Fiscal 2010 Annual Report
A V I E L
Electronics
Chief Executive Officer’s Letter to Stockholders
September 22, 2011
Fellow Stockholders:
Fiscal Year 2010, which ended on October 31, 2010, was a year in which RF Industries achieved its eighteenth
consecutive year of profitability and rebounded from a sales decline in Fiscal 2009 that was the result of the
recession and the industry-wide slowdown in wireless infrastructure spending. The improvements in our operations
in 2010, and the strengthening of our balance sheet in Fiscal 2010 enabled us to once again focus on our longer term
goals of growth and acquisitions. Despite the general economic uncertainty in 2010, the improvement of RF
Industries’ operations in Fiscal 2010 and the strength of its October 31, 2010 balance sheet provided us with the
security and comfort to (i) expand our operations to the East Coast through the purchase Cables Unlimited, Inc., our
new fiber optics and harness assembly subsidiary that we purchased in June 2011, and (ii) significantly increase the
dividends that we are distributing to you stockholders.
Fiscal 2010 Results
For the fiscal year ended October 31, 2010, sales were $16,322,000, compared to sales of $14,213,000 in fiscal
2009. Operating income was $2,004,000 compared to $906,000 in 2009, and net income after taxes was $1,220,000,
or $0.38 per diluted share, compared to net income of $656,000, or $0.20 per diluted share for fiscal 2009.
Sales at the RF Connector and Cable Assembly segment, our most profitable business segment, increased 16% to
$14,094,000 from $12,154,000 in fiscal 2009. The Medical Cabling & Interconnector segment was also profitable
for the year and had a 30% increase in sales to $1,725,000 from $1,324,000 in fiscal 2009. The economic slowdown
did, however, affect our RF Wireless segment, which saw its fiscal 2010 sales decrease to $503,000, down 32%
from sales of $736,000 in fiscal 2009, due to the continued slowdown in both wireless capital goods spending and in
public safety agency wireless infrastructure spending.
Engineering / R & D
Despite the economic downturn and uncertainty, we have continued to invest heavily in developing advanced
wireless products for our two RF Wireless divisions. These expenses were approximately $888,000 and $1,050,000
in fiscal 2010 and fiscal 2009, respectively. In recent months, one of our divisions has obtained FCC approval for,
and has started selling its newly developed, state-of-the-art wireless product, and our other RF Wireless business has
experienced an increased level of inquiries for its public agency wireless systems. While these are good signs, our
public safety wireless systems represent a new business for us, and our likelihood of success is uncertain.
Looking Ahead
Overall, despite the severe downturn in the economy and the uncertainties in the wireless industry, we made solid
progress during fiscal 2010. Our goal is to continue the progress that we made in 2010 and to grow our company
and increase stockholder value.
Since the end of Fiscal 2010, we have acquired Cables Unlimited, Inc., an established high quality fiber optic
custom cable manufacturer based in Long Island, New York. Cables Unlimited is a Corning Cable Systems CAH
Connections SM Gold Program member, authorized to manufacture optic products that are backed by Corning Cable
Systems’ extended warranty. The products manufactured by Cables Unlimited include custom fiber optic cable
assemblies, adapters and electromechanical wiring harnesses for communications, computer, LAN, automotive and
medical equipment. This acquisition gives our company capabilities in the fast growing fiber optic cable industry
and an office on the East Coast. We believe that the synergies and location of Cables Unlimited will enable us to
provide our customers with additional products, while serving many of our larger East Coats customers from a
nearby facility.
As you can see from the financial statements included in this Annual Report, on October 31 2010 RF Industries had
a large cash balance and no debt. Accordingly, in order to provide our stockholders with an increased return, our
Board has decided to increase our regular dividend payment and has recently authorized a large special dividend.
As our company has grown, so have the demands on our management team. In order to more efficiently manage our
growing product line and our bi-coastal operations, with the consent of this company’s Board of Directors, I have
resigned as this Company’s President, and the Board has promoted James Doss as our new President. I will
continue to serve as your Chief Executive Officer as I have for the past three decades. In addition, we have recently
also added two directors to our Board. Our new directors have significant knowledge and expertise in finance and
mergers and acquisitions, areas that supplement our core strengths.
Finally, we have recently also created a new Strategic Committee for the purpose of assisting the Board of Directors
with potential mergers, acquisitions, divestitures, strategic uses of this company’s capital, and other key strategic
transactions outside the ordinary course of the company’s business.
Our goal is to continue to position ourselves to meet our customers’ needs, drive profitable growth and create long-
term stockholder value. We strive to not only overcome the challenges of operating in a difficult economy, but also
to seize the most promising opportunities that are available to us. We thank you for the continuing trust that you
have placed in us to steward your company. We invite you to track our progress by logging onto the RF Industries’
webpage www.rfindustries.com.
Thank you for your trust you have placed in us.
Sincerely,
Howard F Hill
Chief Executive Officer
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, 2010
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
$14,425,696.
As of January 12, 2011, the issuer had 5,861,764 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.
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PART I
ITEM 1.
BUSINESS
General
RF Industries, Ltd. (hereinafter the “Company”) is a provider of interconnect products and systems for
radio frequency (RF) communications devices and wireless digital transmission systems. For internal operational
purposes, and for marketing purposes, the Company currently classifies its operations into the following six related
divisions: (i) The Connector and Cable Assembly Division designs, manufactures and distributes coaxial connectors
and cable assemblies that are integrated with coaxial connectors; (ii) the Aviel Electronics Division designs,
manufactures and distributes specialty and custom RF connectors primarily for aerospace and military customers,
(iii) the Oddcables.com Division primarily sells coaxial, fiber optic, and other connectors and cable assemblies on a
retail basis to local multi-media and communications customers; (iv) the Bioconnect Division manufactures and
distributes cabling and interconnect products to the medical monitoring market; (v) the Neulink Division is engaged
in the design, manufacture and sale of RF data links and wireless modems for receiving and transmitting control
signals for remote operation and monitoring of equipment, personnel and monitoring services; and (vi) the
RadioMobile Division is an original equipment manufacturer (OEM) provider of end-to-end mobile management
solutions implemented over wireless networks that supplement the operations of the Company’s Neulink division.
The Company’s principal executive office is located at 7610 Miramar Road, Building #6000, San Diego,
California. The Company was incorporated in the State of Nevada on November 1, 1979, completed its initial public
offering in March 1984 under the name Celltronics, Inc. and changed its name to RF Industries, Ltd. in November
1990. Unless the context requires otherwise, references to the “Company” in this report include RF Industries, Ltd.
and its divisions.
The Company maintains an Internet website at http://www.rfindustries.com. The Company’s annual
reports, quarterly reports, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to
section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and other
information related to the Company, are available, free of charge, on our website as soon as we electronically file
those documents with, or otherwise furnish them to, the Securities and Exchange Commission. The Company’s
Internet website and the information contained therein, or connected thereto, are not and are not intended to be
incorporated into this Annual Report on Form 10-K.
Operating Divisions
Connector and Cable Division The Connector and Cable Division is engaged in the design, manufacture
and distribution of coaxial connector solutions for companies that design, build, operate, maintain and use wireless
voice, data, messaging, and location tracking systems. Coaxial connector products consist primarily of connectors
which, when attached to a coaxial cable, facilitate the transmission of analog and digital signals in various
frequencies. Although most of the connectors are designed to fit standard products, the Company also sells custom
connectors specifically designed and manufactured to suit its customers’ requirements such as the Wi-Fi and
broadband wireless markets. The Company’s Connector and Cable Division typically carries over 1,200 connectors,
adapters, tools, and assembly, test and measurements kits. The Company’s RF connectors are used in thousands of
different devices, products and types of equipment. While the models and types of devices, products and equipment
may change from year to year, the demand for the types of connectors used in such products and offered by the
Company does not fluctuate with the changes in the end product incorporating the connectors. In addition, since the
Company’s standard connectors can be used in a number of different products and devices, the discontinuation of
one product does not make the Company’s connectors obsolete. Accordingly, most connectors carried by the
Company can be marketed for a number of years and are only gradually phased out. Furthermore, because the
Company’s connector products are not dependent on any line of products or any market segment, the Company’s
overall sales of connectors do not fluctuate materially when there are changes to any product line or market segment.
Sales of the Company’s connector products are, however, dependent upon the overall economy, infrastructure build
out by large telecommunications firms and on the Company’s ability to market its products. Sales of the Company’s
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connectors and cable assemblies increased in the fiscal year ended October 31, 2010 compared to the prior fiscal
year. This increase was due to improved economic conditions with our distributors as the overall market demand for
our products increased, and also related to the recent build out of new 4G and Wi-MAX wireless network systems.
Third party foreign manufacturers located in Asia manufacture a significant portion of the Company’s RF
connectors. The Company also manufactures RF connectors (primarily specialty and precision connectors) in its Las
Vegas facility.
The Company has been designing, producing and selling coaxial connectors since 1987 and the Connector
and Cable Division therefore represents the Company’s oldest and most established division. The Connector and
Cable Division has historically generated, and continues to generate the majority of the Company’s revenues.
Cable assembly products consist of various types of coaxial cables that are attached to connectors (usually
the Company’s connectors) for use in a variety of communications applications. Cable assemblies are manufactured
at the Company’s California facilities using state of the art automation equipment and are sold through distributors
or directly to major OEM accounts. Cable assemblies consist of both standard cable assemblies and assemblies that
are custom manufactured for the Company’s clients. The Company offers a line of cable assemblies with over
100,000 cable product combinations. The Company launched its cable assembly operations in 2000, and cable
assembly products constituted the second largest source of revenues for the Company during the fiscal year ended
October 31, 2010.
Aviel Electronics Division The Company acquired the business and all of the assets of Aviel Electronics in
August 2004. Aviel has a 50 year history of serving the microwave transmission industries, and is an approved
vendor to leading aerospace, electronics, OEM’s and government agencies in the United States and abroad. Aviel
complements the Company’s Connector and Cable Division’s capabilities by providing additional custom design
and manufacturing capabilities, thereby expanding the Company’s products in the military and commercial
aerospace markets, and expanding the Company’s overall client base. Aviel’s operations are based in Las Vegas,
Nevada.
Oddcables.com Division The Company acquired the assets of Oddcables.com, (formerly known as
Worswick), a privately held 20 year old California company based in San Diego, in September 2005 as another
complementary operation to the Connector and Cable Division. Oddcables.com sells coaxial connector solutions and
manufactures RF cable assemblies for both individual customers and companies that design, build, operate, and
maintain personal and private multi-media, wireless voice, data and messaging systems. Oddcables.com primarily
sells its products on a retail basis at its retail outlet in San Diego, California. Oddcables.com, however, also sells its
products on-line under the e-commerce brand Oddcables.com. This division recently also commenced designing,
manufacturing and selling precision-grade, high frequency connectors and adapters for OEM, military and
metrology lab applications as well as 10GHz high frequency fiber optic patch cable assemblies.
Bioconnect Division The Bioconnect Division is engaged in product development, design, manufacture
and sale of cables and interconnects for medical monitoring applications, such as disposable ECG cables, EEG
leads, infant apnea monitors in hospitals, patient leads, snap leads and connecting wires. The Company acquired the
Bioconnect operations in 2000.
RF Neulink Division The RF Neulink Division designs and manufactures, through outside contractors,
wireless data products commonly known as RF data links and wireless modems since 1984. These radio modems
and receivers provide high-speed wireless connections over longer distances where wire connections may not be
desirable or feasible. In addition to selling its own radio modem, RF Neulink also distributes antennas, transceivers
and related products of other manufacturers. The RF Neulink Division also offers complete turn-key packages for
numerous remote data transmission applications.
RadioMobile Division The Company acquired substantially all of the assets and assumed certain liabilities
of RadioMobile Inc., a privately held company in San Diego, California on September 1, 2007. The RadioMobile
Division is an OEM provider of end-to-end mobile management solutions implemented over wireless networks.
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Although the RadioMobile Division operates as a separate division, its operations supplement the operations of the
Company’s Neulink division.
For financial reporting purposes, the Company aggregates its operations into three segments. Connector
and Cable Assembly, Aviel Electronics, and Oddcables.com divisions are aggregated into one reporting segment
(the RF Connector and Cables Assembly segment) because they have similar economic characteristics, while RF
Neulink and RadioMobile are aggregated in the RF Wireless segment. Bioconnect makes up the Company’s newest
segment, which we refer to as the Medical Cabling and Interconnector segment.
Product Description
The Company produces a broad range of interconnect products and assemblies. The products that are
offered and sold by the Company’s various divisions consist of the following:
Connector and Cable Products
The Company’s Connector and Cable Division designs, manufactures and markets a broad range of
coaxial connectors and coaxial cable assemblies for the numerous products with applications in commercial,
industrial, automotive, transportation, scientific, aerospace and military markets. Various types of connectors are
offered by the RF Connector Division including 2.4mm and 3.5mm, 7-16 DIN, BNC, MCX, MHV, Mini-UHF,
MMCX, N, SMA, SMB, TNC, QMA and UHF. These connectors are offered in several configurations and cable
attachment methods for customer applications. There are numerous applications for these connectors, some of which
include digital applications, 2.5G, 3G, 4G, Wi-MAX, LTE and other broadband wireless infrastructure, GPS (Global
Positioning Systems), mobile radio products, aircraft, video surveillance systems, cable assemblies and test
equipment. Users of the Company’s connectors include telecommunications companies, circuit board
manufacturers, OEM, consumer electronics manufacturers, audio and video product manufacturers and installers,
and satellite companies. The Connector Division markets over 1,200 types of connectors, adapters, tools, assembly,
test and measurement kits, which range in price from under $1 to over $1,000 per unit. The kits satisfy a variety of
applications including, but not limited to, lab operations, site requirements, and adapter needs.
The Connector Division designs and sells a variety of connector tools and hand tools that are assembled
into kits used by lab and field technicians, R&D technicians and engineers. The Company also designs and offers
some of its own tools, which differ from those offered elsewhere in the market. These tools are manufactured for the
Company by outside contractors. Tool products are carried as an accommodation to the Company’s customers and
have not materially contributed to the Company’s revenues.
The Cable Assembly component of the Connector and Cable Division markets and manufactures cable
assemblies in a variety of sizes and combinations of RF coaxial connectors and coax cabling. Cabling is purchased
from a variety of major unaffiliated suppliers and is assembled predominately with the Company’s connectors or
other brands of connectors as complete cable assemblies. Coaxial cable assemblies have numerous applications
including wireless and wireless local area networks, wide area networks, Internet systems, PCS/cellular systems
including 2.5G, 3G, 4G, Wi-MAX, LTE wireless infrastructure, TV/dish network systems, test equipment,
military/aerospace (mil-standard and COTS (Commercial Off The Shelf)) and entertainment systems. Cable
assemblies are manufactured to customer requirements.
Aviel Electronics Products
The Aviel Electronics Division designs, manufactures and sells specialized and custom designed RF
coaxial connectors. Aviel’s standard configuration and custom connectors include connectors ranging from standard,
miniature, sub-miniature and unique interfaces. Aviel also specializes in the design and manufacture of custom and
non-standard configurations required for specific applications as well as hard to locate and discontinued connectors
for commercial, aerospace, military and other unique applications. The Aviel division also manufactures precision-
grade, high frequency connectors and adapters that are sold by the Oddcables.com division.
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Oddcables.com Products
Oddcables.com sells coaxial connectors and cable assemblies for numerous multi-media products, devices
and instruments in the local San Diego area. Oddcables.com also produces and markets cable assemblies in a variety
of sizes and combinations of RF coaxial connectors and coaxial cabling including 10 GHz high frequency fiber optic
patch cable assemblies. Cabling is purchased from a variety of major unaffiliated suppliers and is assembled with
the Company’s connectors or third party connectors as complete cable assemblies. Coaxial cable assemblies have
thousands of applications including local area networks, wide area networks, Internet systems, PCS/cellular systems,
TV/dish network systems, test equipment, military/aerospace (mil-standard and COTS (Commercial Off The Shelf))
and entertainment systems. Most cable assemblies are manufactured to the purchaser’s specifications.
Bioconnect Products
Bioconnect designs, manufactures, sells and provides product development services to OEMs for standard
and custom cable assemblies, adapters and electromechanical wiring harnesses for medical market and computer
industries. These products consist primarily of patient monitoring cables, ECG cables, snap leads, and molded safety
leads for neonatal monitoring electrodes. The products, which are used in hospitals, clinics, doctor offices,
ambulances and at home are frequently replaced in order to ensure maximum performance of medical diagnostic
equipment.
RF Neulink Products
The wireless data products available from the RF Neulink Division come in a variety of configurations to
satisfy the requirements of certain high-speed wireless connection markets. Transmitter and receiver modules come
in a wide range of power output and frequency ranges and are used to transmit data, video or voice information from
point to point. Additionally, standard or smart programmable modems are available in a wide range of speeds and
frequency/price ranges. Accessory modules have been developed for remotely controlling and monitoring electrical
devices.
The products sold by the RF Neulink Division include both its own products and products of other
manufacturers that are distributed by the Neulink Division. Current applications in use for Neulink products are
various and include seismic and volcanic monitoring, industrial remote censoring/control in oil fields, pipelines and
warehousing, lottery remote terminals, various military applications, remote camera control and tracking, perimeter
and security system control/monitoring, water and waste management, inventory control, HVAC remote control and
monitoring, biomedical hazardous material monitoring, fish farming automation of food dispensing, water aeration
and monitoring, remote emergency generator startup and monitoring, and police usage for mobile warrant database
access.
RadioMobile Products
RadioMobile provides complete hardware and software solutions for wireless mobile data management
application. Most of RadioMobile systems are custom engineered and designed for specific markets. Accordingly,
RadioMobile sales consist of hardware, software and networking products as well as design and installation
services. The primary markets include public safety (police, fire, and emergency medical services) and utilities and
transportation (rail, bus, taxi and courier services). Software applications for both host (Computer Aided Dispatch,
CAD) and mobile environments are developed by in house engineers and contractors.
Foreign Sales
Direct export sales by the Company to customers in South America, Canada, Mexico, Europe, Australia,
the Middle East, and Asia accounted for $1,818,000 or approximately 11% of Company’s sales for the fiscal year
ended October 31, 2010. Foreign sales accounted for $2,397,000 or approximately 17% of Company’s sales for the
fiscal year ended October 31, 2009. The majority of the export sales during these periods were to Israel, Canada and
Mexico. Foreign sales orders from individual customers tend to be larger than U.S. product orders and therefore
have a larger impact on the Company’s sales.
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The Company does not own, or directly operate any manufacturing operations or sales offices in foreign
countries.
Distribution, Marketing and Customers
Sales methods vary greatly between the Company’s divisions. The Connector and Cable Assembly
Division currently sells its products primarily through warehousing distributors and OEM customers who utilize
coaxial connectors and cable assemblies in the manufacture of their products.
The Aviel Division sells its products to its current customer base with the addition of customers referred
through the Connector and Cable Division. The Aviel and Connector and Connector divisions sell to similar
customer market segments and combine marketing efforts where economically advantageous.
The Oddcables.com division operates from a single store-front location in San Diego and sells primarily to
walk-in or local multi-media (video, voice, gaming, etc.) and communications systems customers. This division also
operates an e-commerce website called Oddcables.com that it launched in 2007 for the distribution of its products.
The Bioconnect group markets its products to the medical market through major hospital suppliers, dealers
and distributors. The Bioconnect Division also sells its products to OEMs who incorporate the leads and cables into
their product offerings.
The Neulink Division sells its products directly or through manufacturers representatives, system
integrators and OEM’s. System integrators and OEMs integrate and/or mate Company’s products with their
hardware and software to produce turnkey wireless systems. These systems are then either sold or leased to other
companies or organizations, including utility companies, financial institutions, petrochemical companies, the U.S.
military, government agencies, and irrigation/water management companies.
The RadioMobile division sells its products directly and through value added resellers and dealers.
Customers include municipalities for their police, fire, and emergency medical services, departments, as well as
private rail, bus, taxi and courier services.
Manufacturing
The Company contracts with outside third parties for the manufacture of a significant portion of its coaxial
connectors and for all the components of its Neulink products. However, virtually all of RF cable assemblies sold
by the Connector and Cable Assembly Division during the fiscal year ended October 31, 2010 were assembled by
that division at the Company’s facilities in California. The Neulink products are assembled at the Company’s
California facilities. The Connector and Cable Division has its cables manufactured at numerous International
Standards Organization (ISO) approved factories with plants in the United States and Taiwan. The Company is
dependent on a few manufacturers for its coaxial connectors and cable assemblies. Although the Company does not
have manufacturing agreements with these manufacturers for its connectors, cable and Neulink products, the
Company does have long-term purchasing relationships with these manufacturers. The Company has in-house
design engineers who create the engineering drawings for fabrication and assembly of connectors and cable
assemblies and certain of the components of its Neulink products. Accordingly, the manufacturers are not primarily
responsible for design work related to the manufacture of the connectors and cable assemblies. However, the third
party manufacturers of the Neulink products are solely responsible for design work related to the manufacture of the
Neulink Division’s products. Neulink products are manufactured by numerous manufacturers in the United States,
and the Company is not dependent on one or a few manufacturers for its Neulink products.
The Bioconnect Division has designed and manufactured its own products for over 22 years (including as
an unaffiliated company before being acquired by the Company in 2000). Bioconnect products are manufactured by
the Company at its own California facilities. The manufacturing process for the Bioconnect medical cables includes
all aspects of the product, from the design to mold design, mold fabrication, assembly and testing. The Bioconnect
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product line produces its medical interconnect products in both high volume manufacturing and for custom or low
volume uses.
The Aviel Electronics Division manufactures connectors at its Las Vegas, Nevada manufacturing facility.
The Aviel Electronics Division has designed and manufactured its own products for 52 years (including as an
unaffiliated company before being acquired by the Company in August 2004). The manufacturing process for the
Aviel connectors includes all aspects of the product from design, tooling, fabrication, assembly and testing. The
Aviel Electronics product line produces its connector products for low volume custom manufacturing uses, for the
military, aerospace, communications and other unique applications.
The Oddcables.com Division designs and produces low to medium volume connector and cable assemblies
for local and niche customers, as well as a few medium and large market customers. These services are conducted
in San Diego, California.
The RadioMobile Division products are purchased from various U.S. and overseas suppliers. Some
products are designed and manufactured by third party manufacturers to RadioMobile’s specifications. The
Company designs much of the software used in its RadioMobile systems.
There are certain risks associated with the Company’s dependence on third party manufacturers for some of
its products, including reduced control over delivery schedules, quality assurance, manufacturing costs, and the
potential lack of adequate capacity during periods of excess demand and increases in prices. See “Risk Factors”
below.
Raw Materials
Connector materials are typically made of commodity metals such as copper, brass and zinc and include
small applications of precious materials, including silver and gold. The Connector and Cable Division purchases
most of its connector products from contract manufacturers located in Asia and the United States. The Company
believes that the raw materials used in its products are readily available and that the Company is not currently
dependent on any supplier for its raw materials. The Company does not currently have any long-term purchase or
supply agreements with its connector or Neulink product suppliers. The RF Connector and Cable assembly division
obtains coaxial connectors from RF Connector. The Company believes there are numerous domestic and
international suppliers of coaxial connectors.
Neulink purchases its electronic products from various U.S. suppliers, and all Neulink wireless modem
transceivers are built in the United States. The Company believes electronic components used in these products are
readily available from a number of domestic suppliers and from other foreign suppliers.
Aviel connector materials are typically made of commodity metals and include some application of
precious materials, including silver and gold. The Aviel Electronic Division purchases almost all of its connector
materials and products from vendors in Asia and the United States. The Company believes the connector materials
used in the manufacturing of its connector products are readily available from a number of foreign and domestic
suppliers.
Oddcables.com connectors and cable are typically acquired from the Aviel and Connector and Cable
divisions or purchased from other high quality manufacturers and distributors.
Bioconnect cable assembly materials are typically made of commodity materials such as plastics, rubber,
resins and wire. The Company believes materials and components used in these products are readily available from
a number of domestic suppliers and from other foreign suppliers.
RadioMobile purchases its electronic products from various U.S. and overseas suppliers.
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Employees
As of October 31, 2010, the Company employed 110 full-time employees, of whom 35 were in accounting,
administration, sales and management, 71 were in manufacturing, distribution and assembly, and four were
engineers engaged in design, engineering and research and development. The Company also occasionally hires part-
time employees. The Company believes that it has a good relationship with its employees and, at this time, no
employees are represented by a union.
Research and Development
The Company’s research and development activities are intended to produce new proprietary products that
it can market to the wireless connectivity industry. The Company engaged in approximately $422,000 of research
and development activities in fiscal year ended October 31, 2010, relating to the Connector and Cable, RF Wireless,
and Bioconnect segments. Research and development expense during the fiscal year ended October 31, 2009 were
approximately $889,000.
In addition to research and development activities, the Company also invested approximately $628,000
during the past two fiscal years on engineering. Engineering activities consist of the design and development of new
products for specific customers, as well as the design and engineering of new or redesigned products for in the
industry in general. Engineering work is often carried out in collaboration with the Company’s customers.
Patents, Trademarks and Licenses
The Company does not own any patents on any of its products, nor has it registered any product
trademarks. Because the Company carries thousands of separate types of connectors and other products, most of
which are available to the Company’s customers from other sources, the Company does not believe that its business
or competitive position is dependent on patent protection.
Warranties and Terms
The Company warrants its products to be free from defects in material and workmanship for varying
warranty periods, depending upon the product. Products are generally warranted to the dealer for one year, with the
dealer responsible for any additional warranty it may make. Certain Neulink products are sold directly to end-users
and are warranted to those purchasers. The RF Connector products are warranted for the useful life of the
connectors. Although the Company has not experienced any significant warranty claims to date, there can be no
assurance that it will not be subjected to such claims in the future.
The Company usually sells to customers on 30-day terms pursuant to invoices and does not generally grant
extended payment terms. Sales to most foreign customers are made on cash terms at time of shipment. Customers
may delay, cancel, reduce, or return products after shipment subject to a restocking charge.
Competition
Management estimates that the Connector and Cable Division has over 50 competitors in the RF connector
market. The RF connector market is estimated at $2 - $2.5 billion worldwide, with North America sales estimated at
$1.2 billion. Management believes the industry is fragmented with no one competitor having over a 15% share of
the total market, while the ten largest competitors constitute approximately 76% of the total market. Many of the
competitors of the Connector and Cable Division have significantly greater financial resources and broader product
lines. The Connector and Cable Division competes on the basis of product quality, product availability, price,
service, delivery time and value-added support to its distributors and OEM customers. Since the Company’s strategy
is to provide a broad selection of products in the areas in which it competes and to have a ready supply of those
products available at all times, the Company normally has a significant amount of inventory of its connector
products.
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The Bioconnect division competes with numerous other companies in all areas of its operations, including
the manufacture of OEM custom products and medical cable products. Most of the competitors of Bioconnect are
larger and have significantly greater financial resources than Bioconnect.
Aviel Electronics has specialized in microwave and radio frequency (RF) custom connectors which lowers
the number of its direct competitors. Because Aviel Electronics is an approved vendor of leading aerospace,
electronics, OEM and government agencies in the United States and abroad, competition is limited to those
manufacturers who have received formal certification or approval.
Major competitors for Neulink include Microwave Data Systems and Data Radio. Although a number of
larger firms could enter Neulink’s markets with similar products, Neulink’s strategy is focused on serving and
providing specific hardware and software combinations with the goal of maintaining a strong position in selected
“niche” wireless applications. While the Neulink Division’s competitors offer products that are substantially similar
to Neulink’s radio modems, the Neulink Division tries to enhance its competitive position by offering additional
product support services before, during, and after the sale.
RadioMobile competitors include Motorola, Intergraph, Northrup Gumman, Panasonic, and cellular
providers including Verizon Wireless and AT&T. RadioMobile’s strategy is focusing on providing cost effective
mobile data solutions to small to medium size customers.
Government Regulations
The Company’s products are designed to meet all known existing or proposed governmental regulations.
Management believes that the Company currently meets existing standards for approvals by government regulatory
agencies for its principal products. Because the products designed and sold by the Aviel Electronics Division are
used in commercial and military aerospace products, its products are regulated by various government agencies in
the United States and abroad.
Neulink products are subject to the regulations of the Federal Communications Commission (FCC) in the
United States, the Department of Communications (D.O.C.) in Canada, and the E.C.C. Radio Regulation Division in
Europe. The Company’s present equipment is “type-accepted” for use in the United States and Canada. Neulink
offers products that comply with current FCC, Industry Canada, and some European Union regulations. The system
integrator, or end user, is responsible for compliance with applicable government regulations.
Bioconnect products are subject to the regulations of the U.S. Food and Drug Administration.
The Company’s products are Restriction on Hazardous Substances (“RoHS”) compliant.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its corporate headquarters building at 7610 Miramar Road, Building 6000, San Diego,
California. The building consists of approximately 22,000 square feet which houses its corporate administration,
sales and marketing, and engineering plus production and warehousing for the Company’s Connector and Cable
Assembly and Bioconnect Divisions. The lease for this facility expires on March 31, 2014. In addition, the Company
also leases the following facilities:
(i)
(ii)
The cable assembly manufacturing portion of the Connector and Cable Assembly Division
operates in a separate 3,180 square foot facility that is located adjacent to the Company’s
corporate headquarters. The lease for this space expires on March 31, 2014.
The Neulink and RadioMobile Divisions operate from a separate building that is located near the
Company’s corporate headquarters at 7606 Miramar Road, Building 7200. The building consists
of approximately 2,500 square feet of administrative and manufacturing space and houses the
- 9 -
production and sales staff of the Neulink and RadioMobile divisions. The lease for this space
expires on March 31, 2014.
(iii)
(iv)
During fiscal 2009, Aviel entered into a facility lease agreement for approximately 4,500 square
feet at 3060 Post Road, Suite 100 Las Vegas Nevada. The lease term commenced September 1,
2009 and will expire March 31, 2015.
The Oddcables.com Division leases an approximately 4,000 square foot facility located at 7642
Clairemont Mesa Boulevard Suite 211, San Diego, California. The lease for this space expires
December 31, 2013.
The aggregate monthly rental for all of the Company’s facilities currently was approximately $53,700 per
month, plus utilities, maintenance and insurance as of October 31, 2010.
The Company currently believes that its facilities are sufficient to meet its foreseeable needs. However,
should the Company require additional space; the Company believes that suitable additional space is available near
the Company’s current facilities. In addition, the Company believes that it will be able to renew its existing leases
upon the expiration of the current leases or, if desirable or necessary, relocate to alternate facilities on substantially
similar terms.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in legal proceedings that are related to its business operations.
The Company is not currently a party to any legal proceedings that could have a material adverse effect upon its
financial position or results of operations.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
We did not submit any matters to the vote of our stockholders in the fourth quarter of fiscal 2010.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s Common Stock is listed and trades on the NASDAQ Capital Market under the symbol
“RFIL.”
For the periods indicated, the following tables set forth the high and low closing prices per share of
Common Stock. These prices represent inter-dealer quotations without retail mark-up, markdown or commission
and may not necessarily represent actual transactions.
Quarter
Fiscal 2010
High
Low
November 1, 2009 - January 31, 2010
February 1, 2010 - April 30, 2010
May 1, 2010 - July 31, 2010
August 1, 2010 - October 31, 2010
$
$
2.43
2.70
2.92
3.50
2.02
2.25
2.45
2.60
- 10 -
Fiscal 2009
November 1, 2008 - January 31, 2009
February 1, 2009 - April 30, 2009
May 1, 2009 - July 31, 2009
August 1, 2009 - October 31, 2009
$
$
3.06
2.11
2.25
2.45
1.75
1.43
1.70
1.94
Stockholders. As of October 31, 2010 there were 429 holders of the Company’s Common Stock
according to the records of the Company’s transfer agent, Continental Stock Transfer & Trust Company, New
York, New York, not including holders who hold their stock in “street name.”
Dividends. The Company paid dividends of $0.015 per share, for a total of $84,113, during fiscal
2010. The Board of Directors may continue to declare and pay dividends in the future depending on the
Company’s financial condition and its financial needs.
Repurchase of Securities. The Company did not repurchase any shares of its common stock during the
year ended October 31, 2010.
Recent Sales of Unregistered Securities. There were no previously unreported sales of equity
securities by the Company that were not registered under the Securities Act during fiscal 2010.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of October 31, 2010 with respect to the shares of Company
common stock that may be issued under the Company’s existing equity compensation plans.
A
B
Plan Category
Equity Compensation Plans
Number of Securities to
be Issued Upon Exercise
of Outstanding Options
Weighted Average
Exercise Price of
Outstanding Options ($)
C
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column A)
Approved by Stockholders (1)
1,540,544
Equity Compensation Plans Not
Approved by Stockholders (2)
Total
914,408
2,454,952
$
$
$
2.73
0.78
2.00
847,092
0
847,092
(1) Consists of options granted under the R.F. Industries, Ltd. (i) 2010 Stock Option Plan (ii) 2000 Stock Option Plan, (iii)
the 1990 Incentive Stock Option Plan, and (iv) the 1990 Non-qualified Stock Option Plan. The 2000 Stock Option
Plan and the 1990 Incentive Stock Option Plan and Non-qualified Stock Option Plan have expired, and no additional
options can be granted under these plans. Accordingly, all 847,092 shares remaining available for issuance represent
shares under the 2010 Stock Option Plan.
(2) Consists of options granted to six officers and/or key employees of the Company under employment agreements
entered into by the Company with each of these officers and employees.
- 11 -
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements have been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to make significant estimates and
judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of
contingent assets and liabilities. We evaluate our estimates, including those related to bad debts, inventory reserves
and contingencies on an ongoing basis. We base our estimates on historical experience and on various other
assumptions that are believed to be appropriate under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.
One of the accounting policies that involves significant judgments and estimates concerns our inventory
valuation. Inventories are valued at the weighted average cost value. Certain items in the inventory may be
considered obsolete or excess and, as such, we establish an allowance to reduce the carrying value of these items to
their net realizable value. Based on estimates, assumptions and judgments made from the information available at
the time, we determine the amounts of these allowances. Because inventories have, during the past few years,
represented up to one-third of our total assets, any reduction in the value of our inventories would require us to take
write-offs that would affect our net worth and future earnings.
Another accounting policy that involves significant judgments and estimates is our accounts receivable
allowance valuation. The Company routinely assesses the financial strength of its customers and maintains an
allowance for doubtful accounts that management believes will adequately provide for credit losses.
The Company uses the Black-Scholes model to value the stock option grants which involves significant
judgments and estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
For recently issued accounting pronouncements that may affect us, see Note 1 of Notes to Financial
Statements.
OVERVIEW
The Company markets connectors and cables to numerous industries for use in thousands of products,
primarily for the wireless market. The Company aggregates operating divisions into operating segments which have
similar economic characteristics and divisions are similar in the majority of the following areas: (1) the nature of the
product and services; (2) the nature of the production process; (3) the type or class of customer for their products
and services; (4) the methods used to distribute their products or services; (5) if applicable, the nature of the
regulatory environment. The Company has three segments - RF Connector and Cable Assembly segment, Medical
Cabling and Interconnector segment, and RF Wireless segment- based upon this evaluation.
The RF Connector and Cable Assembly segment is comprised of three divisions; the Medical Cabling and
Interconnector segment is comprised of one division, while the RF Wireless segment is comprised of two divisions.
The four divisions that meet the quantitative thresholds for segment reporting are Connector and Cable Assembly,
Bioconnect, RadioMobile and RF Neulink. Each of the other divisions aggregated into these segments that have
similar products that are marketed to their respective customer base; production and product development processes
are similar in nature. The specific customers are different for each division; however, there is some overlapping of
product sales to them. The methods used to distribute products are similar within each division aggregated.
- 12 -
Management identifies the Company’s segments based on strategic business units that are, in turn, based
along market lines. These strategic business units offer products and services to different markets in accordance with
their customer base and product usage. For segment reporting purposes, the Company aggregates Connector and
Cable Assembly, Aviel Electronics and Oddcables.com divisions into the RF Connector Cable Assembly segment
while RF Neulink and RadioMobile are part of the RF Wireless segment. The Bioconnect division makes up the
Company’s Medical Cabling and Interconnector segment.
Historically, over 80% of the Company’s revenues are generated from the sale of RF connector products
and connector cable assemblies (the Connector and Cable Assembly division accounted for approximately 86% of
the Company’s total sales for the fiscal year ended October 31, 2010). Sales of connectors are expected to continue
to be the largest portion of revenues in the future. Accordingly, Company revenues are heavily dependent upon
sales of RF connectors and cable assemblies. However, the Company sells thousands of connector products for uses
in thousands of end products and sales are not dependent upon any one industry sector or any single product. The
Company’s sales do, however, track sales in the wireless industry as a whole. Accordingly, the Company’s sales in
2010 increased as a result of industry wide increases.
The net income in fiscal 2010 represented the 17th consecutive year that the Company has been profitable.
The Company generated cash from operations of $2,502,656 and used $84,113 to pay dividends. Overall,
the amount of cash and cash equivalents, and short-term certificates of deposit held by the Company as of October
31, 2010 increased $1,603,546 from $7,702,908 at October 31, 2009 to $9,306,454 at October 31, 2010. The
Company also held long term certificates of deposit totaling $946,491 at October 31, 2010 and had no long term
investments at October 31, 2009. Since the Company has no debt other than normal accounts payable, accrued
expenses, and other long-term liabilities, the Company will continue to have sufficient cash to fund all of its
anticipated financing and liquidity needs for the foreseeable future.
Financial Condition:
The following table presents certain key measures of financial condition as of October 31, 2010 and 2009:
2010
Amount
% Total Assets
Amount
2009
% Total Assets
Cash and cash equivalents and
certificates of deposit
$
Current assets
Current liabilities
Working capital
Property and equipment - net
Total assets
Stockholders’ equity
9,306,454
17,533,406
1,879,213
15,654,193
530,327
19,109,363
16,913,960
Liquidity and Capital Resources:
48.7%
91.8%
9.8%
81.9%
2.8%
100.0%
88.5%
$
7,702,908
15,769,656
973,188
14,796,468
565,804
16,598,200
15,253,482
46.4%
95.0%
5.9%
89.1%
3.4%
100.0%
91.9%
Management believes that its existing current assets and the amount of cash it anticipates it will generate
from current operations will be sufficient to fund the anticipated liquidity and capital resource needs of the Company
for the fiscal year ending October 31, 2011 (“fiscal 2011”). The Company does not, however, currently have any
commercial banking arrangements providing for loans, credit facilities or similar matters should the Company need
to obtain additional capital. Management believes that its existing assets and the cash it expects to generate from
operations will be sufficient during the current fiscal year based on the following:
As of October 31, 2010, the amount of cash and cash equivalents and short-term certificates of deposit was
equal to $9,306,454 in the aggregate. Accordingly, the Company believes that it has sufficient cash
available to operate its current business and fund its currently anticipated capital expenditure for the
upcoming year.
- 13 -
As of October 31, 2010, the Company had $17,533,406 in current assets and only $1,879,213 in current
liabilities.
Management believes that based on the Company’s financial condition at October 31, 2010, the absence of
outstanding bank debt, and its recent operating results, there are sufficient capital resources to fund its operations
and future acquisitions for at least the next twelve months. Should the Company need to obtain additional funds for
its unexpected acquisitions of assets or other expansion activities, based on its balance sheet and its history of
profitability, the Company believes that it would be able to obtain bank loans to finance these expenditures.
However, there can be no assurance any bank loan would be obtainable, or if obtained, would be on favorable terms
or conditions.
The Company is not a party to off-balance sheet arrangements and does not engage in trading activities
involving non-exchange traded contracts. In addition, the Company has no financial guarantees, debt or lease
agreements or other arrangements that could trigger a requirement for an early payment or that could impact the
value of the Company’s assets.
As part of its business strategy, and because of its offshore manufacturing arrangements, the Company
normally maintains a significant level of inventory. As described elsewhere in this Annual Report, one of the
Company’s competitive advantages and strategies is to maintain customer satisfaction by having sufficient inventory
on hand to fulfill most customer orders on short notice. Accordingly, the Company maintains a significant amount of
inventory, which increases or decreases to reflect the Company’s sales and lead times for products. In light of a 15%
increase in sales in fiscal 2010 compared to sales of prior year, the Company’s year end inventory balance decreased
by 8% compared to prior year’s year end inventory balance. The Company continuously monitors its inventory
levels and product costs. For inventory purchase pricing purposes, the Company may, however, increase its
inventory levels from time to time to protect against anticipated future increases in raw material costs or to obtain
volume discounts.
Net cash provided by operating activities for the year ended October 31, 2010 was $2,502,656. The
Company’s net cash from operations was more than its net income of $1,220,247 due primarily to $599,133 of non-
cash expenses ($214,266 of depreciation and amortization, $231,000 of stock compensation expense, $137,328 of
goodwill impairment, and $247,539 of inventory write-offs), a $312,876 increase in accounts payable, and a
$554,590 increase in accrued expenses. In fiscal year ended October 31, 2009, net cash provided by operating
activities was $1,703,123.
During fiscal 2010, net cash provided by investing activities was $801,071, which represents the difference
between the proceeds the Company received from the maturity of certain of its certificates of deposit and the amount
re-invested in new certificates of deposit, less $151,850 that the Company invested in additional capital equipment
(primarily for the Connector and Cable division). During fiscal 2009, net cash provided by investing activities was
$169,338.
In fiscal 2010, financing activities increased the Company’s net cash provided by $199,230 due to the
receipt of $205,108 from the exercise of stock options and $78,235 of excess tax benefits, which was offset by
dividends paid of $84,113. In fiscal 2009, financing activities decreased the Company’s net cash by $1,707,372 due
to dividends paid of $94,780 and $1,612,592 used to repurchase 385,358 shares of Company common stock. No
shares were repurchased during fiscal 2010.
The Company does not believe that inflation has had a material impact on its business or operations.
- 14 -
Results of Operations:
The following summarizes the key components of the results of operations for the fiscal years ended
October 31, 2010 and 2009:
Net sales
Cost of sales
Gross profit
Engineering expenses
Selling and general expenses
Goodwill impairment
Operating income
Other income
Income before income taxes
Income taxes
Net income
2010
% of Net
Sales
100%
50%
50%
5%
31%
1%
12%
1%
13%
5%
8%
Amount
$16,322,178
8,158,798
8,163,380
887,865
5,133,967
137,328
2,004,220
86,614
2,090,834
870,587
1,220,247
2009
Amount
$14,213,045
7,308,479
6,904,566
1,050,398
4,738,265
209,763
906,140
193,429
1,099,569
443,602
655,967
% of Net
Sales
100%
51%
49%
7%
33%
1%
6%
1%
8%
3%
5%
Net sales of the Company increased by approximately $2,109,000 or 15%, for the fiscal year ended October
31, 2010 (“fiscal 2010”) compared to the fiscal year ended October 31, 2009 (“fiscal 2009”). Net sales increased in
fiscal 2010 due primarily to a significant increase in net sales at the Connector and Cable Assembly segment. Net
sales at the Connector and Cable Assembly segment increased from fiscal 2009 by approximately $1,941,000. The
Company believes that the increase was primarily due to the improved economic conditions at its distributors as the
global recession subsided, and an increase in sales in the wireless industry in particular. The build out of the new
4G and Wi-MAX wireless network systems contributed to the increase in connector sales. Net sales at the Medical
Cabling and Interconnect division also increased significantly, by $401,000, compared to its sales in fiscal 2009.
However, these increases were offset by a significant decrease in sales of $233,000 compared to sales in fiscal 2009
at the RF Wireless segment. The substantial decrease in net sales at the RF Wireless segment was attributable to a
decrease of $128,000 in sales by the RadioMobile Division and a decrease of $105,000 in sales by the Neulink
division. Unlike the Connector and Cable Assembly segment that has many smaller customers and a wide variety of
products, the RF Wireless segment has few products and few customers. Accordingly, the failure by the RF
Wireless segment to make a few larger sales to its customers resulted in a substantial decrease in sales. The
Company is evaluating the operations of the RF Wireless segment and may reorganize the operations of one or more
of the RF Wireless divisions.
The Company’s gross profit increased by $1,259,000 or by 18% to $8,163,000 in 2010 from $6,905,000 in
2009 due to the increase in net sales. As a percentage of net sales, gross profit increased slightly to 50% in fiscal
2010, up slightly from 49% in fiscal 2009 because the Company was able to leverage off economies of scale relating
to its fixed labor costs as a result of the increase in sales. Gross profit for fiscal 2010 would have been significantly
greater if not for the effects of $247,539 of inventory write-offs at the Neulink division. There were no such
inventory write-offs during fiscal 2009.
Engineering expenses, which include research and development expenses, incurred at the Company’s three
segments and relating to the design, re-design or development of products for specific customers decreased from
prior year by $163,000 to $888,000 compared to $1,050,000 in fiscal 2009. As a percentage of net sales, engineering
expenses decreased to 5% in fiscal 2010 from 7% in fiscal 2009. Engineering expense (including research and
development) during fiscal 2010 related to development of new products at the Connector and Cable, RF Wireless,
and Bioconnect segments. The Company collectively incurred approximately $422,000 of research and development
expenses in fiscal 2010 in the development of new products compared to $889,000 of research and development
expenses in fiscal 2009. Research and development expenses decreased 53%, or $467,000 compared with prior
year’s expense due to certain projects nearing completion at the RF Wireless division and related decreases in
contract labor expense.
- 15 -
Selling and general expenses increased by $396,000 or 9%, to $5,134,000 during fiscal 2010 from
$4,738,000 in fiscal 2009. This increase is directly related to the increase in revenues partially offset by continued
cost cutting measures implemented by the Company. Since sales increased by a greater percentage than the increase
in selling and general expenses, as a percentage of sales, selling and general expenses decreased to 31% from 33%.
Selling and general expense decreased as a percentage of sales despite a significant increase in stock based
compensation expense, which increased by $78,000 to $231,000 in fiscal 2010 from $153,000 in fiscal 2009. Stock
based compensation increased primarily due to the increase in options granted and also to a one-time charge of
$33,000 relating to the extension of a former board member’s exercise period for outstanding grants. Sales
commission expense increased by $1,000 or 1% to $82,000 in fiscal 2010 from $81,000 in fiscal 2009 due to
restructuring of our sales commission plan. Accounting and legal fees decreased by $132,000 to $304,000 in fiscal
2010 from $436,000 in fiscal 2009 primarily due to reductions in outside expenses related to management’s
assessment and testing of internal controls over financial reporting and external audit and review work. Advertising
costs decreased by $39,000 to $215,000 in fiscal 2010 from $254,000 in fiscal 2009 due to a decrease in marketing
efforts in fiscal 2010 compared to prior year.
Due to the ongoing negative effects of the global recession and related triggers (decreased sales), during the
third quarter of 2010, the Company performed an impairment analysis of the Aviel goodwill balance. The sales
generated by this division were significantly lower than expected and the forecasted improvements from prior
periods did not occur. Prior to management’s analysis, the Company had a total of $137,328 of goodwill allocated to
the acquisition of the Aviel division. As a result of its impairment analysis, management wrote off the goodwill
attributed to Aviel and recorded a goodwill impairment charge of $137,328 for the third quarter of fiscal 2010,
which is included in selling and general expense in the statement of income.
Due to the significant increase in sales and the increase of $1,259,000 in gross profit compared to prior
year, operating income increased by $1,098,000 or 121% to $2,004,000 in fiscal 2010. Total operating expenses
increased by $161,000 or 3% as a result of increases in selling and general administrative expenses.
Interest income decreased by approximately $107,000 from the prior year due to a decrease in interest rates
on the funds held by the Company in its interest bearing accounts compared to the rates received during fiscal 2009.
During fiscal 2010, the Company continued to invest primarily in certificates of deposit and money market funds.
Income before taxes in fiscal 2010 increased by 90% or by $991,000 to $2,091,000 compared to income
before taxes of $1,100,000 in fiscal 2009. Net income for fiscal year ended October 31, 2010 increased by $564,000
or 86% to $1,220,000 compared to $656,000 in fiscal year ended October 31, 2009. The effective tax rate in fiscal
2010 increased 1.3% to 41.6% compared to 40.3% in fiscal 2009 mainly due to Federal research and development
tax credits the Company was not able to recognize in its financial statements in 2010 due to the law not being
enacted by October 31, 2010. On December 16, 2010, Congress passed the 2010 Tax Relief Act (the “Act”) which
will impact the Company’s tax provision in the first quarter of fiscal 2011. Due to the passage of the Act into law,
the Company claimed an increased tax credit related to the year ended October 31, 2010 for research and
development related to the year ended October 31, 2010 of approximately $55,000. The credit was recorded in the
first quarter of fiscal 2011.
- 16 -
Index
To Financial Statements
Report of Independent Registered Public Accounting Firm
Balance Sheets
October 31, 2010 and 2009
Statements of Income
Years Ended October 31, 2010 and 2009
Statements of Stockholders’ Equity
Years Ended October 31, 2010 and 2009
Statements of Cash Flows
Years Ended October 31, 2010 and 2009
Notes to Financial Statements
* * *
Page
F-2
F-3
F-4
F-5
F-6
F-7-F-20
- 17 -
Report of Independent Registered Public Accounting Firm
To the Stockholders
RF Industries, Ltd.
We have audited the accompanying balance sheets of RF Industries, Ltd. as of October 31, 2010 and 2009,
and the related statements of income, stockholders’ equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of RF Industries, Ltd. as of October 31, 2010 and 2009, and its results of operations and cash
flows for the years then ended, in conformity with accounting principles generally accepted in the United States of
America.
/s/ J.H. COHN LLP
San Diego, California
January 12, 2011
- 18 -
RF INDUSTRIES, LTD.
BALANCE SHEETS
OCTOBER 31, 2010 AND 2009
ASSETS
Current assets:
Cash and cash equivalents
Certificates of deposit
Trade accounts receivable, net of allowance for doubtful accounts
of $75,734 and $52,892
Inventories
Other current assets
Deferred tax assets
Total current assets
Equipment and furnishings:
Equipment and tooling
Furniture and office equipment
Less accumulated depreciation
Totals
Goodwill
Amortizable intangible assets, net
Note receivable from stockholder
Long-term investments in certificates of deposit
Other assets
2010
2009
$
4,728,884
4,577,570
$
1,225,927
6,476,981
2,557,822
4,607,843
448,187
613,100
17,533,406
2,263,265
4,984,921
340,362
478,200
15,769,656
2,434,176
508,221
2,942,397
2,412,070
530,327
66,980
946,491
32,159
2,365,160
425,389
2,790,549
2,224,745
565,804
137,328
27,156
66,980
31,276
Totals
$
19,109,363
$
16,598,200
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:
$
537,850
1,217,454
123,909
1,879,213
18,800
297,390
2,195,403
$
224,974
673,080
75,134
973,188
50,500
321,030
1,344,718
Common stock - authorized 10,000,000 shares at $.01
par value; 2,930,882 and 2,848,313 shares issued
and outstanding
Additional paid-in capital
Retained earnings
Total stockholders' equity
29,309
7,025,965
9,858,686
16,913,960
28,483
6,502,447
8,722,552
15,253,482
Totals
$
19,109,363
$ 16,598,200
See Notes to Financial Statements.
- 19 -
RF INDUSTRIES, LTD.
STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 2010 AND 2009
Net sales
Cost of sales
Gross profit
Operating expenses:
Engineering
Selling and general
Goodwill impairment
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.
2010
2009
$
16,322,178
8,158,798
$
14,213,045
7,308,479
8,163,380
6,904,566
887,865
5,133,967
137,328
6,159,160
1,050,398
4,738,265
209,763
5,998,426
2,004,220
906,140
86,614
193,429
2,090,834
1,099,569
870,587
443,602
$
1,220,247
$
655,967
$
$
.43
$
.38
$
.22
.20
- 20 -
RF INDUSTRIES, LTD.
STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED OCTOBER 31, 2010 AND 2009
Balance, November 1, 2008
3,226,264 $ 32,263 $
Common Stock
Shares
Amount
Additional
Retained
Paid-In
Earnings
Capital
6,411,810 $ 9,677,617
Total
Stockholders’
Equity
$16,121,690
655,967
655,967
Net income
Stock based compensation
expense
Stock issuance related to
contingent liability
Dividends
Treasury stock purchased and
retired
153,197
7,407
74
29,926
153,197
30,000
(94,780)
(94,780)
(385,358)
(3,854)
(92,486)
(1,516,252)
(1,612,592)
Balance, October 31, 2009
2,848,313
28,483
6,502,447
8,722,552
15,253,482
Net income
Stock based compensation
expense
231,000
Exercise of stock options
79,954
800
204,308
Excess tax benefit from exercise
of stock options
Stock issuance related to
contingent liability
78,235
2,615
26
9,975
1,220,247
1,220,247
231,000
205,108
78,235
10,001
Dividends
(84,113)
(84,113)
Balance, October 31, 2010
2,930,882
$ 29,309
$ 7,025,965
$ 9,858,686
$ 16,913,960
See Notes to Financial Statements.
- 21 -
RF INDUSTRIES, LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2010 AND 2009
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
$
1,220,247
$
655,967
2010
2009
activities:
Bad debt expense
Depreciation and amortization
Goodwill impairment
Inventory write-down
Deferred income taxes
Loss on disposal of equipment
Stock based compensation expense
Excess tax benefit from stock based compensation
Changes in operating assets and liabilities:
Trade accounts receivable
Inventories
Income taxes receivable/ (payable)
Other current assets
Other long-term assets
Accounts payable
Accrued expenses
Other long-term liabilities
Net cash provided by operating activities
Investing activities:
Purchases of certificates of deposit
Maturities of certificates of deposit
Capital expenditures
Net cash provided by investing activities
Financing activities:
Proceeds from exercise of stock options
Purchases of treasury stock
Excess tax benefit from stock based compensation
Dividends paid
Net cash provided by (used in) financing activities
15,279
214,266
137,328
247,539
(166,600)
231,000
(78,235)
(309,835)
129,539
127,010
(107,825)
(882)
312,876
554,590
(23,641)
2,502,656
(5,014,406)
5,967,327
(151,850)
801,071
205,108
78,235
(84,113)
199,230
8,110
239,777
209,763
8,700
4,826
153,197
(200,026)
964,787
(157,793)
(122,919)
(2,894)
(104,535)
(57,682)
103,845
1,703,123
(7,015,184)
7,401,914
(217,392)
169,338
(1,612,592)
(94,780)
(1,707,372)
Net increase in cash and cash equivalents
3,502,957
165,089
Cash and cash equivalents at beginning of year
1,225,927
1,060,838
Cash and cash equivalents at end of year
Supplemental cash flow information - income taxes paid
Noncash investing and financing activities:
Retirement of treasury stock
Stock issuance related to contingent liability
See Notes to Financial Statements.
- 22 -
$
$
$
4,728,884
928,000
10,001
$
$
$
$
1,225,927
550,000
1,612,592
30,000
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business activities and summary of significant accounting policies
Business activities
The Company’s business is comprised of the design, manufacture and/or sale of communications
equipment primarily to the radio and other professional communications related industries. The Company currently
conducts its operations through six related business divisions: (i) RF Connector and Cable Division is engaged in the
design, manufacture and distribution of coaxial connectors and cable assemblies used primarily in radio and other
professional communications applications; (ii) Aviel Division is engaged in the design, manufacture and sales of
radio frequency, microwave and specialized connectors and connector assemblies for aerospace, original electronics
manufacturers and military electronics applications; (iii) Oddcables.com Division is engaged in sales of microwave
and radio frequency connectors and cable assemblies to end users in multi-media, radio and other communications
applications; (iv) Bioconnect Division is engaged in the design, manufacture and sales of cable interconnects for
medical monitoring applications; (v) Neulink Division is engaged in the design, manufacture and sales of radio links
for receiving and transmitting control signals for remote operation and monitoring of equipment, personnel and
monitoring services; and (vi) RadioMobile Division is engaged as an OEM provider of end-to-end mobile
management solutions implemented over wireless networks. RadioMobile Division operates as a separate division
and supplements the operations of the Company’s Neulink division (see Note 11).
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect certain reported
amounts and disclosures. Actual results may differ from those estimates.
Cash equivalents
The Company considers all highly-liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
Revenue recognition
Four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4)
collectability is reasonably assured. The Company recognizes revenue from product sales after purchase orders are
received which contain a fixed price and the products are shipped. Most of the Company’s products are sold to
continuing customers with established credit histories.
Inventories
Inventories, consisting of materials, labor and manufacturing overhead, are stated at the lower of cost or
market. Cost has been determined using the weighted average cost method.
Equipment and furnishings
Equipment, tooling and furniture are recorded at cost and depreciated over their estimated useful lives
(generally 3 to 7 years) using the straight-line method.
- 23 -
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Goodwill
We review our goodwill for impairment annually at the reporting unit level. We also analyze whether any
indicators of impairment exist each quarter. A significant amount of judgment is involved in determining if an
indicator of impairment has occurred. Such indicators may include a sustained, significant decline in our share price
and market capitalization, a decline in our expected future cash flows, a significant adverse change in legal factors
or in the business climate, unanticipated competition, the testing for recoverability of our long-lived assets, and/or
slower growth rates, among others.
We estimate the fair value of our reporting units using discounted expected future cash flows. If the fair value
of the reporting unit exceeds its net book value, goodwill is not impaired, and no further testing is necessary. If the
net book value of our reporting units exceeds their fair value, we perform a second test to measure the amount of
impairment loss, if any.
We performed a valuation analysis, utilizing an income approach in our goodwill assessment process. The
following describes the valuation methodologies used to derive the fair value of our reporting units.
•
Income Approach: To determine each reporting unit’s estimated fair value, we discount the expected cash
flows of our reporting units. We estimate our future cash flows after considering current economic
conditions and trends; estimated future operating results, growth rates, anticipated future economic and
regulatory conditions; and the availability of necessary technology. The discount rate used represents the
estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in our
operations and the rate of return an outside investor would expect to earn. To estimate cash flows beyond
the final year of our model, we use a terminal value approach. Under this approach, we use estimated
operating income before depreciation and amortization in the final year of our model, adjust it to estimate a
normalized cash flow, apply a perpetuity growth assumption and discount by a perpetuity discount factor to
determine the terminal value. We incorporate the present value of the resulting terminal value into our
estimate of fair value.
Due to the ongoing negative effects of the global recession and related triggers, (due to Aviel division not
meeting its revenue forecasts), during the third quarter of 2010, the Company performed an impairment analysis of
the Aviel goodwill balance. The sales generated by this division were significantly lower than expected and the
forecasted improvements from prior periods did not occur. As such, triggers were evident at this division in the
third quarter of 2010. Prior to management’s analysis, the Company had a total of $137,328 of goodwill residual
from the acquisition of the Aviel division. As a result of its analysis, management recorded a goodwill impairment
charge of $137,328 for the third quarter of fiscal 2010.
Due to negative effects of the global recession and related triggers, during the third quarter of fiscal 2009, the
Company experienced a significant decrease in sales in general, and at the RadioMobile and Worswick reporting
units in particular. The sales generated by these reporting units were significantly lower than expected and the
expected third quarter improvements did not occur. As such, triggers were evident at these two divisions in the third
quarter of fiscal 2009 and management performed a goodwill impairment review. Prior to management’s review, the
Company had a total of $347,091 of goodwill of which $137,328 was allocated to the acquisition of the Aviel
division and the balance was allocated to the more recent acquisitions of the RadioMobile and Worswick businesses.
As a result of its review, management recorded a goodwill impairment charge of $209,763 in the third quarter of
fiscal 2009, which is included in operating expenses in the statement of income. There were no such triggering
events in the third quarter of fiscal 2009 at the Aviel reporting unit and its goodwill was not affected.
- 24 -
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
The changes in the carrying amounts of segment goodwill for fiscal 2010 and 2009 are as follows:
RF Connectors and Cable Assembly
RF Wireless
Total
Balance at November 1, 2008
$ 200,848
$ 146,243
$ 347,091
Impairment Charge
(63,520)
(146,243)
(209,763)
Balance at October 31, 2009
137,328 -
137,328
Impairment charge
(137,328)
-
(137,328)
Balance at October 31, 2010
$ - $ - $ -
Long-lived assets
The Company assesses potential impairments to its long-lived assets when there is evidence that events or
changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is
recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less than
its carrying amount. Any required impairment loss is measured as the amount by which the assets carrying value
exceeds its fair value, and is recorded as a reduction in the carrying value of the related asset and a charge to
operations.
Amortizable Intangible assets
Amortizable intangible assets are amortized over their estimated useful lives of three years.
Software
Accumulated amortization
Customer list
Accumulated amortization
Totals
Advertising
2010
2009
$ 47,522
(47,522)
-
33,945
(33,945)
-
-
$ $
$ 47,522
(31,681)
15,841
33,945
(22,630)
11,315
27,156
$
The Company expenses the cost of advertising and promotions as incurred. Advertising costs charged to
operations were approximately $215,000 and $254,000 in 2010 and 2009, respectively.
Research and development
The Company expenses research and development costs as incurred. Research and development costs
charged to operations and included in engineering were approximately $422,000 and $889,000 in 2010 and 2009,
respectively.
Income taxes
The Company accounts for income taxes under the asset and liability method, based on the income tax laws
and rates in the jurisdictions in which operations are conducted and income is earned. This approach requires the
recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences
- 25 -
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
between the carrying amounts and the tax bases of assets and liabilities. Developing the provision for income taxes
requires significant judgment and expertise in federal, international and state income tax laws, regulations and
strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation
allowances that may be required for deferred tax assets. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Management’s judgments and tax strategies are
subject to audit by various taxing authorities.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a
component of income tax expense.
Stock options
For stock option grants to employees, the Company recognizes compensation expense based on the
estimated fair values of the options at date of grant. Stock based employee compensation expense is recognized on
the straight-line basis over the requisite service period. The Company issues previously unissued common shares
upon exercise of stock options.
For the fiscal years ended October 31, 2010 and 2009, charges related to stock based compensation
amounted to approximately $231,000 and $153,000, respectively. For the fiscal years ended October 31, 2010 and
2009, stock based compensation classified in cost of sales amounted to $33,000 and $13,000 and stock based
compensation classified in selling, general and engineering expense amounted to $198,000 and $140,000
respectively.
Earnings per share
Basic earnings per share is calculated by dividing net income applicable to common stockholders by the
weighted average number of common shares outstanding during the period. The calculation of diluted earnings per
share is similar to that of basic earnings per share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all potentially dilutive common shares, principally
those issuable upon the exercise of stock options, were issued and the treasury stock method had been applied during
the period. The greatest number of shares potentially issuable by the Company upon the exercise of stock options in
any period for the years ended October 31, 2010 and 2009, that were not included in the computation because they
were anti-dilutive, totaled 443,748 and 953,420, respectively.
The following table summarizes the calculation of basic and diluted earnings per share:
Numerators:
Net income (A)
Denominators:
2010
2009
$
1,220,247
$
655,967
Weighted average shares outstanding for basic
earnings per share (B)
Add effects of potentially dilutive securities -
assumed exercise of stock options
5,719,606
5,902,004
766,004
595,804
Weighted average shares for diluted earnings per
share (C)
6,485,610
6,497,808
Basic net earnings per share (A)÷(B)
Diluted net earnings per share (A)÷(C)
$
$
0.22
0.19
$
$
0.11
0.10
- 26 -
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Fair value measurements
Financial assets and financial liabilities are required to be measured and reported on a fair value basis using
the following three categories for classification and disclosure purposes:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets
or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by
market data.
Level 3: Unobservable inputs that are used when little or no market data is available. The fair value
hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs to the extent possible. The Company also considers counterparty credit risk
in its assessment of fair value. The carrying value of financial instruments including cash and cash equivalents, all
certificates of deposit, accounts receivable, and accounts payable approximate their respective fair values due to the
short-term maturities of these instruments. The fair value of the Company’s note receivable from stockholder (see
Note 9) cannot be practicably determined due to its related party nature. The Company classifies its certificates of
deposit as Level 1 within the fair value hierarchy.
New accounting pronouncements
In April 2009, the Financial Accounting Standards Board issued new accounting guidance regarding the
accounting for assets acquired and liabilities assumed in a business combination due to contingencies. This new
guidance clarifies the initial and subsequent recognition, subsequent accounting and disclosure of assets and
liabilities arising from contingencies in a business combination. This new guidance requires that assets acquired and
liabilities assumed in a business combination that arise from contingencies be recognized at fair value, if the
acquisition date fair value can be reasonably estimated. If the acquisition-date fair value of an asset or liability
cannot be reasonably estimated, the asset or liability would be measured at the amount that would be recognized
using the accounting guidance related to accounting for contingencies or the guidance for reasonably estimating
losses. This new accounting guidance was effective for us on November 1, 2010; however, as the provision of the
guidance will be applied prospectively to business combinations with an acquisition date on or after the guidance
becomes effective, the impact to us cannot be determined until a transaction occurs.
Note 2 - Concentration of credit risk and sales to major customers
Financial instruments which potentially subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents and accounts receivable. The Company considers all highly liquid debt
instruments with an original maturity of three months or less when purchased to be cash equivalents. The Company
maintains its cash and cash equivalents with high-credit quality financial institutions. At October 31, 2010, the
Company had cash and cash equivalent balances in excess of Federally insured limits in the amount of
approximately $4,363,000.
Accounts receivable are financial instruments that also expose the Company to concentration of credit risk.
Such exposure is limited by the large number of customers comprising the Company's customer base and their
dispersion across different geographic areas. In addition, the Company routinely assesses the financial strength of its
customers and maintains an allowance for doubtful accounts that management believes will adequately provide for
credit losses.
Sales to one customer represented 20% and 15% of total sales, and 22% and 26% of total accounts
receivable in 2010 and 2009, respectively. The Company has a standard written distributor agreement with this
customer and, therefore, this customer does not have any minimum purchase obligations and could stop buying the
- 27 -
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Company’s products at any time. A reduction, delay or cancellation of orders from this customer or the loss of this
customer could significantly reduce the Company’s revenues and profits.
Note 3 - Inventories and major vendors
Inventories consist of the following as of October 31:
Raw materials and supplies
Work in process
Finished goods
Less inventory reserve
2010
2009
$
1,405,443
15,425
3,348,944
(161,969)
$
1,355,504
8,105
3,685,950
(64,638)
Totals
$
4,607,843
$
4,984,921
Purchases of connector products from three major vendors represented 23%, 18%, and 14% of total
inventory purchases in 2010 and 23%, 10%, and 8% in 2009, respectively. The Company has arrangements with
these vendors to purchase product based on purchase orders periodically issued by the Company. During the third
quarter of 2010, the Company wrote-off $247,539 of excess and obsolete inventory at the Neulink division not
previously reserved.
Note 4 - Commitments
The Company leases its facilities in San Diego, California and Las Vegas, Nevada under non-cancelable
operating leases. The Company amended its San Diego lease in March 2009 extending the term of the lease and
again in September 2009 adding additional square feet. The amended lease expires in March 2014 and requires
minimum annual rental payments that are subject to fixed annual increases. The minimum annual rentals under this
lease are being charged to expense on the straight-line basis over the lease term. Deferred rents, included in accrued
expenses and other long-term liabilities, were $98,000 as of October 31, 2010 and $80,000 at October 31, 2009. The
San Diego lease also requires the payment of the Company's pro rata share of the real estate taxes and insurance,
maintenance and other operating expenses related to the facilities. The Oddcables.com division operations include a
warehouse and retail space. During the past two years, the Aviel division was leasing two facilities in Las Vegas, the
first of which was a three year lease, which expired in March 2010. The second lease was entered into and
commenced in September 2009 and expires in March 2015. The Company also leases certain automobiles under
operating leases which expire at various dates through October 2014.
Rent expense under all operating leases totaled approximately $465,000 and $459,000 in 2010 and 2009.
Minimum lease payments under these non-cancelable operating leases in each of the years subsequent to
October 31, 2010 are as follows:
Year Ending
October 31,
2011
2012
2013
2014
2015
Total
Amount
414,000
403,000
412,000
179,000
14,000
1,422,000
$
$
The Company has an employment agreement with the President and Chief Executive Officer for a term of
up to three consecutive one year periods commencing on June 20, 2008, and ending on June 20, 2011, which expires
- 28 -
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
at the end of each employment year on June 19 and may be extended by the Company for an additional employment
year on the anniversary dates thereafter. The aggregate amount of compensation to be provided over the remaining
term of the employment agreement amounted to approximately $140,000 at October 31, 2010.
Note 5 - Segment information
The Company aggregates operating divisions into operating segments which have similar economic
characteristics and divisions are similar in the majority of the following areas: (1) the nature of the product and
services; (2) the nature of the production process; (3) the type or class of customer for their products and services;
(4) the methods used to distribute their products or services; (5) if applicable, the nature of the regulatory
environment. The Company has three segments - RF Connector and Cable Assembly, Medical Cabling and
Interconnector and RF Wireless based upon this evaluation.
The RF Connector and Cable Assembly segment is comprised of three divisions, the Medical Cabling and
Interconnector is comprised of one division while the RF Wireless segment is comprised of two. The three divisions
that meet the quantitative thresholds for segment reporting are Connector / Cable Assembly, Bioconnect and RF
Neulink. Each of the other divisions aggregated into these segments have similar products that are marketed to their
respective customer base; production and product development processes are similar in nature. The specific
customers are different for each division; however, there is some overlapping of product sales to them. The methods
used to distribute products are similar within each division aggregated.
Management identifies the Company’s segments based on strategic business units that are, in turn, based
along market lines. These strategic business units offer products and services to different markets in accordance with
their customer base and product usage. For segment reporting purposes, the Company aggregates Connector and
Cable Assembly, Aviel Electronics, and Oddcables.com divisions into the RF Connector and Cable Assembly
segment while RF Neulink and RadioMobile are part of the RF Wireless segment. The Bioconnect Division makes
up the Company’s Medical Cabling and Interconnector segment.
As reviewed by the Company’s chief operating decision maker, the Company evaluates the performance of
each segment based on income or loss before income taxes. The Company charges depreciation and amortization
directly to each division within the segment. All stock based compensation is attributed to the RF Connector and
Cable Assembly segment. Inventory, fixed assets, goodwill and intangible assets are the only assets identified by
segment. Except as discussed above, the accounting policies for segment reporting are the same as for the Company
as a whole.
Substantially all of the Company’s operations are conducted in the United States; however, the Company
derives a portion of its revenue from export sales. The Company attributes sales to geographic areas based on the
location of the customers. The following table presents the sales of the Company by geographic area for the years
ended October 31, 2010 and 2009:
United States
Foreign countries:
Israel
All other
Totals
2010
2009
$
14,504,628
$
11,816,306
696,022
1,121,528
1,175,744
1,220,995
$
16,322,178
$
14,213,045
- 29 -
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Net sales, income before provision for income taxes and other related segment information as of October
31, 2010 and 2009, and for the years then ended follows:
2010
Net sales
Income (loss) before provision for
income taxes
Depreciation and amortization
Total assets
Additions to equipment and
RF
Connector
and Cable
Assembly
$ 14,094,158
Medical
Cabling and
Interconnector
$ 1,724,819
RF
Wireless
Corporate
Total
$
503,201 $
$ 16,322,178
2,606,201
164,055
4,204,819
306,161
23,315
316,149
(908,142)
26,896
86,614 2,090,834
214,266
617,202 13,971,193 19,109,363
furnishings
115,839
32,549
3,462
151,850
2009
Net sales
Income (loss) before provision for
income taxes
Depreciation and amortization
Total assets
Additions to equipment and
$ 12,153,597
$ 1,323,640
$
735,808 $
$ 14,213,045
1,604,193
193,512
4,505,866
114,333
13,613
289,911
(812,386)
32,652
193,429 1,099,569
239,777
919,432 10,882,991 16,598,200
furnishings
187,417
16,820
13,155
217,392
Note 6 - Income taxes
The provision (benefit) for income taxes consists of the following:
Current:
Federal
State
Deferred:
Federal
State
2010
2009
$
825,965 $
211,222
1,037,187
(135,300)
(31,300)
(166,600)
323,716
111,186
434,902
21,200
(12,500)
8,700
Totals
$
870,587 $
443,602
- 30 -
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Income tax at the Federal statutory rate is reconciled to the Company's actual net provision for income
taxes as follows:
Income tax at Federal statutory rate
State tax provision, net of Federal tax
benefit
Nondeductible differences:
ISO stock options
Tax credits
Other
Provision for income taxes
2010
2009
Amount
% of Pretax
Income
Amount
% of Pretax
Income
$
710,100
34.0%
$
373,900
34.0%
118,748
38,000
5.7
1.8
65,133
17,700
5.9
1.6
(50,124)
(4.6)
3,739
870,587
$
0.1
41.6%
$
36,993
443,602
3.4
40.3%
The Company's total deferred tax assets and deferred tax liabilities at October 31, 2010 and 2009 are as
follows:
Current Assets:
Allowance for doubtful accounts
Inventory obsolescence
Accrued vacation
State income taxes
Stock based compensation awards
Section 263A costs
Other
Total current assets
Long-Term Assets:
Amortization / intangible assets
Long-Term Liabilities:
Depreciation / equipment and furnishings
Net deferred tax assets
2010
2009
$
30,200
64,500
105,500
71,800
200,300
97,600
43,200
613,100
$
21,100
25,700
79,500
41,000
171,900
103,300
35,700
478,200
131,600
82,500
(150,400)
(133,000)
$
594,300
$
427,700
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follow:
Balance at November 1, 2008
$ 182,093
Lapse of statute of limitations- tax positions in prior period (49,259)
Gross increase – tax positions in current period 108,510
Balance at November 1, 2009
241,344
Lapse of statute of limitations - tax positions in prior period (194,921)
Gross increase – tax positions in current period 169,748
Balance at October 31, 2010 $ 216,171
The Company’s total gross liability for unrecognized tax benefits at October 31, 2010 was $216,171,
including $52,416 of interest and penalties. At November 1, 2009 the Company’s total gross liability for
unrecognized tax benefits was $241,344, including $59,765 of interest and penalties. During the year ended October
- 31 -
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
31, 2009, a net increase of $7,457 of interest and penalties as a result of a revaluation of prior year balances was
recorded as a component of income tax expense in the statement of income.
The Company does not expect any material changes to the estimated amount of the liability associated with
its uncertain tax positions within the next 12 months. During the year ended October 31, 2010, a reduction of
$7,349 of interest and penalties as a result of a revaluation of prior year balances was recorded as a component of
income tax expense in the statement of income. As of October 31, 2010, $52,416 of accrued interest and penalties
are included in other long-term liabilities in the balance sheet. As of October 31, 2009, $59,765 of accrued interest
and penalties were included in other long-term liabilities in the balance sheet.
The Company is currently not undergoing any tax examinations. Tax fiscal years ended October 31, 2007
through 2010 remain subject to examinations.
Note 7 - Stock options
Incentive and Non-Qualified Stock Option Plans
In May 2000, the Board of Directors adopted the Company’s 2000 Stock Option Plan (the “2000 Option
Plan”). Under the 2000 Option Plan, the Company was authorized to grant options to purchase shares of common
stock to officers, directors, key employees and others providing services to the Company. The number of shares of
common stock that the Company was authorized to issue under options granted under the 2000 Option Plan initially
was 300,000, which number automatically increased on January 1 of each year by the lesser of (i) 4% of the total
number of shares of common stock then outstanding or (ii) 10,000 shares. Subsequently, the Board of Directors and
Stockholders approved several increases in the authorized number of options to the 2000 Option Plan. The 2000
Option Plan expired in May of 2010. At time of expiration, the 2000 Plan had authorized the Company to grant
options to purchase a total of 1,320,000 shares. Upon the expiration of the 2000 Plan, the Company was no longer
able to grant any stock options to its employees, officers and directors. Accordingly, as of October 31, 2010, there
were no shares of common stock authorized by the Company to be issued under the 2000 Option Plan. However,
there were options for 955,396 shares that had been granted under the 2000 Plan, of which 772,572 were still
outstanding and available for exercise. Under the 2000 Option Plan, the Company was authorized to grant both
incentive stock options and non-qualified stock options. Incentive and non-qualified stock options under the 2000
Option Plan were granted at an exercise price no less than the fair value of the common stock on the date of grant.
On March 9, 2010, our Board of Directors adopted the RF Industries, Ltd. 2010 Stock Incentive Plan (the
“2010 Plan”). In June 2010, our stockholders approved the 2010 Plan by vote as required by The NASDAQ Capital
Market listing standards. Accordingly, the Company may now make awards under the 2010 Plan as described
below. The Board adopted the 2010 Plan because the Company’s prior stock option plan, the 2000 Option Plan that
was adopted in May 2000, expired on May 5, 2010. An aggregate of 500,000 shares of common stock was set aside
and reserved for issuance under the 2010 Plan. As of October 31, 2010, 407,546 shares of common stock were
remaining for future grants of stock options under the 2010 Plan.
Additional disclosures related to stock option plans
The fair value of each option granted in 2010 and 2009 was estimated on the date of grant using the Black-
Scholes option-pricing model with the following assumptions:
Expected volatility
Weighted-average volatility
Expected dividends
Expected term (in years)
Risk-free interest rate
2010
2009
50.9%-57.7%
52.1%
1.7%
2.5-3.5
0.5%-1.4%
53.7%-60.4%
56.1%
0.6%
2.5-7.5
1.0%-3.0%
- 32 -
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Weighted average fair market value of options
granted during the year
Weighted average fair market value of options
vested during the year
$
$
1.07
0.89
$
$
0.99
0.85
Expected volatilities are based on historical volatility of the Company’s stock. During fiscal 2010, the
Company granted options for the purchase of 32,000 shares that vested immediately with an option life of five years,
and options for the purchase of 152,908 shares with a vesting period of three years and an option life of five years.
Since the Company has little historical experience in determining the expected life of these new option terms, the
Company used the simplified method to calculate the expected life of these option grants. The expected life
represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the
U.S. Treasury rate with a maturity date corresponding to the options’ expected life. The dividend yield is based upon
the historical dividend yield. The Company estimates forfeiture rates based upon historical exercise behavior.
Additional information regarding all of the Company's outstanding stock options at October 31, 2010 and
2009 and changes in outstanding stock options in 2010 and 2009 follows:
2010
2009
Options outstanding at beginning of year
Options granted
Options exercised
Options forfeited
Shares or
Price Per
Share
2,486,612
184,908
(159,908)
(56,660)
Weighted
Average
Exercise
Price
$ 1.87
3.20
1.29
2.20
Shares or
Price Per
Share
Weighted
Average
Exercise
Price
2,134,082 $ 1.89
2.03
447,910
(95,380)
2.90
Options outstanding at end of year
2,454,952
$ 2.00
2,486,612 $ 1.87
Options exercisable at end of year
1,832,058
$ 1.93
Options vested and expected to vest at end of
year
2,436,456
$
1.99
Option price range at end of year
$ 0.05 - $3.78
$ 0.05 - $3.78
Aggregate intrinsic value of options exercised
during year:
$
338,580
Included in the options outstanding are 1,054,408 in 2010 and 1,001,742 in 2009 previously granted to six
officers and/or key employees of the Company under employment agreements entered into by the Company
with each of these officers and employees.
Weighted average remaining contractual life of options outstanding at October 31, 2010: 4.27 years.
Weighted average remaining contractual life of options exercisable at October 31, 2010: 3.99 years.
Weighted average remaining contractual life of options vested and expected to vest at October 31, 2010: 4.24 years.
Aggregate intrinsic value of options outstanding at October 31, 2010: $3,593,437
Aggregate intrinsic value of options exercisable at October 31, 2010: $2,864,346
Aggregate intrinsic value of options vested and expected to vest at October 31, 2010: $3,566,364
- 33 -
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
As of October 31, 2010, $500,920 of expense with respect to nonvested share-based arrangements has yet
to be recognized and is expected to be recognized over a weighted average period of 4.54 years.
Note 8 - Retirement plan
The Company sponsors a deferred savings and profit sharing plan under Section 401(k) of the Internal
Revenue Code. Substantially all of its employees may participate in and make voluntary contributions to this defined
contribution plan after they meet certain eligibility requirements. The Board of Directors of the Company can
authorize discretionary contributions by the Company. The Company did not make contributions to the plan in 2010
or 2009.
Note 9 - Related party transactions
The note receivable from stockholder of $66,980 at October 31, 2010 and 2009 is due from the President of
the Company, bears interest at 6%, payable annually, and has no specific due date. The note is collateralized by
personal property owned by the President.
A director of the Company is an employee of the Company’s public relations firm. For the fiscal years
ended October 31, 2010 and 2009, the Company paid the firm $52,783 and $52,668, respectively, for services
rendered by that firm.
Note 10- Legal proceedings
From time to time, the Company is involved in legal proceedings that are related to its business operations.
The Company is not currently a party to any legal proceedings that could have a material adverse effect upon its
financial position or results of operations.
Note 11- Business acquisition
The Company acquired substantially all of the assets and assumed certain liabilities of RadioMobile Inc.
(“RadioMobile”), a privately held San Diego, California company on September 1, 2007. RadioMobile Inc. is an
OEM provider of end-to-end mobile management solutions implemented over wireless networks. RadioMobile has
developed software and hardware used by police departments and transportation vehicles to receive and transfer
electronic data. The RadioMobile purchase agreement contains certain provisions containing contractual and/or legal
rights that could potentially create intangible assets apart from goodwill. The asset purchase agreement has an earn
out provision over three years based upon revenues earned by RadioMobile operating as a separate division. As of
October 31, 2010, all earn-out payments had been made. The purchase price for the RadioMobile assets included
$166,667 in cash payments and $175,000 in stock issuance, representing 61,838 shares at $2.83 and totaling $35,665
of guaranteed minimum future consideration. Minimum contingent consideration amounts per the Asset Purchase
Agreement were recorded upon closing at their net present value, using an 8% discount rate.
During the year ended October 31, 2010, shares of the Company’s common stock with a value of $10,000
were paid as per the minimum contingent earn-out provision included in the RadioMobile Asset Sales agreement. As
of October 31, 2010, no additional future consideration was payable.
Note 12- Dividends declaration
The Company paid dividends of $0.015 per share for a total of $84,113 and $94,780 during the fiscal years
ended October 31, 2010 and 2009, respectively.
- 34 -
RF INDUSTRIES, LTD.
NOTES TO FINANCIAL STATEMENTS
Note 13- Accrued expenses and other long-term liabilities
Accrued expenses consist of the following as of October 31:
Wages payable
Accrued receipts
Other current liabilities
Totals
2010
834,188
318,490
64,776
1,217,454
$
$
2009
426,596
183,212
63,272
673,080
$
$
Accrued receipts represent purchased inventory for which invoices have not been received.
Other long-term liabilities consist of the following as of October 31:
Tax related liabilities
Deferred lease liabilities
Other long-term liabilities
Totals
2010
2009
$
$
216,171
81,219
-
297,390
$
$
241,344
79,686
-
321,030
See Note 6 for discussion of the tax-related liabilities. Deferred lease liabilities represent the excess of
recognized rent expense over scheduled lease payments.
Note 14- Subsequent events
At its December 10, 2010 meeting, the Board of Directors approved a $0.015 dividend to be paid on January 17,
2011 to stockholders of record on December 31, 2010. On December 16, 2010, Congress passed the 2010 Tax Relief
Act which will impact the Company’s tax provision in the first quarter of fiscal 2011. Due to the passage of the Act
into law, the Company estimates it will be able to claim an increased tax credit related to the year October 31, 2010
for research and development related to the year ended October 31, 2010 of approximately $55,000. The credit will
be recorded in the first quarter of fiscal 201
- 35 -
Board of Directors
Executive Staff
Service Providers
Independent Auditors
J.H. Cohn LLP
San Diego, CA
(858) 535-2000
Securities Counsel
TroyGould PC
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
Howard F. Hill
Director, CEO
Darren Clark
Director
William L. Reynolds
Director
David Sandberg
Director
J. Randall Waterfield
Director
Corporate Officers
Howard F. Hill
CEO
James S. Doss
President, 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
OddCables.com Division
James Moore
President/General Manager
Radio Mobile Division
Angela Sutton
Director, Human Resources
RF Industries
Common Stock
NASDAQ Global Market Exchange
Symbol: RFIL
Annual Meeting
November 4, 2011
9 a.m., PDST
Offices of TroyGould PC
1801 Century Park East, 16th Floor
Los Angeles, California
(310) 553-4441
Annual reports, 10Ks, 10Qs and news releases are available at www.rfindustries.com, rfi@rfindustries.com
or by contacting Howard Hill at (858) 549-6340 or (800) 233-1728.
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