SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FOR 10-QSB Quarterly Report Under Section 13 or 15 (d) of Securities Exchange Act of 1934 for Quarter ended January 31, 1998 Commission File Number 0-13301 RF INDUSTRIES, LTD. (Exact name of registrant as specified in its charter) Nevada 88-0168936 (State of Incorporation) (I.R.S. Employer Identification No.) 7610 Miramar Road., Bldg. 6000, San Diego, California 92126-4202 (Address of principal executive offices) (Zip Code) (619) 549-6340 FAX (619) 549-6345 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock at the latest practicable date. As of January 31, 1998, the registrant had 3,064,598 shares of Common Stock, $.01 par value, issued and outstanding. Part I. FINANCIAL INFORMATION Item 1: FINANCIAL STATEMENTS BALANCE SHEET January 31 October 31 1998 1997 ---------- ---------- (Unaudited) (Audited) ASSETS - ------------------- CURRENT ASSETS Cash ............................................... $1,261,636 $ 877,587 Investments in available-for-sale securities ....... 654,458 642,799 Trade accounts receivable less allowance for doubtful accounts of $32,945 ................... 821,714 765,433 Inventories - Note 3 ............................... 2,122,982 2,251,582 Prepaid expenses and deposits ...................... 351,255 293,218 Deferred tax assets ................................ 42,000 42,000 Note receivable from stockholder ................... 70,000 70,000 ---------- ---------- TOTAL CURRENT ASSETS .......................... 5,324,045 4,942,619 FIXED ASSETS Furniture and office equipment ..................... 108,206 108,206 Equipment and tooling .............................. 436,361 436,361 ---------- ---------- Fixed assets, at cost ......................... 544,567 544,567 Less accumulated depreciation and amortization ..... 436,511 425,427 ---------- ---------- NET FIXED ASSETS .............................. 108,056 119,140 Deferred tax assets ................................ 89,000 89,000 Other assets ....................................... 4,900 4,900 ---------- ---------- TOTAL ASSETS .................................. $5,526,001 $5,155,659 ========== ========== 2 BALANCE SHEET January 31 October 31 1998 1997 ---------- ---------- (Unaudited) (Audited) LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------- CURRENT LIABILITIES Accounts payable ............................. $ 240,877 $ 154,256 Accrued expenses ............................. 410,480 295,387 ----------- ----------- TOTAL CURRENT LIABILITIES ............... 651,357 449,643 STOCKHOLDERS' EQUITY Common Stock - $.01 par value Authorized - 10,000,000 shares Issued & outstanding 3,064,598 shares ...... 30,646 30,646 Additional paid-in capital ................... 4,372,608 4,803,366 Retained earnings ............................ 903,448 767,451 Unearned compensation ........................ (432,058) (895,447) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY .............. 4,874,644 4,706,016 ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ................. $ 5,526,001 $ 5,155,659 =========== =========== See Notes to Financial Statements 3 Item 1: FINANCIAL STATEMENTS (continued) STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended January 31 ------------------------- 1998 1997 ---------- ---------- Net sales ........................................ $1,450,387 $1,928,097 Cost of Sales .................................... 705,627 1,070,432 ---------- ---------- Gross profit .................................. 744,760 857,665 Operating expenses: Engineering ................................... 187,715 111,828 Selling and general ........................... 353,284 337,042 ---------- ---------- Total ..................................... 540,999 448,870 ---------- ---------- Income from operations ........................ 203,761 408,795 Interest income, net ............................. 23,236 14,674 ---------- ---------- Income before provision for income tax ....... 226,997 423,469 Provision for income tax ..................... 91,000 183,000 ---------- ---------- Net income ............................... $ 135,997 $ 240,469 ========== ========== Per share data: Basic earnings per share ................. $ 0.04 $ 0.08 ========== ========== Diluted earnings per share ............... $ 0.04 $ 0.08 ========== ========== See notes to Financial Statements 4 STATEMENTS OF CASH FLOWS (Unaudited) Three months ended January 31 ------------------------ 1998 1997 --------- --------- Net income .............................................. $ 135,997 $ 240,472 Adjustments to reconcile net income to net cash provided by operations Depreciation and amortization ...................... 11,084 11,322 Amortization of unearned compensation .............. 32,631 36,141 Change in assets - (incr) decr: Accounts receivable - trade ................... (56,281) 36,621 Inventories ................................... 128,600 (18,770) Other assets .................................. (58,037) (21,978) Change in liabilities - incr (decr): Accounts payable .............................. 86,621 (56,184) Accrued expenses .............................. 115,093 97,081 ----------- ----------- Net cash provided by operating activities ....................... 395,708 324,705 ----------- ----------- INVESTING ACTIVITIES Purchase of available-for-sale securities ...... (11,659) (9,464) Capital expenditures ........................... 0 (3,860) ----------- ----------- Net cash used in operating activities .................. (11,659) (13,324) ----------- ----------- Net increase in cash and cash equivalents ............................ 384,049 311,381 Cash and cash equivalents at the beginning of the period ......................... 877,587 403,547 ----------- ----------- Cash and cash equivalents at the end of period ..... $ 1,261,636 $ 714,928 =========== =========== See Notes to Financial Statements 5 NOTES TO FINANCIAL STATEMENTS Note 1 - Management's opinion In the opinion of management, the accompanying financial statements contain all adjustments necessary to present the financial position of RF Industries, Ltd. as of January 31, 1998 and the results of operations for the three month period ended January 31, 1998 and 1997. Note 2 - Interim reporting The results of operation for the three month period ended January 31, 1998 and 1997 are not necessarily indicative of the results to be expected for the remainder of the year. Note 3 - Components of Inventory January 31, 1998 --------------------- (Unaudited) Raw material and supplies $ 287,432 Finished goods 1,835,550 ---------------- TOTAL. $ 2,122,982 Note 4 - Basic earnings per share In February 1997, the Financail Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128") which replaces the presentation of primary earnings per share required under previously promulgated accounting standards with the presentation of basic earnings per share. It also requires duel presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital strutures and provides guidance on other computational changes. SFAS 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. Accordingly, the Company has adopted SFAS 128 for three months ended January 31, 1998 and has retroactively applied its provisions to earnings per share for the three months ended January 31, 1997. Basic earnings per share was computed based on 3,394,670 and 3,038,191 weighted average common and common equivalent shares outstanding for the three months ended January 31, 1998 and 1997, respectively. Common equivalent shares reflect vested stock options with a nominal exercise price. Diluted earnings per share was computed based on 3,602,870 and 3,227,575 weighted average common and common equivalent shares outstanding for the three months ended January 31, 1998 and 1997, respectively. Common equivalent shares reflect the additional dilutive effect of the exercise of outstanding stock options based on the average market price for the quarter. 6 Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months 1998 vs. Three Months 1997 Net sales decreased 24.8%, or $477,710, to $1,450,387 from $1,928,097 in the first three months of fiscal 1998. RF Connectors sales declined $19,488 to $1,182,442. Last year, Connectors' achieved record sales in the first quarter, typically its seasonally weakest period. Sales at RF Neulink were $267,945, down 63% from record sales of $726,379 last year. Neulink's record sales last year were due to initial shipments of wireless Emergency Alert System receivers. Cost of sales decreased $364,805, to $705,627 from $1,070,432 last year. As a percentage of sales, cost of sales declined to 49% of sales from 56% of sales last year. Cost of sales declined due to lower sales at the RF Neulink division. Engineering expenses increased 67.9%, or $75,887, to $187,715 from $111,828 last year. The increase in engineering expenses is primarily related to customer-funded engineering and development contract at the RF Neulink Division. Selling, marketing and administrative expenses increased 4.8%, or $16,242, to $353,284 from $337,042 last year. These expenses increased to 24% of sales from 17% of sales last year due to higher sales, marketing and administrative costs to support expanded distribution, promote products at industry trade shows and provide training for RF Connectors' distributors' sales agents. Interest income increased $8,562 to $23,236 from $14,674 last year due to the company's higher average cash balances and an increase in the rate of interest received. The provision for income taxes decreased $92,000 due to lower net earnings, which resulted in a blended tax rate of 40% for the quarter compared to 42% in the same period last year. Material changes in financial condition: Cash increased $384,049 to $1,261,636 compared to the October 31, 1997 fiscal year balance of $877,587. This increase can be attributed to sales of a more profitable mix of products. Cash equivalents and investments were $1,916,094 at January 31, 1998 compared to $1,520,386 at October 31, 1997. Trade accounts receivable increased $56,281, or 7.4% to $821,714 compared to the October 31, 1997 balance of $765,433. Inventories decreased $128,600 compared to the October 31, 1997 inventory level. The decrease can be attributed to an improved inventory control system. Prepaid expenses and deposits increased $58,037 from October 31, 1997 due to more deposits, by the Company, for inventory purchases. 7 PART II. OTHER INFORMATION Items 1-4: Not applicable Item 5: Information required in lieu of Form 8-K None. Item 6: Exhibits and Reports on 8-K (a) None required (b) Reports on Form 8-K No reports on Form 8-K were filed during fiscal quarter ended January 31, 1998. 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RF INDUSTRIES, LTD. Dated: March 12, 1998 By: Howard F. Hill -------------------------------- Howard F. Hill, President Chief Executive Officer Dated: March 12, 1998 By: Terrie A. Gross -------------------------------- Terrie A. Gross Chief Financial Officer