SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of
Securities Exchange Act of 1934
for Quarter ended July 31, 2003
Commission File Number 0-13301
RF INDUSTRIES, LTD.
(Exact name of registrant as specified in its charter)
Nevada 88-0168936
(State of Incorporation) (I.R.S. Employer Identification No.)
7610 Miramar Road., Bldg. 6000, San Diego, California 92126-4202
(Address of principal executive offices) (Zip Code)
(858) 549-6340 FAX (858) 549-6345
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days
Yes X No
---
State the number of shares outstanding of each of the issuer's classes of common
stock at the latest practicable date.
As of July 31, 2003, the registrant had 2,679,468 shares of Common Stock, $.01
par value, issued.
Transitional small business disclosure format
Yes No X
---
Part I. FINANCIAL INFORMATION
Item 1: Financial Statements
RF INDUSTRIES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31 October 31
2003 2002
----------- -----------
(Unaudited)
ASSETS
--------------
CURRENT ASSETS
Cash and cash equivalents .......................... $ 2,486,207 $ 3,939,299
Trade accounts receivable, net of allowance
for doubtful accounts of $106,993 and $84,806 ...... 1,137,525 1,146,439
Notes receivable ................................... 12,000 12,000
Inventories ........................................ 3,701,879 4,143,617
Other current assets ............................... 236,013 169,396
Deferred tax assets ................................ 162,600 162,600
----------- -----------
TOTAL CURRENT ASSETS .......................... 7,736,224 9,573,351
----------- -----------
PROPERTY AND EQUIPMENT
Equipment and tooling .............................. 1,121,093 1,082,813
Furniture and office equipment ..................... 251,514 251,514
----------- -----------
1,372,607 1,334,327
Less accumulated depreciation ................. 1,019,775 899,504
----------- -----------
Total ......................................... 352,832 434,823
Notes receivable from related parties .............. 48,900 56,505
Note receivable from stockholder ................... 70,000 70,000
Other assets ....................................... 14,171 11,471
----------- -----------
TOTAL ASSETS $ 8,222,127 $10,146,150
=========== ===========
See Notes to Condensed Consolidated Unaudited Financial Statements.
2
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31 October 31
2003 2002
----------- -----------
LIABILITIES AND (Unaudited)
STOCKHOLDERS' EQUITY
----------------------
CURRENT LIABILITIES
Accounts payable ............................... $ 189,028 $ 70,806
Notes payable .................................. 0 44,582
Accrued expenses ............................... 233,227 327,271
------------ ------------
Total current liabilities ................. 422,255 442,659
Deferred tax liabilities ....................... 107,800 107,800
------------ ------------
TOTAL LIABILITIES ......................... 530,055 550,459
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - authorized 10,000,000 shares
of $.01 par value; 2,679,468 and 3,441,054
shares issued .............................. 26,794 34,410
Additional paid-in capital ..................... 2,401,334 4,695,147
Retained earnings .............................. 5,332,650 4,923,060
Receivables from sales of stock ................ (15) (1,715)
Treasury stock, at cost - 21,900 and
31,700 shares ............................... (68,691) (55,211)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ................ 7,692,072 9,595,691
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................... $ 8,222,127 $ 10,146,150
============ ============
See Notes to Condensed Consolidated Unaudited Financial Statements.
3
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME AND COMPREHENSIVE INCOME
Three Months Ended Nine Months Ended
July 31 July 31
----------------------- ------------------------
(Unaudited) (Unaudited)
2003 2002 2003 2002
---------- ---------- ---------- ----------
INCOME:
Net sales ........................... $ 2,337,410 $ 2,161,127 $ 6,830,310 $ 6,437,033
Cost of sales ....................... 1,151,146 1,186,038 3,414,791 3,292,714
----------- ----------- ----------- -----------
Gross profit ................... 1,186,264 975,089 3,415,519 3,144,319
----------- ----------- ----------- -----------
Operating expenses:
Engineering .................... 178,933 169,784 565,231 476,011
Selling and general ............ 684,425 760,430 2,183,275 2,266,041
----------- ----------- ----------- -----------
Totals ..................... 863,358 930,214 2,748,506 2,742,052
----------- ----------- ----------- -----------
Operating income .................... 322,906 44,875 667,013 402,267
----------- ----------- ----------- -----------
Other income (expenses):
Realized loss on sales of
investments ................ 0 (8,192) 0 (8,192)
Commissions .................... 0 14,886 0 23,101
Interest ....................... 1,122 17,175 17,227 57,178
----------- ----------- ----------- -----------
Totals .................... 1,122 23,869 17,227 72,087
----------- ----------- ----------- -----------
Income before provision
for income tax .................. 324,028 68,744 684,240 474,354
Provision for income tax ............ 125,750 28,000 274,650 190,000
----------- ----------- ----------- -----------
Net income ................ $ 198,278 $ 40,744 $ 409,590 $ 284,354
=========== =========== =========== ===========
Basic earnings per share ............ $ 0.07 $ 0.01 $ 0.13 $ 0.08
=========== =========== =========== ===========
Diluted earnings per share .......... $ 0.06 $ 0.01 $ 0.11 $ 0.07
=========== =========== =========== ===========
Basic weighted average
shares outstanding .............. 2,768,571 3,409,354 3,185,864 3,409,354
=========== =========== =========== ===========
Diluted weighted average
shares outstanding .............. 3,326,677 3,738,371 3,580,094 3,814,647
=========== =========== =========== ===========
COMPREHENSIVE INCOME
Net income .......................... $ 198,278 $ 40,744 $ 409,590 $ 284,354
Unrealized gain (loss) on available-
for-sale securities, net of deferred
tax ................................ 0 (723) 0 7,986
----------- ----------- ----------- -----------
Total comprehensive income $ 198,278 $ 40,021 $ 409,590 $ 292,340
=========== =========== =========== ===========
See Notes to Condensed Consolidated Unaudited Financial Statements.
4
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Nine months ended July 31
-------------------------------
(Unaudited)
2003 2002
----------- ----------
Net income .............................................. $ 409,590 $ 284,354
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for bad debts ............................ 36,000 70,000
Depreciation and amortization ...................... 120,270 123 090
Amortization of unearned compensation .............. 23,490
Realized loss on available-for-sale securities ..... 8,192
Changes in operating assets and liabilities:
Trade accounts receivable .......................... (27,086) 78,397
Inventories ....................................... 441,738 439,495
Other assets ...................................... (61,712) (67,754)
Accounts payable .................................. 118,222 (14,966)
Accrued expenses .................................. (94,044) (12,292)
----------- -----------
Net cash provided by operating activities ......... 942,978 932,006
----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of available-for-sale securities 1,780,659
Investments in securities ......................... (30,910)
Capital expenditures .............................. (38,279) (23,980)
Repayments of related party notes ................. 1,700
----------- -----------
Net cash provided by (used in) investing activities (36,579) 1,725,769
----------- -----------
FINANCING ACTIVITIES
Payments on loans payable ......................... (44,582) (47,500)
Proceeds from exercise of stock options ........... 38,840 0
Repurchase of Company stock ....................... (2,353,749) 0
----------- -----------
Net cash used in financing activities ............ (2,359,491) (47,500)
----------- -----------
Net increase (decrease) in cash and cash equivalents
(1,453,092) 2,610,275
Cash and cash equivalents at the beginning of the
period ................................................. 3,939,299 915,538
----------- -----------
Cash and cash equivalents at the end of the period ...... $ 2,486,207 $ 3,525,813
=========== ===========
See Notes to Condensed Consolidated Unaudited Financial Statements
5
RF INDUSTRIES, LTD. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Unaudited interim financial statements:
The accompanying unaudited condensed consolidated financial statements have
been prepared in conformity with accounting principles generally accepted
in the United States of America for interim financial information and with
the instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended July
31, 2003 are not necessarily indicative of the results that may be expected
for the year ending October 31, 2003. The unaudited condensed consolidated
financial statements should be read in conjunction with the financial
statements and footnotes thereto included in the Company's annual report on
Form 10-KSB for the year ended October 31, 2002.
Note 2 - Components of inventory
July 31 October 31
2003 2002
------------ ----------
(Unaudited)
Raw material and supplies .......... $ 639,853 $ 655,746
Finished goods ..................... 3,062,026 3,487,871
---------- ---------
Totals ....................... $ 3,701,879 $ 4,143,617
========== ==========
Note 3 - Earnings per share:
As further explained in Note 1 of the notes to the audited financial
statements of the Company, included in Form 10-KSB for the fiscal year
ended October 31, 2002, basic earnings per share is computed by dividing
net earnings by the weighted average number of common stock outstanding
during the period. Diluted earnings per share is computed by dividing net
earnings by the weighted average number of shares of common stock increased
by the effects of assuming that other potentially dilutive securities (such
as stock options) outstanding during the period had been exercised and the
treasury stock method had been applied.
The following table summarizes the computation of basic and diluted
weighted average shares:
6
Three Months Ended Nine Months Ended
July 31 July 31
2003 2002 2003 2002
--------- --------- --------- ---------
Weighted average shares outstanding for
basic net earnings per share ............. 2,768,571 3,409,354 3,185,864 3,409,354
Add effects of potentially dilutive securities-
assumed exercise of stock options ......... 558,106 329,017 394,230 405,293
--------- --------- --------- ---------
Weighted average shares for diluted net
earnings per share ........................ 3,326,677 3,738,371 3,580,094 3,814,647
========= ========= ========= =========
Note 4 - Segment Information
The Company's segments are described in Note 6 of the notes to the audited
financial statements of the Company included in Form 10-KSB for the fiscal year
ended October 31, 2002.
The Company had reported segment information in its previous filings for the
operations associated with its Connector, Neulink and Bioconnect business units
in the same format as reviewed by the Company's management. The sales, operating
income and assets of the Bioconnect segment no longer meet the thresholds that
require separate disclosures and the product line of Bioconnect is comparable
with the Connector business unit. Accordingly, the Company discontinued
reporting segment information on the Bioconnect segment separately and included
this information in the Connector business unit in the third quarter for the
year ending October 31, 2003. The comparable segment information for the third
quarter year ending October 31, 2002 has been restated to conform with the 2003
presentation.
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.
Net sales and income (loss) before provision for income taxes for the three
months ended July 31, 2003 and 2002 follows:
Common/
Connector Neulink Corporate Total
--------- --------- --------- -----------
2003
-----------
Net sales ............. $2,129,464 $ 207,946 $2,337,410
Income (loss) before
provision for income
taxes ............... 404,531 (81,625) 1,122 324,028
Depreciation and
amortization ....... 37,066 2,072 39,138
Total assets .......... 7,596,044 626,083 8,222,127
Additions to property
and equipment ...... 1,101 1,101
7
Common/
Connector Neulink Corporate Total
--------- --------- --------- -----------
2002
------------
Net sales ............ $ 2,055,210 $ 105,917 $ 2,161,127
Income (loss) before
provision for income
taxes ............ 115,155 (63,586) $ 17,175 68,744
Depreciation and
amortization ...... 45,216 (4,847) 40,369
Total assets ......... 8,836,762 1,089,256 9,926,018
Additions to property
and equipment ..... 6,389 6,389
Net sales and income (loss) before provision for income taxes for the nine
months ended July 31, 2003 and 2002 follows:
Common/
Connector Neulink Corporate Total
--------- --------- --------- -----------
2003
-----------
Net sales ............. $5,916,038 $ 914,272 $6,830,310
Income (loss) before
provision for income
taxes ............. 787,657 (120,644) 17,227 684,240
Depreciation and
amortization ....... 109,020 11,250 120,270
Total assets .......... 7,596,044 626,083 8,222,127
Additions to property
and equipment ...... 38,279 38,279
2002
-----------
Net sales ............ $ 5,778,270 $ 658,763 $ 6,437,033
Income (loss) before
provision for income
taxes ............ 436,968 (19,792) $ 57,178 474,354
Depreciation and
amortization ...... 107,200 15,890 123,090
Total assets ......... 8,836,762 1,089,256 9,926,018
Additions to property
and equipment ..... 23,980 23,980
8
Note 5- Stock Option Plan
A description of the Company's 2000 Stock Option Plan and other information
related to stock options are included in Note 8 in its Annual Report on Form
10-KSB for the year ended October 31, 2002.
The Company continues to measure compensation cost related to stock options
issued to employees using the intrinsic value method of accounting prescribed by
Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting For Stock
Issued to Employees. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Principles No. 123 ("SFAS 123"), Accounting
for Stock-Based Compensation. Accordingly, no earned or unearned compensation
cost was recognized in the accompanying condensed consolidated financial
statements for the stock options granted by the Company to its employees since
all of those options have been granted at exercise prices that equaled or
exceeded the market value at the date of grant. The Company's historical net
income and earnings per common share and pro forma net income and earnings per
share assuming compensation cost had been determined based on the fair value at
the grant date for all awards by the Company consistent with the provisions of
SFAS 123 are set forth below:
Three Months Ended Nine Months Ended
-------------------- ---------------------
July 31 July 31
2003 2002 2003 2002
--------- --------- --------- ---------
Net income - as reported ................. $ 198,278 $ 40,744 $ 409,590 $ 284,354
Deduct total stock-based employee
compensation expense determined
under fair value-based method for
all awards .......................... (20,000) (20,000) (60,000) (60,000)
----------- ---------- ---------- -----------
Net income - pro forma ................... $ 178,278 $ 20,744 $ 349,590 $ 224,354
=========== ========== =========== ===========
Basic earnings per share - as reported ... $ 0.07 $ 0.01 $ 0.13 $ 0.08
Basic earnings per share - pro forma ..... $ 0.06 $ 0.01 $ 0.11 $ 0.07
Diluted earnings per share - as reported.. $ 0.06 $ 0.01 $ 0.11 $ 0.07
Diluted earnings per share - pro forma ... $ 0.05 $ 0.01 $ 0.10 $ 0.06
Note 6 - Equity transactions
On May 22, 2003, the Company announced the repurchase, for $3.00 per share, in a
single private transaction, of a 752,167 share block of its common stock. These
shares were retired and represent 22% of the total shares outstanding
immediately prior to the purchase and were owned by a single, unaffiliated
stockholder. During the quarter ending July 31, 2003, the Company issued 34,381
shares of common stock upon the exercise of employee stock options having a
weighted average exercise price of $1.13. In addition, on July 31, 2003, the
Company retired 43,800 shares of its common stock, which were previously held in
treasury.
9
Item 2: Management's discussion and analysis of financial condition and results
of operations
This report contains forward-looking statements. These statements relate to
future events or the Company's future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "except," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither the
Company, nor any other person, assumes responsibility for the accuracy and
completeness of the forward-looking statements. The Company is under no
obligation to update any of the forward-looking statements after the filing of
this Quarterly Report on Form 10-QSB to conform such statements to actual
results or to changes in its expectations.
The following discussion should be read in conjunction with the Company's
financial statements and the related notes and other financial information
appearing elsewhere in this Form 10-QSB. Readers are also urged to carefully
review and consider the various disclosures made by the Company which attempt to
advise interested parties of the factors which affect the Company's business,
including without limitation the disclosures made under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," under the caption "Risk Factors," and the audited financial
statements and related notes included in the Company's Annual Report filed on
Form 10-KSB for the year ended October 31, 2002 and other reports and filings
made with the Securities and Exchange Commission.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of RF Industries and Subsidiary are
prepared in conformity with accounting principles generally accepted in the
United States of America ("GAAP"). The preparation of these financial statements
requires our management to make estimates and assumptions about future events
that affect the amounts reported in the financial statements and related notes.
Future events and their effects cannot be determined with absolute certainty.
Therefore, the determination of estimates requires the exercise of judgment. The
Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of financial
statements.
Revenue recognition:
The Company recognizes revenue from the sale of products at the time of shipment
of the product. In addition, the Company has a strategic alliance with a
supplier where the Company recognizes commission income when payment is
received.
10
Allowance for doubtful accounts:
The Company maintains an allowance for doubtful accounts based on historical
collections of accounts receivable. The Company monitors its accounts receivable
balances on a continual basis. If the financial condition of customers
deteriorates, additional allowances may be required.
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 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 is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
Inventory valuation:
Inventories are valued at the weighted average cost value. Certain items in the
inventory may be considered obsolete or excess and, as such, the Company may
establish an allowance to reduce the carrying value of these items to their net
realizable value. Based on estimates, assumptions and judgments made from the
information available at the time, the Company determines the amounts of these
allowances. If these estimates and related assumptions are incorrect or the
market changes, we may be required to record additional reserves, which may
decrease future earnings.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that existing current assets and the amount of cash it
anticipates it will generate from current operations will be sufficient to fund
the anticipated liquidity and capital resource needs of the Company for at least
twelve months. The Company does not, however, currently have any commercial
banking arrangements providing for loans, credit facilities or similar matters
should the Company need to obtain additional capital. Management believes that
its existing assets and the cash expected to be generated from operations will
be sufficient during the current fiscal year are based on the following:
o As of July 31, 2003, the amount of cash and cash equivalents was equal to $
2,486,000 in the aggregate.
o As of July 31, 2003, the Company had $ 7,736,000 in current assets, and
only $ 422,000 of current liabilities.
o As of July 31, 2003, the Company had no outstanding indebtedness (other
than accounts payable and accrued expenses).
11
In May 2003, the Company used $2,256,501 of its cash to repurchase and retire
752,167 of its then outstanding shares of common stock. Notwithstanding the
foregoing repurchase, following the repurchase the Company still had over
$2,000,000 of cash and cash equivalents, working capital of approximately
$7,000,000, and a current ratio of approximately 18 to 1. The 752,167 shares
that the Company repurchased have been retired and, as permitted by Nevada law,
have been restored to the status of authorized and unissued shares available for
future issuance.
The Company does not believe it will need material additional capital equipment
in the next twelve months. In the past, the Company has financed some of its
property and equipment requirements through capital leases. No additional
capital equipment purchases have been currently identified that would require
significant additional leasing or capital obligations during the next twelve
months. Management also believes that based on the Company's current financial
condition, the absence of outstanding bank debt and recent operating results,
the Company would be able to obtain bank loans to finance its expansion, if
necessary, although there can be no assurance any bank loan would be obtainable,
or if obtained, would be on favorable terms or conditions.
As of July 31, 2003, the Company had a total of $ 2,486,000 of cash and cash
equivalents compared to a total of $ 3,939,000 of cash and cash equivalents on
October 31, 2002. The decrease in liquid assets is the result of the $2,256,500
repurchase of 752,167 shares of outstanding stock in May 2003, which $2,256,500
decrease in cash was partially offset by the $198,000 of net income generated by
the Company during the most recent fiscal quarter.
Net cash used in investing activities was $ 36,579 for the nine months ended
July 31, 2003, and was attributable to $ 38,279 in capital expenditures and
$1,700 representing repayments of notes.
Net cash used in financing activities was $2,359,491 for the nine months ended
July 31, 2003, and was attributable to $2,353,749 used to purchase stock,
$44,582 payments on loans payable and $38,840 representing proceeds from
exercise of stock options. For the nine months ended July 31, 2003, the Company
had repurchased additional shares of its common stock, and retired 43,800 of
those shares.
As a result of the foregoing factors, the Company used $1,453,092 in net cash
during the past nine months.
RESULTS OF OPERATIONS
Three Months 2003 vs. Three Months 2002
Net sales, in the current fiscal quarter ended July 31, 2003, increased 8.2%, or
$176,300, to $2,337,400 from $2,161,100 in the third fiscal quarter last year,
due to increased sales at both of the Company's two divisions.
12
Net sales at the RF Connector division, which now includes the Bioconnect
product line, increased 3.6%, to $2,129,500 compared to $2,055,200 for the same
quarter last year, due to an increase in sales of higher margin Connector
products in the third quarter. The increase in sales of RF Connector products
reflects a general increase in demand for wireless connectors and cable
products, primarily for Wi-Fi network applications. The Company believes this
increase is due, in part, to a revival in some sectors of the telecommunication
industries and the continuing increase in the demand for wireless products.
Net sales at the RF Neulink division increased during this year's third quarter
by 96.9% to $207,900 compared to $105,600 in the third quarter last year. The
increase in sales is primarily the result of an increase in the number of 2.4
GHz transceivers sold.
Cost of sales decreased 2.9% or $34,900, to $1,151,100 from $1,186,000 in the
same quarter last year. The decrease is primarily due to decreased costs, and
increased efficiencies that have been realized since the Company closed
Bioconnect operations, at the Lake Elsinore plant, in January of 2003. Overall
gross margins, as a percentage of sales, increased 5.7% compared to the third
quarter of last year primarily related to the improvement in Connector's product
mix during the quarter.
Engineering expenses increased 5.4%, or $9,100, to $178,900 from $169,800 in the
third quarter last year. Engineering expenses increased primarily as a result of
the additional expenses incurred to develop a new high-speed wireless radio
modem to upgrade and replace Neulink's existing RF9600 transceiver product line.
Selling and general expenses decreased 10% or $76,000, to $684,400 from $760,400
in the same quarter last year. Selling and general expenses were lower in the
third quarter this year due primarily to decreased salary expenses and facility
leasing costs since closing the Bioconnect plant.
Net interest income decreased to $1,100 from $17,100 in the third quarter last
year due to reduced investments in mutual funds.
Nine Months 2003 vs. Nine Months 2002
Net sales increased 6.1, or $393,300, to $6,830,300 from $6,437,000 for the nine
month period of 2002, primarily due to increased sales at the both divisions.
Net sales at the RF Connector division, which now includes the Bioconnect
product line, increased 2.4%, to $5,916,000 compared to $5,778,300 for the same
nine months last year, due to a general increase in the demand for cable
assemblies.
Net sales at the RF Neulink division increased by 38.8% to $914,300 compared to
$658,800 in the third quarter last year. The increase in sales can be attributed
to expanded sales of Neulink wireless transceivers.
13
Cost of sales increased 3.7% or $122,100, to $3,414,800 from $3,292,700 in the
nine month period last year. The increase is primarily due to increased freight
costs, duty and sales year to date. Overall gross margins, as a percentage of
sales, increased 1.2% compared to the last year primarily because of the Neulink
and Connector product mix during the nine months.
Engineering expenses increased 18.7% or $89,200, to $565,200 from $476,000 in
the first nine months last year. Engineering expenses increased primarily as a
result of the additional expenses incurred by Neulink to develop a new
high-speed wireless radio modem.
Selling and general expenses decreased 3.7% or $82,700, to $2,183,300 from
$2,266,000 in the same nine months last year. Selling and general expenses were
higher in the nine month period last year due to catalog expenses and expenses
at the Bioconnect Lake Elsinore facility.
Net interest income decreased to $17,200 from $57,200 in the first nine months
last year due to lower interest rates and reduced investments in mutual funds
since July of 2002.
MATERIAL CHANGES IN FINANCIAL CONDITION:
Cash and cash equivalents decreased by $1,453,092 to $2,486,207 at July 31, 2003
compared to $3,939,299 at October 31, 2002. The decrease is due primarily to the
repurchase of 752,167 shares of common stock in May 2003 for $2,265,500 in cash.
Trade accounts receivable at July 31, 2003 decreased 0.8%, or $8,900 to
$1,137,500 compared to the October 31, 2002 balance of $1,146,400. The decrease
is due primarily to timing of collections and the Company's increased efforts to
reduce its outstanding accounts receivable.
Inventories at July 31, 2003 decreased 10.7%, or $441,700, to $3,701,900,
compared to $4,143,600 on October 31, 2002. As part of its business strategy,
and because of its off-shore manufacturing arrangements, the Company normally
maintains a high level of inventory. For the past year, the Company's improved
inventory management has enabled it to steadily reduce inventory levels. Based
on the recent increases in customer demand, the Company does not expect that it
will achieve further inventory reductions.
Other current assets, including prepaid expenses and deposits, increased $66,600
to $236,000, from $169,400 on October 31, 2002. This increase is a seasonal
factor associated with annual invoices for prepaid cargo insurance, prepaid
property and liability insurance, audit fees, computer maintenance agreements
and other miscellaneous expenses.
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Item 3. Controls and Procedures.
Based on an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 13a-14 of the
Securities Exchange Act of 1934, the principal executive officer and the
principal financial officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company's periodic SEC filings. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect those controls subsequent to the date of our most recent
evaluation.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
31.1:Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2:Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1:Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
32.2:Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
* Pursuant to Commission Release No. 33-8238, this certification
will be treated as "accompanying" this Quarterly Report of Form
10-QSB and not "filed" as part of such report for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liability of Section 18 of the
Securities Exchange Act of 1934, as amended, and this
certification will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, except to the
extent that the registrant specifically incorporates it by
reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RF INDUSTRIES, LTD.
Dated: September 10, 2003 By: /s/ Howard F. Hill
----------------------------
Howard F. Hill, President
Chief Executive Officer
Dated: September 10, 2003 By: /s/ Terrie A. Gross
----------------------------
Terrie A. Gross
Chief Financial Officer
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