Unassociated Document
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-K
FOR
ANNUAL AND TRANSITION REPORTS
PURSUANT
TO SECTIONS 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
|
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended October 31, 2010
or
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ______________ to ________________.
Commission
File Number 0-13301
RF
INDUSTRIES, LTD.
(Name of
registrant as specified in its charter)
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Nevada
|
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88-0168936
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|
(State
or other jurisdiction
of
incorporation or organization)
|
|
(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
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock, $.01 par value.
Securities
registered pursuant to Section 12(g) of the
Act: None
Indicate
by check mark if the registrant is a well known seasoned issuer, as defined in
Rule 405 of the Securities Act. ¨
Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. ¨
Yes x No
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. x
Yes ¨ No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). ¨
Yes ¨ No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulations S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of Registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company in
Rule 12b-2 of the Exchange Act.
|
Large Accelerated Filer
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¨
|
|
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Accelerated Filer
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¨
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Non-accelerated Filer
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¨
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(Do not check if a smaller reporting company)
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|
Smaller reporting company
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x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨
Yes x No
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter. $14,425,696.
On January 12,
2011, the Registrant had 2,930,882 outstanding shares of
Common Stock, $.01 par value.
Forward-Looking
Statements:
Certain
statements in this Annual Report on Form 10-K, and other oral and written
statements made by the Company from time to time are “forward looking
statements” within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, including those that discuss strategies, goals, outlook or
other non-historical matters, or projected revenues, income, returns or other
financial measures. In some cases forward-looking statements can be identified
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 forward-looking statements are
subject to numerous risks and uncertainties that may cause actual results to
differ materially from those contained in such statements. Among the most
important of these risks and uncertainties are the ability of the Company to
continue to source its raw materials and products from its suppliers and
manufacturers, the market demand for its products, which market demand is
dependent to a large part on the state of the telecommunications industry, the
Company’s dependence on the success of its largest division, and
competition.
Important
factors which may cause actual results to differ materially from the forward
looking statements are described in the Section entitled “Risk Factors” in the
Form 10-K, and other risks identified from time to time in the Company’s filings
with the Securities and Exchange Commission, press releases and other
communications. The Company assumes no obligation to update these
forward-looking statements to reflect actual results or changes in factors or
assumptions affecting such forward-looking statements.
PART
I
ITEM
1.
BUSINESS
General
RF
Industries, Ltd. (hereinafter the “Company”) is a provider of interconnect
products and systems for radio frequency (RF) communications devices and
wireless digital transmission systems. For internal operational
purposes, and for marketing purposes, the Company currently classifies its
operations into the following six related divisions: (i) The Connector and Cable
Assembly Division designs, manufactures and distributes coaxial connectors and
cable assemblies that are integrated with coaxial connectors; (ii) the Aviel
Electronics Division designs, manufactures and distributes specialty and custom
RF connectors primarily for aerospace and military customers, (iii) the
Oddcables.com Division primarily sells coaxial, fiberoptic, and other connectors
and cable assemblies on a retail basis to local multi-media and communications
customers; (iv) the Bioconnect Division manufactures and distributes cabling and
interconnect products to the medical monitoring market; (v) the Neulink Division
is engaged in the design, manufacture and sale of RF data links and wireless
modems for receiving and transmitting control signals for remote operation and
monitoring of equipment, personnel and monitoring services; and (vi) the
RadioMobile Division is an original equipment manufacturer (OEM) provider of
end-to-end mobile management solutions implemented over wireless networks that
supplement the operations of the Company’s Neulink division.
The
Company’s principal executive office is located at 7610 Miramar Road, Building
#6000, San Diego, California. The Company was incorporated in the State of
Nevada on November 1, 1979, completed its initial public offering in March 1984
under the name Celltronics, Inc. and changed its name to RF Industries, Ltd. in
November 1990. Unless the context requires otherwise, references to the
“Company” in this report include RF Industries, Ltd. and its
divisions.
The
Company maintains an Internet website at http://www.rfindustries.com. The
Company’s annual reports, quarterly reports, current reports on Form 8-K and
amendments to such reports filed or furnished pursuant to section 13(a) or 15(d)
of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and
other information related to the Company, are available, free of charge, on our
website as soon as we electronically file those documents with, or otherwise
furnish them to, the Securities and Exchange Commission. The Company’s Internet
website and the information contained therein, or connected thereto, are not and
are not intended to be incorporated into this Annual Report on Form
10-K.
Operating
Divisions
Connector and Cable
Division The Connector and Cable Division is engaged in the
design, manufacture and distribution of coaxial connector solutions for
companies that design, build, operate, maintain and use wireless voice, data,
messaging, and location tracking systems. Coaxial connector products
consist primarily of connectors which, when attached to a coaxial cable,
facilitate the transmission of analog and digital signals in various
frequencies. Although most of the connectors are designed to fit standard
products, the Company also sells custom connectors specifically designed and
manufactured to suit its customers’ requirements such as the Wi-Fi and broadband
wireless markets. The Company’s Connector and Cable Division typically carries
over 1,200 connectors, adapters, tools, and assembly, test and measurements
kits. The Company’s RF connectors are used in thousands of different
devices, products and types of equipment. While the models and types of devices,
products and equipment may change from year to year, the demand for the types of
connectors used in such products and offered by the Company does not fluctuate
with the changes in the end product incorporating the connectors. In addition,
since the Company’s standard connectors can be used in a number of different
products and devices, the discontinuation of one product does not make the
Company’s connectors obsolete. Accordingly, most connectors carried by the
Company can be marketed for a number of years and are only gradually phased out.
Furthermore, because the Company’s connector products are not dependent on any
line of products or any market segment, the Company’s overall sales of
connectors do not fluctuate materially when there are changes to any product
line or market segment. Sales of the Company’s connector products are, however,
dependent upon the overall economy, infrastructure build out by large
telecommunications firms and on the Company’s ability to market its
products. Sales of the Company’s connectors and cable assemblies
increased in the fiscal year ended October 31, 2010 compared to the prior fiscal
year. This increase was due to improved economic conditions with our
distributors as the overall market demand for our products increased, and also
related to the recent build out of new 4G and Wi-MAX wireless network
systems.
Third
party foreign manufacturers located in Asia manufacture a significant portion of
the Company’s RF connectors. The Company also manufactures RF connectors
(primarily specialty and precision connectors) in its Las Vegas
facility.
The
Company has been designing, producing and selling coaxial connectors since 1987
and the Connector and Cable Division therefore represents the Company’s oldest
and most established division. The Connector and Cable Division has historically
generated, and continues to generate the majority of the Company’s
revenues.
Cable
assembly products consist of various types of coaxial cables that are attached
to connectors (usually the Company’s connectors) for use in a variety of
communications applications. Cable assemblies are manufactured at the Company’s
California facilities using state of the art automation equipment and are sold
through distributors or directly to major OEM accounts. Cable assemblies consist
of both standard cable assemblies and assemblies that are custom manufactured
for the Company’s clients. The Company offers a line of cable assemblies with
over 100,000 cable product combinations. The Company launched its cable assembly
operations in 2000, and cable assembly products constituted the second largest
source of revenues for the Company during the fiscal year ended October 31,
2010.
Aviel Electronics
Division The Company acquired the business and all of the
assets of Aviel Electronics in August 2004. Aviel has a 50 year history of
serving the microwave transmission industries, and is an approved vendor to
leading aerospace, electronics, OEM’s and government agencies in the United
States and abroad. Aviel complements the Company’s Connector and Cable
Division’s capabilities by providing additional custom design and manufacturing
capabilities, thereby expanding the Company’s products in the military and
commercial aerospace markets, and expanding the Company’s overall client
base. Aviel’s operations are based in Las Vegas, Nevada.
Oddcables.com
Division The Company acquired the assets of Oddcables.com,
(formerly known as Worswick), a privately held 20 year old California company
based in San Diego, in September 2005 as another complementary operation to the
Connector and Cable Division. Oddcables.com sells coaxial connector solutions
and manufactures RF cable assemblies for both individual customers and companies
that design, build, operate, and maintain personal and private multi-media,
wireless voice, data and messaging systems. Oddcables.com primarily sells its
products on a retail basis at its retail outlet in San Diego,
California. Oddcables.com, however, also sells its products on-line
under the e-commerce brand Oddcables.com. This division recently also commenced
designing, manufacturing and selling precision-grade, high frequency connectors
and adapters for OEM, military and metrology lab applications as well as 10GHz
high frequency fiber optic patch cable assemblies.
Bioconnect
Division The Bioconnect Division is engaged in product
development, design, manufacture and sale of cables and interconnects for
medical monitoring applications, such as disposable ECG cables, EEG leads,
infant apnea monitors in hospitals, patient leads, snap leads and connecting
wires. The Company acquired the Bioconnect operations in
2000.
RF Neulink
Division The RF Neulink Division designs and manufactures,
through outside contractors, wireless data products commonly known as RF data
links and wireless modems since 1984. These radio modems and receivers provide
high-speed wireless connections over longer distances where wire connections may
not be desirable or feasible. In addition to selling its own radio modem, RF
Neulink also distributes antennas, transceivers and related products of other
manufacturers. The RF Neulink Division also offers complete turn-key packages
for numerous remote data transmission applications.
RadioMobile
Division The Company acquired substantially all of the assets
and assumed certain liabilities of RadioMobile Inc., a privately held company in
San Diego, California on September 1, 2007. The RadioMobile Division is an OEM
provider of end-to-end mobile management solutions implemented over wireless
networks. Although the RadioMobile Division operates as a separate division, its
operations supplement the operations of the Company’s Neulink
division.
For
financial reporting purposes, the Company aggregates its operations into three
segments. Connector and Cable Assembly, Aviel Electronics, and
Oddcables.com divisions are aggregated into one reporting segment (the RF
Connector and Cables Assembly segment) because they have similar economic
characteristics, while RF Neulink and RadioMobile are aggregated in the RF
Wireless segment. Bioconnect makes up the Company’s newest segment,
which we refer to as the Medical Cabling and Interconnector
segment.
Product
Description
The
Company produces a broad range of interconnect products and assemblies. The
products that are offered and sold by the Company’s various divisions consist of
the following:
Connector
and Cable Products
The
Company’s Connector and Cable Division designs, manufactures and
markets a broad range of coaxial connectors and coaxial cable
assemblies for the numerous products with applications in commercial,
industrial, automotive, transportation, scientific, aerospace and
military markets. Various types of connectors are offered by the RF Connector
Division including 2.4mm and 3.5mm, 7-16 DIN, BNC, MCX, MHV, Mini-UHF, MMCX, N,
SMA, SMB, TNC, QMA and UHF. These connectors are offered in several
configurations and cable attachment methods for customer applications. There are
numerous applications for these connectors, some of which include digital
applications, 2.5G, 3G, 4G, Wi-MAX, LTE and other broadband wireless
infrastructure, GPS (Global Positioning Systems), mobile radio products,
aircraft, video surveillance systems, cable assemblies and test equipment. Users
of the Company’s connectors include telecommunications companies, circuit board
manufacturers, OEM, consumer electronics manufacturers, audio and video product
manufacturers and installers, and satellite companies. The Connector Division
markets over 1,200 types of connectors, adapters, tools, assembly, test and
measurement kits, which range in price from under $1 to over $1,000 per unit.
The kits satisfy a variety of applications including, but not limited to, lab
operations, site requirements, and adapter needs.
The
Connector Division designs and sells a variety of connector tools and hand tools
that are assembled into kits used by lab and field technicians, R&D
technicians and engineers. The Company also designs and offers some of its own
tools, which differ from those offered elsewhere in the market. These tools are
manufactured for the Company by outside contractors. Tool products are carried
as an accommodation to the Company’s customers and have not materially
contributed to the Company’s revenues.
The Cable
Assembly component of the Connector and Cable Division markets and manufactures
cable assemblies in a variety of sizes and combinations of RF coaxial connectors
and coax cabling. Cabling is purchased from a variety of major unaffiliated
suppliers and is assembled predominately with the Company’s connectors or other
brands of connectors as complete cable assemblies. Coaxial cable assemblies have
numerous applications including wireless and wireless local area networks, wide
area networks, Internet systems, PCS/cellular systems including 2.5G, 3G, 4G,
Wi-MAX, LTE wireless infrastructure, TV/dish network systems, test equipment,
military/aerospace (mil-standard and COTS (Commercial Off The Shelf)) and
entertainment systems. Cable assemblies are manufactured to customer
requirements.
Aviel
Electronics Products
The Aviel
Electronics Division designs, manufactures and sells specialized and custom
designed RF coaxial connectors. Aviel’s standard configuration and custom
connectors include connectors ranging from standard, miniature, sub-miniature
and unique interfaces. Aviel also specializes in the design and manufacture of
custom and non-standard configurations required for specific applications as
well as hard to locate and discontinued connectors for commercial, aerospace,
military and other unique applications. The Aviel division also manufactures
precision-grade, high frequency connectors and adapters that are sold by the
Oddcables.com division.
Oddcables.com
Products
Oddcables.com
sells coaxial connectors and cable assemblies for numerous multi-media products,
devices and instruments in the local San Diego area. Oddcables.com also produces
and markets cable assemblies in a variety of sizes and combinations of RF
coaxial connectors and coaxial cabling including 10 GHz high frequency fiber
optic patch cable assemblies. Cabling is purchased from a variety of major
unaffiliated suppliers and is assembled with the Company’s connectors or third
party connectors as complete cable assemblies. Coaxial cable assemblies have
thousands of applications including local area networks, wide area networks,
Internet systems, PCS/cellular systems, TV/dish network systems, test equipment,
military/aerospace (mil-standard and COTS (Commercial Off The Shelf)) and
entertainment systems. Most cable assemblies are manufactured to the purchaser’s
specifications.
Bioconnect
Products
Bioconnect
designs, manufactures, sells and provides product development services to OEMs
for standard and custom cable assemblies, adapters and electromechanical wiring
harnesses for medical market and computer industries. These products consist
primarily of patient monitoring cables, ECG cables, snap leads, and molded
safety leads for neonatal monitoring electrodes. The products, which are used in
hospitals, clinics, doctor offices, ambulances and at home are frequently
replaced in order to ensure maximum performance of medical diagnostic
equipment.
RF
Neulink Products
The
wireless data products available from the RF Neulink Division come in a variety
of configurations to satisfy the requirements of certain high-speed wireless
connection markets. Transmitter and receiver modules come in a wide range of
power output and frequency ranges and are used to transmit data, video or voice
information from point to point. Additionally, standard or smart programmable
modems are available in a wide range of speeds and frequency/price ranges.
Accessory modules have been developed for remotely controlling and monitoring
electrical devices.
The
products sold by the RF Neulink Division include both its own products and
products of other manufacturers that are distributed by the Neulink Division.
Current applications in use for Neulink products are various and include seismic
and volcanic monitoring, industrial remote censoring/control in oil fields,
pipelines and warehousing, lottery remote terminals, various military
applications, remote camera control and tracking, perimeter and security system
control/monitoring, water and waste management, inventory control, HVAC remote
control and monitoring, biomedical hazardous material monitoring, fish farming
automation of food dispensing, water aeration and monitoring, remote emergency
generator startup and monitoring, and police usage for mobile warrant database
access.
RadioMobile
Products
RadioMobile
provides complete hardware and software solutions for wireless mobile data
management application. Most of RadioMobile systems are custom engineered and
designed for specific markets. Accordingly, RadioMobile sales consist of
hardware, software and networking products as well as design and installation
services. The primary markets include public safety (police, fire, and
emergency medical services) and utilities and transportation (rail, bus, taxi
and courier services). Software applications for both host (Computer Aided
Dispatch, CAD) and mobile environments are developed by in house engineers and
contractors.
Foreign
Sales
Direct
export sales by the Company to customers in South America, Canada, Mexico,
Europe, Australia, the Middle East, and Asia accounted for $1,818,000 or
approximately 11% of Company’s sales for the fiscal year ended October 31,
2010. Foreign sales accounted for $2,397,000 or approximately 17% of
Company’s sales for the fiscal year ended October 31, 2009. The
majority of the export sales during these periods were to Israel, Canada and
Mexico. Foreign sales orders from individual customers tend to be
larger than U.S. product orders and therefore have a larger impact on the
Company’s sales.
The
Company does not own, or directly operate any manufacturing operations or sales
offices in foreign countries.
Distribution,
Marketing and Customers
Sales
methods vary greatly between the Company’s divisions. The Connector and Cable
Assembly Division currently sells its products primarily through warehousing
distributors and OEM customers who utilize coaxial connectors and cable
assemblies in the manufacture of their products.
The
Aviel Division sells its products to its current customer base with the addition
of customers referred through the Connector and Cable Division. The Aviel and
Connector and Connector divisions sell to similar customer market segments and
combine marketing efforts where economically advantageous.
The
Oddcables.com division operates from a single store-front location in San Diego
and sells primarily to walk-in or local multi-media (video, voice, gaming, etc.)
and communications systems customers. This division also operates an e-commerce
website called Oddcables.com that it launched in 2007 for the distribution of
its products.
The
Bioconnect group markets its products to the medical market through major
hospital suppliers, dealers and distributors. The Bioconnect Division also sells
its products to OEMs who incorporate the leads and cables into their product
offerings.
The
Neulink Division sells its products directly or through manufacturers
representatives, system integrators and OEM’s. System integrators and OEMs
integrate and/or mate Company’s products with their hardware and software to
produce turnkey wireless systems. These systems are then either sold or leased
to other companies or organizations, including utility companies, financial
institutions, petrochemical companies, the U.S. military, government agencies,
and irrigation/water management companies.
The
RadioMobile division sells its products directly and through value added
resellers and dealers. Customers include municipalities for their police, fire,
and emergency medical services, departments, as well as private rail, bus, taxi
and courier services.
Manufacturing
The
Company contracts with outside third parties for the manufacture of a
significant portion of its coaxial connectors and for all the components of its
Neulink products. However, virtually all of RF cable assemblies sold
by the Connector and Cable Assembly Division during the fiscal year ended
October 31, 2010 were assembled by that division at the Company’s facilities in
California. The Neulink products are assembled at the Company’s California
facilities. The Connector and Cable Division has its cables manufactured at
numerous International Standards Organization (ISO) approved factories with
plants in the United States and Taiwan. The Company is dependent on a few
manufacturers for its coaxial connectors and cable assemblies. Although the
Company does not have manufacturing agreements with these manufacturers for its
connectors, cable and Neulink products, the Company does have long-term
purchasing relationships with these manufacturers. The Company has in-house
design engineers who create the engineering drawings for fabrication and
assembly of connectors and cable assemblies and certain of the components of its
Neulink products. Accordingly, the manufacturers are not primarily responsible
for design work related to the manufacture of the connectors and cable
assemblies. However, the third party manufacturers of the Neulink products are
solely responsible for design work related to the manufacture of the Neulink
Division’s products. Neulink products are manufactured by numerous
manufacturers in the United States, and the Company is not dependent on one or a
few manufacturers for its Neulink products.
The
Bioconnect Division has designed and manufactured its own products for over 22
years (including as an unaffiliated company before being acquired by the Company
in 2000). Bioconnect products are manufactured by the Company at its
own California facilities. The manufacturing process for the
Bioconnect medical cables includes all aspects of the product, from the design
to mold design, mold fabrication, assembly and testing. The Bioconnect product
line produces its medical interconnect products in both high volume
manufacturing and for custom or low volume uses.
The Aviel
Electronics Division manufactures connectors at its Las Vegas, Nevada
manufacturing facility. The Aviel Electronics Division has designed and
manufactured its own products for 52 years (including as an unaffiliated company
before being acquired by the Company in August 2004). The manufacturing process
for the Aviel connectors includes all aspects of the product from design,
tooling, fabrication, assembly and testing. The Aviel Electronics product line
produces its connector products for low volume custom manufacturing uses, for
the military, aerospace, communications and other unique
applications.
The
Oddcables.com Division designs and produces low to medium volume connector and
cable assemblies for local and niche customers, as well as a few medium and
large market customers. These services are conducted in San Diego,
California.
The
RadioMobile Division products are purchased from various U.S. and overseas
suppliers. Some products are designed and manufactured by third party
manufacturers to RadioMobile’s specifications. The Company designs
much of the software used in its RadioMobile systems.
There are
certain risks associated with the Company’s dependence on third party
manufacturers for some of its products, including reduced control over delivery
schedules, quality assurance, manufacturing costs, and the potential lack of
adequate capacity during periods of excess demand and increases in prices. See
“Risk Factors” below.
Raw
Materials
Connector
materials are typically made of commodity metals such as copper, brass and zinc
and include small applications of precious materials, including silver and gold.
The Connector and Cable Division purchases most of its connector products from
contract manufacturers located in Asia and the United States. The Company
believes that the raw materials used in its products are readily available and
that the Company is not currently dependent on any supplier for its raw
materials. The Company does not currently have any long-term purchase or supply
agreements with its connector or Neulink product suppliers. The RF Connector and
Cable assembly division obtains coaxial connectors from RF Connector. The
Company believes there are numerous domestic and international suppliers of
coaxial connectors.
Neulink
purchases its electronic products from various U.S. suppliers, and all Neulink
wireless modem transceivers are built in the United States. The Company believes
electronic components used in these products are readily available from a number
of domestic suppliers and from other foreign suppliers.
Aviel
connector materials are typically made of commodity metals and include some
application of precious materials, including silver and gold. The Aviel
Electronic Division purchases almost all of its connector materials and products
from vendors in Asia and the United States. The Company believes the connector
materials used in the manufacturing of its connector products are readily
available from a number of foreign and domestic suppliers.
Oddcables.com
connectors and cable are typically acquired from the Aviel and Connector and
Cable divisions or purchased from other high quality manufacturers and
distributors.
Bioconnect
cable assembly materials are typically made of commodity materials such as
plastics, rubber, resins and wire. The Company believes materials and components
used in these products are readily available from a number of domestic suppliers
and from other foreign suppliers.
RadioMobile
purchases its electronic products from various U.S. and overseas
suppliers.
Employees
As of
October 31, 2010, the Company employed 110 full-time employees, of
whom 35 were in accounting, administration, sales and
management, 71 were in manufacturing, distribution and assembly, and
four were engineers engaged in design, engineering and research and development.
The Company also occasionally hires part-time employees. The Company believes
that it has a good relationship with its employees and, at this time, no
employees are represented by a union.
Research
and Development
The
Company’s research and development activities are intended to produce new
proprietary products that it can market to the wireless connectivity industry.
The Company engaged in approximately $422,000 of research and development
activities in fiscal year ended October 31, 2010, relating to the Connector and
Cable, RF Wireless, and Bioconnect segments. Research and development expense
during the fiscal year ended October 31, 2009 were approximately
$889,000.
In
addition to research and development activities, the Company also invested
approximately $628,000 during the past two fiscal years on
engineering. Engineering activities consist of the design and
development of new products for specific customers, as well as the design and
engineering of new or redesigned products for in the industry in
general. Engineering work is often carried out in collaboration with
the Company’s customers.
Patents,
Trademarks and Licenses
The
Company does not own any patents on any of its products, nor has it registered
any product trademarks. Because the Company carries thousands of separate types
of connectors and other products, most of which are available to the Company’s
customers from other sources, the Company does not believe that its business or
competitive position is dependent on patent protection.
Warranties
and Terms
The
Company warrants its products to be free from defects in material and
workmanship for varying warranty periods, depending upon the product. Products
are generally warranted to the dealer for one year, with the dealer responsible
for any additional warranty it may make. Certain Neulink products are sold
directly to end-users and are warranted to those purchasers. The RF Connector
products are warranted for the useful life of the connectors. Although the
Company has not experienced any significant warranty claims to date, there can
be no assurance that it will not be subjected to such claims in the
future.
The
Company usually sells to customers on 30-day terms pursuant to invoices and does
not generally grant extended payment terms. Sales to most foreign customers are
made on cash terms at time of shipment. Customers may delay, cancel, reduce, or
return products after shipment subject to a restocking charge.
Competition
Management
estimates that the Connector and Cable Division has over 50 competitors in the
RF connector market. The RF connector market is estimated at $2 - $2.5 billion
worldwide, with North America sales estimated at $1.2
billion. Management believes the industry is fragmented with no one
competitor having over a 15% share of the total market, while the ten
largest competitors constitute approximately 76% of the total market. Many of
the competitors of the Connector and Cable Division have significantly greater
financial resources and broader product lines. The Connector and Cable Division
competes on the basis of product quality, product availability, price, service,
delivery time and value-added support to its distributors and OEM customers.
Since the Company’s strategy is to provide a broad selection of products in the
areas in which it competes and to have a ready supply of those products
available at all times, the Company normally has a significant amount of
inventory of its connector products.
The
Bioconnect division competes with numerous other companies in all areas of its
operations, including the manufacture of OEM custom products and medical cable
products. Most of the competitors of Bioconnect are larger and have
significantly greater financial resources than Bioconnect.
Aviel
Electronics has specialized in microwave and radio frequency (RF) custom
connectors which lowers the number of its direct competitors. Because Aviel
Electronics is an approved vendor of leading aerospace, electronics, OEM and
government agencies in the United States and abroad, competition is limited to
those manufacturers who have received formal certification or
approval.
Major
competitors for Neulink include Microwave Data Systems and Data Radio. Although
a number of larger firms could enter Neulink’s markets with similar products,
Neulink’s strategy is focused on serving and providing specific hardware and
software combinations with the goal of maintaining a strong position in selected
“niche” wireless applications. While the Neulink Division’s competitors offer
products that are substantially similar to Neulink’s radio modems, the Neulink
Division tries to enhance its competitive position by offering additional
product support services before, during, and after the sale.
RadioMobile
competitors include Motorola, Intergraph, Northrup Gumman, Panasonic, and
cellular providers including Verizon Wireless and
AT&T. RadioMobile’s strategy is focusing on providing cost
effective mobile data solutions to small to medium size customers.
Government
Regulations
The
Company’s products are designed to meet all known existing or proposed
governmental regulations. Management believes that the Company currently meets
existing standards for approvals by government regulatory agencies for its
principal products. Because the products designed and sold by the Aviel
Electronics Division are used in commercial and military aerospace products, its
products are regulated by various government agencies in the United States and
abroad.
Neulink
products are subject to the regulations of the Federal Communications Commission
(FCC) in the United States, the Department of Communications (D.O.C.) in Canada,
and the E.C.C. Radio Regulation Division in Europe. The Company’s
present equipment is “type-accepted” for use in the United States and Canada.
Neulink offers products that comply with current FCC, Industry Canada, and some
European Union regulations. The system integrator, or end user, is responsible
for compliance with applicable government regulations.
Bioconnect
products are subject to the regulations of the U.S. Food and Drug
Administration.
The
Company’s products are Restriction on Hazardous Substances (“RoHS”)
compliant.
ITEM
1.A
RISK FACTORS
Investors
should carefully consider the risks described below and all other information in
this Form 10-K. The risks and uncertainties described below are not the only
ones facing the Company. Additional risks and uncertainties not presently known
to the Company or that it currently deems immaterial may also impair the
Company’s business and operations.
If any of
the following risks actually occur, the Company’s business, financial condition
or results of operations could be materially adversely affected. In such case,
the trading price of the Company’s common stock could decline and investors may
lose all or part of the money they paid to buy the Company’s common
stock.
The
Company Is Highly Dependent Upon The RF Connector and Cable Assembly Segment,
And Any Major Decline In That Division’s Operations Would Negatively Affect The
Company As A Whole.
Of the
Company’s three operating segments, the RF Connector and Cable Assembly segment
is the largest; accounting for approximately 86% of the Company’s total sales
for the fiscal years ended October 31, 2010 and 2009. The Company expects the RF
Connector and Cable Assembly segment products will continue to account for the
majority of the Company’s revenues for the near future. Accordingly, an adverse
change in the operations of that segment could materially adversely affect the
Company’s business, operating results and financial condition. Factors that
could adversely affect the RF Connector and Cable segment are described
below.
Difficult
Conditions In The Global Economy In General Have Adversely Affected the
Company’s Business And Results Of Operations And It Is Uncertain If These
Conditions Will Improve In The Near Future, And They May Worsen.
A
prolonged economic downturn, both in the U.S. and worldwide, may continue to
lead to lower sales or reduced sales growth, reduced prices, lower gross
margins, and increased bad debt risks, all of which could adversely affect the
Company’s results of operations, financial condition and cash
flows. Slowing economic activity, particularly in the
telecommunication and data communication and wireless communications industries
that represent the Company’s largest target market, may adversely impact the
demand for the Company’s products. Although the Company has been able
to operate profitably and sales in fiscal 2010 of its RF Connector products have
improved compared with the prior year, if the current economic downturn
continues or intensifies, the Company’s results could be more adversely affected
in the future. There could be a number of other adverse follow-on
effects from the credit crisis on the Company’s business, including insolvency
of certain key distributors, key suppliers, contract manufacturers and
customers.
The
Company Depends On Third-Party Contract Manufacturers For A Majority Of Its
Connector Manufacturing Needs. If They Are Unable To Manufacture A Sufficient
Quantity Of High-Quality Products On A Timely And Cost-Efficient Basis, The
Company’s Net Revenue And Profitability Would Be Harmed And Its Reputation May
Suffer.
Substantially
all of the Company’s RF Connector products are manufactured by third-party
contract manufacturers. The Company relies on them to procure components for RF
Connectors and in certain cases to design, assemble and test its products on a
timely and cost-efficient basis. If the Company’s contract manufacturers are
unable to complete design work on a timely basis, the Company will experience
delays in product development and its ability to compete may be harmed. In
addition, because some of the Company’s manufacturers have manufacturing
facilities in Taiwan and China, their ability to provide the Company with
adequate supplies of high-quality products on a timely and cost-efficient basis
is subject to a number of additional risks and uncertainties, including
earthquakes and other natural disasters and political, social and economic
instability. If the Company’s manufacturers are unable to provide it with
adequate supplies of high-quality products on a timely and cost-efficient basis,
the Company’s operations would be disrupted and its net revenue and
profitability would suffer. Moreover, if the Company’s third-party contract
manufacturers cannot consistently produce high-quality products that are free of
defects, the Company may experience a higher rate of product returns, which
would also reduce its profitability and may harm the Company’s reputation and
brand.
The
Company does not currently have any agreements with any of its contract
manufacturers, and such manufacturers could stop manufacturing products for the
Company at any time. Although the Company believes that it could locate
alternate contract manufacturers if any of its manufacturers terminated their
business, the Company’s operations could be impacted until alternate
manufacturers are found.
The
Company’s Dependence On Third-Party Manufacturers Increases The Risk That It
Will Not Have An Adequate Supply Of Products Or That Its Product Costs Will Be
Higher Than Expected.
The risks
associated with the Company’s dependence upon third parties which develop and
manufacture and assemble the Company’s products, include:
|
|
·
|
reduced
control over delivery schedules and
quality;
|
|
|
·
|
risks
of inadequate manufacturing yields and excessive
costs;
|
|
|
·
|
the
potential lack of adequate capacity during periods of excess demand;
and
|
|
|
·
|
potential
increases in prices due to raw material and/or labor
costs.
|
These
risks may lead to increased costs or delay product delivery, which would harm
the Company’s profitability and customer relationships.
If
The Manufacturers of the Company’s Coaxial Connectors Or Other Products
Discontinue The Manufacturing Processes Needed To Meet The Company’s Demands Or
Fail To Upgrade Their Technologies, the Company May Face Production
Delays.
The
Company’s coaxial connector and other product requirements typically represent a
small portion of the total production of the third-party manufacturers. As a
result, the Company is subject to the risk that a third party manufacturer will
cease production of some of the Company’s products or fail to continue to
advance the process design technologies on which the manufacturing of the
Company’s products are based. Each of these events could increase the Company’s
costs, harm its ability to deliver products on time, or develop new
products.
The
Company’s Dependence Upon Independent Distributors To Sell And Market The
Company’s Products Exposes The Company To The Risk That Such Distributors May
Decrease Their Sales Of The Company’s Products Or Terminate Their Relationship
With The Company.
The
Company’s sales efforts are primarily affected through independent distributors,
of which there were more than 60 as of the end of fiscal 2010. Sales
through independent distributors accounted for approximately 60% the net sales
of the Company for the fiscal year ended October 31, 2010. Although the Company
has entered into written agreements with most of the distributors, the
agreements are nonexclusive and generally may be terminated by either party upon
30-60 days’ written notice. The Company’s distributors are not within the
control of the Company, are not obligated to purchase products from the Company,
and may also sell other lines of products. There can be no assurance that these
distributors will continue their current relationships with the Company or that
they will not give higher priority to the sale of other products, which could
include products of competitors. A reduction in sales efforts or discontinuance
of sales of the Company’s products by its distributors would lead to reduced
sales and could materially adversely affect the Company’s financial condition,
results of operations and business. Selling through indirect channels such as
distributors may limit the Company’s contact with its ultimate customers and the
Company’s ability to assure customer satisfaction.
A
Portion Of The Company’s Sales Is Dependent Upon A Few Principal Customers, The
Loss Of Whom Could Materially Negatively Affect The Company’s Total
Sales.
One
customer accounted for approximately 20% of the total sales of the Company for
the fiscal year ended October 31, 2010. Although this customer has been an
on-going major customer of the Company for at least the past ten years and the
Company has entered into a written distributor agreement with this customer,
this customer does not have any minimum purchase obligations and could stop
buying the Company’s products at any time. 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. The Company cannot provide assurance
that this customer or any of its current customers will continue to place
orders, that orders by existing customers will continue at current or historical
levels or that the Company will be able to obtain orders from new
customers.
Certain
of The Company’s Markets Are Subject To Rapid Technological Change, So the
Company’s Success In These Markets Depends On Its Ability To Develop And
Introduce New Products.
Although
most of the Company’s products have a stable market and are only gradually
phased out, certain of the new and emerging markets, such as the wireless
digital transmission markets, are characterized by:
|
|
·
|
rapidly
changing technologies;
|
|
|
·
|
evolving
and competing industry standards;
|
|
|
·
|
short
product life cycles;
|
|
|
·
|
changing
customer needs;
|
|
|
·
|
frequent
new product introductions and enhancements;
and
|
|
|
·
|
rapid
product obsolescence.
|
To
develop new products for the connector and wireless digital transmission
markets, the Company must develop, gain access to and use new technologies in a
cost-effective and timely manner. In addition, the Company must maintain close
working relationship with key customers in order to develop new products that
meet customers’ changing needs. The Company also must respond to changing
industry standards and technological changes on a timely and cost-effective
basis.
Products
for connector applications are based on industry standards that are continually
evolving. The Company’s ability to compete in the future will depend on its
ability to identify and ensure compliance with these evolving industry
standards. If the Company is not successful in developing or using new
technologies or in developing new products or product enhancements, its future
revenues may be materially affected. The Company’s attempt to keep up with
technological advances may require substantial time and expense.
Because
The Markets In Which The Company Competes Are Highly Competitive, A Failure To
Effectively Compete Could Result In An Immediate And Substantial Loss Of Market
Share.
The
markets in which the Company operates are highly competitive and the Company
expects that competition will increase in these markets. In particular, the
connector and communications markets in which the Company’s products are sold
are intensely competitive. A failure to effectively compete in this market could
result in an immediate and substantial loss of revenues and market share.
Because most of the Company’s sales are derived from products that are not
proprietary or that can be used to distinguish the Company from its competitors,
the Company’s ability to compete successfully in these markets depends on a
number of factors, including:
|
|
·
|
market
acceptance of competitors’ products;
and
|
|
|
·
|
general
economic conditions.
|
In
addition, the Company’s competitors or customers may offer enhancements to its
existing products or offer new products based on new technologies, industry
standards or customer requirements that have the potential to replace or provide
lower-cost or higher performance alternatives to the Company’s products. The
introduction of enhancements or new products by the Company’s competitors could
render its existing and future products obsolete or unmarketable.
Many of
the Company’s competitors have significantly greater financial and other
resources. In certain circumstances, the Company’s customers or potential
customers have internal manufacturing capabilities with which the Company may
compete.
If
The Industries Into Which The Company Sells Its Products Experience Recession Or
Other Cyclical Effects Impacting The Budgets Of Its Customers, The Company’s
Operating Results Could Be Negatively Impacted.
The
primary customers for the Company’s coaxial connectors are in the communications
industries. Any significant downturn in the Company’s customers’ markets, in
particular, or in general economic conditions which result in the cut back of
budgets would likely result in a reduction in demand for the Company’s products
and services and could harm the Company’s business. Historically, the
communications industry has been cyclical, affected by both economic conditions
and industry-specific cycles. Depressed general economic conditions and cyclical
downturns in the communications industry have each had an adverse effect on
sales of communications equipment, OEMs and their suppliers, including the
Company. No assurance can be given that the connector industry will not
experience a material downturn in the near future. Any cyclical downturn in the
connector and/or communications industry could have a material adverse effect on
the Company.
Because
The Company Sells Its Products To Foreign Customers, The Company Is Exposed To
All Of The Risks Associated With International Sales, Including Foreign Currency
Exposure.
Sales to
customers located outside the United States, either directly or through U.S. and
foreign distributors, accounted for approximately 11% and 17% of the net sales
of the Company during the years ended October 31, 2010 and 2009 respectively.
International revenues are subject to a number of risks, including:
|
|
·
|
longer
accounts receivable payment cycles;
|
|
|
·
|
difficulty
in enforcing agreements and in collecting accounts
receivable;
|
|
|
·
|
tariffs
and other restrictions on foreign
trade;
|
|
|
·
|
economic
and political instability; and the
|
|
|
·
|
burdens
of complying with a wide variety of foreign
laws.
|
The
Company’s foreign sales are also affected by general economic conditions in its
international markets. A prolonged economic downturn in its foreign markets
could have a material adverse effect on the Company’s business. There can be no
assurance that the factors described above will not have an adverse material
effect on the Company’s future international revenues and, consequently, on the
financial condition, results of operations and business of the
Company.
Since
sales made to foreign customers or foreign distributors have historically been
in U.S. dollars, the Company has not been exposed to the risks of foreign
currency fluctuations. However, if the Company in the future is required to
accept sales denominated in the currencies of the countries where sales are
made, the Company will thereafter also be exposed to currency fluctuation
risks.
The
Loss Of Key Personnel Could Adversely Affect The Company’s
Operations.
The
Company’s success will depend to a significant extent on the continued service
of the Company’s senior executives including Howard Hill, its President and
Chief Executive Officer, and certain other key employees, including certain
technical and marketing personnel. The Company’s employment agreement with Mr.
Hill expires by its terms on June 20, 2011. No assurance can be given that Mr.
Hill will continue to be employed by this Company after the expiration of his
employment agreement. If the Company lost the services of Mr. Hill or
one or more of the Company’s key executives or employees (including if one or
more of the Company’s officers or employees decided to join a competitor or
otherwise compete directly or indirectly with the Company), this could
materially adversely affect the Company’s business, operating results, and
financial condition.
The
Company May Make Future Acquisitions, Which Will Involve Numerous
Risks.
Since
August 2004, the Company has purchased the operations of three smaller
businesses (it purchased Aviel Electronics in Las Vegas, Nevada, in August 2004,
Oddcables.com in San Diego, California, in September 2005, and RadioMobile, Inc.
in San Diego, California, in September 2007). The Company regularly considers
potential acquisitions of other companies that could expand the Company’s
product line or customer base and may in the future make additional
acquisitions. Accordingly, the Company will be subject to numerous risks
associated with the acquisition of additional companies, including:
|
|
·
|
diversion
of management’s attention;
|
|
|
·
|
the
effect on the Company’s financial statements of the amortization of
acquired intangible assets;
|
|
|
·
|
the
cost associated with acquisitions and the integration of acquired
operations;
|
|
|
·
|
the
Company may not be able to secure capital to finance future acquisitions
to the extent additional debt or equity is needed;
and
|
|
|
·
|
assumption
of unknown liabilities, or other unanticipated events or
circumstances.
|
Any of
these risks could materially harm the Company’s business, financial condition
and results of operations. There can be no assurance that any business that the
Company acquires will achieve anticipated revenues or operating
results.
The
Company Has No Patent Rights In The Technology Employed In Its Products, Which
May Limit the Company’s Ability To Compete.
The
Company does not hold any United States or foreign patents and does not have any
patents pending. The Company does not seek to protect its rights in the
technology that it develops or that the Company’s third-party contract
manufacturers develop by means of the patent laws, although it does protect some
aspects of its proprietary products and technologies by means of copyright and
trade secret laws. Accordingly, competitors can and do sell many of
the same products as the Company, and the Company cannot prevent or restrict
such competition.
Volatility
of Trading Prices Of The Company’s Stock Could Result In A Loss On An Investment
In The Company’s Stock.
In the
past several years the market price of the Company’s common stock has varied
greatly, and the volume of the Company’s common stock traded has fluctuated
greatly as well. These fluctuations often occur independently of the Company’s
performance or any announcements by the Company. Factors that may result in such
fluctuations include:
|
|
·
|
any
shortfall in revenues or net income from revenues or net income expected
by securities analysts
|
|
|
·
|
fluctuations
in the Company’s financial results or the results of other connector and
communications-related companies, including those of the Company’s direct
competitors
|
|
|
·
|
changes
in analysts’ estimates of the Company’s financial performance, the
financial performance of the Company’s competitors, or the financial
performance of connector and communications-related public companies in
general
|
|
|
·
|
general
conditions in the connector and communications
industries
|
|
|
·
|
changes
in the Company’s revenue growth rates or the growth rates of the Company’s
competitors
|
|
|
·
|
sales
of large blocks of the Company’s common
stock
|
|
|
·
|
conditions
in the financial markets in general
|
In
addition, the stock market may from time to time experience extreme price and
volume fluctuations, which may be unrelated to the operating performance of any
specific company. Accordingly, the market prices of the Company’s common stock
may be expected to experience significant fluctuations in the
future.
ITEM
1B. UNRESOLVED
STAFF COMMENTS
Not
applicable.
ITEM
2. DESCRIPTION
OF PROPERTY
The
Company leases its corporate headquarters building at 7610 Miramar Road,
Building 6000, San Diego, California. The building consists of approximately
22,000 square feet which houses its corporate administration, sales and
marketing, and engineering plus production and warehousing for the Company’s
Connector and Cable Assembly and Bioconnect Divisions. The lease for this
facility expires on March 31, 2014. In addition, the Company also leases the
following facilities:
|
|
(i)
|
The
cable assembly manufacturing portion of the Connector and Cable Assembly
Division operates in a separate 3,180 square foot facility that is located
adjacent to the Company’s corporate headquarters. The lease for this space
expires on March 31, 2014.
|
|
|
(ii)
|
The
Neulink and RadioMobile Divisions operate from a separate building that is
located near the Company’s corporate headquarters at 7606 Miramar Road,
Building 7200. The building consists of approximately 2,500 square feet of
administrative and manufacturing space and houses the production and sales
staff of the Neulink and RadioMobile divisions. The lease for this space
expires on March 31, 2014.
|
|
|
(iii)
|
During
fiscal 2009, Aviel entered into a facility lease agreement for
approximately 4,500 square feet at 3060 Post Road, Suite 100 Las Vegas
Nevada. The lease term commenced September 1, 2009 and will expire March
31, 2015.
|
|
|
(iv)
|
The
Oddcables.com Division leases an approximately 4,000 square foot facility
located at 7642 Clairemont Mesa Boulevard Suite 211, San Diego,
California. The lease for this space expires December 31,
2013.
|
The
aggregate monthly rental for all of the Company’s facilities currently was
approximately $53,700 per month, plus utilities, maintenance and insurance as of
October 31, 2010.
The
Company currently believes that its facilities are sufficient to meet its
foreseeable needs. However, should the Company require additional space; the
Company believes that suitable additional space is available near the Company’s
current facilities. In addition, the Company believes that it will be able to
renew its existing leases upon the expiration of the current leases or, if
desirable or necessary, relocate to alternate facilities on substantially
similar terms.
ITEM
3. LEGAL
PROCEEDINGS
From time
to time, the Company is involved in legal proceedings that are related to its
business operations. The Company is not currently a party to any legal
proceedings that could have a material adverse effect upon its financial
position or results of operations.
ITEM
4. RESERVED
PART
II
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
The
Company’s Common Stock is listed and trades on the NASDAQ Capital Market under
the symbol “RFIL.”
For the
periods indicated, the following tables set forth the high and low closing
prices per share of Common Stock. These prices represent inter-dealer quotations
without retail mark-up, markdown or commission and may not necessarily represent
actual transactions.
|
Quarter
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
1, 2009 - January 31, 2010
|
|
$ |
4.85 |
|
|
$ |
4.03 |
|
|
February
1, 2010 - April 30, 2010
|
|
|
5.40 |
|
|
|
4.50 |
|
|
May
1, 2010 - July 31, 2010
|
|
|
5.84 |
|
|
|
4.90 |
|
|
August
1, 2010 - October 31, 2010
|
|
|
7.00 |
|
|
|
5.20 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
1, 2008 - January 31, 2009
|
|
$ |
6.11 |
|
|
$ |
3.50 |
|
|
February
1, 2009 - April 30, 2009
|
|
|
4.21 |
|
|
|
2.85 |
|
|
May
1, 2009 - July 31, 2009
|
|
|
4.50 |
|
|
|
3.40 |
|
|
August
1, 2009 - October 31, 2009
|
|
|
4.89 |
|
|
|
3.87 |
|
Stockholders. As
of October 31, 2010 there were 429 holders of the Company’s Common Stock
according to the records of the Company’s transfer agent, Continental Stock
Transfer & Trust Company, New York, New York, not including holders who hold
their stock in “street name.”
Dividends. The
Company paid dividends of $0.03 per share, for a total of $84,113, during fiscal
2010. The Board of Directors may continue to declare and pay dividends in the
future depending on the Company’s financial condition and its financial
needs.
Repurchase of
Securities. The Company did not repurchase any shares of its common stock
during the year ended October 31, 2010.
Recent Sales of Unregistered
Securities. There were no previously unreported sales of
equity securities by the Company that were not registered under the Securities
Act during fiscal 2010.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides information as of October 31, 2010 with respect to the
shares of Company common stock that may be issued under the Company’s existing
equity compensation plans.
|
|
|
A
|
|
|
B
|
|
|
C
|
|
|
Plan Category
|
|
Number of Securities to
be Issued Upon Exercise
of Outstanding Options
|
|
|
Weighted Average
Exercise Price of
Outstanding Options ($)
|
|
|
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column A)
|
|
|
Equity
Compensation Plans Approved by Stockholders (1)
|
|
|
770,272 |
|
|
$ |
5.45 |
|
|
|
423,546 |
|
|
Equity
Compensation Plans Not Approved by Stockholders (2)
|
|
|
457,204 |
|
|
$ |
1.55 |
|
|
|
0 |
|
|
Total
|
|
|
1,227,476 |
|
|
$ |
4.00 |
|
|
|
423,546 |
|
|
(1)
|
Consists
of options granted under the R.F. Industries, Ltd. (i) 2010 Stock Option
Plan (ii) 2000 Stock Option Plan, (iii) the 1990 Incentive Stock Option
Plan, and (iv) the 1990 Non-qualified Stock Option Plan. The 2000 Stock
Option Plan and the 1990 Incentive Stock Option Plan and Non-qualified
Stock Option Plan have expired, and no additional options can be granted
under these plans. Accordingly, all 423,546 shares remaining available for
issuance represent shares under the 2010 Stock Option
Plan.
|
|
(2)
|
Consists
of options granted to six officers and/or key employees of the Company
under employment agreements entered into by the Company with each of these
officers and employees.
|
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC
Regulation S-K.
ITEM
7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires us to make significant estimates and judgments that affect
the reported amounts of assets, liabilities, revenues, expenses and related
disclosure of contingent assets and liabilities. We evaluate our estimates,
including those related to bad debts, inventory reserves and contingencies on an
ongoing basis. We base our estimates on historical experience and on various
other assumptions that are believed to be appropriate under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
One of
the accounting policies that involves significant judgments and estimates
concerns our 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, we 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, we determine the
amounts of these allowances. Because inventories have, during the past few
years, represented up to one-third of our total assets, any reduction in the
value of our inventories would require us to take write-offs that would affect
our net worth and future earnings.
Another
accounting policy that involves significant judgments and estimates is our
accounts receivable allowance valuation. The Company routinely assesses the
financial strength of its customers and maintains an allowance for doubtful
accounts that management believes will adequately provide for credit
losses.
The
Company uses the Black-Scholes model to value the stock option grants which
involves significant judgments and estimates.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
For
recently issued accounting pronouncements that may affect us, see Note 1 of
Notes to Financial Statements.
OVERVIEW
The
Company markets connectors and cables to numerous industries for use in
thousands of products, primarily for the wireless market. The Company aggregates
operating divisions into operating segments which have similar economic
characteristics and divisions 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; (5) if
applicable, the nature of the regulatory environment. The Company has three
segments - RF Connector and Cable Assembly segment, Medical Cabling and
Interconnector segment, and RF Wireless segment- based upon this
evaluation.
The RF
Connector and Cable Assembly segment is comprised of three divisions; the
Medical Cabling and Interconnector segment is comprised of one division, while
the RF Wireless segment is comprised of two divisions. The four divisions that
meet the quantitative thresholds for segment reporting are Connector and Cable
Assembly, Bioconnect, RadioMobile and RF Neulink. Each of the other divisions
aggregated into these segments that 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 Connector
and Cable Assembly, Aviel Electronics and Oddcables.com divisions into the RF
Connector 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.
Historically,
over 80% of the Company’s revenues are generated from the sale of RF connector
products and connector cable assemblies (the Connector and Cable Assembly
division accounted for approximately 86% of the Company’s total sales for the
fiscal year ended October 31, 2010). Sales of connectors are expected to
continue to be the largest portion of revenues in the
future. Accordingly, Company revenues are heavily dependent upon
sales of RF connectors and cable assemblies. However, the Company sells
thousands of connector products for uses in thousands of end products and sales
are not dependent upon any one industry sector or any single
product. The Company’s sales do, however, track sales in the wireless
industry as a whole. Accordingly, the Company’s sales in 2010
increased as a result of industry wide increases.
The net
income in fiscal 2010 represented the 17th consecutive year that the Company has
been profitable.
The
Company generated cash from operations of $2,502,656 and used $84,113 to
pay dividends. Overall, the amount of cash and cash equivalents, and
short-term certificates of deposit held by the Company as of October 31, 2010
increased $1,603,546 from $7,702,908 at October 31, 2009 to $9,306,454 at
October 31, 2010. The Company also held long term certificates of
deposit totaling $946,491 at October 31, 2010 and had no long term investments
at October 31, 2009. Since the Company has no debt other than normal accounts
payable, accrued expenses, and other long-term liabilities, the Company will
continue to have sufficient cash to fund all of its anticipated financing and
liquidity needs for the foreseeable future.
Financial
Condition
The
following table presents certain key measures of financial condition as of
October 31, 2010 and 2009:
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Amount
|
|
|
% Total Assets
|
|
|
Amount
|
|
|
% Total Assets
|
|
|
Cash
and cash equivalents and CDs and certificates of deposit
|
|
$ |
9,306,454 |
|
|
|
48.7 |
% |
|
$ |
7,702,908 |
|
|
|
46.4 |
% |
|
Current
assets
|
|
|
17,533,406 |
|
|
|
91.8 |
% |
|
|
15,769,656 |
|
|
|
95.0 |
% |
|
Current
liabilities
|
|
|
1,879,213 |
|
|
|
9.8 |
% |
|
|
973,188 |
|
|
|
5.9 |
% |
|
Working
capital
|
|
|
15,654,193 |
|
|
|
81.9 |
% |
|
|
14,796,468 |
|
|
|
89.1 |
% |
|
Property
and equipment - net
|
|
|
530,327 |
|
|
|
2.8 |
% |
|
|
565,804 |
|
|
|
3.4 |
% |
|
Total
assets
|
|
|
19,109,363 |
|
|
|
100.0 |
% |
|
|
16,598,200 |
|
|
|
100.0 |
% |
|
Stockholders’
equity
|
|
|
16,913,960 |
|
|
|
88.5 |
% |
|
|
15,253,482 |
|
|
|
91.9 |
% |
Liquidity
and Capital Resources
Management
believes that its 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 the fiscal
year ending October 31, 2011 (“fiscal 2011”). 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 it expects to
generate from operations will be sufficient during the current fiscal year based
on the following:
|
|
·
|
As
of October 31, 2010, the amount of cash and cash equivalents and
short-term certificates of deposit was equal to $9,306,454 in the
aggregate. Accordingly, the Company believes that it has sufficient cash
available to operate its current business and fund its currently
anticipated capital expenditure for the upcoming
year.
|
|
|
·
|
As
of October 31, 2010, the Company had $17,533,406 in current
assets and only $1,879,213 in current
liabilities.
|
Management
believes that based on the Company’s financial condition at October 31, 2010,
the absence of outstanding bank debt, and its recent operating results, there
are sufficient capital resources to fund its operations and future acquisitions
for at least the next twelve months. Should the Company need to obtain
additional funds for its unexpected acquisitions of assets or other expansion
activities, based on its balance sheet and its history of profitability, the
Company believes that it would be able to obtain bank loans to finance these
expenditures. However, there can be no assurance any bank loan would be
obtainable, or if obtained, would be on favorable terms or
conditions.
The
Company is not a party to off-balance sheet arrangements and does not engage in
trading activities involving non-exchange traded contracts. In addition, the
Company has no financial guarantees, debt or lease agreements or other
arrangements that could trigger a requirement for an early payment or that could
impact the value of the Company’s assets.
As part
of its business strategy, and because of its offshore manufacturing
arrangements, the Company normally maintains a significant level of inventory.
As described elsewhere in this Annual Report, one of the Company’s competitive
advantages and strategies is to maintain customer satisfaction by having
sufficient inventory on hand to fulfill most customer orders on short notice.
Accordingly, the Company maintains a significant amount of inventory, which
increases or decreases to reflect the Company’s sales and lead times for
products. In light of a 15% increase in sales in fiscal 2010 compared to sales
of prior year, the Company’s year end inventory balance decreased by 8% compared
to prior year’s year end inventory balance. The Company continuously monitors
its inventory levels and product costs. For inventory purchase
pricing purposes, the Company may, however, increase its inventory levels from
time to time to protect against anticipated future increases in raw material
costs or to obtain volume discounts.
Net cash
provided by operating activities for the year ended October 31, 2010 was
$2,502,656. The Company’s net cash from operations was more than its
net income of $1,220,247 due primarily to $599,133 of non-cash expenses
($214,266 of depreciation and amortization, $231,000 of stock compensation
expense, $137,328 of goodwill impairment, and $247,539 of inventory write-offs),
a $312,876 increase in accounts payable, and a $554,590 increase in accrued
expenses. In fiscal year ended October 31, 2009, net cash provided by operating
activities was $1,703,123.
During
fiscal 2010, net cash provided by investing activities was $801,071, which
represents the difference between the proceeds the Company received from the
maturity of certain of its certificates of deposit and the amount re-invested in
new certificates of deposit, less $151,850 that the Company invested in
additional capital equipment (primarily for the Connector and Cable division).
During fiscal 2009, net cash provided by investing activities was
$169,338.
In fiscal
2010, financing activities increased the Company’s net cash provided by $199,230
due to the receipt of $205,108 from the exercise of stock options and $78,235 of
excess tax benefits, which was offset by dividends paid of $84,113. In fiscal
2009, financing activities decreased the Company’s net cash by $1,707,372 due to
dividends paid of $94,780 and $1,612,592 used to repurchase 385,358 shares of
Company common stock. No shares were repurchased during fiscal
2010.
The
Company does not believe that inflation has had a material impact on its
business or operations.
Results
of Operations
The
following summarizes the key components of the results of operations for the
fiscal years ended October 31, 2010 and 2009:
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Amount
|
|
|
% of Net
Sales
|
|
|
Amount
|
|
|
% of Net
Sales
|
|
|
Net
sales
|
|
$ |
16,322,178 |
|
|
|
100 |
% |
|
$ |
14,213,045 |
|
|
|
100 |
% |
|
Cost
of sales
|
|
|
8,158,798 |
|
|
|
50 |
% |
|
|
7,308,479 |
|
|
|
51 |
% |
|
Gross
profit
|
|
|
8,163,380 |
|
|
|
50 |
% |
|
|
6,904,566 |
|
|
|
49 |
% |
|
Engineering
expenses
|
|
|
887,865 |
|
|
|
5 |
% |
|
|
1,050,398 |
|
|
|
7 |
% |
|
Selling
and general expenses
|
|
|
5,133,967 |
|
|
|
31 |
% |
|
|
4,738,265 |
|
|
|
33 |
% |
|
Goodwill
impairment
|
|
|
137,328 |
|
|
|
1 |
% |
|
|
209,763 |
|
|
|
1 |
% |
|
Operating
income
|
|
|
2,004,220 |
|
|
|
12 |
% |
|
|
906,140 |
|
|
|
6 |
% |
|
Other
income
|
|
|
86,614 |
|
|
|
1 |
% |
|
|
193,429 |
|
|
|
1 |
% |
|
Income
before income taxes
|
|
|
2,090,834 |
|
|
|
13 |
% |
|
|
1,099,569 |
|
|
|
8 |
% |
|
Income
taxes
|
|
|
870,587 |
|
|
|
5 |
% |
|
|
443,602 |
|
|
|
3 |
% |
|
Net
income
|
|
|
1,220,247 |
|
|
|
8 |
% |
|
|
655,967 |
|
|
|
5 |
% |
Net sales
of the Company increased by approximately $2,109,000 or 15%, for the fiscal year
ended October 31, 2010 (“fiscal 2010”) compared to the fiscal year ended October
31, 2009 (“fiscal 2009”). Net sales increased in fiscal 2010 due primarily to a
significant increase in net sales at the Connector and Cable Assembly segment.
Net sales at the Connector and Cable Assembly segment increased from fiscal 2009
by approximately $1,941,000. The Company believes that the increase was
primarily due to the improved economic conditions at its distributors as the
global recession subsided, and an increase in sales in the wireless industry in
particular. The build out of the new 4G and Wi-MAX wireless network systems
contributed to the increase in connector sales. Net sales at the Medical Cabling
and Interconnect division also increased significantly, by $401,000, compared to
its sales in fiscal 2009. However, these increases were offset by a significant
decrease in sales of $233,000 compared to sales in fiscal 2009 at the RF
Wireless segment. The substantial decrease in net sales at the RF Wireless
segment was attributable to a decrease of $128,000 in sales by the RadioMobile
Division and a decrease of $105,000 in sales by the Neulink division. Unlike the
Connector and Cable Assembly segment that has many smaller customers and a wide
variety of products, the RF Wireless segment has few products and few customers.
Accordingly, the failure by the RF Wireless segment to make a few larger sales
to its customers resulted in a substantial decrease in sales. The Company is
evaluating the operations of the RF Wireless segment and may reorganize the
operations of one or more of the RF Wireless divisions.
The
Company’s gross profit increased by $1,259,000 or by 18% to $8,163,000 in 2010
from $6,905,000 in 2009 due to the increase in net sales. As a percentage of net
sales, gross profit increased slightly to 50% in fiscal 2010, up slightly from
49% in fiscal 2009 because the Company was able to leverage off economies of
scale relating to its fixed labor costs as a result of the increase in sales.
Gross profit for fiscal 2010 would have been significantly greater if not for
the effects of $247,539 of inventory write-offs at the Neulink division. There
were no such inventory write-offs during fiscal 2009.
Engineering expenses, which include
research and development expenses, incurred at the Company’s three segments and
relating to the design, re-design or development of products for specific
customers decreased from prior year by $163,000 to $888,000 compared to
$1,050,000 in fiscal 2009. As a percentage of net sales, engineering expenses
decreased to 5% in fiscal 2010 from 7% in fiscal 2009. Engineering expense (including research
and development) during fiscal 2010 related to development of new products at
the Connector and Cable, RF Wireless, and Bioconnect segments. The Company
collectively incurred approximately $422,000 of research and development
expenses in fiscal 2010 in the development of new products compared to $889,000
of research and development expenses in fiscal 2009. Research and
development expenses decreased 53%, or $467,000 compared with prior year’s
expense due to certain projects nearing completion at the RF Wireless division
and related decreases in contract labor expense.
Selling
and general expenses increased by $396,000 or 9%, to $5,134,000 during fiscal
2010 from $4,738,000 in fiscal 2009. This increase is directly related to the
increase in revenues partially offset by continued cost cutting measures
implemented by the Company. Since sales increased by a greater percentage than
the increase in selling and general expenses, as a percentage of sales, selling
and general expenses decreased to 31% from 33%. Selling and general expense
decreased as a percentage of sales despite a significant increase in stock based
compensation expense, which increased by $78,000 to $231,000 in fiscal 2010 from
$153,000 in fiscal 2009. Stock based compensation increased primarily due to the
increase in options granted and also to a one-time charge of $33,000 relating to
the extension of a former board member’s exercise period for outstanding grants.
Sales commission expense increased by $1,000 or 1% to $82,000 in fiscal 2010
from $81,000 in fiscal 2009 due to restructuring of our sales commission plan.
Accounting and legal fees decreased by $132,000 to $304,000 in fiscal 2010 from
$436,000 in fiscal 2009 primarily due to reductions in outside expenses related
to management’s assessment and testing of internal controls over financial
reporting and external audit and review work. Advertising costs decreased by
$39,000 to $215,000 in fiscal 2010 from $254,000 in fiscal 2009 due to a
decrease in marketing efforts in fiscal 2010 compared to prior
year.
Due to
the ongoing negative effects of the global recession and related triggers
(decreased sales), during the third quarter of 2010, the Company performed an
impairment analysis of the Aviel goodwill balance. The sales generated by this
division were significantly lower than expected and the forecasted improvements
from prior periods did not occur. Prior to management’s analysis, the Company
had a total of $137,328 of goodwill allocated to the acquisition of the Aviel
division. As a result of its impairment analysis, management wrote off the
goodwill attributed to Aviel and recorded a goodwill impairment charge of
$137,328 for the third quarter of fiscal 2010, which is included in selling and
general expense in the statement of income.
Due to
the significant increase in sales and the increase of $1,259,000 in gross profit
compared to prior year, operating income increased by $1,098,000 or 121% to
$2,004,000 in fiscal 2010. Total operating expenses increased by $161,000 or 3%
as a result of increases in selling and general administrative
expenses.
Interest
income decreased by approximately $107,000 from the prior year due to a decrease
in interest rates on the funds held by the Company in its interest bearing
accounts compared to the rates received during fiscal 2009. During
fiscal 2010, the Company continued to invest primarily in certificates of
deposit and money market funds.
Income
before taxes in fiscal 2010 increased by 90% or by $991,000 to $2,091,000
compared to income before taxes of $1,100,000 in fiscal 2009. Net income for
fiscal year ended October 31, 2010 increased by $564,000 or 86% to $1,220,000
compared to $656,000 in fiscal year ended October 31, 2009. The effective tax
rate in fiscal 2010 increased 1.3% to 41.6% compared to 40.3% in fiscal 2009
mainly due to 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 (the “Act”) which will impact the Company’s tax provision in the
first quarter of fiscal 2011. Due to the passage of the Act into law, the
Company estimates it will be able to claim an increased tax credit related to
the year ended October 31, 2010 for research and development related to the year
ended October 31, 2010 of approximately $55,000. The credit will be recorded in
the first quarter of fiscal 2011.
ITEM
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC
Regulation S-K.
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The
following Financial Statements of the Company with related Notes and Report of
Independent Registered Public Accounting Firm are attached hereto as pages F-1
to F-21 and filed as part of this Annual Report:
|
|
·
|
Report
of J.H. Cohn LLP, Independent Registered Public Accounting
Firm
|
|
|
·
|
Balance
Sheets as of October 31, 2010 and
2009
|
|
|
·
|
Statements
of Income for the years ended October 31, 2010 and
2009
|
|
|
·
|
Statements
of Stockholders’ Equity for the years ended October 31, 2010 and
2009
|
|
|
·
|
Statements
of Cash Flows for the years ended October 31, 2010 and
2009
|
|
|
·
|
Notes
to Financial Statements
|
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None
ITEM
9A CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures (as defined in Exchange Act Rule
13a-15(e)) that are designed to assure that information required to be disclosed
in our Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s
rules and forms, and that such information is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosures.
In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide reasonable assurance only of achieving the desired control
objectives, and management necessarily is required to apply its judgment in
weighting the costs and benefits of possible new or different controls and
procedures. Limitations are inherent in all control systems, so no
evaluation of controls can provide absolute assurance that all control issues
and any fraud have been detected.
As
required by Exchange Act Rule 13a-15(b), as of the end of the period covered by
this report, management, under the supervision and with the participation of our
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures. Based on this evaluation,
management concluded that our disclosure controls and procedures were effective
as of that date.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, and for performing an assessment of the
effectiveness of internal control over financial reporting as of October 31,
2010. Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
Our
system of internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of our
assets; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and
directors; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company's
assets that could have a material effect on the financial
statements.
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we have conducted an evaluation
of the effectiveness of our internal control over financial reporting based on
the framework in “Internal Control—Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
Based on
the above evaluation, our management has concluded that, our system of internal
controls over financial reporting was effective as of October 31,
2010.
This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to permanent rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
Changes
in Internal Controls
There was
no change in the Company’s internal control over financial reporting during the
most recent fiscal quarter ended October 31, 2010 that materially affected, or
is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
III
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
Set forth
below is information regarding the Company’s directors, including information
furnished by them as to their principal occupations for the last five years, and
their ages as of October 31, 2010. A majority of the Directors are “independent
directors” as defined by the listing standards of the Nasdaq Stock Market, and
the Board of Directors has determined that such independent directors have no
relationship with the Company that would interfere with the exercise of their
independent judgment in carrying out the responsibilities of a director. The
independent Directors are Messrs. Ehret, Fink, Jacobs, and
Reynolds.
|
Name
|
|
Age
|
|
Director Since
|
|
|
|
|
|
|
|
John
R. Ehret
|
|
73
|
|
1991
|
|
|
|
|
|
|
|
Marvin
H. Fink
|
|
74
|
|
2001
|
|
|
|
|
|
|
|
Howard
F. Hill
|
|
70
|
|
1979
|
|
|
|
|
|
|
|
William
Reynolds
|
|
75
|
|
2005
|
|
|
|
|
|
|
|
Robert
Jacobs
|
|
58
|
|
1997
|
John R.
Ehret has been the President of TPL Electronics of Los Angeles, California,
since 1982. He holds a B.S. degree in Industrial Management from the University
of Baltimore. He has been in the electronics industry for over 40 years. In
addition, he has served on the board for the Communications Marketing
Association, a national marketing association, for the past 25 years and was
president of that association for three years.
Marvin H.
Fink served as the Chief Executive Officer, President and Chairman of the Board
of Recom Managed Systems, Inc. from October 2002 to March 2005. Prior thereto,
Mr. Fink was President of Teledyne’s Electronics Group. Mr. Fink was employed at
Teledyne for 39 years. He holds a B.E.E. degree from the City College of New
York, an M.S.E.E. degree from the University of Southern California and a J.D.
degree from the University of San Fernando Valley. He is a member of the
California Bar.
Howard F.
Hill, a founder of the Company in 1979, has credits in Manufacturing
Engineering, Quality Engineering and Industrial Management. He has been the
President of the Company since July 1993. He has held various positions in the
electronics industry over the past 43 years.
Robert
Jacobs has been an Account Executive at Neil Berkman Associates since 1988. Neil
Berkman Associates is the Company’s investor relations firm, and Mr. Jacobs is
the Account Executive for the Company. He holds an MBA from the University of
Southern California and has been in the investor relations industry for over 28
years.
William
Reynolds formerly was the VP of Finance and Administration for Teledyne Controls
from 1994 until his retirement in 1997. Prior thereto, for 22
years he was the Vice-President of Finance and Administration of Teledyne
Microelectronics. Mr. Reynolds also was a program finance administrator of
Teledyne Systems Company for five years. He has a B.B.A. degree in Accounting
from Woodbury University.
The
Company’s Board of Directors identified and recommended that Messrs. Ehret,
Fink, Jacobs, Hill
and Reynolds be elected to the Board of Directors based on the following
qualifications of these persons:
Mr. John
Ehret: Mr. Ehret has over 40 years of experience in the
electronics industry, which experience can benefit the Company. Mr.
Ehret has also served on our Board of Directors for 19 years and has been a
member of our Audit Committee since 2004, thereby providing us with continuity
in our management.
Mr. Marvin
Fink: Mr. Fink has significant experience in a variety of
areas important to overseeing the management and operations of this Company,
including experience as an executive officer, an engineer and a
lawyer. Mr. Fink has been the principal executive officer of a public
company as well as the President of Teledyne’s Electronics Group. He
has degrees in engineering and law and was involved in the electronics industry
for over 40 years.
Mr. Robert
Jacob: Having been in the investor relations business for over
28 years, Mr. Jacob provides the Board with experience and insight from the
investment communities’ perspective.
Mr. Howard
Hill: Mr. Hill is a founder of the Company and has over
43 years experience in the electronics industry.
Mr. William
Reynolds: Mr. Reynolds has significant accounting and
financial management expertise, having served as VP of Finance and
Administration for Teledyne Controls, as the Vice-President of Finance and
Administration of Teledyne Microelectronics, and as a program finance
administrator of Teledyne Systems Company. He also has a degree in accounting,
which enables him to serve as the “audit committee financial expert” of the
Audit Committee.
Management
Howard F.
Hill is the President and Chief Executive Officer of the Company. He co-founded
the Company in 1979. Mr. Hill has credits in Manufacturing Engineering, Quality
Engineering and Industrial Management. He has been the President of the Company
since July 1993. He has held various positions in the electronics industry over
the past 43 years.
Effective
February 1, 2007, RF Industries appointed James Doss as Acting Chief Financial
Officer and Corporate Secretary. Mr. Doss was appointed to Chief Financial
Officer on January 25, 2008. Mr. Doss joined the Company as its full-time
Director of Accounting on February 13, 2006. Prior to joining the Company, Mr.
Doss, 42, was a private consultant to a number of Software and High-Tech
companies, providing Sarbanes-Oxley compliance and general accounting support.
Previously, he was Director of Finance for San Diego-based HomeRelay
Communications, Inc., an Internet Service Provider (ISP). From 1996 to 2000, Mr.
Doss was Controller for CliniComp, International, a San Diego medical software
developer and hardware manufacturer of hospital critical care units. In 1995 Mr.
Doss joined Denver-based Merrick & Company as Senior Staff Accountant. Mr.
Doss received his B.S. in Finance and Economics from San Diego State University
in 1993 and completed graduate and advanced financial management studies,
receiving his MBA from San Diego State University in 2005.
Board
of Director Meetings
During
the fiscal year ended October 31, 2010, the Board of Directors held eight
meetings. All members of the Board of Directors hold office until the next
Annual Meeting of Stockholders or the election and qualification of their
successors. Executive officers serve at the discretion of the Board of
Directors.
During
the fiscal year ended October 31, 2010, each Board of Directors members attended
at least 50% of the meetings of the Board of Directors and at least 50% of the
meetings of the committees on which he served.
Board
Committees
During
fiscal 2010, the Board of Directors maintained two committees, the Compensation
Committee and the Audit Committee.
The Audit
Committee meets periodically with the Company’s management and independent
registered public accounting firm to, among other things, review the results of
the annual audit and quarterly reviews and discuss the financial statements. The
audit committee also hires the independent registered public accounting firm,
and receives and considers the accountant’s comments as to controls, adequacy of
staff and management performance and procedures. The Audit Committee is also
authorized to review related party transactions for potential conflicts of
interest. As of the end of fiscal 2010, the Audit Committee was composed of Mr.
Reynolds, Mr. Ehret and Mr. Jacobs. Each of these individuals was a
non-employee director and was independent as defined under the Nasdaq Stock
Market’s listing standards. Each of the members of the Audit Committee has
significant knowledge of financial matters, and Mr. Reynolds currently serves as
the “audit committee financial expert” of the Audit
Committee. The Company believes that the current members of the
Audit Committee can competently perform the functions required of them as
members of the Audit Committee. The Audit Committee met four times during fiscal
2010. The Audit Committee operates under a formal charter that governs its
duties and conduct.
The
Compensation Committee currently consists of Messrs. Ehret, and Fink each of
whom is non-employee director and is independent as defined under the Nasdaq
Stock Market’s listing standards. The Compensation Committee is responsible for
considering and authorizing remuneration arrangements for senior management. The
Compensation Committee held one formal meeting during fiscal 2010, which was
attended by all committee members.
Code
Of Business Conduct And Ethics
The
Company has adopted a Code of Business Conduct and Ethics (the “Code”) that
applies to all of the Company’s Directors, officers and employees, including its
principal executive officer and principal financial officer. The Code is posted
on the Company’s website at www.rfindustries.com.
The Company intends to disclose any amendments to the Code by posting such
amendments on its website. In addition, any waivers of the Code for Directors or
executive officers of the Company will be disclosed in a report on Form
8-K.
Compliance
With Section 16(a) of the Exchange Act
Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s executive
officers and directors, and persons who own more than 10% of a registered class
of the Company’s equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (“SEC”). Executive
officers, directors and greater than 10% stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based
solely upon a review of Forms 4 furnished to the Company, to the Company’s
knowledge, during the fiscal year ended October 31, 2010, the following filings
were not timely completed: (i) The members of the Company’s Board of
Directors and the Company’s Chief Executive and Chief Financial Officers were
granted options in January 2010, but they filed their Forms 4 four days late;
(ii) Mr. Doss, the Company’s Chief Financial Officer filed a Form 4 two days
late with respect to the sale of shares effected in September
2010. Except as set forth above, to the Company’s knowledge, all
officers, directors and greater than ten percent beneficial owners complied with
the filing requirements.
ITEM
11. EXECUTIVE
COMPENSATION
Summary of Cash and Other
Compensation. The following table sets forth compensation for
services rendered in all capacities to the Company for each person who served as
an executive officer during the fiscal year ended October 31, 2010 and our most
highly compensated executive officer, other than our Chief Executive Officer,
who earned over $100,000 (collectively, the “Named Executive Officers”). No
other executive officer of the Company received salary and bonus, which exceeded
$100,000 in the aggregate during the fiscal year, ended October 31,
2010:
Summary Compensation
Table
|
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)(3)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
Howard
F. Hill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President,
Chief Executive
|
|
2010
|
|
|
211,292 |
|
|
|
50,000 |
|
|
|
- |
|
|
|
12,269 |
|
|
|
- |
|
|
|
- |
|
|
|
35,978 |
(1) |
|
|
309,539 |
|
|
Officer
and Director
|
|
2009
|
|
|
205,677 |
|
|
|
65,100 |
|
|
|
- |
|
|
|
9,433 |
|
|
|
- |
|
|
|
- |
|
|
|
23,075 |
|
|
|
303,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
S. Doss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer,
|
|
2010
|
|
|
111,624 |
|
|
|
25,000 |
|
|
|
- |
|
|
|
7,765 |
|
|
|
- |
|
|
|
- |
|
|
|
10,972 |
(2) |
|
|
155,361 |
|
|
|
|
2009
|
|
|
102,402 |
|
|
|
6,100 |
|
|
|
|
|
|
|
243,253 |
|
|
|
|
|
|
|
|
|
|
|
11,021 |
|
|
|
362,776 |
|
(1) Mr.
Hill’s other compensation consisted of $15,481 of accrued vacation not taken in
fiscal 2010 and $20,497 for vehicle and apartment rental costs. Because Mr. Hill
does not live in San Diego, the Company has maintained an apartment in San Diego
for Mr. Hill and some of the other managers since 1994. The compensation
attributable to the use of a Company vehicle represents the value of his
personal use of a Company vehicle.
(2) Mr.
Doss’s other compensation consisted of $1,369 of accrued vacation not taken in
fiscal 2010 and $9,603 for vehicle costs.
(3) The
amounts in this column represent the option awards recognized by the Company as
an expense for financial reporting purposes. The fair value of these awards and
the amounts expensed were determined in accordance with Financial Accounting
Standards Board Statement ASC Topic 718 (Financial Accounting Standards No. 123
(revised 2004) Share Based Payment (FAS 123R)). The assumptions we use in
calculating these amounts are discussed in Note 7, “Stock Option,” to the
Financial Statements.
2010
Option Grants
In fiscal
2010, we granted stock options to our Named Executive Officers under our 2010
Stock Option Plan and 2010 Equity Incentive Plan as follows:
2010 Grants of Plan-Based
Awards
|
Name
|
|
Grant Date
|
|
All Other
Option Awards
(# of Shares)
|
|
|
Exercise Price of
Option Awards
($/Share)(1)
|
|
|
Grant Date
Fair Value of
Option Awards
($)(2)
|
|
|
Howard
F. Hill
|
|
|
|
|
|
|
|
|
|
|
|
|
President
and Chief Executive Officer
|
|
01/21/10
|
|
|
2,000 |
|
|
|
4.49 |
|
|
|
3,261 |
|
|
|
|
10/31/10
|
|
|
4,000 |
|
|
|
6.80 |
|
|
|
9,008 |
|
|
James
Doss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer
|
|
01/21/10
|
|
|
2,000 |
|
|
|
4.49 |
|
|
|
3,261 |
|
|
|
|
10/31/10
|
|
|
2,000 |
|
|
|
6.80 |
|
|
|
4,504 |
|
(1) The
exercise price of options awarded during fiscal 2010 was the closing sale price
of a share of the Company’s common stock on the Nasdaq Global Market on the date
of grant.
(2) The
grant date fair value of each equity award is computed in accordance with ASC
718.
Option
awards granted under the 2010 Incentive Plan during fiscal 2010 to employees of
our company, including the named executive officers, have an exercise price
equal to 100% of the fair market value of a share of our common stock on the
date of grant. Each stock option vests and becomes exercisable as to 33.33% of the shares
subject to the option on each of the first, second, and third anniversaries of
the date of grant and has a five-year term. The vested portion of the options
may be exercised while the participant is employed by us, and ordinarily for
three months after employment ends (unless employment is terminated for cause).
If a participant’s employment ends because of death or disability, the
participant’s options will remain exercisable for one year after the date
employment ends. In no case will an option be exercisable beyond the end of its
original term. If a participant’s employment ends, the unvested portion of any
outstanding option will terminate at the time the participant’s employment
ends. In the event of a sale, lease or other disposition of all or
substantially all of the capital stock or assets of the Company, or a merger or
consolidation of the Company in which the Company is not the surviving entity,
the Board of Directors may replace outstanding options with replacement options
relating to the stock of the surviving or acquiring corporation (or its parent),
or with shares of the surviving or acquiring corporation (or its parent) with a
fair market value equal to the aggregate spread of the options being replaced.
If no such replacement is made, or in the event of our dissolution, liquidation
or sale of substantially all of our assets, each option will be canceled at the
time of the triggering event.
Holdings
of Previously Awarded Equity
Equity
awards held as of October 31, 2010 by each of our named executive officers were
issued under our 2000 Stock Option Plan and 2010 Stock Incentive Plan, except
for options to purchase 215,204 shares that were granted to Mr. Hill in 1994
under his employment agreement. The following table sets forth outstanding
equity awards held by our Named Executive Officers as of October 31,
2010:
Outstanding
Equity Awards As Of October 31, 2010
|
|
|
Option Awards
|
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable
|
|
Equity Incentive Plan
Awards: Number of
Securities Underlying
Unexercised
Unearned Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Howard
Hill
|
|
|
215,204 |
|
|
|
|
|
|
|
0.10 |
|
___
|
|
|
Howard
Hill
|
|
|
6,000 |
|
|
|
|
|
|
|
7.50 |
|
10/31/16
|
|
|
Howard
Hill
|
|
|
2,000 |
|
|
|
|
|
|
|
7.56 |
|
10/31/17
|
|
|
Howard
Hill
|
|
|
4,000 |
|
|
|
|
|
|
|
7.56 |
|
10/31/17
|
|
|
Howard
Hill
|
|
|
1,334 |
|
|
|
|
1,333 |
(1) |
|
|
4.50 |
|
10/31/13
|
|
|
Howard
Hill
|
|
|
1,333 |
|
|
|
|
2,667 |
(2) |
|
|
4.05 |
|
10/31/14
|
|
|
Howard
Hill
|
|
|
2,000 |
|
|
|
|
|
|
|
|
4.49 |
|
01/21/15
|
|
|
Howard
Hill
|
|
|
|
|
|
|
|
4,000 |
(3) |
|
|
6.80 |
|
10/31/15
|
|
|
James
Doss
|
|
|
16,416 |
|
|
|
|
|
|
|
|
7.56 |
|
10/31/17
|
|
|
James
Doss
|
|
|
16,500 |
|
|
|
|
|
|
|
|
7.56 |
|
10/31/17
|
|
|
James
Doss
|
|
|
666 |
|
|
|
|
667 |
(4) |
|
|
4.50 |
|
10/31/13
|
|
|
James
Doss
|
|
|
667 |
|
|
|
|
1,333 |
(5) |
|
|
4.05 |
|
10/31/14
|
|
|
James
Doss
|
|
|
10,000 |
|
|
|
|
80,000 |
(6) |
|
|
4.05 |
|
10/31/19
|
|
|
James
Doss
|
|
|
|
|
|
|
|
2,000 |
(7) |
|
|
6.80 |
|
10/31/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Vests
annually in three installments following grant on October 31,
2008.
|
|
(2)
|
Vests
annually in three installments following grant on October 31,
2009.
|
|
(3)
|
Vests
annually in three installments following grant on October 31,
2010.
|
|
(4)
|
Vests
annually in three installments following grant on October 31,
2008.
|
|
(5)
|
Vests
annually in three installments following grant on October 31,
2009.
|
|
(6)
|
Vests
as to 10,000 shares annually following grant on October 31,
2009.
|
|
(7)
|
Vests
annually in three installments following grant on October 31,
2010.
|
During
the fiscal year ended October 31, 2010, the Company did not adjust or amend the
exercise price of stock options awarded to the Named Executive
Officers.
Employment
Agreement
The
Company has no employment or severance agreements with any of its executive
officers other than with Mr. Howard Hill, the Company’s President and Chief
Executive Officer. Mr. Hill has been the President/Chief Executive Officer of
the Company since 1994. On June 6, 2008 the Company entered into a new
employment agreement with Mr. Hill. Under the new employment agreement, Mr. Hill
agreed to serve as the Company’s President and Chief Executive Officer for up to
three one-year periods. Under the employment agreement,
Mr. Hill’s annual salary during the fiscal year ending October 31, 2011 is
$210,000. The employment agreement will expire on June 20, 2011.
Compensation
of Directors
The
Company compensates its directors with an annual grant of options to purchase
2,000 shares of common stock. Options to purchase 2,000 shares of common stock
were granted to each of the directors on January 21, 2010. The
Chairman of the Board, Mr. Fink, was granted an additional 2,000 shares on
January 21, 2010 as compensation for his service as the Chairman. All
of these options vested immediately upon grant and had an exercise price of
$4.49 per share, which was the closing stock price on January 21, 2010. Also,
the Company extended a former board member’s exercise period for his outstanding
grants. The directors are also eligible for reimbursement of expenses incurred
in connection with attendance at Board meetings and Board committee
meetings.
In
addition to the foregoing grant of options, all non-employee members of the
Board of Directors receive an annual cash payment of $5,000 per director, and
the non-employee Chairman of the Board receives an annual payment of
$10,000.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The
following table sets forth certain information regarding the ownership of the
Company’s Common Stock as of January 12, 2011 for (i) each director; (ii) the
Company’s Named Executive Officers; (iii) all executive officers and directors
of the Company as a group; and (iv) all those known by the Company to be
beneficial owners of more than 5% of the Common Stock. As of January 12, 2011,
there were 2,930,882
shares of Common Stock issued and outstanding.
|
Name and Address of Beneficial Owner
|
|
Number of Shares (1)
Beneficially Owned
|
|
|
Percentage
Beneficially Owned
|
|
|
|
|
|
|
|
|
|
|
Howard
H. Hill
7610
Miramar Road, Ste. 6000
San
Diego, CA 92126-4202
|
|
|
237,371 |
(2) |
|
|
7.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
James
Doss
7610
Miramar Road, Ste. 6000
San
Diego, CA 92126-4202
|
|
|
46,249 |
(3) |
|
|
1.4 |
% |
| |
|
|
|
|
|
|
|
|
|
John
R. Ehret
7610
Miramar Road, Ste. 6000
San
Diego, CA 92126-4202
|
|
|
30,000 |
(4) |
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
Robert
Jacobs
7610
Miramar Road, Ste. 6000
San
Diego, CA 92126-4202
|
|
|
16,000 |
(5) |
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Marvin
H. Fink
7610
Miramar Road, Ste. 6000
San
Diego, CA 92126-4202
|
|
|
41,165 |
(6) |
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
William
Reynolds
7610
Miramar Rd., Ste. 6000
San
Diego, CA 92126-4202
|
|
|
30,340 |
(7) |
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
All
Directors and Officers as a Group (6 Persons)
|
|
|
401,125 |
(8) |
|
|
12.3 |
% |
|
Name and Address of Beneficial Owner
|
|
Number of Shares (1)
Beneficially Owned
|
|
|
Percentage
Beneficially Owned
|
|
|
|
|
|
|
|
|
|
|
Hytek
International, Ltd
PO
Box 10927 APO
George
Town
Cayman
Islands
|
|
|
450,930 |
|
|
|
13.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
Morgan
Stanley
1585
Broadway
New
York, NY 10036
|
|
|
156,500 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Red
Oak Partners, LLC
654
Broadway, Suite 5, New York,
New
York 10012
|
|
|
164,815 |
(10) |
|
|
|
|
(1) Shares
of Common Stock, which were not outstanding but which could be acquired upon
exercise of an option within 60 days from the date of this filing, are
considered outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned. However, such shares are not considered
to be outstanding for any other purpose.
(2) Includes
233,871 shares that Mr. Hill has the right to acquire upon exercise of options
exercisable within 60 days.
(3) Includes 46,249
shares that Mr. Doss has the right to acquire upon exercise of options
exercisable within 60 days.
(4) Includes
18,000 shares that Mr. Ehret has the right to acquire upon exercise of options
exercisable within 60 days.
(5) Consists
of 16,000 shares, which Mr. Jacobs have the right to acquire upon exercise
of options exercisable within 60 days.
(6) Includes
41,165 shares that Mr. Fink has the right to acquire upon exercise of options
exercisable within 60 days.
(7) Consists
of 26,000 shares, which Mr. Reynolds has the right to acquire upon exercise of
options exercisable within 60 days.
(8) Includes
381,285 shares, which the directors and officers have the right to acquire
upon exercise of options exercisable within 60 days.
(9) Information
is based on a report on Schedule 13G filed February 12, 2010.
(10) Information
is based on a report on Schedule 13G filed November 24,
2010. Represents securities owned by Red Oak Partners, LLC, a New
York limited liability company, The Red Oak Fund, LP, a Delaware limited
partnership, and Pinnacle Fund LLLP, a Colorado limited liability limited
partnership. Red Oak Partners, LLC is the general partner of The Red
Oak Fund, LP and a managing member of Pinnacle Fund LLLP. David
Sandberg, the controlling member of Red Oak Partners, LLC.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
On April
1, 1997, the Company loaned to Howard Hill, its President and Chief Executive
Officer, $70,000 pursuant to a Promissory Note which provides for interest at
the rate of 6% per annum and which has no specific due date for principal
repayment. As of October 31, 2010, the principal balance still outstanding on
the loan was $66,980. Mr. Hill pays interest on the loan annually. The loan is
evidenced by a promissory note that is secured by a lien on certain of Mr.
Hill’s personal property.
Mr.
Jacobs, a director of the Company, is an employee of the Company’s public
relations firm. For the fiscal years ended October 31, 2010 and October 31,
2009, the Company paid the firm $52,783 and $52,668, respectively, for
services rendered.
ITEM
14. PRINCIPAL
ACCOUNTING FEES AND SERVICES
Audit-Related
Fees
The
following is a summary of the fees billed to the Company by J.H. Cohn LLP for
professional services rendered related to the fiscal years ended October 31,
2010 and 2009:
|
Fee Category
|
|
2010
|
|
|
2009
|
|
|
Audit
Fees
|
|
$ |
148,000 |
|
|
$ |
146,000 |
|
|
Audit-Related
Fees
|
|
|
- |
|
|
|
- |
|
|
Total
Fees
|
|
$ |
148,000 |
|
|
$ |
146,000 |
|
Audit
Fees. Consists of fees billed and estimated for professional
services rendered for the audit of the Company’s annual financial statements and
review of the interim financial statements included in quarterly reports and
services that are normally provided by J.H. Cohn LLP in connection with
statutory and regulatory filings or engagements.
Audit-Related
Fees. Consists of fees billed and estimates for assurance and
related services that are reasonably related to the performance of the audit and
review of the Company’s financial statements and are not reported under “Audit
Fees.” These services include professional services requested by the Company in
connection with its preparation for compliance with Section 404 of the
Sarbanes-Oxley Act of 2002, accounting consultations in connection with
acquisitions and consultations concerning financial accounting and reporting
standards.
ITEM
15. EXHIBITS
The
following exhibits are filed as part of this report:
|
3.1
|
Articles
of Incorporation, as amended (1)
|
|
3.2.1
|
Company
Bylaws as Amended through August, 1985
(2)
|
|
3.2.2
|
Amendment
to Bylaws dated January 24, 1986
(2)
|
|
3.2.3
|
Amendment
to Bylaws dated February 1, 1989
(3)
|
|
3.2.4
|
Amendment
to Bylaws dated June 9, 2006(6)
|
|
3.2.5
|
Amendment
to Bylaws dated September 7,
2007(7)
|
|
10.1
|
Form
of 2000 Stock Option Plan (4)
|
|
10.2
|
Directors’
Nonqualified Stock Option Agreements
(2)
|
|
10.3
|
Employment
Agreement, dated June 5, 2008, between the Company and Howard
Hill (8)
|
|
10.4
|
Multi-Tenant
Industrial Gross Lease, effective March 31, 2009, between RF Industries,
Ltd. and Walton CWCA Miramar GL 74, LLC regarding the Company’s facilities
in San Diego (9)
|
|
10.5
|
Second
Amendment to Lease, dated August 25, 2009, to Multi-Tenant Industrial
Gross Lease, effective March 31, 2009, between RF Industries, Ltd. and
Walton CWCA Miramar GL 74, LLC (9)
|
|
10.6
|
Single
Tenant Commercial Lease, dated August 2009, between Eagle Americank LLC
and RF Industries, Ltd. regarding the Company’s lease in Las Vegas, Nevada
(9)
|
|
10.7
|
Form
of 2010 Stock Incentive Plan (10)
|
|
|
|
|
10.8
|
Form
of Stock Option Agreement for the Company’s 2010 Stock Incentive Plan
(10)
|
|
|
|
|
10.9
|
Amendment
of 2000 Stock Incentive Plan (11)
|
|
|
|
|
14.1
|
Code
of Ethics (5)
|
|
|
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm J.H. Cohn
LLP
|
|
|
|
|
31.1
|
Certification
of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
31.2
|
Certification
of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
32.1
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section
1350
|
|
|
|
|
32.2
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section
1350
|
|
|
|
|
99.1
|
Press
release issued January 12, 2010 announcing the financial results for
fiscal year ended October 31, 2010
|
(1) Previously
filed as an exhibit to the Company’s Form 10-KSB for the year ended October 31,
2000, which exhibit is hereby incorporated herein by reference.
(2) Previously
filed as an exhibit to the Company’s Form 10- KSB for the year ended October 31,
1987, which exhibit is hereby incorporated herein by reference.
(3) Previously
filed as an exhibit to the Company’s Form 10- KSB for the year ended October 31,
1992, which exhibit is hereby incorporated herein by reference.
(4) Previously
filed as an exhibit to the Company’s Form 10-QSB for the quarter ended January
31, 2001, which exhibit is hereby incorporated herein by reference.
(5) Previously
filed as an exhibit to the Company’s Form 10- KSB for the year ended October 31,
2003, which exhibit is hereby incorporated herein by reference.
(6) Previously
filed as an exhibit to the Company’s Form 8-K, dated June 9, 2006, which exhibit
is hereby incorporated herein by reference.
(7) Previously
filed as an exhibit to the Company’s Form 10- KSB for the year ended October 31,
2007, which exhibit is hereby incorporated herein by reference.
(8) Previously
filed as an exhibit to the Company’s Form 8-K, dated June 5, 2008, which exhibit
is hereby incorporated herein by reference.
(9) Previously
filed as an exhibit to the Company’s Form 10- K for the year ended October 31,
2009, which exhibit is hereby incorporated herein by reference.
(10) Previously
filed as an exhibit to the Company’s Registration Statement on Form S-8, filed
on September 20, 2010, which exhibit is hereby incorporated herein by
reference.
(11) Previously
filed as an exhibit to the Company’s Registration Statement on Form S-8, filed
on September 20, 2010, which exhibit is hereby incorporated herein by
reference.
Stockholders
of the Company may obtain a copy of any exhibit referenced in this Annual Report
on Form 10-K by writing to: Secretary, RF Industries, Ltd., 7610 Miramar Road,
Bldg. 6000, San Diego, CA 92126. The written request must specify the
stockholder’s good faith representation that such stockholder is a stockholder
of record of common stock of the Company.
Index
|
|
|
Page
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
|
|
Balance
Sheets
|
|
|
|
October
31, 2010 and 2009
|
|
F-3
|
|
|
|
|
|
Statements
of Income
|
|
|
|
Years
Ended October 31, 2010 and 2009
|
|
F-4
|
|
|
|
|
|
Statements
of Stockholders’ Equity
|
|
|
|
Years
Ended October 31, 2010 and 2009
|
|
F-5
|
|
|
|
|
|
Statements
of Cash Flows
|
|
|
|
Years
Ended October 31, 2010 and 2009
|
|
F-6
|
|
|
|
|
|
Notes
to Financial Statements
|
|
F-7-F-21
|
* * *
Report of Independent
Registered Public Accounting Firm
To the
Stockholders
RF
Industries, Ltd.
We have
audited the accompanying balance sheets of RF Industries, Ltd. as of October 31,
2010 and 2009, and the related statements of income, stockholders’ equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of RF Industries, Ltd. as of October
31, 2010 and 2009, and its results of operations and cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States of America.
/s/ J.H.
COHN LLP
San
Diego, California
January
12, 2011
RF
INDUSTRIES, LTD.
BALANCE
SHEETS
OCTOBER
31, 2010 AND 2009
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
4,728,884 |
|
|
$ |
1,225,927 |
|
|
Certificates
of deposit
|
|
|
4,577,570 |
|
|
|
6,476,981 |
|
|
Trade
accounts receivable, net of allowance for doubtful accounts of $75,734 and
$52,892
|
|
|
2,557,822 |
|
|
|
2,263,265 |
|
|
Inventories
|
|
|
4,607,843 |
|
|
|
4,984,921 |
|
|
Other
current assets
|
|
|
448,187 |
|
|
|
340,362 |
|
|
Deferred
tax assets
|
|
|
613,100 |
|
|
|
478,200 |
|
|
Total
current assets
|
|
|
17,533,406 |
|
|
|
15,769,656 |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
and furnishings:
|
|
|
|
|
|
|
|
|
|
Equipment
and tooling
|
|
|
2,434,176 |
|
|
|
2,365,160 |
|
|
Furniture
and office equipment
|
|
|
508,221 |
|
|
|
425,389 |
|
|
|
|
|
2,942,397 |
|
|
|
2,790,549 |
|
|
Less
accumulated depreciation
|
|
|
2,412,070 |
|
|
|
2,224,745 |
|
|
Totals
|
|
|
530,327 |
|
|
|
565,804 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
137,328 |
|
|
Amortizable
intangible assets, net
|
|
|
|
|
|
|
27,156 |
|
|
Note
receivable from stockholder
|
|
|
66,980 |
|
|
|
66,980 |
|
|
Long-term
investments in certificates of deposit
|
|
|
946,491 |
|
|
|
|
|
|
Other
assets
|
|
|
32,159 |
|
|
|
31,276 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
19,109,363 |
|
|
$ |
16,598,200 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
537,850 |
|
|
$ |
224,974 |
|
|
Accrued
expenses
|
|
|
1,217,454 |
|
|
|
673,080 |
|
|
Income
taxes payable
|
|
|
123,909 |
|
|
|
75,134 |
|
|
Total
current liabilities
|
|
|
1,879,213 |
|
|
|
973,188 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
18,800 |
|
|
|
50,500 |
|
|
Other
long-term liabilities
|
|
|
297,390 |
|
|
|
321,030 |
|
|
Total
liabilities
|
|
|
2,195,403 |
|
|
|
1,344,718 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
Common
stock - authorized 10,000,000 shares at $.01 par value; 2,930,882 and
2,848,313 shares issued and outstanding
|
|
|
29,309 |
|
|
|
28,483 |
|
|
Additional
paid-in capital
|
|
|
7,025,965 |
|
|
|
6,502,447 |
|
|
Retained
earnings
|
|
|
9,858,686 |
|
|
|
8,722,552 |
|
|
Total
stockholders' equity
|
|
|
16,913,960 |
|
|
|
15,253,482 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
19,109,363 |
|
|
$ |
16,598,200 |
|
See Notes
to Financial Statements.
RF
INDUSTRIES, LTD.
STATEMENTS
OF INCOME
YEARS
ENDED OCTOBER 31, 2010 AND 2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
16,322,178 |
|
|
$ |
14,213,045 |
|
|
Cost
of sales
|
|
|
8,158,798 |
|
|
|
7,308,479 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
8,163,380 |
|
|
|
6,904,566 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Engineering
|
|
|
887,865 |
|
|
|
1,050,398 |
|
|
Selling
and general
|
|
|
5,133,967 |
|
|
|
4,738,265 |
|
|
Goodwill
impairment
|
|
|
137,328 |
|
|
|
209,763 |
|
|
Totals
|
|
|
6,159,160 |
|
|
|
5,998,426 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
2,004,220 |
|
|
|
906,140 |
|
|
|
|
|
|
|
|
|
|
|
|
Other
income – interest
|
|
|
86,614 |
|
|
|
193,429 |
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
2,090,834 |
|
|
|
1,099,569 |
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
870,587 |
|
|
|
443,602 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
1,220,247 |
|
|
$ |
655,967 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.43 |
|
|
$ |
.22 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
.38 |
|
|
$ |
.20 |
|
See Notes
to Financial Statements.
RF
INDUSTRIES, LTD.
STATEMENTS
OF STOCKHOLDERS’ EQUITY
YEARS
ENDED OCTOBER 31, 2010 AND 2009
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Retained
|
|
|
Total
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Equity
|
|
|
Balance,
November 1, 2008
|
|
|
3,226,264 |
|
|
$ |
32,263 |
|
$ |
6,411,810
|
|
$
|
9,677,617
|
|
|
$ |
16,121,690 |
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
655,967 |
|
|
|
655,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation expense
|
|
|
|
|
|
|
|
|
|
|
153,197 |
|
|
|
|
|
|
|
153,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issuance related to contingent liability
|
|
|
7,407 |
|
|
|
74 |
|
|
|
29,926 |
|
|
|
|
|
|
|
30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94,780 |
) |
|
|
(94,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
stock purchased and retired
|
|
|
(385,358 |
) |
|
|
(3,854 |
) |
|
|
(92,486 |
) |
|
|
(1,516,252 |
) |
|
|
(1,612,592 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2009
|
|
|
2,848,313 |
|
|
|
28,483 |
|
|
|
6,502,447 |
|
|
|
8,722,552 |
|
|
|
15,253,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,220,247 |
|
|
|
1,220,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation expense
|
|
|
|
|
|
|
|
|
|
|
231,000 |
|
|
|
|
|
|
|
231,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
79,954 |
|
|
|
800 |
|
|
|
204,308 |
|
|
|
|
|
|
|
205,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
78,235 |
|
|
|
|
|
|
|
78,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issuance related to contingent liability
|
|
|
2,615 |
|
|
|
26 |
|
|
|
9,975 |
|
|
|
|
|
|
|
10,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,113 |
) |
|
|
(84,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2010
|
|
|
2,930,882 |
|
|
$ |
29,309 |
|
|
$ |
7,025,965 |
|
|
$ |
9,858,686 |
|
|
$ |
16,913,960 |
|
See Notes
to Financial Statements.
RF
INDUSTRIES, LTD.
STATEMENTS
OF CASH FLOWS
YEARS
ENDED OCTOBER 31, 2010 AND 2009
|
|
|
2010
|
|
|
2009
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
1,220,247 |
|
|
$ |
655,967 |
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
Bad
debt expense
|
|
|
15,279 |
|
|
|
8,110 |
|
|
Depreciation
and amortization
|
|
|
214,266 |
|
|
|
239,777 |
|
|
Goodwill
impairment
|
|
|
137,328 |
|
|
|
209,763 |
|
|
Inventory
write-down
|
|
|
247,539 |
|
|
|
|
|
|
Deferred
income taxes
|
|
|
(166,600 |
) |
|
|
8,700 |
|
|
Loss
on disposal of equipment
|
|
|
|
|
|
|
4,826 |
|
|
Stock
based compensation expense
|
|
|
231,000 |
|
|
|
153,197 |
|
|
Excess
tax benefit from stock based compensation
|
|
|
(78,235 |
) |
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
(309,835 |
) |
|
|
(200,026 |
) |
|
Inventories
|
|
|
129,539 |
|
|
|
964,787 |
|
|
Income
taxes receivable/ (payable)
|
|
|
127,010 |
|
|
|
(157,793 |
) |
|
Other
current assets
|
|
|
(107,825 |
) |
|
|
(122,919 |
) |
|
Other
long-term assets
|
|
|
(882 |
) |
|
|
(2,894 |
) |
|
Accounts
payable
|
|
|
312,876 |
|
|
|
(104,535 |
) |
|
Accrued
expenses
|
|
|
554,590 |
|
|
|
(57,682 |
) |
|
Other
long-term liabilities
|
|
|
(23,641 |
) |
|
|
103,845 |
|
|
Net
cash provided by operating activities
|
|
|
2,502,656 |
|
|
|
1,703,123 |
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
Purchases
of certificates of deposit
|
|
|
(5,014,406 |
) |
|
|
(7,015,184 |
) |
|
Maturities
of certificates of deposit
|
|
|
5,967,327 |
|
|
|
7,401,914 |
|
|
Capital
expenditures
|
|
|
(151,850 |
) |
|
|
(217,392 |
) |
|
Net
cash provided by investing activities
|
|
|
801,071 |
|
|
|
169,338 |
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
Proceeds
from exercise of stock options
|
|
|
205,108 |
|
|
|
|
|
|
Purchases
of treasury stock
|
|
|
|
|
|
|
(1,612,592 |
) |
|
Excess
tax benefit from stock based compensation
|
|
|
78,235 |
|
|
|
|
|
|
Dividends
paid
|
|
|
(84,113 |
) |
|
|
(94,780 |
) |
|
Net
cash provided by (used in) financing activities
|
|
|
199,230 |
|
|
|
(1,707,372 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
3,502,957 |
|
|
|
165,089 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
1,225,927 |
|
|
|
1,060,838 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$ |
4,728,884 |
|
|
$ |
1,225,927 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information - income taxes paid
|
|
$ |
928,000 |
|
|
$ |
550,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Retirement
of treasury stock
|
|
|
|
|
|
$ |
1,612,592 |
|
|
Stock
issuance related to contingent liability
|
|
$ |
10,001 |
|
|
$ |
30,000 |
|
See Notes
to Financial Statements.
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
Note
1 - Business activities and summary of significant accounting
policies
Business
activities
The
Company’s business is comprised of the design, manufacture and/or sale of
communications equipment primarily to the radio and other professional
communications related industries. The Company currently conducts its operations
through six related business divisions: (i) RF Connector and Cable Division is
engaged in the design, manufacture and distribution of coaxial connectors and
cable assemblies used primarily in radio and other professional communications
applications; (ii) Aviel Division is engaged in the design, manufacture and
sales of radio frequency, microwave and specialized connectors and connector
assemblies for aerospace, original electronics manufacturers and military
electronics applications; (iii) Oddcables.com Division is engaged in sales of
microwave and radio frequency connectors and cable assemblies to end users in
multi-media, radio and other communications applications; (iv) Bioconnect
Division is engaged in the design, manufacture and sales of cable interconnects
for medical monitoring applications; (v) Neulink Division is engaged in the
design, manufacture and sales of radio links for receiving and transmitting
control signals for remote operation and monitoring of equipment, personnel and
monitoring services; and (vi) RadioMobile Division is engaged as an OEM provider
of end-to-end mobile management solutions implemented over wireless networks.
RadioMobile Division operates as a separate division and supplements the
operations of the Company’s Neulink division (see Note 11).
Use
of estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Actual results may differ from those estimates.
Cash
equivalents
The
Company considers all highly-liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
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.
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.
Equipment
and furnishings
Equipment,
tooling and furniture are recorded at cost and depreciated over their estimated
useful lives (generally 3 to 7 years) using the straight-line
method.
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
Goodwill
We review
our goodwill for impairment annually 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.
We
performed a valuation analysis, utilizing an income approach in our goodwill
assessment process. The following describes the valuation methodologies used to
derive the fair value of our reporting units.
|
|
•
|
Income
Approach: To determine each reporting unit’s estimated fair value, we
discount the expected cash flows of our reporting units. We estimate our
future cash flows after considering current economic conditions and
trends; estimated future operating results, growth rates, anticipated
future economic and regulatory conditions; and the availability of
necessary technology. The discount rate used represents the estimated
weighted average cost of capital, which reflects the overall level of
inherent risk involved in our operations and the rate of return an outside
investor would expect to earn. To estimate cash flows beyond the final
year of our model, we use a terminal value approach. Under this approach,
we use estimated operating income before depreciation and amortization in
the final year of our model, adjust it to estimate a normalized cash flow,
apply a perpetuity growth assumption and discount by a perpetuity discount
factor to determine the terminal value. We incorporate the present value
of the resulting terminal value into our estimate of fair
value.
|
Due to
the ongoing negative effects of the global recession and related triggers, (due
to Aviel division not meeting its revenue forecasts), during the third quarter
of 2010, the Company performed an impairment analysis of the Aviel goodwill
balance. The sales generated by this division were significantly lower than
expected and the forecasted improvements from prior periods did not
occur. As such, triggers were evident at this division in the third
quarter of 2010. Prior to management’s analysis, the Company had a total of
$137,328 of goodwill residual from the acquisition of the Aviel division. As a
result of its analysis, management recorded a goodwill impairment charge of
$137,328 for the third quarter of fiscal 2010.
Due to
negative effects of the global recession and related triggers, during the third
quarter of fiscal 2009, the Company experienced a significant decrease in sales
in general, and at the RadioMobile and Worswick reporting units in particular.
The sales generated by these reporting units were significantly lower than
expected and the expected third quarter improvements did not occur. As such,
triggers were evident at these two divisions in the third quarter of fiscal 2009
and management performed a goodwill impairment review. Prior to management’s
review, the Company had a total of $347,091 of goodwill of which $137,328 was
allocated to the acquisition of the Aviel division and the balance was allocated
to the more recent acquisitions of the RadioMobile and Worswick businesses. As a
result of its review, management recorded a goodwill impairment charge of
$209,763 in the third quarter of fiscal 2009, which is included in operating
expenses in the statement of income. There were no such triggering events in the
third quarter of fiscal 2009 at the Aviel reporting unit and its goodwill was
not affected.
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
The
changes in the carrying amounts of segment goodwill for fiscal 2010 and 2009 are
as follows:
|
|
|
RF Connectors and Cable Assembly
|
|
|
RF Wireless
|
|
|
Total
|
|
|
Balance
at November 1, 2008
|
|
$ |
200,848 |
|
|
$ |
146,243 |
|
|
$ |
347,091 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
Charge
|
|
|
(63,520 |
) |
|
|
(146,243 |
) |
|
|
(209,763 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at October 31, 2009
|
|
|
137,328 |
|
|
|
- |
|
|
|
137,328 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
charge
|
|
|
(137,328 |
) |
|
|
- |
|
|
|
(137,328 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at October 31, 2010
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Long-lived
assets
The
Company assesses potential impairments to its long-lived assets when there is
evidence that events or changes in circumstances indicate that the carrying
amount of an asset may not be recovered. An impairment loss is recognized when
the undiscounted cash flows expected to be generated by an asset (or group of
assets) is less than its carrying amount. Any required impairment loss is
measured as the amount by which the assets carrying value exceeds its fair
value, and is recorded as a reduction in the carrying value of the related asset
and a charge to operations.
Amortizable
Intangible assets
Amortizable
intangible assets are amortized over their estimated useful lives of three
years.
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
$ |
47,522 |
|
|
$ |
47,522 |
|
|
Accumulated
amortization
|
|
|
(47,522 |
) |
|
|
(31,681 |
) |
|
|
|
|
- |
|
|
|
15,841 |
|
|
|
|
|
|
|
|
|
|
|
|
Customer
list
|
|
|
33,945 |
|
|
|
33,945 |
|
|
Accumulated
amortization
|
|
|
(33,945 |
) |
|
|
(22,630 |
) |
|
|
|
|
- |
|
|
|
11,315 |
|
|
Totals
|
|
$ |
- |
|
|
$ |
27,156 |
|
Advertising
The
Company expenses the cost of advertising and promotions as incurred. Advertising
costs charged to operations were approximately $215,000 and $254,000 in 2010 and
2009, respectively.
Research
and development
The
Company expenses research and development costs as incurred. Research and
development costs charged to operations and included in engineering were
approximately $422,000 and $889,000 in 2010 and 2009,
respectively.
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
Income
taxes
The
Company accounts for income taxes under the asset and liability method, based on
the income tax laws and rates in the jurisdictions in which operations are
conducted and income is earned. This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities. Developing the provision for income taxes requires significant
judgment and expertise in federal, international and state income tax laws,
regulations and strategies, including the determination of deferred tax assets
and liabilities and, if necessary, any valuation allowances that may be required
for deferred tax assets. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Management’s
judgments and tax strategies are subject to audit by various taxing
authorities.
The
Company recognizes accrued interest and penalties related to unrecognized tax
benefits as a component of income tax expense.
Stock
options
For stock
option grants to employees, the Company recognizes compensation expense based on
the estimated fair values of the options at date of grant. Stock based employee
compensation expense is recognized on the straight-line basis over the requisite
service period. The Company issues previously unissued common shares upon
exercise of stock options.
For the
fiscal years ended October 31, 2010 and 2009, charges related to stock based
compensation amounted to approximately $231,000 and $153,000,
respectively. For the fiscal years ended October 31, 2010 and 2009,
stock based compensation classified in cost of sales amounted to $33,000 and
$13,000 and stock based compensation classified in selling, general and
engineering expense amounted to $198,000 and $140,000 respectively.
Earnings
per share
Basic
earnings per share is calculated by dividing net income applicable to common
stockholders by the weighted average number of common shares outstanding during
the period. The calculation of diluted earnings per share is similar to that of
basic earnings per share, except that the denominator is increased to include
the number of additional common shares that would have been outstanding if all
potentially dilutive common shares, principally those issuable upon the exercise
of stock options, were issued and the treasury stock method had been applied
during the period. The greatest number of shares potentially issuable by the
Company upon the exercise of stock options in any period for the years ended
October 31, 2010 and 2009, that were not included in the computation because
they were anti-dilutive, totaled 221,874 and 476,710,
respectively.
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
The
following table summarizes the calculation of basic and diluted earnings per
share:
|
|
|
2010
|
|
|
2009
|
|
|
Numerators:
|
|
|
|
|
|
|
|
Net
income (A)
|
|
$ |
1,220,247 |
|
|
$ |
655,967 |
|
|
|
|
|
|
|
|
|
|
|
|
Denominators:
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding for basic earnings per share
(B)
|
|
|
2,859,803 |
|
|
|
2,951,002 |
|
|
Add
effects of potentially dilutive securities - assumed exercise of stock
options
|
|
|
383,002 |
|
|
|
297,902 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares for diluted earnings per share (C)
|
|
|
3,242,805 |
|
|
|
3,248,904 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per share (A)÷(B)
|
|
$ |
0.43 |
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings per share (A)÷(C)
|
|
$ |
0.38 |
|
|
$ |
0.20 |
|
Fair
value measurements
Financial
assets and financial liabilities are required to be measured and reported on a
fair value basis using the following three categories for classification and
disclosure purposes:
Level 1: Quoted prices
(unadjusted) in active markets that are accessible at the measurement date for
assets or liabilities. The fair value hierarchy gives the highest priority to
Level 1 inputs.
Level 2: Observable prices
that are based on inputs not quoted on active markets, but corroborated by
market data.
Level 3: Unobservable inputs
that are used when little or no market data is available. The fair value
hierarchy gives the lowest priority to Level 3 inputs.
In
determining fair value, the Company utilizes valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs to the
extent possible. The Company also considers counterparty credit risk in its
assessment of fair value. The carrying value of financial instruments including
cash and cash equivalents, all certificates of deposit, accounts receivable, and
accounts payable approximate their respective fair values due to the short-term
maturities of these instruments. The fair value of the Company’s note receivable
from stockholder (see Note 9) cannot be practicably determined due to its
related party nature. The Company classifies its certificates of deposit as
Level 1 within the fair value hierarchy.
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
New
accounting pronouncements
In April
2009, the Financial Accounting Standards Board issued new accounting guidance
regarding the accounting for assets acquired and liabilities assumed in a
business combination due to contingencies. This new guidance clarifies the
initial and subsequent recognition, subsequent accounting and disclosure of
assets and liabilities arising from contingencies in a business combination.
This new guidance requires that assets acquired and liabilities assumed in a
business combination that arise from contingencies be recognized at fair value,
if the acquisition date fair value can be reasonably estimated. If the
acquisition-date fair value of an asset or liability cannot be reasonably
estimated, the asset or liability would be measured at the amount that would be
recognized using the accounting guidance related to accounting for contingencies
or the guidance for reasonably estimating losses. This new accounting guidance
was effective for us on November 1, 2010; however, as the provision of the
guidance will be applied prospectively to business combinations with an
acquisition date on or after the guidance becomes effective, the impact to us
cannot be determined until a transaction occurs.
Note
2 - Concentration of credit risk and sales to major customers
Financial
instruments which potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and accounts receivable. The
Company considers all highly liquid debt instruments with an original maturity
of three months or less when purchased to be cash equivalents. The Company
maintains its cash and cash equivalents with high-credit quality financial
institutions. At October 31, 2010, the Company had cash and cash equivalent
balances in excess of Federally insured limits in the amount of approximately
$4,363,000.
Accounts
receivable are financial instruments that also expose the Company to
concentration of credit risk. Such exposure is limited by the large number of
customers comprising the Company's customer base and their dispersion across
different geographic areas. In addition, the Company routinely assesses the
financial strength of its customers and maintains an allowance for doubtful
accounts that management believes will adequately provide for credit
losses.
Sales to
one customer represented 20% and 15% of total sales, and 22% and 26% of
total accounts receivable in 2010 and 2009, respectively. The Company has a
standard written distributor agreement with this customer and, therefore, this
customer does not have any minimum purchase obligations and could stop buying
the Company’s products at any time. 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.
Note
3 - Inventories and major vendors
Inventories
consist of the following as of October 31:
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Raw
materials and supplies
|
|
$ |
1,405,443 |
|
|
$ |
1,355,504 |
|
|
Work
in process
|
|
|
15,425 |
|
|
|
8,105 |
|
|
Finished
goods
|
|
|
3,348,944 |
|
|
|
3,685,950 |
|
|
Less
inventory reserve
|
|
|
(161,969 |
) |
|
|
(64,638 |
) |
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
4,607,843 |
|
|
$ |
4,984,921 |
|
Purchases
of connector products from three major vendors represented 23%, 18%, and 14% of
total inventory purchases in 2010 and 23%, 10%, and 8% in 2009, respectively.
The Company has arrangements with these vendors to purchase product based on
purchase orders periodically issued by the Company. During the third quarter of
2010, the Company wrote-off $247,539 of excess and obsolete inventory at the
Neulink division not previously reserved.
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
Note
4 - Commitments
The
Company leases its facilities in San Diego, California and Las Vegas, Nevada
under non-cancelable operating leases. The Company amended its San Diego lease
in March 2009 extending the term of the lease and again in September 2009 adding
additional square feet. The amended lease expires in March 2014 and
requires minimum annual rental payments that are subject to fixed annual
increases. The minimum annual rentals under this lease are being charged to
expense on the straight-line basis over the lease term. Deferred rents, included
in accrued expenses and other long-term liabilities, were $98,000 as of October
31, 2010 and $80,000 at October 31, 2009. The San Diego lease also requires the
payment of the Company's pro rata share of the real estate taxes and insurance,
maintenance and other operating expenses related to the facilities. The
Oddcables.com division operations include a warehouse and retail space. During
the past two years, the Aviel division was leasing two facilities in Las Vegas,
the first of which was a three year lease, which expired in March 2010. The
second lease was entered into and commenced in September 2009 and expires in
March 2015. The Company also leases certain automobiles under operating leases
which expire at various dates through October 2014.
Rent
expense under all operating leases totaled approximately $465,000 and $459,000
in 2010 and 2009.
Minimum
lease payments under these non-cancelable operating leases in each of the years
subsequent to October 31, 2010 are as follows:
|
Year Ending
October 31,
|
|
Amount
|
|
|
|
|
|
|
|
2011
|
|
$ |
414,000 |
|
|
2012
|
|
|
403,000 |
|
|
2013
|
|
|
412,000 |
|
|
2014
|
|
|
179,000 |
|
|
2015
|
|
|
14,000 |
|
|
Total
|
|
$ |
1,422,000 |
|
The
Company has an employment agreement with the President and Chief Executive
Officer for a term of up to three consecutive one year periods commencing on
June 20, 2008, and ending on June 20, 2011, which expires at the end of each
employment year on June 19 and may be extended by the Company for an additional
employment year on the anniversary dates thereafter. The aggregate amount of
compensation to be provided over the remaining term of the employment agreement
amounted to approximately $140,000 at October 31, 2010.
Note
5 - Segment information
The
Company aggregates operating divisions into operating segments which have
similar economic characteristics and divisions 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; (5)
if applicable, the nature of the regulatory environment. The Company has three
segments - RF Connector and Cable Assembly, Medical Cabling and Interconnector
and RF Wireless based upon this evaluation.
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
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 three divisions that meet
the quantitative thresholds for segment reporting are Connector / Cable
Assembly, Bioconnect and RF Neulink. 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 Connector
and Cable Assembly, Aviel Electronics, and Oddcables.com 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.
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
years ended October 31, 2010 and 2009:
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
14,504,628 |
|
|
$ |
11,816,306 |
|
|
Foreign
countries:
|
|
|
|
|
|
|
|
|
|
Israel
|
|
|
696,022 |
|
|
|
1,175,744 |
|
|
All
other
|
|
|
1,121,528 |
|
|
|
1,220,995 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
16,322,178 |
|
|
$ |
14,213,045 |
|
Net
sales, income before provision for income taxes and other related segment
information as of October 31, 2010 and 2009, and for the years then ended
follows:
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
|
|
|
RF
Connector
and Cable
Assembly
|
|
|
Medical
Cabling and
Interconnector
|
|
|
RF
Wireless
|
|
|
Corporate
|
|
|
Total
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
14,094,158 |
|
|
$ |
1,724,819 |
|
|
$ |
503,201 |
|
|
$ |
|
|
|
$ |
16,322,178 |
|
|
Income
(loss) before provision for income taxes
|
|
|
2,606,201 |
|
|
|
306,161 |
|
|
|
(908,142 |
) |
|
|
86,614 |
|
|
|
2,090,834 |
|
|
Depreciation
and amortization
|
|
|
164,055 |
|
|
|
23,315 |
|
|
|
26,896 |
|
|
|
|
|
|
|
214,266 |
|
|
Total
assets
|
|
|
4,204,819 |
|
|
|
316,149 |
|
|
|
617,202 |
|
|
|
13,971,193 |
|
|
|
19,109,363 |
|
|
Additions
to equipment and furnishings
|
|
|
115,839 |
|
|
|
32,549 |
|
|
|
3,462 |
|
|
|
|
|
|
|
151,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
12,153,597 |
|
|
$ |
1,323,640 |
|
|
$ |
735,808 |
|
|
$ |
|
|
|
$ |
14,213,045 |
|
|
Income
(loss) before provision for income taxes
|
|
|
1,604,193 |
|
|
|
114,333 |
|
|
|
(812,386 |
) |
|
|
193,429 |
|
|
|
1,099,569 |
|
|
Depreciation
and amortization
|
|
|
193,512 |
|
|
|
13,613 |
|
|
|
32,652 |
|
|
|
|
|
|
|
239,777 |
|
|
Total
assets
|
|
|
4,505,866 |
|
|
|
289,911 |
|
|
|
919,432 |
|
|
|
10,882,991 |
|
|
|
16,598,200 |
|
|
Additions
to equipment and furnishings
|
|
|
187,417 |
|
|
|
16,820 |
|
|
|
13,155 |
|
|
|
|
|
|
|
217,392 |
|
Note
6 - Income taxes
The
provision (benefit) for income taxes consists of the following:
|
|
|
2010
|
|
|
2009
|
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$ |
825,965 |
|
|
$ |
323,716 |
|
|
State
|
|
|
211,222 |
|
|
|
111,186 |
|
|
|
|
|
1,037,187 |
|
|
|
434,902 |
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(135,300 |
) |
|
|
21,200 |
|
|
State
|
|
|
(31,300 |
) |
|
|
(12,500 |
) |
|
|
|
|
(166,600 |
) |
|
|
8,700 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
870,587 |
|
|
$ |
443,602 |
|
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
Income
tax at the Federal statutory rate is reconciled to the Company's actual net
provision for income taxes as follows:
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Amount
|
|
|
% of Pretax
Income
|
|
|
Amount
|
|
|
% of Pretax
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax at Federal statutory rate
|
|
$ |
710,100 |
|
|
|
34.0 |
% |
|
$ |
373,900 |
|
|
|
34.0 |
% |
|
State
tax provision, net of Federal tax benefit
|
|
|
118,748 |
|
|
|
5.7 |
|
|
|
65,133 |
|
|
|
5.9 |
|
|
Nondeductible
differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISO
stock options
|
|
|
38,000 |
|
|
|
1.8 |
|
|
|
17,700 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
credits
|
|
|
|
|
|
|
|
|
|
|
(50,124 |
) |
|
|
(4.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
3,739 |
|
|
|
0.1 |
|
|
|
36,993 |
|
|
|
3.4 |
|
|
Provision
for income taxes
|
|
$ |
870,587 |
|
|
|
41.6 |
% |
|
$ |
443,602 |
|
|
|
40.3 |
% |
The
Company's total deferred tax assets and deferred tax liabilities at October 31,
2010 and 2009 are as follows:
|
|
|
2010
|
|
|
2009
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$ |
30,200 |
|
|
$ |
21,100 |
|
|
Inventory
obsolescence
|
|
|
64,500 |
|
|
|
25,700 |
|
|
Accrued
vacation
|
|
|
105,500 |
|
|
|
79,500 |
|
|
State
income taxes
|
|
|
71,800 |
|
|
|
41,000 |
|
|
Stock
based compensation awards
|
|
|
200,300 |
|
|
|
171,900 |
|
|
Section
263A costs
|
|
|
97,600 |
|
|
|
103,300 |
|
|
Other
|
|
|
43,200 |
|
|
|
35,700 |
|
|
Total
current assets
|
|
|
613,100 |
|
|
|
478,200 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Assets:
|
|
|
|
|
|
|
|
|
|
Amortization
/ intangible assets
|
|
|
131,600 |
|
|
|
82,500 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities:
|
|
|
|
|
|
|
|
|
|
Depreciation
/ equipment and furnishings
|
|
|
(150,400 |
) |
|
|
(133,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$ |
594,300 |
|
|
$ |
427,700 |
|
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follow:
|
Balance
at November 1, 2008
|
|
$ |
182,093 |
|
|
Lapse
of statute of limitations- tax positions in prior period
|
|
|
(49,259 |
) |
|
Gross
increase – tax positions in current period
|
|
|
108,510 |
|
|
Balance
at November 1, 2009
|
|
|
241,344 |
|
|
Lapse
of statute of limitations - tax positions in prior period
|
|
|
(194,921 |
) |
|
Gross
increase – tax positions in current period
|
|
|
169,748 |
|
|
Balance
at October 31, 2010
|
|
$ |
216,171 |
|
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
The
Company’s total gross liability for unrecognized tax benefits at October 31,
2010 was $216,171, including $52,416 of interest and penalties. At November 1,
2009 the Company’s total gross liability for unrecognized tax benefits was
$241,344, including $59,765 of interest and penalties. During the year ended
October 31, 2009, a net increase of $7,457 of interest and penalties as a result
of a revaluation of prior year balances was recorded as a component of income
tax expense in the statement of income.
The
Company does not expect any material changes to the estimated amount of the
liability associated with its uncertain tax positions within the next 12 months.
During the year ended October 31, 2010, a reduction of $7,349 of interest
and penalties as a result of a revaluation of prior year balances was recorded
as a component of income tax expense in the statement of income. As of October
31, 2010, $52,416 of accrued interest and penalties are included in other
long-term liabilities in the balance sheet. As of October 31, 2009, $59,765 of
accrued interest and penalties were included in other long-term liabilities in
the balance sheet.
The
Company is currently not undergoing any tax examinations. Tax fiscal years ended
October 31, 2007 through 2010 remain subject to examinations.
Note
7 - Stock options
Incentive
and Non-Qualified Stock Option Plans
In May
2000, the Board of Directors adopted the Company’s 2000 Stock Option Plan (the
“2000 Option Plan”). Under the 2000 Option Plan, the Company was authorized to
grant options to purchase shares of common stock to officers, directors, key
employees and others providing services to the Company. The number of shares of
common stock that the Company was authorized to issue under options granted
under the 2000 Option Plan initially was 300,000, which number automatically
increased on January 1 of each year by the lesser of (i) 4% of the total number
of shares of common stock then outstanding or (ii) 10,000 shares. Subsequently,
the Board of Directors and Stockholders approved several increases in the
authorized number of options to the 2000 Option Plan. The 2000 Option Plan
expired in May of 2010. At time of expiration, the 2000 Plan had authorized the
Company to grant options to purchase a total of 1,320,000 shares. Upon the
expiration of the 2000 Plan, the Company was no longer able to grant any stock
options to its employees, officers and directors. Accordingly, as of
October 31, 2010, there were no shares of common stock authorized by the Company
to be issued under the 2000 Option Plan. However, there were options for 955,396
shares that had been granted under the 2000 Plan, of which 772,572 were still
outstanding and available for exercise. Under the 2000 Option Plan, the
Company was authorized to grant both incentive stock options and non-qualified
stock options. Incentive and non-qualified stock options under the 2000 Option
Plan were granted at an exercise price no less than the fair value of the common
stock on the date of grant.
On March
9, 2010, our Board of Directors adopted the RF Industries, Ltd. 2010 Stock
Incentive Plan (the “2010 Plan”). In June 2010, our stockholders
approved the 2010 Plan by vote as required by The NASDAQ Capital Market listing
standards. Accordingly, the Company may now make awards under the
2010 Plan as described below. The Board adopted the 2010 Plan because the
Company’s prior stock option plan, the 2000 Option Plan that was adopted in May
2000, expired on May 5, 2010. An aggregate of 500,000 shares of common stock was
set aside and reserved for issuance under the 2010 Plan. As of October 31, 2010,
407,546 shares of common stock were remaining for future grants of stock options
under the 2010 Plan.
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
Additional
disclosures related to stock option plans
The fair
value of each option granted in 2010 and 2009 was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Expected
volatility
|
|
|
50.9%-57.7 |
% |
|
|
53.7%-60.4 |
% |
|
Weighted-average
volatility
|
|
|
52.1 |
% |
|
|
56.1 |
% |
|
Expected
dividends
|
|
|
1.7 |
% |
|
|
0.6 |
% |
|
Expected
term (in years)
|
|
|
2.5-3.5 |
|
|
|
2.5-7.5 |
|
|
Risk-free
interest rate
|
|
|
0.5%-1.4 |
% |
|
|
1.0%-3.0 |
% |
|
Weighted
average fair market value of options granted during the
year
|
|
$ |
2.14 |
|
|
$ |
1.97 |
|
|
Weighted
average fair market value of options vested during the
year
|
|
$ |
1.78 |
|
|
$ |
1.70 |
|
Expected
volatilities are based on historical volatility of the Company’s stock. During
fiscal 2010, the Company granted options for the purchase of 16,000 shares that
vested immediately with an option life of five years, and options for the
purchase of 76,454 shares with a vesting period of three years and an option
life of five years. Since the Company has little historical experience in
determining the expected life of these new option terms, the Company used the
simplified method to calculate the expected life of these 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. The Company estimates forfeiture rates
based upon historical exercise behavior.
Additional
information regarding all of the Company's outstanding stock options at October
31, 2010 and 2009 and changes in outstanding stock options in 2010 and 2009
follows:
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Shares or
Price Per
Share
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares or
Price Per
Share
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Options
outstanding at beginning of year
|
|
|
1,243,306 |
|
|
$ |
3.74 |
|
|
|
1,067,041 |
|
|
$ |
3.77 |
|
|
Options
granted
|
|
|
92,454 |
|
|
|
6.40 |
|
|
|
223,955 |
|
|
|
4.05 |
|
|
Options
exercised
|
|
|
(79,954 |
) |
|
|
2.57 |
|
|
|
|
|
|
|
|
|
|
Options
forfeited
|
|
|
(28,330 |
) |
|
|
4.40 |
|
|
|
(47,690 |
) |
|
|
5.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at end of year
|
|
|
1,227,476 |
|
|
$ |
4.00 |
|
|
|
1,243,306 |
|
|
$ |
3.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at end of year
|
|
|
916,029 |
|
|
$ |
3.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
vested and expected to vest at end of year
|
|
|
1,218,228 |
|
|
$ |
3.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
price range at end of year
|
|
$ |
0.10
- $7.56 |
|
|
|
|
|
|
$ |
0.10
- $7.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
intrinsic value of options exercised during year:
|
|
$ |
338,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
|
|
Included
in the options outstanding are 527,204 in 2010 and 500,871 in 2009
previously granted to six officers and/or key employees of the Company
under employment agreements entered into by the Company with each of these
officers and employees.
|
Weighted
average remaining contractual life of options outstanding at October 31, 2010:
4.27 years.
Weighted
average remaining contractual life of options exercisable at October 31, 2010:
3.99 years.
Weighted
average remaining contractual life of options vested and expected to vest at
October 31, 2010: 4.24 years.
Aggregate
intrinsic value of options outstanding at October 31, 2010:
$3,593,437
Aggregate
intrinsic value of options exercisable at October 31, 2010:
$2,864,346
Aggregate
intrinsic value of options vested and expected to vest at October 31, 2010:
$3,566,364
As of
October 31, 2010, $500,920 of expense with respect to nonvested share-based
arrangements has yet to be recognized and is expected to be recognized over a
weighted average period of 4.54 years.
Note
8 - Retirement plan
The
Company sponsors a deferred savings and profit sharing plan under Section 401(k)
of the Internal Revenue Code. Substantially all of its employees may participate
in and make voluntary contributions to this defined contribution plan after they
meet certain eligibility requirements. The Board of Directors of the Company can
authorize discretionary contributions by the Company. The Company did not make
contributions to the plan in 2010 or 2009.
Note
9 - Related party transactions
The note
receivable from stockholder of $66,980 at October 31, 2010 and 2009 is due from
the President 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.
A
director of the Company is an employee of the Company’s public relations firm.
For the fiscal years ended October 31, 2010 and 2009, the Company paid the firm
$52,783 and $52,668, respectively, for services rendered by that
firm.
Note
10- Legal proceedings
From time
to time, the Company is involved in legal proceedings that are related to its
business operations. The Company is not currently a party to any legal
proceedings that could have a material adverse effect upon its financial
position or results of operations.
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
Note
11- Business acquisition
The
Company acquired substantially all of the assets and assumed certain liabilities
of RadioMobile Inc. (“RadioMobile”), a privately held San Diego, California
company on September 1, 2007. RadioMobile Inc. is an OEM provider of end-to-end
mobile management solutions implemented over wireless networks. RadioMobile has
developed software and hardware used by police departments and transportation
vehicles to receive and transfer electronic data. The RadioMobile purchase
agreement contains certain provisions containing contractual and/or legal rights
that could potentially create intangible assets apart from goodwill. The asset
purchase agreement has an earn out provision over three years based upon
revenues earned by RadioMobile operating as a separate division. As of October
31, 2010, all earn-out payments had been made. The purchase price for the
RadioMobile assets included $166,667 in cash payments and $175,000 in stock
issuance, representing 30,919 shares at $5.66 and totaling $35,665 of guaranteed
minimum future consideration. Minimum contingent consideration amounts per the
Asset Purchase Agreement were recorded upon closing at their net present value,
using an 8% discount rate.
During
the year ended October 31, 2010, shares of the Company’s common stock with a
value of $10,000 were paid as per the minimum contingent earn-out provision
included in the RadioMobile Asset Sales agreement. As of October 31, 2010, no
additional future consideration was payable.
Note
12- Dividends declaration
The
Company paid dividends of $0.03 per share for a total of $84,113 and $94,780
during the fiscal years ended October 31, 2010 and 2009,
respectively.
Note
13- Accrued expenses and other long-term liabilities
Accrued
expenses consist of the following as of October 31:
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Wages
payable
|
|
$ |
834,188 |
|
|
$ |
426,596 |
|
|
Accrued
receipts
|
|
|
318,490 |
|
|
|
183,212 |
|
|
Other
current liabilities
|
|
|
64,776 |
|
|
|
63,272 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
1,217,454 |
|
|
$ |
673,080 |
|
Accrued
receipts represent purchased inventory for which invoices have not been
received.
Other
long-term liabilities consist of the following as of October 31:
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Tax
related liabilities
|
|
$ |
216,171 |
|
|
$ |
241,344 |
|
|
Deferred
lease liabilities
|
|
|
81,219 |
|
|
|
79,686 |
|
|
Other
long-term liabilities
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
297,390 |
|
|
$ |
321,030 |
|
RF
INDUSTRIES, LTD.
NOTES
TO FINANCIAL STATEMENTS
See Note
6 for discussion of the tax-related liabilities. Deferred lease liabilities
represent the excess of recognized rent expense over scheduled lease
payments.
Note
14- Subsequent events
At its
December 10, 2010 meeting, the Board of Directors approved a $0.03 dividend to
be paid on January 17, 2011 to stockholders of record on December 31, 2010. On
December 16, 2010, Congress passed the 2010 Tax Relief Act which will
impact the Company’s tax provision in the first quarter of fiscal 2011. Due to
the passage of the Act into law, the Company estimates it will be able to claim
an increased tax credit related to the year October 31, 2010 for research and
development related to the year ended October 31, 2010 of approximately $55,000.
The credit will be recorded in the first quarter of fiscal
2011.
SIGNATURE
In
accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
RF
INDUSTRIES, LTD.
|
|
|
|
|
|
Date:
January 12, 2011
|
By:
|
/s/ Howard F. Hill
|
|
|
Howard
F. Hill, President/CEO
|
In
accordance with the Securities Exchange Act of 1934, this Report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the date indicated.
|
Date:
January 12, 2011
|
By:
|
/s/ James S. Doss
|
|
|
James
S. Doss, Chief Financial Officer
|
|
|
(Principal
Financial Officer and Principal
|
|
|
Accounting
Officer)
|
|
|
|
|
Date:
January 12, 2011
|
By:
|
/s/ Howard F. Hill
|
|
|
Howard
F. Hill, President/CEO
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
Date:
January 12, 2011
|
By:
|
/s/ John Ehret
|
|
|
John
Ehret, Director
|
|
|
|
|
Date:
January 12, 2011
|
By:
|
/s/ Marvin Fink
|
|
|
Marvin
Fink, Director
|
|
|
|
|
Date:
January 12, 2011
|
By:
|
/s/ William Reynolds
|
|
|
William
Reynolds, Director
|
|
|
|
|
Date:
January 12, 2011
|
By:
|
/s/ Robert Jacobs
|
|
|
Robert
Jacobs, Director
|