. Units hand shake and frequency hop for security and
to overcome susceptibility to RF interface. A TCP/IP engine module will allow
data from the host PC of network configurations to be accessed via Corporate
Ethernet or Internet addressing.
In addition, the 'C' module, with 2 analogue inputs and 2 analogue outputs, has
been added to the DAC9600 line of I/O devices for remote censoring/control in
base-to-multipoint applications.
With the new SS9600 radio modem and expanding applications for existing wireless
products, we believe that RF Neulink will continue to dominate select market
niches.
Development of Business:
General:
During the year ended October 31, 1999, the Company continued its efforts in the
following areas:
o Expansion of RF Connector through broadening the selection of inventory
available for sale. Management believes that the success of this
division is dependent on having product available when other firms
cannot deliver. This broad availability of inventory also allows the
Company to emphasize sales to OEMs.
o Neulink is seeking distributors, systems integrators and resellers
which are more closely aligned with its target markets. The Company is
currently working to expand its customer base to provide a greater
level of repeat business which will complement its larger system
customers.
Foreign Operations:
Direct export sales by the Company to customers in South America, Canada,
Mexico, Europe, Australia, the Middle East, and the Orient accounted for
approximately 20% of Company sales for the year ended October 31, 1999, compared
to approximately 16% in fiscal 1996. The Company is aggressively expanding its
foreign distribution under the RFI logo, and seeking new private label customers
world wide.
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The Company does not own, or directly operate any manufacturing operations or
sales offices in foreign countries at this time. It does manufacture much of its
Neulink product through contract manufacturing in the USA. Some crystal products
are manufactured in the Orient. RF Connector purchases almost all of its
connector products from contract manufacturers in Taiwan and the United States.
Distribution, Marketing and Customers:
Sales methods vary greatly between the two divisions.
RF Connector presently sells its products primarily through warehousing
distributors and OEM (Original Equipment Manufacturer) customers which utilize
coaxial connectors in the manufacture of their products. The OEM market, which
includes manufacturers of communications test equipment, and computers,
accounted for approximately 20% of sales while distributors accounted for 80%,
of RF Connector division sales in fiscal 1999.
RF Neulink sells its products directly or through Manufacturers Representatives,
System Integrators and OEM's. System integrators and OEMs integrate and/or mate
Company's products with their hardware and software to produce turn-key wireless
systems. These systems are then either sold or leased to other companies,
including utility companies, financial institutions, petrochemical companies,
government agencies, and irrigation/water management companies.
Raw Materials:
RF Connector currently sources coaxial connector manufacturing from Japan,
Korea, the United States, and ISO (International Standards Organization)
approved factories in Taiwan. Connector materials are typically made of
commodity metals and include small applications of precious materials, including
silver and gold. The RF Cable Assembly Division relies on supplies of coaxial
connectors from RF Connector's manufacturing sources. Coaxial cable is readily
available from a wide variety of various domestic and international suppliers.
Neulink purchases its electronic products from various domestic and foreign
suppliers. All Neulink wireless modem transceivers, with the exception of the
928-960MHz crystal controlled transmitter and receiver assemblies, are built in
the United States. The 928-960MHz units are assembled in Japan and tested in San
Diego. Electronic components used in these products are readily available from a
number of domestic and foreign suppliers. Additional manufacturing and assembly
facilities are readily available in the United States.
Personnel:
The Company presently employs 37 full-time employees, and 2 part-time employee.
The Company believes that it has a good relationship with its employees and, at
this time, no employees are represented by a union.
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Patents, Trademarks and Licenses:
The Company has no patent protection for any of its products, nor has it
registered any product trademarks.
Backlog, Warranties and Terms:
As of October 31, 1999, the Company had a sales order backlog of approximately
$7,900,000, of which approximately $5,300,000 is expected to be delivered in the
current fiscal year. This compares to backlog of $8,800,000 at October 31, 1998.
The Company warrants its products to be free from defects in material and
workmanship for varying warranty periods, depending upon the product. Products
are generally warranted to the dealer for one year, with the dealer responsible
for any additional warranty it may make. Certain Neulink products are sold
directly to end-users and are warranted to those purchasers. The RF Connector
products are warranted for the useful life of the connectors.
The Company usually sells to customers on 30 day terms and does not generally
grant extended payment terms. Sales to most foreign customers are made on cash
terms at time of shipment.
Competition:
Management estimates that RF Connector has over 50 competitors in a $800,000,000
coaxial connector market. Management believes no one competitor has over 15% of
the total market, while the three leaders hold no more than 30% of the total
market. Some of RF Connectors competitors have significantly greater financial
resources and broader product lines. RF Connector competes on the basis of
product availability, service and value-added support to its distributors and
OEM customers.
Major competitors for Neulink include Microwave Data Systems and Data Radio.
Although a number of larger firms could enter Neulink's markets with similar
products, Neulink's strategy is focused on serving and providing specific
hardware and software combinations enabling the company to maintain a strong
position in selected "niche" wireless applications.
Government Regulations:
The Company's present and future products have been designed to meet any present
or proposed specifications and management believes it should have little
difficulty in meeting standards for approvals by government regulatory agencies
throughout the world.
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Neulink products are subject to the regulations of the Federal Communications
Commission (FCC) in the United States, the Department of Communications (D.O.C.)
in Canada, and the future E.C.C.
Radio Regulation Division in Europe. The Company's present equipment is
"type-accepted" for use in the United States and Canada.
Risks and Uncertainties:
The Company's business is subject to several risks and uncertainties, including,
but not limited to: (a) technological developments which result in obsolescence
or a change in demand for the Company's products, (b) political factors which
may affect supply, pricing and availability of raw materials, (c) the highly
competitive nature of the Company's industry and the impact that competitors new
products and pricing may have on the Company's sales, (d) sales may vary due to
general market and economic conditions, (e) reliance on distributors and
distributors decisions to add competing product lines or discontinue RF products
and other risks and uncertainties.
ITEM 2. PROPERTIES:
The Company leases its corporate headquarters building at 7610 Miramar Road,
Building 6000, San Diego, California. The building consists of approximately
11,000 square feet which houses administrative, sales and marketing,
engineering, production and warehousing for the Company's Connector Division.
The rapid growth of both divisions of the Company required the leasing of an
additional building to house the Neulink Division in 1996. The building is
located adjacent to our corporate headquarters at 7606 Miramar Road, Building
7200. The building consists of approximately 2,400 square feet which houses the
production and sales staff of the Neulink Division. The lease on both buildings
will terminate in May 31, 2000. The monthly rental is approximately $8,040 plus
utilities, maintenance and insurance.
ITEM 3. LEGAL PROCEEDINGS:
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
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PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.
Market information: The Company's stock is listed and trades on the NASDAQ Small
Cap Exchange.
For the periods indicated, the following tables sets forth the high and low bid
prices per share of Common Stock. These prices represent inter-dealer quotations
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
Quarter High Low
- --------- ------ ------
Fiscal 1999
- ------------
November 1, 1998 - January 31, 1999 ............... 2 5/16 1 7/8
February 1, 1999 - April 30, 1999 ................. 2 1/8 1 11/16
May 1, 1999 - July 31, 1999 ....................... 2 1/8 1 3/4
August 1, 1999 - October 31, 1999 ................. 2 1 17/32
Fiscal 1998
November 1, 1997 - January 31, 1998 ............... 2 7/8 2
February 1, 1998 - April 30, 1998 ................. 3 1 1/8
May 1, 1998 - July 31, 1998 ....................... 3 1/8 1 1/4
August 1, 1998 - October 31, 1998 ................. 2 7/16 11/2
On December 31, 1999, the closing, high and low bid prices of the Company's
Common Stock were $2.03 and $1.76, respectively.
As of December 31, 1999, there were 816 holders of the Company's Common Stock
per records of the Company's transfer agent, Continental Stock Transfer Co., New
York, NY.
The Company has not paid and does not presently intend to pay cash dividends on
its Common Stock.
RF Industries is implementing NASDAQ's Corporate Governance Requirements. This
annual report, the shareholder proxy solicitation and the Stockholders' meeting
tentatively scheduled for April 30, 1999 are part of these requirements. The
Company's Audit Committee met once in 1999.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition:
The following table presents the key measures of financial condition as of
October 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
% Total % Total
Amount Assets Amount Assets
---------------------- ----------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents ......................... $1,100,816 15.9% $1,209,143 19.3%
Investments in available-for-sale securities....... 2,043,959 29.5 1,129,582 18.0
Current assets .................................... 6,648,954 95.9 5,992,249 95.7
Current liabilities ............................... 446,339 6.4 662,320 10.6
Working capital ................................... 6,202,615 89.4 5,329,929 85.1
Property and equipment - net ...................... 134,835 1.9 162,774 2.6
Total assets ...................................... 6,936,689 100.0 6,259,923 100.0
Stockholders' equity .............................. 6,490,350 93.6 5,597,603 89.4
</TABLE>
Liquidity and Capital Resources:
Management believes that cash generated from operations will be sufficient to
fund the anticipated growth of the Company in fiscal 2000. Management believes
that any financing requirements can be met through a combination of cash and
investments held as of October 31, 1999, internally generated cash flow, advance
payments from customers and borrowing on favorable credit terms from commercial
banking establishments.
There is little expected need for additional capital equipment in fiscal 2000.
In the past, the Company has financed much of its fixed asset requirements
through capital leases. No additional capital equipment purchases have been
identified that would require significant additional leasing or capital
obligations during fiscal 2000. Management also believes that based on the
Company's financial condition at October 31, 1999, 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.
Results of Operations:
The following summarizes the key components of the results of operations for the
years ended October 31, 1999 and 1998:
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1999 1998
---------------------- ---------------------
% of % of
Amount Sales Amount Sales
---------- --------- ---------- ---------
Net sales ................ $6,140,128 100 % $6,517,540 100 %
Cost of sales ............ 2,841,090 46.3 3,258,640 50.0
---------- ------- ---------- -------
Gross profit ............. 3,299,038 53.7% 3,258,900 50.0%
Engineering expenses ..... 257,221 ======= 400,240 =======
Selling and general ...... 1,840,161 1,677,480
---------- ----------
Operating income ......... 1,201,656 1,181,180
Other income, net ........ 122,945 104,819
---------- ----------
Income before income taxes 1,324,601 1,285,999
Income taxes ............. 500,700 529,000
---------- ----------
Net income ............... $ 823,901 $ 756,999
========== ==========
Net sales decreased $377,412 or 5.8% in 1999 compared to 1998. The decrease is
primarily attributable to a $353,245 decline in sales at the RF Neulink Division
to $991,551 from $1,344,796 in fiscal 1998. Sales at the RF Connector Division
decreased $24,167 to $5,148,577 from $5,172,744 the previous year.
The gross profit increased by $40,138 to $3,299,038 in 1999 from $3,258,900 in
1998. As a percent of sales, gross margin increased to 53.7% from 50% of sales
in 1998 due to a favorable sales mix and tighter inventory controls.
Engineering expenses declined $143,019 to $257,221 compared to $400,240 in 1998.
As a percent of sales, engineering expenses declined to 4.2% compared to 6.1% in
1998. The decline in engineering expenses is attributable to a reduction in the
amount of research and development.
Selling and general expenses increased $162,681 to $1,840,161 from $1,677,480 in
1998. As a percent of sales, selling and general expenses increased to 30.0%
from 25.7% in 1998. The increase is due to increased trade show, travel and
advertising expenses.
The $20,476 increase in operating income to $1,201,656 from $1,181,180 in the
previous year is attributable to the increase in gross profit.
Other income, net increased by $18,126. The increase is due to higher average
cash balances and investments during the year which increased interest income.
Net income increased $66,902 to $823,901 compared to net income of $756,999 in
1998. The increase in net income is due to higher gross profits and increased
interest income.
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General Outlook:
Management believes that because of a number of achievements during the year
ended October 31, 1999, the Company could maintain steady growth in the year
ending October 31, 2000.
As explained above, management believes the Company has capital resources
available to fund operations at current and expanded levels.
Every year, we find more efficient ways to meet our customers needs and
manufacture top quality products. As a result, even with the minimal sales
decrease in 1999, profits have continued to grow. To build stockholder value, RF
Industries must achieve more earnings growth in the years ahead. We are
continuing to pursue viable mergers and acquisitions. We are strengthening our
mergers and acquisitions team to insure stockholder value. However, we cannot
assure that any mergers will be consummated or that they will, if consummated,
result in increased earnings.
When appropriate, we will continue to buy back RFIL shares from the open market.
RF Industries has been able to continue its earnings growth, significantly
increase cash and improve operating margins in the past six years. Despite sales
fluctuations, the Company's earnings have improved, we are debt free and our
stockholders' equity continues to steadily grow. We have a solid position in the
coaxial connector market and are working to expand Neulink's sales and product
lineup.
Year 2000 Issue:
The Year 2000 issue is the result of computer programs using only two digits to
identify a year within date fields. Date-sensitive software may recognize a date
using "00" as year 1900 rather than the year 2000. Such an error could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company modified or replaced portions of its software so that its computer
systems will properly utilize dates beyond December 31, 1999. The Company
currently believes that with modifications to existing software and conversions
to new software, the effects of the Year 2000 issue can be mitigated. The
Company utilized both internal and external resources to reprogram, or replace,
and test the software for Year 2000 modifications. The cost of new software
purchased was capitalized; all other costs were expensed as incurred. Overall,
these costs have not had a material effect on the results of operations.
In addition, the Company has assessed the readiness of its significant suppliers
and large customers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate their own Year 2000 issues.
However, there can be no guarantee that the systems of other
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companies will be timely converted, or that a failure to convert by another
company would not have a material adverse effect on the Company. The Company has
determined that it has no exposure to contingencies related to the Year 2000
issue for the products it has sold.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Financial Statements of the Company with related Notes and
accountants' report are attached hereto as pages F-1 to F-18 and filed as part
of this Annual Report:
o Report of J.H. Cohn LLP, Independent Public Accountants
o Balance Sheet as of October 31, 1999
o Statements of Income for the years ended October 31, 1999 and 1998
o Statements of Stockholders' Equity for the years ended October 31, 1999
and 1998
o Statements of Cash Flows for the years ended October 31, 1999 and 1998
o Notes to Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
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PART III.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors: Age Date of Election Position
- ---------- ----- ----------------- ----------
Jack A. Benz 66 February 1990 Chairman
John Ehret 62 November 1991 Director
Howard F. Hill 59 November 1979 President/Chief Executive Officer
Henry E.Hooper 46 January 1998 Director
Robert Jacobs 48 May 1997 Director
Jack A. Benz is an electronic engineer by education, holding a degree from
Milwaukee School of Engineering. He has been involved in the sales and marketing
end of the electronics and communications industry for over 40 years. He has
owned and successfully operated businesses in the manufacturers representative
and export field. He managed RF Industries, Ltd. when it operated as a separate
company in Florida prior to its acquisition in 1987 by Celltronics.
John Ehret holds a B.S. degree in Industrial Management from the University of
Baltimore. He is Vice-President and CFO as well as co-owner of TPL Electronics
of Los Angeles, California. He has been in the electronics industry for over 30
years.
Howard F. Hill, a founder of the Company in 1979, has degrees in manufacturing
engineering, quality engineering and industrial management. He took over the
presidency of the Company in July of 1993. He has held various positions in the
electronics industry over the past 30 years.
Henry E. Hooper has a bachelor's and master's degree from Yale University. He
serves as the Director of Technical Knowledge Support at TESSCO Technologies, a
distributor of wireless communications products and services. Before TESSCO, Mr.
Hooper served as a VP of sales and marketing with a textile manufacturing
company. Mr. Hooper has been in the telecommunications industry for over 10
years.
Robert Jacobs is RFI's account executive at Neil Berkman Associates and
coordinates the Company's investor relations. He holds an MBA from the
University of Southern California and has been in the investment industry for
over 16 years.
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Officers:
Jack A. Benz - See biography above.
Howard F. Hill - See biography above.
Terrie Gross joined the Company in January 1992 as accounting manager. She was
elected to Corporate Secretary in February 1995, and elected to Chief Financial
Officer in 1997.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table:
The Company does not have any executive officer, other than the president, paid
in excess of $100,000 The following table presents the annual cash and other
compensation of Howard F. Hill, the Company's President:
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards
------------------------------------------- --------------------------
(a) (b) (c) (d) (f) (g)
Name
and Prin- Restricted
cipal Stock Options
Position Year Salary($) Bonus($) Awards SARs (#)
- ----------- ------ ---------- --------- ----------- ----------
Howard Hill 1999 $125,000 $25,000 0 4,000
President 1998 $85,000 $25,000 0 4,000
1997 $85,000 0 0 4,000
The following categories have no balance so they have been excluded from the
Summary Compensation Table:
(e) Other Annual Compensation
(h) LTIP Payout
(i) All Other Compensation
Note: Pursuant to the terms of the employment contract discussed below between
the Company and Mr. Hill, Mr. Hill was granted the option to acquire
500,000 shares of common stock at $.10 per share on June 1, 1994. These
options vest ratably over the six year period ending in July 1999.
17
<PAGE>
Option Tables:
The following table depicts the options granted to the President during the year
ended October 31, 1998:
Option Grants in Last Fiscal Year
Individual Grants
--------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total
Number of Options
Securities Granted to Exercise
Underlying Employees or Base
Options in Fiscal Price per Expiration
Name Granted (#) Year Share Date
-------------- ------------ ------------ ---------- --------------
Howard Hill, President
Incentive Stock Option 2,000 4% $1.56 October, 2009
Non-Qualified Option 2,000 16% $1.33 October, 2009
The following table depicts the options held by the President as of October 31,
1999:
Aggregated Option Exercises and Fiscal Year End Option Positions
-------------------------------------------------------------------
Number of Value of
Unexercised Unexercised
Options at Options at
Shares FY-End FY-End
Acquired on Value Exercisable Exercisable
Exercise Realized /Unexer- /Unexer-
Name # $ cisable cisable
- -------- ----------- ---------- ------------- -------------
Howard F. Hill,
President 20,000 $17,800 504,000/ $689,080/
0 0
Meetings of the Board of Directors and Committees
During the fiscal year ended October 31, 1999, the Board of Directors met four
times. The Board of Directors has an Audit Committee. All Board members attended
more than 75% of the aggregate number of Board meetings and meetings of
committees on which each served during the fiscal year ended October 31, 1999.
18
<PAGE>
The purposes and functions of the Company's Audit Committee are to meet with the
auditors; to recommend the engagement or discharge of independent auditors; to
review quarterly financial statements prior to issuance; to review year-end
financial statements prior to issuance; to review the services from time to time
being performed by the independent auditors, including nonaudit services and the
fees charged, or to be charged, for all such services; and to make appropriate
reports and recommendations to the Board of Directors. The persons who currently
are serving on the Audit committee are Messrs. Hooper, Jacobs, and Ms.Tracy
Wolfe, the Company's tax accountant. The Audit Committee met two times during
the last fiscal year.
Long-Term Incentive Awards:
There are no awards under long-term incentive plans, such as phantom stock
grants and restricted stock grants, that vest upon the satisfaction of
performance goals.
Compensation of Directors:
The Company has no standard arrangement by which its Directors are compensated.
Employment Contracts:
The Company has no employment or severance agreements for annual payments of
more than $100,000. However, on June 1, 1994, the Company entered into a six
year, renewable employment contract with the President calling for annual
compensation of $85,000, raised to $125,000 in 1999, plus a bonus to be
determined by the Board. In addition, the employment contract granted the
President options to acquire 500,000 shares of common stock at $.10 per share.
Such options vest ratably over the six year term of the initial agreement. At
October 31, 1999, options to purchase all 500,000 shares were vested.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information with respect to all
shareholders who are beneficial owners of more than 5% of the Company's
outstanding common stock, by each director and by all directors and officers as
a group as of October 31, 1999. The beneficial owner is the owner of record and
has sole voting and investment power over the shares shown, except as otherwise
indicated.
19
<PAGE>
Number of
Shares (1) Percentage (1)
Name and Address Beneficially Beneficially
of Beneficial Owner Owned Owned
- --------------------- -------------- ---------------
Hytek International
690 West 29th Street
Hialeah, FL 33010 ............................ 1,267,167 41.2%
Jack A. Benz
7610 Miramar Rd.
San Diego, CA 92126 .......................... 56,000 (2) 1.7%
Howard F. Hill
7610 Miramar Rd.
San Diego, CA 92126 .......................... 541,000 (3) 17.1%
John Ehret
3370 San Fernando Rd. #206
Los Angeles, CA 90065 ........................ 29,000 (4) 0.9%
Robert Jacobs
Neil Berkman Associates
1900 Ave of the Stars, #2850
Los Angeles, CA 90067 ........................ 89,000 (5) 2.8%
Henry Hooper
7610 Miramar Rd.
San Diego, CA 92126 .......................... 19,055 (6) 0.6%
All Directors & Officers as a group........... 758,455 (7) 24.0%
(1) Shares available through outstanding options which are exercisable
within 60 days of this report are treated as outstanding for purposes
of computing the number and percentage of shares each stockholder
beneficially owns.
(2) Includes 10,000 shares which Mr. Benz has the right to acquire upon
exercise of options exercisable within 60 days of the date of this
report.
(3) Includes 504,000 shares which Mr. Hill has the right to acquire upon
exercise of options exercisable within 60 days of the date of this
report.
20
<PAGE>
(4) Includes 10,000 shares which Mr. Ehret has the right to acquire upon
exercise of options exercisable within 60 days of the date of this
report.
(5) Includes 50,000 shares which Neil Berkman Associates has the right to
acquire upon exercise of vested options, and 19,900 that Robert Jacobs
has the right to acquire upon exercise of options.
(6) Includes 18,555 shares which Mr. Hooper has the right to acquire upon
exercise of options exercisable within 60 days of the date of this
report.
(7) Includes 585,955 shares which all Directors and Officers, as a group,
have the right to acquire upon exercise of options exercisable within
60 days of the date of this report.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
None.
21
<PAGE>
PART IV.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents have been filed as part of this report:
(1) Exhibits
23.1 Consent of Independent Public Accountants
The following are incorporated by reference to Form 10-K for fiscal year ended
October 31, 1986 filed on February 4, 1987 as amended by Amendment No. 1 filed
on August 2, 1987 and Form 10- KSB for fiscal year ended October 31, 1992 filed
on March 5, 1993, and October 31, 1994 filed on February 14, 1995, October 31,
1995 filed on January 31, 1996, October 31, 1996 filed on January 30, 1997, and
October 31, 1997 filed on January 31, 1998:
3.2.1 Company Bylaws as Amended through August, 1985
3.2.2 Amendment to Bylaws dated January 24, 1986
3.2.3 Amendment to Bylaws dated February 1, 1989
10.1 Asset Purchase Agreement
10.2 Settlement Agreement
10.3 Funds Impound Escrow Agreement
10.4 Stock Escrow Agreement
10.5 Lease - San Diego, CA Facility
10.6 Lease - Gardena, CA Facility
10.7 Celltronics, Inc. Incentive Stock Option Plan
10.8 Form of Incentive Stock Option Plan
10.9 Directors' Nonqualified Stock Option Agreements
10.10 Consulting Agreements
10.11 Consultants' Nonqualified Stock Option Agreements
10.12 Agreement for Cancellation of Shares
10.13 Neutec Sale Agreement
10.14 Trilectric Sale Agreement
10.15 Incentive Stock Option Plan
10.16 Amended Lease Agreement - San Diego, CA Facility
10.17 Lease Agreement - San Diego, CA Facility
10.18 Employment Contract - Howard Hill
10.19 Consulting Agreement - Hytek International
10.20 Lease Agreement - San Diego, CA Facility
10.21 Public Relations Agreement - Neil G. Berkman Associates
10.22 Employment Contract - Donald Catledge
22
<PAGE>
(2) Reports on Form 8-K
None
Shareholders of the Company may obtain a copy of any exhibit referenced in this
10-KSB Report by writing to: Secretary, RF Industries, Ltd., 7610 Miramar Road,
Bldg. 6000, San Diego, CA 92126. The written request must specify the
shareholder's good faith representation that such shareholder is a stock holder
of record of common stock of the Company. A charge of twenty cents ($.20) per
page will be made to cover Company expenses in furnishing the requested
documents.
23
<PAGE>
SIGNATURE
------------------
Pursuant to the requirements of Section 13 and 15 (d) 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.
Date: February 14, 2000 By: /s/ Howard F. Hill
------------------------------------
Howard F. Hill, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Dated: February 14, 2000 By: /s/ Jack A. Benz
------------------------------------
Jack A. Benz, Chairman -
Board of Directors
Dated: February 14, 2000 By: /s/ Terrie Gross
------------------------------------
Terrie Gross, Chief Financial Officer
(Principal Accounting Officer)
Dated: February 14, 2000 By: /s/ Howard F. Hill
------------------------------------
Howard F. Hill, Chief Executive Officer
Dated: February 14, 2000 By: /s/ John Ehret
------------------------------------
John Ehret, Director
Dated: February 14, 2000 By: /s/ Henry Hooper
-------------------------------------
Henry Hooper, Director
Dated: February 14, 2000 By: /s/ Robert Jacobs
------------------------------------
Robert Jacobs, Director
24
<PAGE>
RF INDUSTRIES, LTD.
INDEX TO FINANCIAL STATEMENTS
[ATTACHMENT TO ITEM 7]
PAGE
------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS....................... F-2
BALANCE SHEET
OCTOBER 31, 1999............................................... F-3
STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 1999 AND 1998.......................... F-4
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1999 AND 1998.......................... F-5
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1999 AND 1998.......................... F-6
NOTES TO FINANCIAL STATEMENTS.................................. F-7/18
* * *
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------------------
To the Stockholders
RF Industries, Ltd.
We have audited the accompanying balance sheet of RF INDUSTRIES, LTD. as of
October 31, 1999, and the related statements of income, stockholders' equity and
cash flows for the years ended October 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RF Industries, Ltd. as of
October 31, 1999, and its results of operations and cash flows for the years
ended October 31, 1999 and 1998, in conformity with generally accepted
accounting principles.
J.H. COHN LLP
San Diego, California
January 7, 2000
F-2
<PAGE>
RF INDUSTRIES, LTD.
BALANCE SHEET
OCTOBER 31, 1999
ASSETS
Current assets:
Cash and cash equivalents .................................. $1,100,816
Investments in available-for-sale securities ............... 2,043,959
Trade accounts receivable, net of allowance for
doubtful accounts of $42,000 ........................... 757,665
Notes receivable ........................................... 12,000
Inventories, net of valuation allowance of $47,000 ......... 2,413,123
Prepaid expenses and deposits .............................. 247,391
Deferred tax assets ........................................ 74,000
----------
Total current assets ................................ 6,648,954
Property and equipment:
Equipment and tooling ...................................... 481,768
Furniture and office equipment ............................. 184,002
665,770
Less accumulated depreciation .............................. 530,935
Total ............................................... 134,835
Note receivable from stockholder ............................... 70,000
Deferred tax assets ............................................ 78,000
Other assets ................................................... 4,900
----------
Total ............................................. $6,936,689
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................... $ 88,496
Accrued expenses .......................................... 357,843
-----------
Total liabilities .................................. 446,339
Commitments and contingencies
Stockholders' equity:
Common stock - authorized 10,000,000 shares of $.01
par value; 3,148,598 shares issued .................... 31,486
Additional paid-in capital ................................ 4,400,868
Retained earnings ......................................... 2,348,351
Unearned compensation ..................................... (211,602)
Receivables from sale of stock ............................ (25,900)
Treasury stock, at cost - 29,400 shares ................... (52,853)
-----------
Total stockholders' equity ......................... 6,490,350
Total .............................................. $ 6,936,689
===========
See Notes to Financial Statements.
F-3
<PAGE>
RF INDUSTRIES, LTD.
STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 1999 AND 1998
1999 1998
----------- -----------
Net sales .................................... $ 6,140,128 $ 6,517,540
Cost of sales ................................ 2,841,090 3,258,640
----------- -----------
Gross profit ................................. 3,299,038 3,258,900
----------- -----------
Operating expenses:
Engineering .............................. 257,221 400,240
Selling and general ...................... 1,840,161 1,677,480
----------- -----------
Totals ............................... 2,097,382 2,077,720
----------- -----------
Operating income ............................. 1,201,656 1,181,180
Other income ................................. 123,432 105,677
Interest expense ............................. (487) (858)
----------- -----------
Income before provision for income taxes ..... 1,324,601 1,285,999
Provision for income taxes ................... 500,700 529,000
----------- -----------
Net income ................................... $ 823,901 $ 756,999
=========== ===========
Earnings per share:
Basic .................................... $ .27 $ .25
=========== ===========
Diluted ................................. $ .23 $ .21
=========== ===========
See Notes to Financial Statements.
F-4
<PAGE>
RF INDUSTRIES, LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional Receivables Total
Common Stock Paid-In Retained Unearned from Sale Treasury Stockholders
Shares Amount Capital Earnings Compensation of Stock Stock Equity
-------- -------- ---------- -------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, November 1, 1997 ........ 3,064,598 $30,646 $4,803,366 $767,451 $(895,447) $4,706,016
Shares issued on exercise
of stock options .................. 14,000 140 1,260 1,400
Grant of compensatory stock options
for purchase of 180,000 shares .. 376,200 (376,200)
Effect of cancellation of compen-
satory stock options for purchase
of 180,000 shares ............... (806,958) 806,958
Amortization of unearned compen-
sation .......................... 133,188 133,188
Net income ........................ 756,999 756,999
--------- --------- ---------- --------- --------- ---------
Balance, October 31, 1998 ......... 3,078,598 30,786 4,373,868 1,524,450 (331,501) 5,597,603
Shares issued on exercise of stock
options ......................... 70,000 700 27,000 $(25,900) 1,800
Amortization of unearned compen-
sation .......................... 119,899 119,899
Purchase of 29,400 shares of
treasury stock .................. $(52,853) (52,853)
Net income ........................ 823,901 823,901
--------- --------- --------- --------- --------- ---------- --------- ----------
Balance, October 31, 1999 ......... 3,148,598 $31,486 $4,400,868 $2,348,351 $(211,602) $(25,900) $(52,853) $6,490,350
========== ======== ========== ========== =========== ========= ========= ===========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
RF INDUSTRIES, LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Operating activities:
Net income .................................................. $ 823,901 $ 756,999
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for bad debts .................................. 12,000
Depreciation ............................................. 55,201 50,309
Amortization of unearned compensation .................... 119,899 133,188
Deferred income taxes .................................... 14,000 (35,000)
Changes in operating assets and liabilities:
Trade accounts receivable ............................. 37,004 (41,236)
Inventories ........................................... 53,325 (214,866)
Prepaid expenses and deposits and other assets ........ (2,984) 48,811
Accounts payable ...................................... (115,154) 49,394
Accrued expenses ...................................... (100,827) 163,283
----------- -----------
Net cash provided by operating activities ......... 896,365 910,882
----------- -----------
Investing activities:
Purchases of investments in available-for-sale securities ... (914,377) (486,783)
Capital expenditures ........................................ (27,262) (93,943)
Increase in notes receivable ................................ (12,000)
-----------
Net cash used in investing activities ............. (953,639) (580,726)
----------- -----------
Financing activities:
Proceeds from shares issued on exercise of stock options .... 1,800 1,400
Purchase of treasury stock .................................. (52,853)
----------- -----------
Net cash provided by (used in) financing activities (51,053) 1,400
----------- -----------
Net increase (decrease) in cash and cash equivalents ............ (108,327) 331,556
Cash and cash equivalents at beginning of year .................. 1,209,143 877,587
----------- -----------
Cash and cash equivalents at end of year ........................ $ 1,100,816 $ 1,209,143
=========== ===========
Supplemental cash flow information:
Interest paid ............................................... $ 487 $ 858
=========== ===========
Income taxes paid ........................................... $ 612,124 $ 423,815
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business activities and summary of significant accounting policies:
Business activities:
The Company's business is comprised of the design,
manufacture and/or sale of communications equipment
primarily to the radio and other professional communications
related industries. The Company is engaged in the design and
distribution of coaxial connectors used primarily in radio
and other professional communications applications (the "RF
CONNECTOR Division") and the design, manufacture and sale of
radio links for receiving and transmitting control signals
for remote operation and monitoring of equipment (the
"NEULINK Division"). Management considers each division to
be a separate business segment (see Note 6).
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual
results may differ from those estimates.
Cash equivalents:
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
Investments:
Pursuant to Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," the Company's investments in mutual fund units
have been classified as available-for-sale securities and,
accordingly, are valued at fair value at the end of each
period. Any material unrealized holding gains and losses
arising from such valuation are excluded from income and
recognized, net of applicable income taxes, as a separate
component of stockholders' equity until realized.
Inventories:
Inventories are stated at the lower of cost or market. Cost
has been determined using the weighted average cost method
(see Note 4).
Property and equipment:
Equipment, tooling and furniture are recorded at cost and
depreciated over their estimated useful lives (generally 3
to 7 years) using the straight-line method.
Research and development:
Costs and expenses related to research and development are
expensed as incurred. Research and development expenses
charged to operations were approximately $35,000 and
$174,000 in 1999 and 1998, respectively.
F-7
<PAGE>
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business activities and summary of significant accounting policies
(continued):
Advertising:
The Company expenses the cost of advertising and promotions
as incurred. Advertising costs charged to operations were
approximately $72,000 and $38,000 in 1999 and 1998, respect-
ively.
Income taxes:
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax
assets and liabilities to be computed annually for temporary
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or
deductible amounts in future periods based on enacted laws
and rates applicable to the periods in which the temporary
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. The income
tax provision or credit is the tax payable or refundable for
the period plus or minus the change during the period in
deferred tax assets and liabilities.
Stock options:
In accordance with the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), the Company will recognize
compensation costs as a result of the issuance of stock
options based on the excess, if any, of the fair value of
the underlying stock at the date of grant or award (or at an
appropriate subsequent measurement date) over the amount the
employee must pay to acquire the stock. Therefore, the
Company will not be required to recognize compensation
expense as a result of any grants of stock options at an
exercise price that is equivalent to or greater than fair
value. The Company will also make pro forma disclosures, as
required by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
of net income or loss as if a fair value based method of
accounting for stock options had been applied instead if
such amounts differ materially from the historical amounts.
Earnings per share:
Basic earnings per share is calculated by dividing net
income applicable to common stock by the weighted average
number of common shares outstanding during the period. The
calculation of diluted earnings per share is similar to that
of basic earnings per share, except that the denominator is
increased to include the number of additional common shares
that would have been outstanding if all potentially dilutive
common shares, principally those issuable upon the exercise
of stock options, were issued and the treasury stock method
had been applied during the period.
F-8
<PAGE>
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business activities and summary of significant accounting policies
(concluded):
Earnings per share (concluded):
The following table summarizes the calculation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Numerators:
Net income (A) ................................. $ 823,901 $ 756,999
========== ==========
Denominators:
Weighted average shares outstanding for basic
net earnings per share (B) ................. 3,098,689 3,071,486
Add effects of potentially dilutive securities -
assumed exercise of stock options .......... 543,663 531,595
---------- ----------
Weighted average shares for diluted net
earnings per share (C) ..................... 3,642,352 3,603,081
========== ==========
Basic net earnings per share (A)/(B) .............. .27 .25
========== ==========
Diluted net earnings per share (A)/(C) ............ .23 .21
========== ==========
</TABLE>
Recent accounting pronouncements:
The Financial Accounting Standards Board and the Accounting
Standards Executive Committee of the American Institute of
Certified Public Accountants had issued certain accounting
pronouncements as of October 31, 1999 that will become
effective in subsequent periods; however, management of the
Company does not believe that any of those pronouncements
would have significantly affected the Company's financial
accounting measurements or disclosures had they been in
effect during the years ended October 31, 1999 and 1998.
Note 2 - Concentration of credit risk and sales to major customers:
The Company maintains its cash balances primarily in one
financial institution. As of October 31, 1999, the balance
exceeded the Federal Deposit Insurance Corporation limitation
for coverage of $100,000 by $81,275. In addition, two unsecured
money market accounts totaling $919,041 were held at October 31,
1999. The Company reduces its exposure to credit risk by
maintaining such balances with financial institutions that have
high credit ratings.
F-9
<PAGE>
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 2 - Concentration of credit risk and sales to major customers (concluded):
Accounts receivable are financial instruments that also expose
the Company to a concentration of credit risk. Such exposure is
limited by the large number of customers comprising the
Company's customer base and their dispersion across different
geographic areas. In addition, the Company routinely assesses
the financial strength of its customers and maintains an
allowance for doubtful accounts that management believes will
adequately provide for credit losses.
Sales to one customer represented 16% of total sales in 1999 and
1998 and sales to another customer represented 13% of total
sales in 1998.
Note 3 - Investments:
At October 31, 1999, investments in available-for-sale securities
consisted of units of mutual funds that invest primarily in
short-term, secured obligations. The investments were carried at
cost which approximated fair value at October 31, 1999. Gross
unrealized holding gains and losses on these investments were not
material as of October 31, 1999 or 1998. There were no realized
gains or losses from sales of investments during 1999 or 1998.
Note 4 - Inventories:
Inventories consisted of the following as of October 31, 1999:
Raw materials and supplies ..................... $ 295,215
Finished goods ................................. 2,164,908
-----------
Total........................................ 2,460,123
Less allowance for slow-moving inventory........ 47,000
-----------
Total........................................ $2,413,123
Charges to earnings to reduce the carrying value of slow-moving
inventory to estimated fair values were not material in 1999 and
1998.
Note 5 - Lease commitments:
The Company leases its facilities in San Diego, California under
a noncancelable operating lease. The lease expires in May 2000
and requires minimum annual rental payments that are subject to
fixed annual increases. The minimum annual rentals under this
lease are being charged to expense on a straight-line basis over
the lease term. Deferred rentals were not material at October 31,
1999. The lease also requires the payment of the Company's pro
rata share of the real estate taxes and insurance, maintenance
and other operating expenses related to the facilities. The
Company also leases certain automobiles under operating leases
which expire at various dates through June 2001.
F-10
<PAGE>
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 5 - Lease commitments (concluded):
Total rent expense under all operating leases totalled $99,062
and $92,029 in 1999 and 1998, respectively.
Minimum lease payments under these operating leases for years
subsequent to October 31, 1999 are as follows:
Year Ending
October 31,
-------------
2000...................................... $58,000
2001...................................... 5,000
--------
Total.................................. $63,000
========
Note 6 - Segment information:
During 1999, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131").
Pursuant to the provisions of SFAS 131, the Company is reporting
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. Substantially all of the Company's operations
are conducted in the United States; however, the Company derives
a portion of its revenue from export sales. The Company evaluates
the performance of each segment based on income or loss from
operations before income taxes. The Company has no significant
intersegment sales or transfers. Assets are managed on a
corporate basis. The Company allocates depreciation and other
indirect expenses at a rate of 80% to the RF CONNECTOR Division
and 20% to the NEULINK Division.
F-11
<PAGE>
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 6 - Segment Information (concluded):
Net sales, income (loss) before provision for income taxes and
other related segment information as of October 31, 1999 and for
the years ended October 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
Common/
Connector Neulink Corporate Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1999
----
Net sales ................. $ 5,148,576 $ 991,552 $ 6,140,128
Income (loss) before
provision for income
taxes ................... 1,296,972 (98,887) $ 126,516 1,324,601
Depreciation .............. 44,161 11,040 55,201
Research and
development expense...... 20,903 13,610 34,513
Total assets .............. 6,936,689
1998
----
Net sales ................. $ 5,172,743 $ 1,344,797 $ 6,517,540
Income (loss) before
provision for income
taxes ................... 1,229,494 (48,314) $ 104,819 1,285,999
Depreciation .............. 40,247 10,062 50,309
Research and
development expense....... 16,527 157,725 174,252
Total assets .............. 6,259,923
</TABLE>
The Company attributes revenues to geographic areas based on the
location of the customers. The following table presents the
revenues of the Company by geographic area for the year ended
October 31, 1999:
United States.................................. $5,244,973
Foreign countries.............................. 895,155
-----------
Total....................................... $6,140,128
===========
No individual foreign country accounted for more than 10% of
total net sales for the year ended October 31, 1999.
F-12
<PAGE>
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 7 - Income taxes:
The net provision for income taxes consisted of the following
provisions and (credits):
1999 1998
-------- --------
Current:
Federal ......................... $ 377,500 $ 443,300
State ........................... 109,200 120,700
--------- ---------
486,700 564,000
--------- ---------
Deferred:
Federal ......................... 18,000 (30,000)
State ........................... (4,000) (5,000)
--------- ---------
14,000 (35,000)
--------- ---------
Totals ........................ $ 500,700 $ 529,000
========= =========
Income tax at the Federal statutory rate is reconciled to the
Company's actual net provision for income taxes as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- --------------------
% of Pretax % of Pretax
Amount Income Amount Income
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Income tax at Federal
statutory rate ............. $ 450,360 34.0% $ 437,240 34.0%
State tax provision, net
of Federal tax benefit ..... 83,600 6.3 93,434 7.3
Other credit ................ (33,260) (2.5) (1,674) (.2)
--------- ----- --------- -----
Net provision for income
taxes ................... $ 500,700 37.8% $ 529,000 41.1%
========= ===== ========= =====
</TABLE>
The Company's total deferred tax assets and deferred tax
liabilities at October 31, 1999 are as follows:
1999 1998
----------- ----------
Total deferred tax assets............ $190,000 $204,000
Total deferred tax liabilities....... (38,000) (38,000)
---------- ----------
Net deferred tax assets........... $152,000 $166,000
========== ==========
The temporary differences generating net current and noncurrent
deferred tax assets were primarily related to accrued vacation
expense, reserves for doubtful accounts, deferred compensation
and inventory obsolescence.
F-13
<PAGE>
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 8 - Stock options:
Incentive and Non-Qualified Stock Option Plans:
The Board of Directors approved an Incentive Stock Option
Plan (the "Incentive Plan") during fiscal 1990 that provides
for grants of options to purchase up to 500,000 shares of
common stock to employees of the Company. Under the
Incentive Plan, the option price cannot be less than the
fair market value on the date options are granted and
options can expire no later than ten years after the date of
grant. Options vest immediately upon grant.
Incentive and Non-Qualified Stock Option Plans (concluded):
The Board of Directors also approved a Non-Qualified Stock
Option Plan (the "Non-Qualified Plan") during fiscal 1990
that provides for grants of options to purchase up to
200,000 shares of common stock to officers, directors and
other recipients selected by the Board of Directors. Under
the Non-Qualified Plan, the option price cannot be less than
85% of the fair market value on the date options are granted
and options can expire no later than ten years after the
date of grant. Options vest immediately upon grant.
Compensatory stock option plans:
The Company granted to its President an option for the
purchase of 500,000 shares of common stock at $.10 per share
pursuant to the terms of his employment contract dated June
1, 1994 that became effective as of July 1, 1993. Options
for the purchase of 83,333 shares vested annually from July
1994 through July 1999. The difference of $230,000 between
the market value and the aggregate purchase price of the
shares subject to option at the date of grant was initially
recorded as unearned compensation and deducted from
stockholders' equity, of which $25,569 and $38,333 was
amortized to compensation expense in 1999 and 1998,
respectively.
Additionally, in connection with an agreement for the
provision of public relations services, on January 1, 1996,
the Company granted a consultant an option to purchase
50,000 shares of common stock at $.94 per share, the market
value of a share of common stock on January 1, 1996 and,
accordingly, no charges for compensation are being made in
connection with these options. Options to purchase 10,000
shares vest annually from January 1, 1996 through January 1,
2000.
F-14
<PAGE>
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 8 - Stock options (continued):
Compensatory stock option plans (concluded):
The Company granted to two executives options to purchase a
total of 200,000 shares of common stock at $.10 per share
pursuant to the terms of their employment contracts dated
January 1, 1997. Options to purchase 20,000 shares were
originally scheduled to vest and become exercisable annually
from January 1, 1998 through January 1, 2007. The difference
of $905,000 between the market value and the aggregate
purchase price of the shares subject to option at the date
of grant was initially recorded as unearned compensation and
was being amortized over the vesting period. A total of
$22,630 was amortized to compensation expense in 1998. On
February 1, 1998, the remaining unvested options for the
purchase of a total of 180,000 shares were cancelled and
options for the purchase of 180,000 shares at $.10 per share
were granted to the two executives of which options to
purchase 45,000 shares are scheduled to vest and become
exercisable annually from March 1, 1998 through February 1,
2002. The cancellation of the options resulted in the
reversal of the remaining unearned compensation of $806,958
in 1998. In connection with the reissuance of the options on
February 1, 1998, the difference of $376,200 between the
market value and the aggregate purchase price of the shares
subject to option at the date of the reissuance was
initially recorded as unearned compensation and deducted
from stockholders' equity, and is being amortized over the
vesting period. A total of $94,056 and $70,538 was amortized
to compensation expense in 1999 and 1998, respectively.
The Company granted to an executive an option to purchase
15,000 shares of common stock at $4.40 per share pursuant to
the terms of an employment contract dated January 1, 1997.
The options vested on January 1, 1998; however they were not
exercisable until January 1, 1999. The difference of $3,375
between the market value and the aggregate purchase price of
the shares subject to option at the date of grant was
initially recorded as unearned compensation and deducted
from stockholders' equity, of which $274 and $1,687 was
amortized to compensation expense in 1999 and 1998,
respectively.
F-15
<PAGE>
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 8 - Stock options (continued):
Additional required disclosures related to stock option plans:
Since the Company has elected to continue to use the
provisions of APB 25 in accounting for stock options, no
earned or unearned compensation cost was recognized in the
accompanying financial statements for stock options other
than the amounts attributable to the compensatory options
granted to the executives described above. Had compensation
cost been determined based on the fair value at the grant
date for all awards consistent with the provisions of SFAS
123, the Company's net income and net income per share in
1999 and 1998 would have been reduced to the pro forma
amounts set forth below:
1999 1998
-------- ---------
Net income - as reported......... $823,901 $756,999
Net income - pro forma........... $753,517 $625,757
Basic earnings per share:
As reported................... $.27 $.25
Pro forma..................... $.23 $.21
Diluted earnings per share:
As reported................... $.24 $.20
Pro forma..................... $.21 $.17
The fair value of each option granted in 1999 and 1998
was estimated on the date of grant using the Black-Sholes
option - pricing model with the following weighted average
assumptions:
1999 1998
-------- --------
Dividend yield................ 0% 0%
Expected volatility........... 23% 90%
Risk-free interest rate....... 6.5% 7%
Expected lives................ 10 years 1 to 10 years
F-16
<PAGE>
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 8 - Stock options (concluded):
Additional required disclosures related to stock option plans
(concluded):
Additional information regarding all of the Company's outstanding
stock options at October 31, 1999 and 1998 and changes in outstand-
ing stock options in 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
Weighted Weighted
Shares Average Shares Average
or Price Exercise or Price Exercise
Per Share Price Per Share Price
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of year ............... 965,263 .80 935,560 .84
Options granted ................... 46,887 1.50 267,477 .66
Options exercised ................. (70,000) .40 (14,000) .10
Options canceled .................. (180,000) .10
Options forfeited ................. (24,917) 3.44 (43,774) 3.78
----------- -------- --------- --------
Options outstanding at end of year 917,233 .79 965,263 .80
=========== ======== ========= ========
Option price range at end of year $.10-$5.75 $.10-$5.75
Options available for grant at
end of year ..................... 179,954 201,924
Weighted average fair value of
options granted during the year.. $ 1.50 $ 2.00
Option price range for options
exercised during the year ....... $.10-$1.00 $ .10
</TABLE>
The following table summarizes information about stock options out-
standing at October 31, 1999, all of which are at fixed-prices:
<TABLE>
<CAPTION>
Options Options
Outstanding Exercisable
-------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
---------------- ----------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$.10 628,000 4.9 $.10 529,000 $.10
$.94 50,000 2.0 $.94 40,000 $.94
$1.28-$1.87 137,456 8.6 $1.65 137,456 $1.65
$2.13-$2.50 54,320 8.0 $2.34 54,320 $2.34
$4.88 8,000 7 $4.88 8,000 $4.88
$5.75 39,457 7 $5.75 39,457 $5.75
-------- --------
917,233 808,233
======= =======
</TABLE>
F-17
<PAGE>
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 9 - Retirement plan:
The Company sponsors a deferred savings and profit sharing plan
under Section 401(k) of the Internal Revenue Code. Substantially
all of its employees may participate in and make voluntary
contributions to this defined contribution plan after they meet
certain eligibility requirements. The Board of Directors of the
Company can authorize additional discretionary contributions by
the Company. The Company did not make contributions to the plan
in 1999 and 1998.
Note 10- Related party transactions:
The note receivable from stockholder of $70,000 at October 31,
1999 is due from the President of the Company, bears interest at
6%, payable annually, and has no specific due date.
Receivables from the sale of stock arose from advances made to
assist officers and employees in the exercise of stock options
and, accordingly, are reported as a reduction of stockholders'
equity in the accompanying balance sheet. The receivables are
interest free and due prior to October 31, 2000.
* * *
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 1,100,816
<SECURITIES> 2,043,959
<RECEIVABLES> 799,665
<ALLOWANCES> 42,000
<INVENTORY> 2,413,123
<CURRENT-ASSETS> 6,648,954
<PP&E> 665,770
<DEPRECIATION> 530,935
<TOTAL-ASSETS> 6,936,689
<CURRENT-LIABILITIES> 446,339
<BONDS> 0
0
0
<COMMON> 31,486
<OTHER-SE> 6,458,864
<TOTAL-LIABILITY-AND-EQUITY> 6,936,689
<SALES> 6,140,128
<TOTAL-REVENUES> 6,140,128
<CGS> 2,841,090
<TOTAL-COSTS> 4,938,472
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (122,945)
<INCOME-PRETAX> 1,324,601
<INCOME-TAX> 500,700
<INCOME-CONTINUING> 823,901
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 823,901
<EPS-BASIC> .27
<EPS-DILUTED> .23
</TABLE>
