Nevada
|
88-0168936
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
7610 Miramar Road, Building 6000
|
|
San Diego, California
|
92126
|
(Address of principal executive offices)
|
(Zip Code)
|
(858) 549-6340
|
|
(Registrant’s telephone number, including area code)
|
Large accelerated filer ¨
|
Accelerated filer ¨
|
Non-accelerated filer ¨
|
Smaller reporting company x
|
July 31,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
(Unaudited)
|
(Note 1)
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash and cash equivalents ($170,274 for settlement of VIE obligations)
|
$ | 1,169,352 | $ | 4,728,884 | ||||
Restricted cash (all related to VIE)
|
68,118 | - | ||||||
Certificates of deposit
|
4,574,936 | 4,577,570 | ||||||
Trade accounts receivable, net of allowance for doubtful accounts of $139,845 and $75,734 ($998,441 for settlement of VIE obligations)
|
2,868,390 | 2,557,822 | ||||||
Inventories ($568,905 for settlement of VIE obligations)
|
6,295,128 | 4,607,843 | ||||||
Other current assets ($16,295 for settlement of VIE obligations)
|
865,645 | 448,187 | ||||||
Deferred tax assets
|
613,100 | 613,100 | ||||||
TOTAL CURRENT ASSETS
|
16,454,669 | 17,533,406 | ||||||
Property and Equipment:
|
||||||||
Land and building ($1,538,100 of collateral for VIE obligations)
|
1,538,100 | - | ||||||
Equipment and tooling ($295,000 for settlement of VIE obligations)
|
2,968,134 | 2,434,176 | ||||||
Furniture and office equipment ($18,000 for settlement of VIE obligations)
|
556,664 | 508,221 | ||||||
5,062,898 | 2,942,397 | |||||||
Less accumulated depreciation
|
2,633,860 | 2,412,070 | ||||||
TOTALS
|
2,429,038 | 530,327 | ||||||
Long-term investments in certificates of deposit
|
1,695,871 | 946,491 | ||||||
Goodwill
|
2,642,000 | - | ||||||
Amortizable intangible assets, net
|
2,449,832 | - | ||||||
Non-amortizable intangible assets
|
430,000 | - | ||||||
Note receivable from stockholder
|
66,980 | 66,980 | ||||||
Other assets ($71,427 for settlement of VIE obligations)
|
103,586 | 32,159 | ||||||
TOTAL ASSETS
|
$ | 26,271,976 | $ | 19,109,363 |
July 31,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
(Unaudited)
|
(Note 1)
|
|||||||
LIABILITIES AND EQUITY
|
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts payable
|
$ | 384,518 | $ | 537,850 | ||||
Accrued expenses
|
1,597,722 | 1,217,454 | ||||||
Current portion of long-term liabilities ($38,090 recourse limited to VIE creditors)
|
38,090 | - | ||||||
Dividends payable
|
2,141,067 | - | ||||||
Income taxes payable
|
- | 123,909 | ||||||
TOTAL CURRENT LIABILITIES
|
4,161,397 | 1,879,213 | ||||||
Deferred tax liabilities
|
1,199,662 | 18,800 | ||||||
Other long-term liabilities ($1,365,466 recourse limited to VIE creditors)
|
1,506,326 | 297,390 | ||||||
TOTAL LIABILITIES
|
6,867,385 | 2,195,403 | ||||||
EQUITY
|
||||||||
RF Industries, Ltd. and Subsidiary:
|
||||||||
Common stock - authorized 200,000,000 shares of $0.01 par value; 7,049,110 and 5,861,764 shares issued and outstanding
|
70,491 | 58,618 | ||||||
Additional paid-in capital
|
10,981,759 | 6,996,656 | ||||||
Retained earnings
|
8,134,752 | 9,858,686 | ||||||
Total RF Industries, Ltd. and Subsidiary
|
19,187,002 | 16,913,960 | ||||||
Noncontrolling interest
|
217,589 | - | ||||||
TOTAL EQUITY
|
19,404,591 | 19,109,363 | ||||||
TOTAL LIABILITIES AND EQUITY
|
$ | 26,271,976 | $ | 19,109,363 |
Three Months Ended July 31,
|
Nine Months Ended July 31,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net sales
|
$ | 4,947,753 | $ | 4,230,032 | $ | 13,479,610 | $ | 11,321,062 | ||||||||
Cost of sales
|
2,532,204 | 2,213,128 | 6,657,337 | 5,717,611 | ||||||||||||
Gross profit
|
2,415,549 | 2,016,904 | 6,822,273 | 5,603,451 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Engineering
|
274,156 | 218,975 | 903,612 | 624,586 | ||||||||||||
Selling and general
|
2,141,268 | 1,354,395 | 4,768,368 | 3,738,085 | ||||||||||||
Totals
|
2,415,424 | 1,573,370 | 5,671,980 | 4,362,671 | ||||||||||||
Operating income
|
125 | 443,534 | 1,150,293 | 1,240,780 | ||||||||||||
Other income - interest
|
10,479 | 28,062 | 31,725 | 67,856 | ||||||||||||
Other expense - interest
|
(8,982 | ) | - | (8,982 | ) | - | ||||||||||
Other income, net
|
1,497 | 28,062 | 22,743 | 67,856 | ||||||||||||
Income before provision for income taxes
|
1,622 | 471,596 | 1,173,036 | 1,308,636 | ||||||||||||
Provision for (benefit from) income taxes
|
(63,072 | ) | 159,326 | 350,337 | 523,299 | |||||||||||
Consolidated net income
|
64,694 | 312,270 | 822,699 | 785,337 | ||||||||||||
Net income attributable to noncontrolling interest
|
1,243 | - | 1,243 | - | ||||||||||||
Net income attributable to RF Industries, Ltd. and Subsidiary
|
$ | 63,451 | $ | 312,270 | $ | 821,456 | $ | 785,337 | ||||||||
Basic earnings per share
|
$ | 0.01 | $ | 0.05 | $ | 0.13 | $ | 0.14 | ||||||||
Diluted earnings per share
|
$ | 0.01 | $ | 0.05 | $ | 0.12 | $ | 0.12 | ||||||||
Basic weighted average shares outstanding
|
6,486,577 | 5,701,856 | 6,131,944 | 5,700,420 | ||||||||||||
Diluted weighted average shares outstanding
|
7,463,169 | 6,436,752 | 7,085,996 | 6,405,402 | ||||||||||||
Dividends paid and payable
|
$ | 2,313,354 | $ | - | $ | 2,528,675 | $ | - |
2011
|
2010
|
|||||||
OPERATING ACTIVITIES:
|
||||||||
Net income
|
$ | 822,699 | $ | 785,337 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
||||||||
Bad debt (recovery) expense adjustment
|
(2,181 | ) | 2,020 | |||||
Depreciation and amortization
|
229,108 | 158,404 | ||||||
Goodwill impairment
|
- | 137,328 | ||||||
Stock-based compensation expense
|
165,368 | 157,522 | ||||||
Excess tax benefit from stock-based compensation
|
(216,911 | ) | - | |||||
Inventory write-off
|
- | 247,539 | ||||||
Changes in operating assets and liabilities (net of acquisition):
|
||||||||
Restricted cash
|
(5,643 | ) | - | |||||
Trade accounts receivable
|
505,918 | 279,269 | ||||||
Inventories
|
(1,241,580 | ) | 255,475 | |||||
Other current assets
|
(397,245 | ) | (147,584 | ) | ||||
Other long-term assets
|
(882 | ) | ||||||
Accounts payable
|
(388,477 | ) | 127,851 | |||||
Income taxes payable
|
93,002 | (75,134 | ) | |||||
Accrued expenses
|
212,205 | 170,060 | ||||||
Other long-term liabilities
|
(156,530 | ) | (18,466 | ) | ||||
Net cash provided by (used in) operating activities
|
(380,267 | ) | 2,078,739 | |||||
INVESTING ACTIVITIES:
|
||||||||
Acquisition of business (Cables Unlimited)
|
(2,800,000 | ) | - | |||||
Purchase of certificates of deposit
|
(4,650,744 | ) | (3,411,107 | ) | ||||
Maturity of certificates of deposit
|
3,904,000 | 1,813,327 | ||||||
Capital expenditures
|
(271,399 | ) | (126,375 | ) | ||||
Net cash used in investing activities
|
(3,818,143 | ) | (1,724,155 | ) | ||||
FINANCING ACTIVITIES:
|
||||||||
Proceeds from exercise of stock options
|
814,697 | - | ||||||
Excess tax benefit from stock-based compensation
|
216,911 | - | ||||||
Principal payments on long-term liabilities
|
(5,122 | ) | - | |||||
Dividends paid
|
(387,608 | ) | - | |||||
Net cash provided by financing activities
|
638,878 | - | ||||||
Net increase (decrease) in cash and cash equivalents
|
(3,559,532 | ) | 354,584 | |||||
Cash and cash equivalents, beginning of period
|
4,728,884 | 1,225,927 | ||||||
Cash and cash equivalents, end of period
|
$ | 1,169,352 | $ | 1,580,511 | ||||
Supplemental cash flow information:
|
||||||||
Income taxes paid
|
$ | 680,000 | $ | 633,000 | ||||
Interest paid
|
8,982 | $ | - | |||||
Supplemental noncash investing and financing activities:
|
||||||||
Stock issuance for acquisition of business (Cables Unlimited)
|
$ | 2,800,000 | $ | - | ||||
Dividends payable
|
$ | 2,141,067 | $ | - |
Cash consideration paid
|
$ | 2,800,000 | ||
RF Industries, Ltd. common shares issued, (762,738 shares)
|
2,800,000 | |||
Total consideration
|
$ | 5,600,000 |
Other assets
|
$ | 6,000 | ||
Accounts Receivable
|
814,000 | |||
Inventories
|
445,000 | |||
Property, plant and equipment
|
313,000 | |||
Intangible assets
|
2,940,000 | |||
Goodwill (all non-deductible for tax purposes)
|
2,642,000 | |||
Interest bearing liabilities
|
(7,000 | ) | ||
Non-interest bearing liabilities
|
(372,000 | ) | ||
Deferred tax liabilities
|
(1,181,000 | ) | ||
Net assets
|
$ | 5,600,000 |
Three Months ended July 31,
|
||||||||
2011
|
2010
|
|||||||
Revenue
|
$ | 5,657,085 | $ | 5,659,758 | ||||
Net income
|
$ | 110,007 | $ | 316,390 | ||||
Earnings per share
|
||||||||
Basic
|
$ | .02 | $ | .05 | ||||
Diluted
|
$ | .01 | $ | .04 |
Nine Months ended July 31,
|
||||||||
2011
|
2010
|
|||||||
Revenue
|
$ | 17,053,593 | $ | 15,167,525 | ||||
Net income
|
$ | 920,644 | $ | 806,157 | ||||
Earnings per share
|
||||||||
Basic
|
$ | .13 | $ | .12 | ||||
Diluted
|
$ | .12 | $ | .11 |
July 31,
|
October 31,
|
|||||||
2011
|
2010
|
|||||||
Raw materials and supplies
|
$ | 2,168,492 | $ | 1,405,443 | ||||
Work in process
|
21,551 | 15,425 | ||||||
Finished goods
|
4,195,085 | 3,348,944 | ||||||
Inventory reserve
|
(90,000 | ) | (161,969 | ) | ||||
Totals
|
$ | 6,295,128 | $ | 4,607,843 |
Three Months Ended July 31
|
Nine Months Ended July 31
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Weighted average shares outstanding for basic net earnings per share
|
6,486,577 | 5,701,856 | 6,131,944 | 5,700,420 | ||||||||||||
Add effects of potentially dilutive securities-assumed exercise of stock options
|
976,592 | 734,896 | 954,052 | 704,982 | ||||||||||||
Weighted average shares for diluted net earnings per share
|
7,463,169 | 6,436,752 | 7,085,996 | 6,405,402 |
2011
|
2010
|
|||||||
Risk-free interest rate
|
0.68 | % | 1.41 | % | ||||
Dividend yield
|
2.7 | % | 0.00 | % | ||||
Expected life of the option
|
3.5 years
|
2.5 years
|
||||||
Volatility factor
|
51.68 | % | 57.67 | % |
Weighted
|
||||||||
Average Exercise
|
||||||||
Shares
|
Price
|
|||||||
Outstanding at November 1, 2010
|
2,454,952 | $ | 2.00 | |||||
Options granted
|
53,000 | $ | 3.39 | |||||
Options exercised
|
(424,608 | ) | $ | 1.92 | ||||
Options canceled or expired
|
(11,470 | ) | $ | 2.64 | ||||
Options outstanding at July 31, 2011
|
2,071,874 | $ | 2.05 | |||||
Options exercisable at July 31, 2011
|
1,490,932 | $ | 1.92 | |||||
Options vested and expected to vest at July 31, 2011
|
2,047,174 | $ | 2.03 |
Three Months Ended July 31,
|
Nine Months Ended July 31,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
United States
|
$ | 4,594,086 | $ | 3,654,004 | $ | 12,300,852 | $ | 9,767,347 | ||||||||
Foreign countries:
|
||||||||||||||||
Canada
|
124,030 | 147,320 | 543,131 | 482,110 | ||||||||||||
Israel
|
59,504 | 289,061 | 173,295 | 637,076 | ||||||||||||
Mexico
|
96,874 | 98,250 | 304,453 | 294,717 | ||||||||||||
All other
|
73,259 | 41,397 | 157,879 | 139,812 | ||||||||||||
$ | 4,947,753 | $ | 4,230,032 | $ | 13,479,610 | $ | 11,321,062 |
RF Connectors
|
Medical Cabling
|
||||||||||||||||||||||||
And
|
Cables
|
and
|
RF
|
||||||||||||||||||||||
2011
|
Cable Assembly
|
Unlimited
|
Interconnector
|
Wireless
|
Corporate
|
Total
|
|||||||||||||||||||
Net sales
|
$ | 3,273,835 | $ | 909,277 | $ | 510,001 | $ | 254,640 | $ | 4,947,753 | |||||||||||||||
Income (loss) before provision for income taxes
|
(98,849 | ) | 88,137 | 120,609 | (118,407 | ) | $ | 10,132 | 1,622 | ||||||||||||||||
Depreciation and amortization
|
44,703 | 73,596 | 8,251 | 464 | 127,014 | ||||||||||||||||||||
2010 | |||||||||||||||||||||||||
Net sales
|
$ | 3,546,233 | $ | - | $ | 563,419 | $ | 120,380 | $ | 4,230,032 | |||||||||||||||
Income (loss) before provision for income taxes
|
682,620 | - | 153,104 | (392,190 | ) | $ | 28,062 | 471,596 | |||||||||||||||||
Depreciation, amortization and impairment
|
179,687 | - | 6,881 | 5,505 | 192,073 |
RF Connectors
|
Medical Cabling
|
||||||||||||||||||||||||
And
|
Cables Unlimited
|
And
|
RF
|
||||||||||||||||||||||
2011
|
Cable Assembly
|
Interconnector
|
Wireless
|
Corporate
|
Total
|
||||||||||||||||||||
Net sales
|
$ | 10,144,053 | $ | 909,277 | $ | 1,808,871 | $ | 617,409 | $ | 13,479,610 | |||||||||||||||
Income (loss) before provision for income taxes
|
1,135,973 | 88,137 | 426,509 | (508,961 | ) | $ | 31,378 | 1,173,036 | |||||||||||||||||
Depreciation and amortization
|
131,993 | 73,596 | 22,303 | 1,216 | 229,108 | ||||||||||||||||||||
2010 | |||||||||||||||||||||||||
Net sales
|
$ | 9,719,162 | $ | - | $ | 1,346,225 | $ | 255,675 | $ | 11,321,062 | |||||||||||||||
Income (loss) before provision for income taxes
|
1,699,925 | - | 296,544 | (755,689 | ) | $ | 67,856 | 1,308,636 | |||||||||||||||||
Depreciation, amortization and impairment
|
259,523 | - | 16,566 | 19,643 | 295,732 |
July 31, 2011
|
October 31, 2010
|
|||||||
Amortizable intangible assets
|
||||||||
Non-compete agreements (estimated life 5 years)
|
$ | 280,000 | $ | 120,000 | ||||
Accumulated amortization
|
(124,000 | ) | (120,000 | ) | ||||
156,000 | - | |||||||
Customer relationships (estimated life 7.6 years)
|
$ | 2,356,467 | $ | 81,467 | ||||
Accumulated amortization
|
(118,885 | ) | (81,467 | ) | ||||
2,237,582 | - | |||||||
Backlog (estimated life 6 months)
|
$ | 75,000 | $ | - | ||||
Accumulated amortization
|
(18,750 | ) | ||||||
56,250 | - | |||||||
Non-amortizable intangible assets
|
||||||||
Trademarks
|
$ | 430,000 | $ | - | ||||
Totals
|
$ | 2,879,832 | $ | - |
July 31, 2011
|
October 31, 2010
|
|||||||
Wages payable
|
$ | 826,767 | $ | 834,188 | ||||
Accrued receipts
|
463,321 | 318,490 | ||||||
Other current liabilities
|
307,634 | 64,776 | ||||||
Totals
|
$ | 1,597,722 | $ | 1,217,454 |
July 31, 2011
|
October 31, 2010
|
|||||||
Tax related liabilities
|
$ | 79,418 | $ | 216,171 | ||||
Mortgages payable
|
1,365,466 | - | ||||||
Deferred lease liability
|
61,442 | 81,219 | ||||||
Totals
|
$ | 1,506,326 | $ | 297,390 |
|
·
|
Mortgage payable with TFCU in the amount of $800,000. The loan bears interest at a rate per annum of 6.625% with minimum monthly payments due of principal and interest of $5,490 commencing March 1, 2010 through February 2020. The agreement includes a financial covenant which requires K&K to maintain a minimum debt service coverage ratio. The note is guaranteed by Cables Unlimited and collateralized by K&K’s real property.
|
|
·
|
Second mortgage payable to a bank in the amount of $640,000 due in monthly installments of interest only of $3,485 from February 2010 through April 2010, at a rate per annum of 6.625%, and then due in monthly installments of $8,197 of principal and interest at 9.25% from May 2010 through September 2010. The mortgage was collateralized by K&K’s building. This mortgage was paid in full in September 2010 with the proceeds received through the financing noted below.
|
Note payable - TFCU
|
$ | 780,608 | ||
Note payable - SBA
|
622,948 | |||
1,403,556 | ||||
Less current portion
|
(38,090 | ) | ||
$ | 1,365,466 |
2011
|
$ | 16,022 | ||
2012
|
39,363 | |||
2013
|
41,350 | |||
2014
|
43,298 | |||
2015
|
45,350 | |||
Thereafter
|
1,218,173 | |||
$ | 1,403,556 |
|
·
|
As of July 31, 2011, the amount of cash and cash equivalents was equal to $1,169,000 in the aggregate and the Company had $6,271,000 of investments in certificates of deposit. However, on September 1, 2011 the Company paid a special one-time cash dividend of $.25 per common share, or $1,784,000 in the aggregate, which has reduced the Company’s cash and cash equivalents. In addition, on July 21, 2011, the Company declared a quarterly cash dividend of $.05 per share, or $357,000 in the aggregate payable on October 17, 2011.
|
|
·
|
As of July 31, 2011, the Company had $16,455,000 in current assets, and $4,161,000 in current liabilities. Of the $4,161,000 of current liabilities, $1,784,000 represents the special dividend that was paid on September 1, 2011, and $357,000 represents dividends that are payable on October 17, 2011.
|
|
·
|
As of July 31, 2011, the Company had outstanding debt of $1,404,000 relating to mortgage payables of the VIE K&K, which Cables Unlimited guarantees. This amount represents a mortgage guaranty issued by Cables Unlimited for the benefit of the former owner of Cables Unlimited. The former owner has agreed to release Cables Unlimited from this guaranty in the near future.
|
Exhibit
|
||
Number
|
||
31.1:
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2:
|
Certification of President and 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 President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
99.1
|
Press Release dated September 14, 2011 announcing the financial results for the fiscal quarter ended July 31, 2011.
|
101.INS*
|
XBRL Instance Document
|
|
101.SCH*
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
*
|
Pursuant to Rule 406T of Regulation S-T, the information in Exhibit 101 is “furnished” with this Quarterly Report on Form 10-Q and is not deemed to be “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, (b) is deemed not to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and (c) is not otherwise subject to liability under those sections.
|
RF INDUSTRIES, LTD.
|
||
Dated: September 14, 2011
|
By:
|
/s/ Howard F. Hill
|
Howard F. Hill,
|
||
Chief Executive Officer
|
Dated: September 14, 2011
|
By:
|
/s/ James Doss
|
James Doss
|
||
President and Chief Financial Officer
|
Date: September 14, 2011
|
/s/ Howard F. Hill
|
Howard F. Hill
|
|
Chief Executive Officer
|
Date: September 14, 2011
|
/s/ James Doss
|
James Doss
|
|
President and Chief Financial Officer
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: September 14, 2011
|
/s/ Howard F. Hill
|
Howard F. Hill
|
|
Chief Executive Officer
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: September 14, 2011
|
/s/ James Doss
|
James Doss
|
|
President and Chief Financial Officer
|
RF INDUSTRIES, LTD.
|
For Immediate Release
|
|
Investor Contact:
Neil Berkman Associates
(310) 477 - 3118
info@berkmanassociates.com
|
Company Contact:
James Doss, President
(858) 549-6340
rfi@rfindustries.com
|
RF INDUSTRIES, LTD.
|
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
|
||||||||||||||||
(in thousands, except per share and share amounts) (unaudited)
|
||||||||||||||||
Three Months Ended
|
Nine months Ended
|
|||||||||||||||
July 31,
|
July 31,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net sales
|
$ | 4,948 | $ | 4,230 | $ | 13,480 | $ | 11,321 | ||||||||
Cost of sales
|
2,532 | 2,213 | 6,658 | 5,718 | ||||||||||||
Gross profit
|
2,416 | 2,017 | 6,822 | 5,603 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Engineering
|
274 | 219 | 904 | 624 | ||||||||||||
Selling and general
|
2,141 | 1,354 | 4,768 | 3,738 | ||||||||||||
Total operating expenses
|
2,415 | 1,573 | 5,672 | 4,362 | ||||||||||||
Operating income
|
1 | 444 | 1,150 | 1,241 | ||||||||||||
Other income - interest
|
10 | 28 | 32 | 68 | ||||||||||||
Other expense - interest
|
9 | -- | 9 | -- | ||||||||||||
Other income, net
|
1 | 28 | 23 | 68 | ||||||||||||
Income before provision for income taxes
|
2 | 472 | 1,173 | 1,309 | ||||||||||||
Provision for (benefit from) income taxes
|
(63 | ) | 160 | 350 | 524 | |||||||||||
Consolidated net income
|
$ | 65 | $ | 312 | $ | 823 | $ | 785 | ||||||||
Net income attributable to non-controlling interest
|
1 | -- | 1 | -- | ||||||||||||
Net income attributable to RF Industries and Subsidiary
|
64 | 312 | 822 | 785 | ||||||||||||
Earnings per share
|
||||||||||||||||
Basic
|
$ | 0.01 | $ | 0.05 | $ | 0.13 | $ | 0.14 | ||||||||
Diluted
|
$ | 0.01 | $ | 0.05 | $ | 0.12 | $ | 0.12 | ||||||||
Weighted average shares outstanding
|
||||||||||||||||
Basic
|
6,486,577 | 5,701,856 | 6,131,944 | 5,700,420 | ||||||||||||
Diluted
|
7,463,169 | 6,436,752 | 7,085,996 | 6,405,402 | ||||||||||||
Dividends paid and payable
|
$ | 2,313 | -- | $ | 2,529 | -- |
Jul. 31,
|
Oct. 31,
|
|||||||
2011
|
2010
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$ | 1,169 | $ | 4,729 | ||||
Restricted cash
|
68 | -- | ||||||
Certificates of deposit
|
4,575 | 4,578 | ||||||
Trade accounts receivable, net
|
2,868 | 2,558 | ||||||
Inventories
|
6,295 | 4,608 | ||||||
Other current assets
|
866 | 448 | ||||||
Deferred tax assets
|
613 | 613 | ||||||
TOTAL CURRENT ASSETS
|
16,455 | 17,534 | ||||||
Property and equipment, net
|
2,429 | 530 | ||||||
Long term certificates of deposit
|
1,696 | 946 | ||||||
Goodwill
|
2,642 | -- | ||||||
Amortizable intangible assets, net
|
2,450 | -- | ||||||
Non-amortizable intangible assets
|
430 | -- | ||||||
Note receivable from stockholder
|
67 | 67 | ||||||
Other assets
|
103 | 32 | ||||||
TOTAL ASSETS
|
$ | 26,272 | $ | 19,109 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable
|
$ | 384 | $ | 538 | ||||
Accrued expenses
|
1,598 | 1,217 | ||||||
Current portion of long-term liabilities
|
38 | -- | ||||||
Dividends payable
|
2,141 | -- | ||||||
Income taxes payable
|
-- | 124 | ||||||
TOTAL CURRENT LIABILITIES
|
4,161 | 1,879 | ||||||
Deferred tax liabilities
|
1,200 | 19 | ||||||
Other long-term liabilities
|
1,506 | 297 | ||||||
TOTAL LIABILITIES
|
6,867 | 2,195 | ||||||
COMMITMENTS AND CONTINGENCIES
|
||||||||
STOCKHOLDERS' EQUITY:
|
||||||||
Common stock - authorized 200,000,000 shares of $0.01 par
|
||||||||
value; 7,049,110 and 5,861,764 shares issued and outstanding
|
70 | 59 | ||||||
Additional paid-in capital
|
10,982 | 6,996 | ||||||
Retained earnings
|
8,135 | 9,859 | ||||||
Total RF Industries and Subsidiary
|
19,187 | 16,914 | ||||||
Noncontrolling interest
|
218 | -- | ||||||
TOTAL EQUITY
|
19,405 | 19,109 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 26,272 | $ | 19,109 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $)
|
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jul. 31, 2011
|
Jul. 31, 2010
|
Jul. 31, 2011
|
Jul. 31, 2010
|
|
Net sales | $ 4,947,753 | $ 4,230,032 | $ 13,479,610 | $ 11,321,062 |
Cost of sales | 2,532,204 | 2,213,128 | 6,657,337 | 5,717,611 |
Gross profit | 2,415,549 | 2,016,904 | 6,822,273 | 5,603,451 |
Operating expenses: | Â | Â | Â | Â |
Engineering | 274,156 | 218,975 | 903,612 | 624,586 |
Selling and general | 2,141,268 | 1,354,395 | 4,768,368 | 3,738,085 |
Totals | 2,415,424 | 1,573,370 | 5,671,980 | 4,362,671 |
Operating income | 125 | 443,534 | 1,150,293 | 1,240,780 |
Other income - interest | 10,479 | 28,062 | 31,725 | 67,856 |
Other expense - interest | (8,982) | Â | (8,982) | Â |
Other income (expense), net | 1,497 | 28,062 | 22,743 | 67,856 |
Income before provision for income taxes | 1,622 | 471,596 | 1,173,036 | 1,308,636 |
Provision for (benefit from) income taxes | (63,072) | 159,326 | 350,337 | 523,299 |
Consolidated net income | 64,694 | 312,270 | 822,699 | 785,337 |
Net income attributable to noncontrolling interest | 1,243 | Â | 1,243 | Â |
Net income attributable to RF Industries, Ltd. and Subsidiary | 63,451 | 312,270 | 821,456 | 785,337 |
Basic earnings per share | $ 0.01 | $ 0.05 | $ 0.13 | $ 0.14 |
Diluted earnings per share | $ 0.01 | $ 0.05 | $ 0.12 | $ 0.12 |
Basic weighted average shares outstanding | 6,486,577 | 5,701,856 | 6,131,944 | 5,700,420 |
Diluted weighted average shares outstanding | 7,463,169 | 6,436,752 | 7,085,996 | 6,405,402 |
Dividends paid and payable | $ 2,313,354 | Â | $ 2,528,675 | Â |
Stock Split
|
9 Months Ended |
---|---|
Jul. 31, 2011
|
|
Stock Split |
Note 18 -
Stock
Split
On
February 11, 2011, the Company announced that the Board of
Directors had declared a two-for-one stock split on the
Company’s Common Stock. The stock split was effected on March
10, 2011. All references to common stock and per share information,
except par value, in these condensed financial statements and notes
have been adjusted to reflect the effects of the stock
split.
|
Document and Entity Information
|
9 Months Ended | |
---|---|---|
Jul. 31, 2011
|
Sep. 14, 2011
|
|
Document Information [Line Items] | Â | Â |
Document Type | 10-Q | Â |
Amendment Flag | false | Â |
Document Period End Date | Jul. 31, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q3 | Â |
Trading Symbol | RFIL | Â |
Entity Registrant Name | R F INDUSTRIES LTD | Â |
Entity Central Index Key | 0000740664 | Â |
Current Fiscal Year End Date | --10-31 | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Common Stock, Shares Outstanding | Â | 7,136,056 |
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Stock-based compensation and equity transactions
|
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
|
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Stock-based compensation and equity transactions |
Note 7 - Stock-based compensation and equity
transactions
The
stock incentive plans provide for the granting of qualified and
nonqualified options to the Company’s officers, directors and
employees. Non-qualified stock options granted during
the nine months ended July 31, 2011 vest and are exercisable
immediately and expire in five years from date of grant. During the
nine months ended July 31, 2011, the Company granted a total of
28,000 non-qualified stock options to its directors. Qualified
incentive stock options granted during the nine months ended July
31, 2011 vest equally over a three year period commencing on the
date of grant and expire in five years from date of grant. During
the nine months ended July 31, 2011, the Company granted a total of
25,000 incentive stock options to a current employee of CUI. The
Company satisfies the exercise of options by issuing previously
unissued common shares.
The
weighted average fair value of employee stock options granted by
the Company in the nine months ended July 31, 2011 and 2010 was
estimated to be $1.08 and $0.82 per share, respectively, using the
Black-Scholes option pricing model with the following
assumptions:
Expected
volatilities are based on historical volatility of the
Company’s stock and other factors. The Company used the
simplified method to calculate the expected life of the 2011 option
grants. The expected life represents the period of time that
options granted are expected to be outstanding. The risk-free rate
is based on the U.S. Treasury rate with a maturity date
corresponding to the options’ expected life. The dividend
yield is based upon the historical dividend yield.
Issuances of common stock by the Company
During
the nine months ended July 31, 2011, the Company issued 762,738
shares of common stock valued at approximately $2,800,000 to the
former owner of Cables Unlimited, Inc. as part of the purchase
price of the Cables Unlimited, Inc. acquisition. The Cables
Unlimited, Inc. acquisition is more fully described in Note 2 of
this report. During the nine months ended July 31, 2011,
the Company issued 424,608 shares of common stock and received net
proceeds of $814,697 in connection with the exercise of employee
stock options.
Company Stock Option Plans
Descriptions
of the Company’s stock option plans are included in Note 7 of
the Company’s Annual Report on Form 10-K for the year ended
October 31, 2010. A summary of the status of the options granted
under the Company’s stock option plans as of July 31, 2011
and the changes in options outstanding during the nine months then
ended is presented in the table that follows:
Weighted
average remaining contractual life of options outstanding as of
July 31, 2011: 4.63 years
Weighted
average remaining contractual life of options exercisable as of
July 31, 2011: 4.58 years
Weighted
average remaining contractual life of options vested and expected
to vest as of July 31, 2011: 4.57 years
Aggregate
intrinsic value of options outstanding at July 31, 2011:
$3,830,279
Aggregate
intrinsic value of options exercisable at July 31, 2011:
$2,949,403
Aggregate
intrinsic value of options vested and expected to vest at July 31,
2011: $3,784,605
As
of July 31, 2011, $385,993 of expense with respect to non-vested
stock-based arrangements has yet to be recognized which is expected
to be recognized over a weighted average period of 4.4
years.
Stock Option Expense
During
the nine-months ended July 31, 2011 and 2010, stock-based
compensation expense totaled $165,368 and $157,522, respectively.
For the three-months ended July 31, 2011 and July 31, 2010,
stock-based compensation expense totaled $23,000 and $43,605,
respectively. For the nine months ended July 31, 2011 and 2010,
stock-based compensation classified in cost of sales amounted to
$30,547 and $26,247 and stock-based compensation classified in
selling and general expense amounted to $134,821 and $131,275,
respectively. For the three months ended July 31, 2011 and 2010,
stock-based compensation classified in cost of sales amounted to
$5,686 and $9,004 and stock-based compensation classified in
selling and general expense amounted to $17,314 and $34,601,
respectively.
|
Subsequent events
|
9 Months Ended |
---|---|
Jul. 31, 2011
|
|
Subsequent events |
Note 20 – Subsequent events
Mr.
Hill previously served as President and Chief Executive Officer of
RF Industries, Ltd. (the "Company"), pursuant to an employment
agreement that expired on June 20, 2011. As reported in the
Company's Current Report on Form 8-K filed on July 11, 2011,
effective July 5, 2011, Mr. Hill resigned as President of the
Company (but remained the Chief Executive Officer) and James Doss,
the Company's Chief Financial Officer and Corporate Secretary, was
appointed as the Company's President. On August 22, 2011 the
Company entered into employment agreements with each of Mr. Hill
and Mr. Doss to evidence their new employment
arrangements.
On
August 22, 2011, the Company entered into a new employment
agreement with Howard F. Hill, pursuant to which Mr. Hill will
continue to serve as the Company's Chief Executive Officer through
July 31, 2013 (the "Term"), subject to earlier termination as
provided in the employment agreement.
Under
the employment agreement, Mr. Hill is entitled to receive an annual
salary of $240,000. Mr. Hill also is entitled to participate in any
pension, retirement, disability, insurance, medical service, or
other employee benefit plan that is generally available to all
employees of the Company, to the life insurance policy and
disability insurance policy that the Company currently maintains
for Mr. Hill, and to six weeks of paid vacation per
year.
Additionally,
Mr. Hill is entitled to certain compensation from the Company in
connection with the termination of his employment under the
following circumstances: (i) if the Company terminates Mr. Hill's
employment without "cause" (as defined in the employment
agreement), the Company has agreed to pay Mr. Hill upon termination
an amount equal to the greater of (x) the salary that would have
been paid to Mr. Hill during the balance of the Term, or (y) 12
month's salary (in each case, based on Mr. Hill's monthly salary at
the time of such termination); (ii) if Mr. Hill terminates his
employment for Good Reason (as defined in the employment
agreement), Mr. Hill is entitled to severance compensation in the
form of continuation of base salary and existing medical and dental
insurance for 24 months following termination of employment; and
(iii) within 120 days after a Change of Control (as defined in the
employment agreement), Mr. Hill will have the right to terminate
his employment, and to receive a cash payment in an amount equal to
the greater of (x) the salary that would have been paid to Mr. Hill
during the balance of the Term, or (y) 12 month's salary (in each
case, based on Mr. Hill's monthly salary at the time of such
termination).
On
August 22, 2011, the Company also entered into an employment
agreement with James Doss, pursuant to which Mr. Doss will serve as
the Company's President and as Chief Financial Officer through July
31, 2012. A copy of the employment agreement is attached as Exhibit
10.2 hereto, and the following summary of the employment agreement
is qualified by reference to such exhibit.
Under
the employment agreement, Mr. Doss is entitled to receive an annual
salary of $168,000. Mr. Doss also is entitled to participate in any
pension, retirement, disability, insurance, medical service, or
other employee benefit plan that is generally available to all
employees of the Company, to the life insurance policy and
disability insurance policy that the Company currently maintains
for Mr. Doss, and to three weeks of paid vacation per
year.
|
Intangible assets
|
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
|
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Intangible assets |
Note 12- Intangible assets
Intangible
assets are comprised of the following:
|
Variable interest entity
|
9 Months Ended |
---|---|
Jul. 31, 2011
|
|
Variable interest entity |
Note 3 - Variable interest entity
K&K
was formed on August 14, 2009 for the purpose of establishing a
separation of legal ownership of the building where Cables
Unlimited conducts its operations. Cables
Unlimited’s former sole stockholder is the sole member of
K&K. Cables Unlimited was deemed the primary beneficiary of
K&K even though it has no direct ownership in K&K as it has
the power to direct the activities of K&K that most
significantly impacts its economic performance and provides
significant financial support through a lease agreement between
Cables Unlimited and K&K and a guarantee by Cables Unlimited of
K&K’s mortgage note payable to Teacher’s Federal
Credit Union (“TFCU”)
As
of July 31, 2011 and for the nine months then ended, K&K had
assets of $1,627,645 ($68,118 in cash, $10,451 in other current
assets, $1,477,648 in land and building, net and $71,427 in other
assets), liabilities of $1,403,556, revenues of $26,000 and
expenses of $9,522. Included in total consolidated
assets are assets totaling $1,545,766 that represent collateral for
these obligations.
|
Segment Information
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
|
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Segment Information |
Note 9 - Segment Information
The
Company aggregates operating divisions into operating segments
which have similar economic characteristics and are similar in the
majority of the following areas: (1) the nature of the product and
services; (2) the nature of the production process; (3) the type or
class of customer for their products and services; (4) the methods
used to distribute their products or services; and (5) if
applicable, the nature of the regulatory environment. The Company
has four segments - RF Connector and Cable Assembly, Medical
Cabling and Interconnector, RF Wireless, and Cables Unlimited based
upon this evaluation.
The
RF Connector and Cable Assembly segment is comprised of three
divisions, the Medical Cabling and Interconnector is comprised of
one division while the RF Wireless segment is comprised of two. The
four divisions that meet the quantitative thresholds for segment
reporting are Connector and Cable Assembly, Bioconnect, RF Neulink,
and Cables Unlimited. Each of the other divisions aggregated into
these segments have similar products that are marketed to their
respective customer base; production and product development
processes are similar in nature. The specific customers are
different for each division; however, there is some overlapping of
product sales to them. The methods used to distribute products are
similar within each division aggregated.
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. For segment
reporting purposes, the Company aggregates the Connector and Cable
Assembly, Aviel Electronics, and Oddcables.com (formerly known as
Worswick) divisions into the RF Connector and Cable Assembly
segment while RF Neulink and RadioMobile are part of the RF
Wireless segment. The Bioconnect division makes up the
Company’s Medical Cabling and Interconnector segment, and the
Cables Unlimited subsidiary makes up the Cables Unlimited
segment.
As
reviewed by the Company’s chief operating decision maker, the
Company evaluates the performance of each segment based on income
or loss before income taxes. The Company charges depreciation and
amortization directly to each division within the segment. All
stock based compensation is attributed to the RF Connector and
Cable Assembly segment. Inventory, fixed assets, goodwill and
intangible assets are the only assets identified by segment. Except
as discussed above, the accounting policies for segment reporting
are the same as for the Company as a whole.
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 attributes sales to geographic areas
based on the location of the customers. The following table
presents the sales of the Company by geographic area for the three
and nine month periods ended July 31, 2011 and 2010:
Net
sales, income (loss) before provision for income taxes and other
related segment information for the three months ended July 31,
2011 and 2010 are as follows:
Net
sales, income (loss) before provision for income taxes and other
related segment information for the nine months ended July 31, 2011
and 2010 are as follows:
|
Accrued expenses and other long-term liabilities
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
|
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Accrued expenses and other long-term liabilities |
Note 14 - Accrued expenses and other long-term
liabilities
Accrued
expenses consist of the following:
Accrued
receipts represent purchased inventory for which invoices have not
been received.
Other
long-term liabilities consist of the following:
Deferred
lease liabilities represent the excess of recognized rent expense
over scheduled lease payments.
|
Income taxes
|
9 Months Ended |
---|---|
Jul. 31, 2011
|
|
Income taxes |
Note 10 - Income
taxes
The
income tax provision reflected in the accompanying unaudited
condensed statements of income for the three and nine months ended
July 31, 2011 is different than the expected tax provision computed
based on the pre-tax income and the applicable statutory Federal
income tax rate of 34% and the state income tax rate, net of
Federal tax effects, of 5%. Interim tax provisions are
determined using an estimate of the annual effective tax rate. As
of July 31, 2011, the Company estimated that its effective annual
tax rate for the year ending October 31, 2011, before non-recurring
adjustments described below will be approximately
39%.
The provision for income taxes during the nine
months ended July 31, 2011 was $350,336 (or a combined estimated
Federal and state income tax rate of approximately 30%), compared
to $523,299 in the nine months ended July 31, 2010 (or a combined
estimated Federal and state income tax rate of approximately 40%).
The significant decrease in the tax rate in the nine month period
ended July 31, 2011 is primarily due to the Company’s
recognition of onetime tax benefits. The
Company recognized approximately $34,000 related to a Federal
research and development tax credits the Company was not able to
recognize in its financial statements in 2010 due to the law not
being enacted by October 31, 2010. On December 16, 2010,
Congress passed the 2010 Tax Relief Act, which impacted the
Company’s tax provision in the first quarter of fiscal 2011.
Due to the enactment of the 2010 Tax Relief Act into law, the
Company claimed an increased net tax credit related to the year
ended October 31, 2010 for research and development related to the
year ended October 31, 2010 of approximately $34,000. The credit
was recorded in the first quarter of fiscal 2011. The Company
recognized approximately $137,000 of a net tax benefit for
uncertain tax positions where the statue of limitations expired
during the three month period ended July 31, 2011. The
Company recognized of a tax benefit of approximately $68,000
related to the disqualifying disposition of incentive stock options
exercised during the three month period ended July 31,
2011. Also included in the provision for income taxes
during the nine months ended July 31, 2011, and contributing to the
decrease in the tax rate is approximately $73,000 of state tax
refunds received in the third quarter of fiscal 2011 from amended
tax returns which the Company filed to reapportion taxable income
between the Company’s activities in both California and
Nevada. Without these adjustments, the effective tax
rate for the three and nine-month periods ended July 31, 2011 would
have been higher.
|
Concentration of Credit Risk
|
9 Months Ended |
---|---|
Jul. 31, 2011
|
|
Concentration of Credit Risk |
Note 8 - Concentration of Credit Risk
One
customer accounted for approximately 16% and 18% of the
Company’s net sales for the three and nine month periods
ended July 31, 2011, respectively. One customer accounted for
approximately 24% and 23% of the Company’s net sales for the
three and nine month periods ended July 31, 2010,
respectively. Although this customer has been an
on-going major customer of the Company continuously during the past
12 years, the written agreements with this customer do not have any
minimum purchase obligations and the customer could stop buying the
Company’s products at any time and for any reason. A
reduction, delay or cancellation of orders from this customer or
the loss of this customer could significantly reduce the
Company’s revenues and profits.
|
Unaudited interim condensed consolidated financial statements
|
9 Months Ended |
---|---|
Jul. 31, 2011
|
|
Unaudited interim condensed consolidated financial statements |
Note 1 - Unaudited interim condensed consolidated 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-Q.
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, which are normal and
recurring, have been included in order to make the information not
misleading. Information included in the consolidated balance sheet
as of October 31, 2010 has been derived from, and certain terms
used herein are defined in, the audited financial statements of the
Company as of October 31, 2010 included in the Company’s
Annual Report on Form 10-K (“Form 10-K”) for the year
ended October 31, 2010 that was previously filed with the
Securities and Exchange Commission (“SEC”). Operating
results for the three and nine months period ended July 31, 2011
are not necessarily indicative of the results that may be expected
for the year ending October 31, 2011. 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-K for the year ended
October 31, 2010.
Principals of consolidation
The
accompanying unaudited condensed consolidated financial statements
include the accounts of RF Industries, LTD and Cables Unlimited,
Inc. (“Cables Unlimited”) and its variable interest
entity (“VIE”) K&K Unlimited LLC
(“K&K”). All intercompany balances and transactions
have been eliminated in consolidation. See note 2 for a discussion
of the Cables Unlimited acquisition, which occurred June 15,
2011.
Revenue recognition
Four
basic criteria must be met before revenue can be recognized: (1)
persuasive evidence of an arrangement exists; (2) delivery has
occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectability is reasonably assured. The
Company recognizes revenue from product sales after purchase orders
are received, which contain a fixed price and the products are
shipped. Most of the Company’s products are sold to
continuing customers with established credit
histories.
Variable interest entity
Management
analyzes if the Company has any variable interests in variable
interest entities (“VIE”). This analysis
includes a qualitative review based on an evaluation of the design
of the entity, its organizational structure, including decision
making ability and financial agreements, as well as a quantitative
review. Accounting principles generally accepted in the
United States of America require a reporting entity to consolidate
a VIE when the reporting entity has a variable interest that
provides it with a controlling financial interest in the
VIE. The entity that consolidates a VIE is referred to
as the primary beneficiary of the VIE. See note 3 for further
discussion.
|
Recent Accounting Standards
|
9 Months Ended |
---|---|
Jul. 31, 2011
|
|
Recent Accounting Standards |
Note 4 - Recent Accounting Standards
In
December 2010, the FASB issued Accounting Standards Update 2010 -
29, “Disclosure of Supplementary Pro Forma Information for
Business Combinations” (“ASU 2010 - 29”), which
specifies that if a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of the
combined entity as though the business combination(s) that occurred
during the current year had occurred as of the beginning of the
comparable prior annual reporting period only. The amendments
in this update also expand the supplemental pro forma disclosures
under Topic 805 to include a description of the nature and amount
of material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the reported
pro forma revenue and earnings. The new disclosures required by ASU
2010 – 29 is effective for the Company for periods beginning
November 1, 2011. The adoption of ASU 2010 - 29 is not expected to
have a material effect on our condensed consolidated financial
statements.
|
Components of inventories
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2011
|
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Components of inventories |
Note 5 - Components of inventories
Inventories,
consisting of materials, labor and manufacturing overhead, are
stated at the lower of cost or market. Cost has been determined
using the weighted average cost method.
Purchases
of connector products from four major vendors in the nine month
period ended July 31, 2011 represented 29%, 16%, 12% and 10%
compared to three major vendors who represented 22%, 15%, and 13%
of total inventory purchases for the same period in 2010. The
Company has arrangements with these vendors to purchase product
based on purchase orders periodically issued by the
Company.
|
Related party transactions
|
9 Months Ended |
---|---|
Jul. 31, 2011
|
|
Related party transactions |
Note 13 - Related party transactions
The
note receivable from stockholder of $66,980 at July 31, 2011 and
October 31, 2010 is due from the CEO of the Company, bears interest
at 6%, payable annually, and has no specific due date. The note is
collateralized by personal property owned by the
President. During the nine-month periods ended July 31,
2011 and 2010, $4,019 of interest was paid, respectively. At July
31, 2011 and October 31, 2010, accrued interest receivable on the
note receivable was $3,018 and $4,024, respectively.
|
Earnings per share
|
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
|
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Earnings per share |
Note 6 - Earnings per share
Basic earnings per share is computed by
dividing net income by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is
computed by dividing net income by the weighted average number of
common shares outstanding 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. For the three months ended July 31,
2011, there were no anti-dilutive shares relating to the assumed
exercise of stock. For the three months ended July 31, 2010, the
effects of the assumed exercise of options to purchase 543,078
shares of the Company’s common stock, at a price of $2.56 to
$3.78 per share, were not included in the computation of diluted
per share amounts because they were anti-dilutive for that purpose.
For the nine months ended July 31, 2011, the effects of the assumed
exercise of options to purchase 420,008 shares of the
Company’s common stock, at a price range of $3.75 to $3.78
per share, were not included in the computation of diluted per
share amounts because they were anti-dilutive for that
purpose.
For
the nine months ended July 31, 2010, the effects of the assumed
exercise of options to purchase 540,078 shares of the
Company’s common stock, at a price range of $2.71 to $3.78
per share, were not included in the computation of diluted per
share amounts because they were anti-dilutive for that
purpose.
The
following table summarizes the computation of basic and diluted
weighted average shares outstanding:
|
Cash Dividend and declared dividends
|
9 Months Ended |
---|---|
Jul. 31, 2011
|
|
Cash Dividend and declared dividends |
Note 16 - Cash Dividend and declared dividends
The
Company paid dividends of $.025 per share for a total of $172,287
during the three month period ended July 31, 2011. The Company paid
and declared dividends of $.015, $.02, and $.025 per share for a
total of $387,608 during the nine-month period ended July 31, 2011.
No dividends were paid during the three and nine-month periods
ended July 31, 2010.
On
July 21, 2011, the Board of Directors of the Company declared a
quarterly cash dividend of $.05 per share. The dividend
record date is September 30, 2011 and the payment date to
stockholders will be October 17, 2011. On July 21, 2011, the Board
of Directors also declared a special one-time cash dividend of
$0.25 per common share. The dividend record date is August 15, 2011
and the payment date to stockholders will be September 1, 2011.
Based on the Company’s current financial condition and its
current operations, the foregoing dividend payment is not expected
to have a material impact on the Company’s liquidity or
capital resources.
|
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M
Authorized Number of Shares of Common Stock
|
9 Months Ended |
---|---|
Jul. 31, 2011
|
|
Authorized Number of Shares of Common Stock |
Note 17 - Authorized Number of Shares of Common Stock
In 1987, the Company had 100,000,000 shares of
$.001 par value common stock authorized, and 29,999,998 shares of
common stock outstanding. On April 17, 1987, the Company filed a
Certificate of Secretary with the Nevada Secretary of State's
office pursuant to which the Company effected a 1-for-10 reverse
stock split (that reduced the number of outstanding shares to
3,000,000). The Certificate of Secretary did not, however,
specifically address, or reduce the number of authorized shares of
common stock.
Based
on its belief that the April 17, 1987 filing with the Nevada
Secretary of State also reduced the number of authorized shares,
the Company has since 1987 reported in its financial statements
that the number of authorized shares of common stock consisted of
10,000,000 shares of $.01 par value common stock. On February 23,
2011, the Nevada Secretary of State's office notified the Company
that based on the April 17, 1987 filing, the authorized number of
common shares of the Company consisted of 100,000,000 shares. As a
result of the two-for-one stock split that took place in the second
quarter of 2011, the authorized number of common shares of the
Company currently consists of 200,000,000 shares of $.01 par value
common stock.
|
Employment agreements
|
9 Months Ended |
---|---|
Jul. 31, 2011
|
|
Employment agreements |
Note 19 –Employment agreements
In
connection with and effective immediately upon the closing of the
Cables Unlimited acquisition, (i) the Company's Board of Directors
increased the size of our Board of Directors from five to six, and
appointed Darren Clark, the Seller, to fill the vacancy created by
the increase in the size of our Board of Directors, and (ii) Darren
Clark entered into an employment agreement (the "Employment
Agreement") with the Company, pursuant to which Darren Clark is
employed as Cables Unlimited's Chief Executive Officer through June
15, 2013, subject to earlier termination as provided in the
Employment Agreement.
Under
the Employment Agreement, Mr. Clark is entitled to an annual salary
of $150,000. Additionally, Mr. Clark is eligible to participate, to
the extent that he is eligible under the terms and conditions
thereof, in any pension, retirement, disability, insurance, medical
service, or other employee benefit plan that is generally available
to all employees of the Company and that may be in effect from time
to time during the period of Mr. Clark's employment under the
Employment Agreement.
|
Business Acquisition
|
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
|
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Business Acquisition |
Note 2 - Business Acquisition
On
June 15, 2011 RF Industries, Ltd. completed its acquisition of
Cables Unlimited, Inc. Cables Unlimited is an established fiber
optic custom cable manufacturer based in Long Island, New York.
Cables Unlimited is a Corning Cable Systems CAH Connections SM Gold
Program member, authorized to manufacture optic products that are
backed by Corning Cable Systems' extended warranty. The products
manufactured by Cables Unlimited include custom fiber optic cable
assemblies, adapters and electromechanical wiring harnesses for
communications, computer, LAN, automotive and medical
equipment.
All
of Cables Unlimited’s assets are located in the United
States. There were no earnouts or contingent considerations
included in the acquisition agreement.
The
acquisition was accounted for in accordance with the authoritative
accounting guidance. The acquired assets and assumed liabilities
were recorded by the Company at their estimated fair values. The
Company determined the estimated fair values with the assistance of
appraisals or valuations performed by an independent third party
specialist. Cables Unlimited is an established fiber optic custom
cable manufacturer based in Long Island, New York. Cables Unlimited
is a Corning Cable Systems CAH Connections SM Gold Program member,
authorized to manufacture optic products that are backed by Corning
Cable Systems' extended warranty. The products manufactured by
Cables Unlimited include custom fiber optic cable assemblies,
adapters and electromechanical wiring harnesses for communications,
computer, LAN, automotive and medical equipment. These products
supplement and enhance the existing markets of RF Industries as
well as tap into new fiber optic cable markets that the Company
would not have been able to enter without incurring substantially
more costs than incurred in the purchase of Cables Unlimited. The
capital required to enter the fiber optic market would have greatly
exceeded the purchase price of $5.6 million. These factors, among
others, contributed to a purchase price in excess of the estimated
fair value of Cables Unlimited’s net identifiable assets
acquired, and as a result, we have recorded goodwill in connection
with this transaction.
Goodwill
acquired was allocated to our operating segment and reporting unit
Cables Unlimited as part of the purchase price allocation. We do
not expect the goodwill recorded to be deductible for income tax
purposes. Acquired amortizable intangible assets are being
amortized straight-line over their estimated useful lives ranging
from six months to 7.6 years. The purchase price allocation is
preliminary as it includes several estimates, which are being
refined.
The
following table summarizes the components of the purchase price at
fair value:
The
following table summarizes the allocation of the purchase price at
fair value:
The
results of Cables Unlimited operations subsequent to June 15, 2011
have been included in the Company’s consolidated results of
operations. In the three month period ended July 31, 2011, Cables
Unlimited contributed approximately $909,000 of
revenue.
The
following unaudited pro forma financial information presents the
combined operating results of RFI Industries, Ltd. and Cables
Unlimited as if the acquisition had occurred as of the beginning of
the periods presented. Pro forma data is subject to various
assumptions and estimates, and is presented for informational
purposes only. This pro forma data does not purport to represent or
be indicative of the consolidated operating results that would have
been reported had the transaction been completed as described
herein, and the data should not be taken as indicative of future
consolidated operating results.
Pro
forma financial information is presented in the following
table:
|
Goodwill
|
9 Months Ended |
---|---|
Jul. 31, 2011
|
|
Goodwill |
Note 11 – Goodwill
On
June 15, 2011 the Company completed its acquisition of Cables
Unlimited. Goodwill related to this acquisition is included within
the Cables Unlimited reporting unit. As of July 31, 2011, the
$2,642,000 goodwill balance related solely to the Cables Unlimited
division. Management believes this goodwill balance is not
currently impaired.
We
review our goodwill for impairment annually in the fourth quarter
at the reporting unit level. We also analyze whether any indicators
of impairment exist each quarter. A significant amount of judgment
is involved in determining if an indicator of impairment has
occurred. Such indicators may include a sustained, significant
decline in our share price and market capitalization, a decline in
our expected future cash flows, a significant adverse change in
legal factors or in the business climate, unanticipated
competition, the testing for recoverability of our long-lived
assets, and/or slower growth rates, among others.
We
estimate the fair value of our reporting units using discounted
expected future cash flows. If the fair value of the reporting unit
exceeds its net book value, goodwill is not impaired, and no
further testing is necessary. If the net book value of our
reporting units exceeds their fair value, we perform a second test
to measure the amount of impairment loss, if any.
As
of July 31, 2011, management noted no triggers that would
necessitate a further review and test of impairment of
goodwill.
|
Other long term liabilities
|
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
|
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Other long term liabilities |
Note 15 – Other long term liabilities
In
January 2010, K&K acquired land and a building for
$1,525,000. The purchase was financed through mortgage
notes payable as follow:
In
September 2010, K&K entered into a mortgage payable with the
Small Business Administration (“SBA”) in the amount of
$643,000. The loan bears interest at a rate per annum of 4.605%
with minimum monthly payments due of principal and interest of
$4,236 commencing October 1, 2010 through September 2030. The note
is guaranteed by Cables Unlimited and the former owner of Cables
Unlimited and is collateralized by K&K’s real
property.
The
following summarizes the information relative to the outstanding
VIE debt at July 31, 2011:
Future
payments on the outstanding debt are as follows:
|