Fiscal 2008
Annual Report
President’s letter to Shareholders
April 30, 2009
Fellow Shareholders:
Because of our loyal customers and our dedicated employees, RF Industries (RFI) had a very good year in fiscal
2008. Overall fiscal 2008 was a year to demonstrate our ability to meet our commitment to you, our shareholders.
The year resulted in RFI meeting or exceeding all of our financial goals. We took actions to strengthen our balance
sheet and to build each segment of our business to achieve notable financial highlights.
In fiscal 2008 our revenue grew by 19% to a record $17,695,000, compared to $14,853,000 in fiscal 2007. Net
income increased 37% to $1,559,000 or $0.42 per diluted share, compared to $1,135,000 or $0.30 per diluted share
for fiscal 2007. A 38% gain in sales at our Aviel division helped boost RF Connectors and Cable Assembly segment
sales by 9%. The improved profitability at RF Connectors and Cable Assembly and Aviel led to a 55% increase in
this segment’s fiscal 2008 operating income. Also contributing to higher profitability was an 83% sales increase in
our Bioconnect division, which resulted in a 130% increase in Bioconnect’s operating income. The combination of
higher sales and improved profitability raised RFI’s overall fiscal 2008 gross margin to 50% of sales, compared to
47% of sales in fiscal 2007.
The operational excellence and performance of our largest division, the RF Connector and Cable Assembly division,
was a true highlight of fiscal 2008. The performance of that division enabled RFI to generate strong financial results
and continue transforming the way we operate around the world.
To extend our marketplace we are strategically investing to deliver even greater value to our customers. For
example, we increased engineering expenses to $1,051,000 in fiscal 2008, an increase of 84% compared to $571,000
for fiscal 2007. Although the increase represented a significant reduction in our fiscal 2008 earnings, we believe
these hardware and software development expenses for the two-way wireless transceivers that we are developing are
necessary to the future growth of the RF wireless segments of RF Neulink and RadioMobile. This spring, the RF
Neulink NL900S, a highspeed, wireless modem operating in the unlicensed 900 MHz range, and the IQ Liberator, a
software-defined wireless transceiver for RadioMobile, are expected to be commercially released and marketed at
competitive prices into established wireless data and mobile markets. We are very excited about the long-term
growth potential of the RF wireless segment.
RFI started fiscal 2008 with cash, cash equivalents totaling $7,933,000. After applying about $1,300,000 of cash for
increasing inventory, purchasing over $400,000 of equipment to increase efficiency at Aviel and Bioconnect,
making cash dividend distributions of $394,000, and spending $533,000 to repurchase some shares of our common
stock, we still ended fiscal 2008 with total cash, cash equivalents and investments nearly unchanged at $7,925,000.
By the end of fiscal 2008, RFI’s working capital improved by $1,101,000 to $15,382,000, or $4.77 per share, the
current ratio was 13 to 1, we had no long term debt, and stockholders’ equity was $16,122,000 or $5.00 per share.
The Board of Directors and all the employees at RFI are extremely pleased with the progress that was made in fiscal
year 2008. RFI was recognized by Forbes as number 142 on the list of “200 Best Small Companies” in 2008 and in
2007 RFI was number 183. The year 2008 was the third time RFI had been honored by Forbes. Additionally, RFI
was recognized by Deloitte as one of San Diego’s Technology Fast 50 growing companies.
First Quarter Fiscal 2009 Review
Sales for RFI’s first quarter, typically the company’s seasonally weakest period, were down 7% reflecting reductions
in inventory by the company’s major distributors, the RF Connectors and Cable Assembly segment sales decline of
5%, and the sales for the wireless segment decline of 48%, reflecting delays in the receipt of orders. Net income was
$162,000 or $0.05 per diluted share, compared to $182,000 or $0.05 per diluted share in the first quarter of last year.
Although first quarter net income nearly matched the first quarter of last year, we are not content with the
company’s operating profitability in the first quarter of fiscal 2009. Consequently, RFI has taken steps to reduce
operating expenses, lower headcount and focus its energies upon increasing the sales and efficiency of all its
businesses. RFI’s Board of Directors, its officers and its staff have all taken pay cuts, and we have suspended the
- 1 -
company’s regular quarterly cash dividend in order to maximize the resources available for potential future
acquisitions, funding new product developments, purchase of equipment, and improvements in manufacturing and
operating efficiencies. We have continued to seek opportunities to repurchase our common stock in both public and
private transactions.
Growth Focus for the Future
RFI had significant and consistent achievement in fiscal 2008. But rather than being satisfied with our success, we
are energized by the magnitude of the opportunities still ahead. RFI has overcome challenges and obstacles in
previous fiscal years as we face 2009. Our number one priority is to keep building a strong operating foundation to
deliver ever-greater value for our loyal customers. We also believe that an element of our growth will come from
the acquisition of complementary businesses. Accordingly, we plan to accelerate our acquisitions efforts. We
believe that RFI’s strong cash position and no debt will be a key factor for opportunity for growth in years to come.
The Board of Directors and RFI’s employees are thankful for and humbled by your continued support. We are
focused and committed to the tasks at hand, and we are absolutely convinced that RFI’s best days are very much
ahead of us.
Thank you for your trust you have placed in us.
Sincerely,
Howard F Hill
President/CEO
- 2 -
Abridged and Edited Copy of Annual Report
(Form 10-K)
Annual Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended October 31, 2008
Commission File Number 0-13301
RF INDUSTRIES, LTD.
7610 Miramar Road, Bldg. 6000, San Diego, California 92126-4202
(Address of principal executive offices) (Zip Code)
(858) 549-6340
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 was
$20,166,606.
As of January 14, 2009, the issuer had 3,076,264 outstanding shares of common stock, $.01 par value
Forward-Looking Statements:
Certain statements in this abridged 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, and 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” contained in the Form 10-K on file with the Securities and Exchange
Commission, 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.
- 3 -
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) Worswick Division sells coaxial and other connectors and cable assemblies primarily 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 sales 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
(previously on Form 10-KSB), quarterly reports (on Form 10-QSB and hereafter on Form 10-Q), 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, 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 typically carries approximately 1,500 different SKUs of RF connectors
that are offered by the Connector and Cable Division. 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 more dependent upon the overall economy, infrastructure build out
- 4 -
by large telecommunications firms and on the Company’s ability to market its products. However, the Company’s
sales of connectors and cable assemblies have increased in the past five out of six years as the overall market
demand for wireless products that use the Company’s connectors has increased. Sales of connectors and cable
assemblies increased in fiscal year 2008 compared to 2007 sales. The Company believes that the continuing growth
in new wireless products will result in an overall increase in the demand for the radio frequency connectors and
cable assemblies that the Company distributes.
Third party foreign manufacturers located in Asia manufacture the Company’s RF connectors for the
Company. 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 during all of the recent fiscal years, generated 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 products. 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, 2008.
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.
Worswick Division The Company acquired the assets of Worswick Industries, Inc., 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. Worswick Industries 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. Worswick Industries primarily sells its products on
a retail basis at its retail outlet in San Diego, California. Worswick, however, also sells its products on-line under
the e-commerce brand OddCables.com.
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 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.
- 5 -
For financial reporting purposes, the Company aggregates its operations into three segments. Connector
and Cable Assembly, Aviel Electronics, and Worswick 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, 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 and distributes coaxial connectors for the numerous
products, devices and instruments. Coaxial connectors have applications in commercial, industrial, automotive,
scientific and military markets. The types of connectors offered by the RF Connector Division include 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 for both plugs and jacks. There are hundreds of applications for
these connectors, some of which include digital applications, cellular and PCS telephones, Wi-Fi and broadband
wireless applications, cellular and PCS 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
approximately 1,500 types of connectors, which range in price from $0.40 to $125.00 per unit.
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 with the Company’s 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.
The Connector and Cable Division also 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 now 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.
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.
Worswick Products
Worswick sells coaxial connectors and cable assemblies for numerous multi-media products, devices and
instruments in the local San Diego area. Worswick also produces and markets cable assemblies in a variety of sizes
and combinations of RF coaxial connectors and coax cabling. Cabling is purchased from a variety of major
- 6 -
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 and sells and provides product development services to OEMs for
specialized electrical cabling and interconnect products used in the medical monitoring market. 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
replaced frequently in order to ensure maximum performance.
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, dumb 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 Company is continuing to develop new wireless modems and expects to release at least one new
product during the fiscal year ending October 31, 2009.
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. The products offered by the Neulink Division include:
NL5000 – (replaced the RF 9600) as a cost effective, high performance telemetry modem
NL6000 UHF and VHF feature, high performance wireless modems
NL900 and NL2400 Spread Spectrum point to point wireless modems
Ornnex Control Systems 900mhz Spread-Spectrum wireless modems and I/O modules
Teledesign high-speed wireless modems in VHF, UHF and 900 MHz frequencies
BlueWave, Maxrad, and Antenex antennas
Custom Design and Engineering services
NL 900S – High-speed, high performance wireless data modem 900 MHz frequency
Current applications in use worldwide 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.
In 2004 fiscal year, the Neulink Division introduced a new radio modem that it developed. The NL6000
radio modem was repositioned within the marketplace to compete against a more upscale market segment and was
designed to meet the FCC’s 2004 mandatory requirement to provide narrow-band channels. This product is a high-
- 7 -
speed narrow band compliant radio modem that operates on a 12.5 KHz channel at a 12 Kbps data transfer rate. In
2005, Neulink was chosen to develop a different version of the NL6000 for the Stanford Research Institute and the
U.S. Marine Corps.
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 both hardware/software products and 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 and mobile environments are developed by in
house engineers and contractors. Current and new RadioMobile products include:
IQ Mobile V4, V5 – a mobile or client application that supports computing needs for receiving priority
messages, sending timely status’s, text messages, file transfers and location data. IQ Mobile can utilize any
wireless network facility via IP or private protocols.
IQ Map is an option that works with IQ Mobile to provide the mobile operator map functions to show
current location, destination or a combination of both.
IQ Locator – a host based mapping application allowing agencies to track and oversee fleet location and
status.
IQ CAD – a call taking and dispatching application currently under development for 911 and similar
agencies that is designed to interface with IQ Locator and the IQ Mobile client software. This product is
scheduled to be released for testing during the third quarter of the current fiscal year.
IQ Gateway and Link – a host based networking concentrator and manager for all wireless network
interfaces including the customer’s private conventional data channels. The Gateway is capable of routing
data between sites on the conventional network as well as other WIFI and broadband public facilities.
MCT8000- a rugged mobile computing platform that utilizes all off the shelf components for cpu, display,
keyboard and network modules maintaining full upgradeability for all elements.
CMX6000- a status and short message terminal capable of stand alone interface to the network facilities.
IQ Liberator – a software defined modem capable of emulating legacy protocols as well as generic IP
packets operating at data rates from 2400 to 22,000bps.
Foreign Sales:
Direct export sales by the Company to customers in South America, Canada, Mexico, Europe, Australia,
the Middle East, and Asia accounted for $2,724,000 or approximately 15% of Company’s sales for the fiscal year
ended October 31, 2008. Foreign sales accounted for $2,273,000 of Company’s sales for the prior fiscal year ended
October 31, 2007. The majority of the export sales during these periods were to Israel, Canada and Mexico.
The Company does not own, or directly operate any manufacturing operations or sales offices in foreign
countries.
- 8 -
Distribution, Marketing and Customers:
Sales methods vary greatly between its divisions. The Connector and Cable Assembly Divisions currently
sell their products primarily through warehousing distributors and OEM customers who utilize coaxial connectors
and cable assemblies in the manufacture of their products. Since there are many OEMs who are not served by any of
the Company’s distributors, the Company’s goal is to increase the number of OEMs that purchase connectors
directly from the Company. OEM sales increased substantially during the past fiscal year.
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 Worswick Division operates from a single 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, including utility companies, financial institutions, petrochemical companies, government agencies, and
irrigation/water management companies.
The RadioMobile division sells its products direct and through value added resellers and dealers.
Customers include police, fire, emergency medical services, rail, bus, taxi and courier services.
Manufacturing:
The Company contracts with outside third parties for the manufacture of all its coaxial connectors and for
the components of its Neulink products. However, virtually all of RF cable assemblies sold by the Company during
the fiscal year ended October 31, 2008 were manufactured by the Company at its facilities in California, and the
Neulink products are assembled at the Company’s California facilities. The Connector and Cable Division has its
manufacturing performed at numerous International Standards Organization (ISO) approved factories with plants in
Japan, Korea, 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’s
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 20 years (including as
an unaffiliated company before being acquired by the Company in 2000). Bioconnect’s 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
- 9 -
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 all its connectors at its Las Vegas, Nevada manufacturing
facility. The Aviel Electronics Division has designed and manufactured its own products for 50 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. During the past fiscal year, the Company
acquired additional equipment for this division that will enable Aviel to increase the volume of connectors that it is
able to manufacture.
The Worswick 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 manufactures to RadioMobile specifications. The Company designs
much of the software used in RadioMobile’s 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.
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
material 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.
Worswick connectors and cable are typically acquired from the Connector and Cable Division 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.
- 10 -
Employees:
As of October 31, 2008, the Company employed 94 full-time employees, of whom 36 were in accounting,
administration, sales and management, 55 were in manufacturing, distribution and assembly, and three 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 has significantly increased its research and development activities intended to produce new
proprietary products that it can market to the wireless connectivity industry. The Company engaged in
approximately $256,000 of research and development activities in fiscal year ended October 31, 2008, primarily
related to the RF Wireless segment. Research and development expense during fiscal 2008 increased as a result of
the acquisition of the Radiomobile division at the end of fiscal 2007 and the increased expenses related to the
development of new wireless products that are expected to be commercially released by the end of the current fiscal
year. During the fiscal year ended October 31, 2007, the Company engaged in approximately $61,000 of research
and development activities.
In addition to research and development activities, the Company also invested approximately $1,304,000
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 often is carried out in collaboration with the Company’s customers.
The increase in business in the military/aerospace sector has encouraged the Company to develop an ISO
9000-like tracking system to improve its competitive edge, and is exploring future ISO certification.
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 some 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.
- 11 -
Competition:
Management estimates that the Connector and Cable Division has over 50 competitors in the approximately
$2.0 billion worldwide annual RF connector market. Management believes no one competitor has over 15% of the
total market, while the three leaders hold no more than 35% 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.
There are numerous small privately held manufacturers and marketers of connectors, but 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
service 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 future E.C.C. Radio Regulation
Division in Europe. The Company’s present equipment is “type-accepted” for use in the United States and Canada.
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.
- 12 -
ITEM 2.
DESCRIPTION OF PROPERTIES:
The Company leases its corporate headquarters building at 7610 Miramar Road, Building 6000, San Diego,
California. The building consists of approximately 11,000 square feet which houses 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 May 31, 2010. In addition, the Company
also leases the following facilities:
(i)
(ii)
(iii)
(iv)
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 May 31, 2010.
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. Neulink’s building
consists of approximately 2,500 square feet of administrative and manufacturing space and houses
the production and sales staff of the Neulink Division. The lease for this space expires on May 31,
2010.
The Aviel Electronics Division currently leases approximately 3,000 square feet of a facility
located at 5530 S. Valley View Blvd., Suite 103, Las Vegas, Nevada. The Company renewed the
lease for the Las Vegas offices, which will now expire March 31, 2010.
The Worswick Division currently leases an approximately 6,000 square foot facility located at
7352 Convoy Court, San Diego, California. The Company lease will expire May 31, 2009 and
they plan to move to a new location at 7642 Clairemont Mesa Blvd. San Diego, California to
lower cost.
The aggregate monthly rental for all the Company’s facilities currently is approximately $35,000 per
month, plus utilities, maintenance and insurance as of October 31, 2008.
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.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
- 13 -
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The Company’s Common Stock is listed and trades on the NASDAQ Global Market under the symbol
“RFIL.”
For the periods indicated, the following tables sets forth the high and low sales 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
Fiscal 2008
November 1, 2007 - January 31, 2008
February 1, 2008 - April 30, 2008
May 1, 2008 - July 31, 2008
August 1, 2008 - October 31, 2008
Fiscal 2007
November 1, 2006- January 31, 2007
February 1, 2007 - April 30, 2007
May 1, 2007 - July 31, 2007
August 1, 2007 - October 31, 2007
High
Low
$
$
7.53 $
6.26
8.50
8.98
9.57 $
8.38
6.25
7.67
5.20
5.20
5.69
2.66
6.15
5.33
5.20
5.40
Stockholders: As of October 31, 2008 there were 450 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 $.12 per share (a total of $394,343) during fiscal 2008. The
Board of Directors may declare dividends in the future depending on the Company’s financial condition and its
financial needs.
Recent Sales of Unregistered Securities: There were no previously unreported sales of equity securities by
the Company that were not registered under the Securities Act during fiscal 2008.
Repurchase of Securities: In September 2008, the Company announced that our Board of Directors had
authorized a stock repurchase program to repurchase up to 100,000 shares of the Company’s common stock. In
October 2008, Company announced that our Board of Directors had authorized a stock repurchase program to
repurchase up to an additional 100,000 shares of the Company’s common stock. The repurchases were to be made
from time to time in the open market or in privately negotiated transactions in compliance with the Securities
Exchange Act of 1934, or the Exchange Act, Rule 10b-18.
- 14 -
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of October 31, 2008 with respect to the shares of Company
common stock that may be issued under the Company’s existing equity compensation plans.
A
B
C
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options
Weighted
Average
Exercise Price
of Outstanding
Options ($)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column A)
566,170 $
500,871 $
1,067,041 $
5.75
1.53
3.77
540,474
0
540,474
Plan Category
Equity Compensation Plans
Approved by Stockholders (1)
Equity Compensation Plans Not
Approved by Stockholders (2)
Total
(1) Consists of options granted under the R.F. Industries, Ltd. (i) 2000 Stock Option Plan, (ii) the 1990 Incentive
Stock Option Plan, and (iii) the 1990 Non-qualified Stock Option Plan. 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 540,474 shares remaining available for issuance represent shares under the 2000 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 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 over 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.
- 15 -
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 largest business unit consists of the Connector and Cable Assembly Division
which, together with the Aviel Electronics Division and the Worswick Industries Division, markets and sells RF
cables and connectors. The Bioconnect Division operates in the medical connector product market, while the
Neulink and RadioMobile Divisions operate in the high-speed wireless data connection market. During fiscal year
2008 ended October 31, 2008 the RF cable and connector products represented 79% of the Company’s sales, while
the medical connector division and the wireless data connection operations represented 9% and 12%, respectively,
of the Company’s total sales.
Historically, over 79% of the Company’s revenues are generated from the sale of RF connector products
and connector cable assemblies. Sales of connectors are expected to continue to be the largest portion of revenues in
the future, despite the purchase of the RadioMobile wireless division in September 2007. 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. As a result, the Company’s revenues and expenses are typically not subject to
major fluctuations. During the fiscal year ended October 31, 2008, net sales increased by 19% over the net sales in
the prior year.
The net income generated by the Company for the fiscal year ended October 31, 2008 represented the 15th
consecutive year that the Company has been profitable.
The Company generated cash from operations of $1,144,000, used $691,000 in financing activities, and
used $461,000 for capital expenditures. The amount of cash and cash equivalents, and investments in available-for-
sale securities held by the Company as of October 31, 2008 remained substantially unchanged at $7,925,000,
compared to $7,932,000 in the prior year. 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.
- 16 -
Financial Condition:
The following table presents certain key measures of financial condition as of October 31, 2008 and 2007:
2008
Amount
% Total
Assets
2007
Amount
% Total Assets
$ 7,924,549
16,705,149
1,323,198
15,381,951
565,860
17,767,773
16,121,690
%$
44.6
94.0%
7.5%
86.5%
3.2%
100.0%
90.7%
7,932,246
15,351,272
1,069,700
14,281,572
255,693
16,128,158
14,940,793
%
49.2
95.2%
6.6%
89.0%
1.6%
100.0%
92.6%
Cash and cash equivalents and
Investments available for sale
Current assets
Current liabilities
Working capital
Property and equipment - net
Total assets
Stockholders’ equity
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, 2009. 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, 2008, the amount of cash and cash equivalents and short-term investments available-for-
sale was equal to $7,924,549 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, 2008, the Company had $16,705,149 in current assets, and only $1,323,198 in current
liabilities.
Management believes that based on the Company’s financial condition at October 31, 2008, 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 change 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 high 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. Because sales increased by
19% during fiscal 2008, the Company increased its inventories 20% compared to the prior year inventory balance.
- 17 -
The Company continuously monitors its inventory levels and product costs, and because of continued increases in
sales or raw material costs, may continue increasing its inventory levels.
Net cash provided by operating activities for the year ended October 31, 2008 was $1,144,000. The
Company’s net cash from operations was less than its net income of $1,559,000 due to $994,000 increase in
inventory, which reduction of net cash was partially offset by noncash stock-based compensation expense of
$500,000 and noncash depreciation and amortization of $211,000. In fiscal year ended October 31 2007, net cash
provided by operating activities was $1,733,000 primarily due to net income of $1,135,000, plus noncash stock-
based compensation expense of $572,000, and non cash depreciation and amortization of $269,000.
During fiscal 2008, net cash used in investing activities was $2,793,000, of which $2,332,000 was for the
purchase of treasury bills and other available-for-sale securities. The balance represents $461,000 invested in
additional capital equipment (primarily for the Aviel division). During fiscal 2007, net cash used in investing
activities was $2,545,000 of which $2,284,000 was used for the purchase of treasury bills and other available-for-
sale securities. The balance represented $94,000 invested in additional capital equipment and $167,000 used for the
acquisition of the RadioMobile division.
In fiscal 2008, financing activities decreased the Company’s net cash by $691,000 due to dividends paid of
$394,000, $533,000 used to repurchase 100,000 shares of its own common stock of which expenditures were
partially offset by the receipt of $190,000 from the exercise of stock options, and $46,041 of excess tax benefits
from stock-based compensation. In fiscal 2007, financing activities decreased the Company’s net cash by $401,000
due to dividends paid of $196,000 and $600,000 used to repurchase 103,308 shares of its own common stock, which
expenditures were partially offset by the receipt of $198,000 from the exercise of stock options, and $198,000 of
excess tax benefits from stock-based compensation.
Results of Operations:
The following summarizes the key components of the results of operations for the fiscal years ended
October 31, 2008 and October 31, 2007:
Net sales
Cost of sales
Gross profit
Engineering expenses
Selling and general expenses
Operating income
Other income
Income before income taxes
Income taxes
Net income
2008
2007
$
Amount
17,695,146
8,789,604
8,905,542
1,050,574
5,341,576
2,513,392
258,381
2,771,773
1,212,540
1,559,233
% of Net
Sales
100% $
50%
50%
6%
30%
14%
1%
16%
7%
9%
Amount
14,853,039
7,937,251
6,915,788
571,237
4,625,065
1,719,486
359,113
2,078,599
943,376
1,135,223
% of Net
Sales
100%
53%
47%
4%
31%
12%
2%
14%
6%
8%
Net sales of the Company increased by approximately $2,842,000 or 19%, for the fiscal year ended October
31, 2008 (“fiscal 2008”) compared to the fiscal year ended October 31, 2007 (“fiscal 2007”). Net sales increased in
fiscal 2008 due to increases in net sales at all three of the Company’s financial reporting segments. Net sales at the
Connector and Cable Assembly segment increased from fiscal 2007 by approximately $1,123,000. The Company
believes that the increase was primarily due to an increase in infrastructure projects that commenced during the
second half of fiscal 2007 and continued on throughout fiscal 2008. Approximately $744,000 of the total increase in
net sales related to an increase in net sales at the Medical Cabling and Interconnector segment, which increase was
due to increased orders from its primary customer. The remaining approximate $975,000 increase in total fiscal
2008 net sales related to an increase in net sales at the RF Wireless segment, and was attributable to sales generated
- 18 -
during the entire fiscal year by the Radiomobile Division. Since RadioMobile was acquired in the fourth quarter of
fiscal 2007, only two months of Radiomobile sales were included in total net sales in fiscal 2007.
The Company’s gross profit increased $1,990,000 or by 29% to $8,906,000 in 2008 from $6,916,000 in
2007 due to the increase in net sales and higher gross margins attributable to economies of scale. As a percentage of
net sales, gross profit increased to 50% in fiscal 2008, up from 47% in fiscal 2007. At the Connector and Cable
Assembly segment, gross profit as a percentage of net sales increased by 4% to 53% in fiscal 2008 from 49% in
fiscal 2007. This decrease in costs was attributable to economies of scale as certain fixed costs were spread over a
greater amount of sales. At the Medical Cabling & Interconnector segment, gross profit as a percentage of net sales
increased by 20% to 35% in fiscal 2008 from 15% in fiscal 2007 as a result of an increase in sales and the segment’s
ability to reduce its fixed labor costs. At the RF Wireless segment, gross profit as a percentage of net sales remained
substantially unchanged with an increase of 1% to 47% in fiscal 2008 from 46% in fiscal 2007.
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 increased
substantially by $480,000 to $1,051,000 in fiscal 2008 from $571,000 in fiscal 2007. As a percentage of net sales,
engineering expenses increased to 6% in fiscal 2008 from 4% in fiscal 2007. Most of the increase in engineering
expenses was attributable to the RF Wireless segment. Engineering expense (including research and development)
during fiscal 2008 increased as a result of the acquisition of the Radiomobile division at the end of fiscal 2007 and
the increased expenses related to the development of new wireless products that are expected to be commercially
released by the end of the current fiscal year. RadioMobile and Neulink, which constitute the RF Wireless segment,
collectively incurred approximately $256,000 of research and development expenses in fiscal 2008 in the
development of new products; the entire Company only incurred $61,000 of research and development expenses in
fiscal 2007.
Selling and general expenses increased by $717,000 or 15%, to $5,342,000 during fiscal 2008 from
$4,625,000 in fiscal 2007. The increase is the result of the 19% increase in revenues. Stock based compensation
expense decreased by $72,000 to $500,000 in fiscal 2008 from $572,000 in fiscal 2007 primarily due to fewer
options being expensed in fiscal 2008 compared to fiscal 2007. Sales commission expense increased by $44,000 to
$141,000 in fiscal 2008 from $97,000 in fiscal 2007 due to the significant increase in sales from fiscal 2007.
Accounting and legal fees increased by $215,000 to $550,000 in fiscal 2008 from $335,000 in fiscal 2007 primarily
due to fees related to management’s assessment and testing on internal controls over financial reporting incurred in
fiscal 2008 but not incurred in fiscal 2007. Advertising costs increased by $26,000 to $198,000 in fiscal 2008 from
$172,000 in fiscal 2007 due to an increase in marketing efforts in fiscal 2008 compared to prior year.
Despite the increase in sales and the increase of $1,990,000 in gross profit, operating income only increased
46% or by $794,000 to $2,513,000 in fiscal 2008 as a result of the $1,196,000 increase in total operating expenses
from prior year of which $717,000 related to selling and general administrative expenses and $479,000 related to
engineering expenses.
Interest income decreased by approximately $101,000 from prior year due to decreasing interest rates on
the funds held by the Company in its interest bearing accounts as a result of investing primarily in CD’s and money
market funds during fiscal 2008 as compared to investing primarily in auction rate securities during fiscal 2007.
Income before taxes in fiscal 2008 increased by 33% or by $693,000 to $2,772,000 compared to income
before taxes of $2,079,000 in fiscal 2007. Net income for fiscal year ended October 31, 2008 increased 37% or by
$424,000 to $1,559,000 compared to $1,135,000 in fiscal year ended October 31, 2007 for the reasons discussed
above.
- 19 -
ITEM 8 .
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
Report of Independent Registered Public Accounting Firm
Balance Sheets
October 31, 2008 and 2007
Statements of Income
Years Ended October 31, 2008 and 2007
Statements of Stockholders’ Equity
Years Ended October 31, 2008 and 2007
Statements of Cash Flows
Years Ended October 31, 2008 and 2007
Notes to Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-7- F-20
F-1
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, 2008
and 2007, 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, 2008 and 2007, 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.
As discussed in Note 1 to the financial statements, effective November 1, 2007, the Company
changed its method of accounting for uncertain tax positions to conform with FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes.” Also, as discussed in Note 1, effective November 1, 2006,
the Company adopted Statement of Financial Accounting Standards No. 123(Revised 2004), “Share-Based
Payment.”
/s/ J.H. COHN LLP
San Diego, California
January 26, 2009
F-2
RF INDUSTRIES, LTD.
BALANCE SHEETS
OCTOBER 31, 2008 AND 2007
ASSETS
Current assets:
Cash and cash equivalents
Investments in available-for-sale securities
Trade accounts receivable, net of allowance for
doubtful accounts of $46,775 and $43,459
Inventories
Other current assets
Deferred tax assets
Total current assets
Equipment and furnishings:
Equipment and tooling
Furniture and office equipment
Less accumulated depreciation
Total
Goodwill
Amortizable intangible assets, net
Note receivable from stockholder
Other assets
2008
2007
$
1,060,838 $
6,863,711
3,400,566
4,531,680
2,071,349
5,949,708
217,443
542,100
16,705,149
1,900,029
4,955,302
241,995
321,700
15,351,272
2,205,525
377,286
2,582,811
2,016,951
565,860
347,091
54,311
66,980
28,382
1,780,154
341,590
2,121,744
1,866,051
255,693
308,479
114,800
66,980
30,934
Totals
$
17,767,773 $
16,128,158
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Income taxes payable
Total current liabilities
Deferred tax liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
$
329,509 $
760,762
232,927
1,323,198
105,700
217,185
1,646,083
205,136
696,939
167,625
1,069,700
70,000
47,665
1,187,365
Common stock - authorized 10,000,000 shares at $.01
par value; 3,226,264 and 3,285,969 shares issued
and outstanding
Additional paid-in capital
Retained earnings
Total stockholders' equity
32,263
6,411,810
9,677,617
16,121,690
32,860
5,700,362
9,207,571
14,940,793
Totals
$
17,767,773 $
16,128,158
See Notes to Financial Statements.
F-3
RF INDUSTRIES, LTD.
STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 2008 AND 2007
2008
2007
$
17,695,146 $
8,789,604
14,853,039
7,937,251
8,905,542
6,915,788
1,050,574
5,341,576
6,392,150
571,237
4,625,065
5,196,302
2,513,392
1,719,486
258,381
359,113
2,771,773
2,078,599
1,212,540
943,376
$
1,559,233 $
1,135,223
$
$
.47 $
.42 $
.35
.30
Net sales
Cost of sales
Gross profit
Operating expenses:
Engineering
Selling and general
Totals
Operating income
Other income - interest
Income before income taxes
Provision for income taxes
Net income
Earnings per share:
Basic
Diluted
See Notes to Financial Statements.
F-4
RF INDUSTRIES, LTD.
STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED OCTOBER 31, 2008 AND 2007
Common Stock
Additional
Paid-In
Amount Capital
Shares
3,252,613 $
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity
Retained
Earnings
32,526 $ 4,582,897 $ 8,843,268 $
5,308 $ 13,463,999
1,135,223
1,135,223
(5,308)
(5,308)
Balance, November 1, 2006
Net income
Reclassification adjustment for
gain on short-term investment
included in net income
Stock-based compensation
expense
Excess tax benefits from stock-
based compensation
572,471
198,000
Exercise of stock options
105,745
1,057
197,098
Dividends
(196,375)
Shares issued - acquisition
30,919
309
174,691
Treasury stock purchased and
retired
Balance, October 31, 2007
Adoption of FIN 48 – November
1, 2007
Net income
Stock-based compensation
expense
Excess tax benefits from stock-
based compensation
(103,308)
3,285,969
(574,545)
(24,795)
(1,032)
32,860 5,700,362 9,207,571
(187,075)
1,559,233
499,564
46,041
Exercise of stock options
40,295
403
189,843
(394,343)
Dividends
Treasury stock purchased and
retired
572,471
198,000
198,155
(196,375)
175,000
(600,372)
14,940,793
(187,075)
1,559,233
499,564
46,041
190,246
(394,343)
(100,000)
(1,000)
(24,000)
(507,769)
(532,769)
Balance, October 31, 2008
3,226,264 $
32,263 $ 6,411,810 $ 9,677,617 $
— $ 16,121,690
See Notes to Financial Statements
F-5
RF INDUSTRIES, LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2008 AND 2007
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense adjustment
Depreciation and amortization
Deferred income taxes
Stock-based compensation expense
Excess tax benefits from stock based compensation
Changes in operating assets and liabilities (net of acquisition):
Trade accounts receivable
Inventories
Income taxes payable
Other current assets
Other long-term assets
Accounts payable
Accrued expenses
Other long-term liabilities
Net cash provided by operating activities
Investing activities:
Payment for acquisition
Purchases of available-for-sale securities
Proceeds from sales of available-for-sale securities
Capital expenditures
Net cash used in investing activities
Financing activities:
Proceeds from exercise of stock options
Purchases of treasury stock
Dividends paid
Excess tax benefits from stock based compensation
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2008
2007
$ 1,559,233 $ 1,135,223
6,781
211,389
(184,700)
499,564
(46,041)
(178,101)
(994,406)
111,340
24,552
2,552
124,373
63,824
(56,166)
(4,393)
268,707
(146,243)
572,471
(198,000)
184,819
429,145
(354,239)
(23,899)
(236,067)
105,588
1,144,194 1,733,112
(166,667)
(11,779,828) (4,832,399)
9,447,797 2,548,000
(93,823)
(2,793,097) (2,544,889)
(461,066)
190,246
(532,769)
(394,343)
46,041
(690,825)
198,155
(600,372)
(196,375)
198,000
(400,592)
(2,339,728) (1,212,369)
3,400,566 4,612,935
$ 1,060,838 $ 3,400,566
Supplemental cash flow information - income taxes paid
$ 1,283,000 $ 1,438,631
Noncash investing and financing activities:
Stock issued for acquisition
Present value of minimum guaranteed payments
Retirement of treasury stock
Additional Goodwill related to acquisition
$
$
532,769 $
38,612
$
$
175,000
35,665
600,372
F-6
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) Worswick 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) RF 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 RF 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:
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue
Recognition in Financial Statements” (“SAB 104”). SAB 104 requires that 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 a purchase order is received which
contains 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.
F-7
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business activities and summary of significant accounting policies (continued):
Investments:
The Company follows Statement of Financial Accounting Standards No. 115 (“SFAS 115”), “Accounting for
Certain Investments in Debt and Equity Securities” which requires the Company’s investments in U.S. Treasury
Bills to be classified as “available-for-sale securities” and valued at fair market value at month end. If there is
any other than temporary decline in fair value, the cost basis of the individual security will be written down to
fair value via a charge to earnings.
Investments consist of the following as of October 31:
Certificates of deposit
U.S. treasury bills
Totals
Goodwill:
2007
2008
$ 6,315,864 $
—
547,847 4,531,680
$ 6,863,711 $ 4,531,680
The Company follows Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and
Other Intangible Assets”, which requires that goodwill and certain intangible assets, including those recorded in
past business combinations, no longer be amortized against earnings, but instead be tested for impairment at
least annually. There was no impairment of goodwill as a result of impairment tests performed according to
SFAS 142 in 2008 or 2007.
The changes in the carrying amount of segment goodwill for fiscal 2008 and 2007 are as follows:
RF Connectors and
Cable Assembly
RF Wireless
Total
Balance at November 1, 2006
Acquisitions
Balance at October 31, 2007
Addition due to contingency earn out
Balance at October 31, 2008
$
$
200,848 $
200,848
200,848 $
— $
107,631
107,631
38,612
146,243 $
200,848
107,631
308,479
38,612
347,091
No goodwill is allocated to the Medical Cabling and Interconnector segment.
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.
F-8
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business activities and summary of significant accounting policies (continued):
Amortizable Intangible assets:
Amortizable intangible assets are amortized over their estimated useful lives of three years. Amortization
expense is expected to be $27,156 in each of the years ending October 31, 2009 and 2010, respectively.
Intangible Assets
Non-Complete agreeement
Accumulated amortization
Software
Accumulated amortization
Customer List
Accumulated amortization
Accumulated Amortization
Totals
Advertising:
2008
2007
$
120,000 $
120,000
(120,000)
(86,667)
-
33,333
47,522
(15,841)
31,681
33,945
(11, 315)
22,630
__
47,522
33,945
__
33,945
$
54,311 $
114,800
The Company expenses the cost of advertising and promotions as incurred. Advertising costs charged to
operations were $198,000 and $172,000 in 2008 and 2007, 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 $256,000 and $61,000 in 2008 and 2007,
respectively.
Income taxes:
The Company accounts for income taxes pursuant to the asset and liability method which requires deferred
income tax assets and liabilities to be computed for temporary differences between the financial statement and
tax bases of assets and liabilities that will result in taxable or deductible amounts in future periods based on
enacted laws and rates applicable to the periods in which the temporary differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. The income tax provision is the tax payable or refundable for the period plus or
minus the change during the period in deferred tax assets and liabilities.
On November 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for
uncertain tax positions. In accordance with its accounting policy, the Company recognizes accrued interest and
penalties related to unrecognized tax benefits as a component of income tax expense. (See Note 6).
F-9
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business activities and summary of significant accounting policies (continued):
Stock options:
Effective November 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123
(revised 2004), “Share-Based Payment” (“SFAS 123R”). The Company elected to use the modified prospective
transition method. This method requires compensation cost to be recognized in the financial statements over the
service period for the fair value of all awards (including awards to employees) granted after the date of adoption
as well as for existing awards for which the requisite service had not been rendered as of the date of adoption
and requires that prior periods not be restated. The stock incentive plans provide for the granting of qualified
and nonqualified options to our officers, directors and employees. Outstanding options are generally exercisable
one year after the date of the grant and expire no more than ten years after the grant. The Company satisfies the
exercise of options by issuing previously unissued common shares. Prior to the adoption of SFAS 123R, the
Company used the intrinsic value method to account for stock options granted to employees and generally made
no charges against earnings with respect to those options at the date of grant since the employee options had
exercise prices that were equal to the market price of the Company’s stock on the grant date.
The Company follows Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based
Payment” (“SFAS 123R”). SFAS 123R requires the calculation of the historical pool of windfall tax
benefits. This pool of windfall tax benefits is needed to determine the treatment of "shortfalls" that occur when
the tax deduction received for a stock-based compensation award is less than the cumulative compensation cost
recognized for that award for financial reporting purposes. The Company has elected to use the "short-cut"
method of Financial Accounting Standards Board Staff Position No. SFAS 123(R)-3, “Transition Election
Related to Accounting for the Tax Effects of Share-Based Payment Awards”, to calculate the historical pool of
windfall tax benefits.
For the fiscal years ended October 31, 2008 and 2007, charges related to stock-based compensation amounted to
approximately $500,000 and $572,000, respectively. Stock-based compensation is charged to cost of sales and
selling and general expenses.
Also, in accordance with SFAS 123R, the Company presents the tax benefits from exercise of stock options in
excess of recognized expense as a cash flow from financing activities in the statements of cash flows.
F-9
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 year ended October 31, 2008 and 2007, that were not included
in the computation because they were anti-dilutive, totaled 237,183 and 163,923, respectively.
F-10
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business activities and summary of significant accounting policies (continued):
The following table summarizes the calculation of basic and diluted earnings per share:
Numerators:
Net income (A)
Denominators:
Weighted average shares outstanding for basic
earnings per share (B)
Add effects of potentially dilutive securities -
assumed exercise of stock options
Weighted average shares for diluted
earnings per share (C)
Basic net earnings per share (A)÷(B)
Diluted net earnings per share (A)÷(C)
2008
2007
$
1,559,233 $ 1,135,223
3,293,820
3,263,695
421,670
491,754
3,715,490
3,755,449
$
$
.47 $
.42 $
.35
.30
New accounting pronouncements:
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in
accounting principles generally accepted in the United States of America, and expands disclosures about fair value
measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15,
2007. For the Company, SFAS 157 will be effective for the 2009 fiscal year. The Company is currently evaluating the
impact SFAS 157 will have on its financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities,” which is effective for fiscal years beginning after November 15, 2007. This Statement permits entities to
choose to measure many financial instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. For
the Company, SFAS 159 will be effective for the 2009 fiscal year. The Company is currently evaluating the impact
SFAS 159 will have on its financial statements.
In December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations” (“SFAS No. 141 (R)”),
replacing SFAS No. 141, “Business Combinations” (“SFAS No. 141”). SFAS No. 141 (R) retains the fundamental
requirements of SFAS No. 141, broadens its scope by applying the acquisition method to all transactions and other
events in which one entity obtains control over one or more other businesses, and requires, among other things, that
assets acquired and liabilities assumed be measured at fair value as of the acquisition date, that liabilities related to
contingent consideration be recognized at the acquisition date and remeasured at fair value in each subsequent
reporting period, that acquisition-related costs be expensed as incurred, and that income be recognized if the fair value
of the net assets acquired exceeds the fair value of the consideration transferred. SFAS No. 141 (R) is to be applied
prospectively in financial statements issued for fiscal years beginning after December 15, 2008. We do not expect that
the initial adoption of SFAS No. 141 (R) will have a material effect on our financial statements.
The FASB and its Emerging Issues Task Force had issued certain other accounting pronouncements as of October 31,
2008 that will become effective in subsequent periods; however, our management does not believe that any of those
pronouncements would significantly affect our financial accounting measurements or disclosures.
F-11
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
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 times, such amounts may exceed Federally
insured limits.
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 15% and 18% of total sales, and 10% and 13% of total accounts receivable in
2008 and 2007, 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 consisted of the following as of October 31, 2008 and 2007:
Raw materials and supplies
Work in process
Finished goods
Less inventory reserve
2008
2007
$
1,496,364 $
31,131
4,502,890
(80,677 )
1,092,965
19,716
3,966,681
(124,060)
Totals
$
5,949,708 $
4,955,302
Purchases of connector products from four major vendors represented 23%, 11%, 7%, and 5% of the total inventory
purchases in 2008 and 19%, 5%, 16% and 10% in 2007, respectively. The Company has arrangements with these
vendors to purchase product based on purchase orders periodically issued by the Company.
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 June 2005, adding additional square feet. The amended lease
expires in May 2010 and requires minimum annual rental payments that are subject to fixed annual increases. The
minimum annual rentals under this lease are being charged to expense on a straight-line basis over the lease term.
Deferred rents were $40,000 as of October 31, 2008 and $54,000 at October 31, 2007. 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 Worswick division operations include a warehouse and retail space.
Approximately 15% of the space is subleased to other tenants. The Las Vegas lease is a three year lease expiring in
March 2010. The Company also leases certain automobiles under operating leases which expire at various dates
through October 2013.
Rent expense under all operating leases totaled approximately $440,000 and $391,000 in 2008 and 2007, which is
net of sublease income of $16,000 and $29,000 in fiscal 2008 and 2007 respectively.
F-12
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 4 - Commitments (concluded):
Minimum lease payments under these non-cancelable operating leases in each of the five years subsequent to
October 31, 2008 are as follows:
Year Ending
October 31,
Amount
2009
2010
2011
2012
2013
Total
$ 392,000
200,000
17,000
4,000
4,000
$ 617,000
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 (the “Commencement Date”), and ending on June
20, 2011, which expires at the end of each Employment Year of June 19 and may be extended for an additional
Employment Year on the anniversary dates thereafter. The aggregate amount of compensation to be provided over
the remaining term of the agreement amounted to approximately $555,000 at October 31, 2008.
Note 5 - Segment information:
The Company has adopted the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and
Related Information.” Pursuant to the provisions of SFAS No. 131, the Company reports segment sales in the same
format reviewed by the Company’s management (the “management approach”).
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.
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 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 Worswick divisions into the RF Connector Cables Assembly segment while RF
Neulink and RadioMobile are part of the RF Wireless segment. The Bioconnect Division makes up the Company’s
new Medical Cabling and Interconnector segment. The Company had previously aggregated Bioconnect within the
RF Connector and Cables Assembly segment as it represented only a small portion and had similar economic
characteristics of the overall segment. During Fiscal Year 2008, the Bioconnect division met one of the quantitative
threshold required for separate segment reporting. Prior year’s information has been revised to conform with the
current year’s presentation.
F-13
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 5 - Segment information: (concluded)
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 Cable
Assembly segment. Inventories, 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, 2008 and 2007:
United States
Foreign countries:
Israel
All other
Totals
2008
2007
$ 14,971,575 $ 12,579,555
911,031 1,096,612
1,812,540 1,176,872
$ 17,695,146 $ 14,853,039
Net sales, income before provision for income taxes and other related segment information as of October 31, 2008
and 2007, and for the years then ended follows:
RF Connectors
and
Cable Assembly
Medical
Cabling and
Interconnector
RF
Wireless
Corporate
Total
$
13,936,241 $
1,638,010
$2,120,895
$
$
17,695,146
2,123,740
287,922
101,280
258,831
2,771,773
155,877
5,355,248
24,669
441,946
30,842
1,119,775
10,850,804
438,010
21,968
1,088
211,388
17,767,773
461,066
$
12,813,184
893,725
$1,146,130
$
$
14,853,039
1,368,605
125,103
225,778
359,113
2,078,599
230,688
4,645,092
37,427
152,895
592
836,287
10,493,884
93,823
268,707
16,128,158
93,823
Net sales
Income before income
taxes
Depreciation and
amortization
Total assets
Additions to property
and equipment
2007
Net sales
Income before income
taxes
Depreciation and
amortization
Total assets
Additions to property
and equipment
F-14
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 6 - Income taxes:
The provision (benefit) for income taxes consists of the following:
Current:
Federal
State
Deferred:
Federal
State
2008
2007
$
1,092,864 $
304,376
1,397,240
842,619
247,000
1,089,619
(140,300 )
(44,400 )
(184,700 )
(119,343)
(26,900)
(146,243)
Totals
$
1,212,540 $
943,376
Income tax at the Federal statutory rate is reconciled to the Company's actual net provision for income taxes as
follows:
Income tax at Federal
statutory rate
State tax provision, net
of Federal tax benefit
Nondeductible differences: ISO
stock options
2008
2007
Amount
% of Pretax
Income
Amount
% of Pretax
Income
$
942,600
34.0% $
706,700
34.0%
171,584
6.2
145,200
7.0
110,100
4.0
142,000
6,8
Other
(11,744)
(0.5)
(50,524)
(2.4)
Provision for income
taxes
$ 1,212,540
43.7% $
943,376
45.4%
F-15
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 6 - Income taxes (concluded):
The Company's total deferred tax assets and deferred tax liabilities at October 31, 2008 and 2007 are as follows:
Assets:
Allowance for doubtful accounts
Inventory obsolescence
Accrued vacation
State income taxes
Stock based compensation awards
Section 263A costs
Other
Totals
Liabilities:
Depreciation
Less valuation allowance
$
2008
2007
18,600 $
32,100
77,400
100,300
131,600
160,500
21,600
542,100
17,300
49,400
62,100
85,600
61,600
19,700
45,700
321,700
(105,700 )
(70,000)
-
-
Net deferred tax assets
$
436,400 $
251,700
The Company adopted the provisions of FIN 48, on November 1, 2007. A reconciliation of the beginning and
ending amount of unrecognized tax benefits is as follow:
Balance at November 1, 2007
Gross decrease – tax positions in prior period
Gross increases – tax positions in current period
Balance at October 31, 2008
2008
187,075
(43,471)
38,489
182,093
$
$
As a result of the implementation of FIN 48, the Company’s total gross liability for unrecognized tax benefits was
$187,075, including $54,000 of interest and penalties. The Company recorded a change upon adoption to retained
earnings on November 1, 2007.
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, 2008, a reduction of $4,982 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, 2008, $50,100 of accrued interest and penalties are 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, 2005 through
2008 remain subject to examinations.
F-16
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 7 - Stock options:
Incentive and Non-Qualified Stock Option Plans:
The Board of Directors approved an Incentive Stock Option Plan (the "1990 Incentive Plan") during fiscal 1990
that provides for grants of options to employees to purchase up to 500,000 shares of common stock of the
Company. Under its terms, the 1990 Incentive Plan terminated in 2000, and no additional options can be
granted under that option plan. However, options previously granted under the 1990 Incentive Plan remain
outstanding and continue in effect until they either expire or are forfeited or are exercised. As of October 31,
2008, a total of 313 options were still outstanding under the 1990 Incentive Plan, all of which are currently
exercisable.
The Board of Directors also approved a Non-Qualified Stock Option Plan (the "1990 Non-Qualified Plan")
during fiscal 1990 that provides for grants of options to purchase up to 200,000 shares of common stock to
officers, directors and other recipients selected by the Board of Directors. Under its terms, the 1990 Non-
Qualified Plan terminated in 2000, and no additional options can be granted under that option plan. However,
options previously granted under the 1990 Non-Qualified Plan remain outstanding and continue in effect until
they expire, are forfeited or are exercised. As of October 31, 2008, a total of 4,000 options were still outstanding
under the 1990 Non-Qualified Plan, all of which are currently exercisable.
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 may 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 is authorized to issue under options granted under the 2000 Option Plan initially was 300,000,
which number automatically increases 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. In May 2003, the Board of Directors and
Shareholders approved an increase to the 2000 Option Plan of 100,000 options. In June 2006, the Company’s
shareholders approved an increase to the 2000 Option Plan of 250,000 options. In May 2007, the shareholders
approved an increase to the 2000 Option Plan of 100,000 options. In May 2008, the shareholders approved an
increase to the 2000 Option Plan of 500,000 options. Accordingly, as of October 31, 2008, the authorized
number of shares of common stock that could be issued under the 2000 Option Plan was 1,310,000, of which
566,170 are still outstanding and 540,474 options were still available to be granted. Under the 2000 Option
Plan, the Company is authorized to grant both incentive stock options and non-qualified stock options. Incentive
and non-qualified stock options are granted at an exercise price no less than the fair value of the common stock
on the date of grant.
Additional required disclosures related to stock option plans
The fair value of each option granted in 2008 and 2007 was estimated on the date of grant using the Black-
Scholes option-pricing model with the following weighted average assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected lives
Weighted average fair market value of options granted during the year $
Weighted average fair market value of options vested during the year
$
2008
2.67%
49.00%
1.80%
3.50 years
1.42
$
3.44
$
2007
0% to 1.06%
54% to 58%
4.16% to 5.00%
4.75 to 6 years
3.74
3.41
F-17
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 7 - Stock options (concluded):
Expected volatilities are based on historical volatility of the Company’s stock. The Company used historical
experience with exercise and post employment termination behavior to determine the options’ expected life in
2007. During 2008, the Company granted options with a vesting period of three years and an option life of five
years and since the Company has no 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, 2008 and 2007
and changes in outstanding stock options in 2008 and 2007 follows:
2008
2007
Shares or
Price Per
Share
1,011,442 $
127,183
(40,295)
(31,289)
Weighted
Average Exercise
Price
Shares or
Price Per
Share
Weighted
Average Exercise
Price
Options outstanding at beginning of year
Options granted
Options exercised
Options forfeited
3.81
4.67
4.72
7.22
974,122 $
148,985
(105,745)
(5,920)
Options outstanding at end of year
1,067,041 $
3.77
1,011,442 $
Options exercisable at end of year
829,858 $
3.84
712,457 $
Option price range at end of year
$
.10 - $7.56
$
.10 - $7.56
Aggregate intrinsic value of options
exercised during year:
$
108,472
$
600,078
3.05
7.50
1.87
7.38
3.81
3.30
As of October 31, 2008, $347,599 of expense with respect to nonvested stock-based arrangements has yet to be
recognized and is expected to be recognized over a weighted average period of 1.67 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 additional discretionary contributions by the Company. The Company did not make contributions to the
plan in 2008 or 2007.
Note 9 - Related party transactions:
The note receivable from stockholder of $66,980 at October 31, 2008 and 2007 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 a lien
on certain personal property.
A director of the Company is an employee of the Company’s public relations firm. For the fiscal years ended
October 31, 2008 and 2007, the Company paid the firm $52,781 and $40,409, respectively, for services rendered to
that firm.
F-18
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
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.
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. The
maximum future consideration is $500,000. The purchase price for the RadioMobile asset purchase 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. Upon the resolution of a contingency based on earnings, any
additional consideration paid will be recorded by the acquiring enterprise as an additional cost of the acquired
enterprise. Minimum contingent consideration amounts per the Asset Purchase Agreement were recorded upon
closing at their net present value, using an 8% discount rate. Any future contingent consideration based on meeting
certain earnings levels will be accounted for as additional purchase consideration when the amounts are determined.
The purpose of the acquisition was to combine RF Neulink’s industry leading modem products, which enables the
Company to enter and compete in the design and marketing of mobile wireless communications systems. Goodwill
recorded upon the purchase acquisition is fully deductible for tax purposes.
The acquisition of the RadioMobile assets has been accounted for as a purchase and, accordingly, the net assets
acquired were recorded at estimated fair values on the date of acquisition. A summary of the allocation of the cost of
the acquisition to the net assets acquired as of September 1, 2007 follows:
Accounts receivable
Inventory
Other assets (prepaid, net fixed assets)
Intangible assets:
Software
Customer list
Goodwill
Total assets acquired
Assumed liabilities
Net assets acquired at closing
$
$
27,053
133,963
27,218
47,522
33,945
107,631
377,332
(164,000)
213,332
During the year ended October 31, 2008, an additional amount of $38,612 was recorded as goodwill, due to the
division reaching the next level of sales beyond the minimum contingent earn-out provision included in the
RadioMobile Asset Sales agreement. Total RadioMobile Goodwill at October 31, 2008 was $146,243.
Assuming the acquisition had taken place on the first day of the year ended October 31, 2007, unaudited net sales
would have been approximately $15,600,000 while unaudited net income and earnings per share information would
not have been materially different than the amounts shown on the accompanying statement of income for the year
ended October 31, 2007.
F-19
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 12 – Dividends declaration
The Company paid dividends of $0.12 and $0.06 per share for a total of $393,343 and $196,375 during the fiscal
years ended October 31, 2008 and 2007, respectively.
Note 13 – Subsequent events
In November and December 2008, the Company repurchased an additional 100,000 shares of the Company’s
common stock in the open market. The average price of the shares repurchased $4.99 per share.
In December of 2008, the Company purchased 50,000 shares of common stock in a privately negotiated transaction
at a price of $4.13 per share.
On December 15, 2008, the Board of Directors of the Company declared a quarterly cash dividend of $0.03 per
share. The dividend date of record is December 31, 2008 and the payment date to stockholders will be January 15,
2008. Based on the Company’s current financial condition and its current operations, the foregoing dividend
payment is not expected to have a material impact on the Company’s liquidity or capital resources.
F-20
NOTES
Board of Directors
Executive Staff
Service Providers
Independent Auditors
J.H. Cohn LLP
San Diego, CA
(858) 535-2000
Securities Counsel
TroyGould P.C.
1801 Century Park E., 16th Floor
Los Angeles, CA 90067-2367
(310) 553-4441
Transfer Agent and Registrar
Continental Stock Transfer
& Trust Co.
17 Battery Place South, 8 th Floor
New York, NY 10004
(212) 509-4000
Public Relations
Neil G. Berkman Associates
12100 Wilshire Blvd. Ste. 360
Los Angeles, CA 90025
(310) 826-5051
Marvin H. Fink
Chairman
John R. Ehret
President, TPL
Electronics
Linde Kester
Co-Owner,
Chateau Lorane Winery
Howard F. Hill
Director, President and CEO
Robert Jacobs
Account Executive,
Neil Berkman Assoc.
William L. Reynolds
Director
Corporate Officers
Howard F. Hill
President and CEO
James S. Doss
CFO and
Corporate Secretary
Manny Gutsche
VP Sales and Marketing
RF Industries
Robert Macias
VP Product Assurance
RF Industries
President/General Manager
Aviel Electronics division
Richard “Joe” LaFay
President/General Manager
RF Connectors Division and
RF Cable Assemblies Division
Conrad Neri
President/General Manager
Bioconnect Division
Robert White
Director
RF Neulink Division
Jesse Fuller
President/General Manager
Worswick Industries Division
James Moore
President/General Manager
Radio Mobile Division
Angela Sutton
Director, Human Resources
RF Industries
Common Stock
NASDAQ Global Market
Symbol: RFIL
Annual Meeting
June 5, 2008
1:30 p.m., PDST
Corporate Office
7610 Miramar Road
San Diego, CA 92126
(858) 549-6340
Annual reports, 10Ks, 10Qs and news releases are available by contacting Howard Hill
at (858) 549-6340 or (800) 233-1728 or e-mail: rfi@rfindustries.com. Website: www.rfindustries.com
RF IndustRIes
7610 MIRaMaR Road
san dIego, Ca 92126-4202
(858) 549-6340 oR (800) 233-1728
Fax: (858) 549-6345
eMaIl: rfi@rfindustries.com
web: www.rfindustries.com