RF Industries Ltd (RFIL) 2011 Q3 法說會逐字稿

Ladies and gentleman, thank you for standing by. Welcome to the RF Industries third-quarter results conference call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference call is being recorded today, Thursday, September 15, 2011.

Please note that except for the historical statements, statements in this release may constitute forward-looking statements within the meaning of Section 21 E of the Securities Exchange Act of 1934. When used, the words anticipate, believe, expect, intend, future, and other similar expressions identify forward-looking statements. These forward-looking statements reflect management's current views with respect to future events and financial performance, and are subject to risks and uncertainties, and actual results may differ materially from the outcomes contained in any forward-looking statements.

Factors that could cause these forward-looking statements to differ from actual results include delays in development, marketing or sales of new products, and other risks and uncertainties discussed in the Company's periodic reports on Form 10-K and 10-Q, and other filings with the Securities and Exchange Commission. RF Industries undertakes no obligation to update or revise any forward-looking statements.

I will now turn the conference over to Mr. Howard Hill, Chief Executive Officer, and Mr. James Doss, President and Chief Financial Officer of RF Industries. Mr. Hill, you may begin your presentation.

Thank you, Ms. Dixon. First of all, I would like to apologize for my raspy throat. We have been confined in the hotel for the last 4 days, and doing a training session with 1 of our largest distributors, and I guess the air conditioning got me. It's been over 100 degrees here for consecutive days that they broke a record at, so it is unusual that I have this voice, so I apologize.

Welcome to the first quarterly earnings conference call. We plan to use this forum to communicate what we are doing at RFI to keep our investors, customers, and employees up to date with the business developments. With me is James Doss, who will review the financial and other business highlights.

RF Industries' third quarter sales increased 17% to a record $4.948 million due to the acquisition of Cable Unlimited on June 16, 2011. Excluding sales from Cable Unlimited, sales from the other business units were off approximately 9% compared to the record third quarter of last year, primarily due to inventory adjustments of RF Connector's major distributors.

Our operating profitability during the quarter was significantly affected by the expense associated with the acquisition of Cable Unlimited. All told, the total amount for 1-time non-recurring charges was approximately $500,000. Jim Doss, our President and CFO, will have more details about this shortly.

Sales at RF Industries' largest business segment, RF Connector and Cable Assembly, declined about 8% for the quarter. And the business segment recorded an operating loss for the period due to the 1-time charge of the non-recurring for the quarter. Excluding these charges, operating income for the businesses was modestly down from the record pace of last year's third quarter. Sales for the business segment of 2 months of the third quarter were strong, but July shipment level declined because of inventory adjustment and delays in commencing new businesses.

For the 45 days of the quarter after the acquisition of Cable Unlimited, CU's sales were $909,000, and the business was profitable for that period. Although CU's sales running approximately 20% ahead of last year's sales, shipments at CU are seasonal, the same as RF Industries, with some 60% of sales occurring in the months of May through October time period. We expect CU to achieve record sales in the current year, and over time, CU's operating margins should continue to modestly improve.

Sales at Bioconnect were off of the record price they had in the third quarter last year, but this is mostly associated to weaknesses in the end of the third quarter. Bioconnect sales are typically strong in the first half of RF Industries' fiscal year. We believe that a combination of purchase orders in hand, and scheduled product shipments in the current quarter, should again result in record sales profitability in double-digit growth for Bioconnect this year.

RF Industries' product group -- wireless product groups increased due to RF Neulink's strong performance, as the market for wireless industries transceiver products continue to recover. Sales to agricultural and industrial customers are expected to improve in coming years, when FCC mandates replacement of older technology with updated wireless transceivers. Many of Neulink's former customers will be forced to replace their systems by the end of calendar 2012.

RadioMobile has a number of contracts in the pipeline. However, the larger projects have not yet produced purchase orders. We have been delaying the shutdown of RadioMobile at times because of increased business opportunities appeared at hand. But we will take steps to evaluate opportunities to reduce costs at RadioMobile.

I will now turn over the call to Mr. Doss for a review and discussion of financial results for the quarter. Jim?

Good morning, and thank you, Howard. As Howard mentioned, our consolidated net sales increased 17% to a third-quarter record $4.948 million compared to a third-quarter record of last year of $4.230 million during the same period. Gross margin has declined slightly to 48% from 49% of sales, and this is primarily due to the acquisition of Cables Unlimited, whose traditional and historical margins run more along the lines of 30% of sales. Excluding the Cables Unlimited's third quarter gross margin adjustments, the actual gross margin did increase to 51% of sales from 48% in the same third-quarter period of last year.

RF Industries' consolidated operating profit for the quarter was substantially affected, as Howard had mentioned previously, by $503,000 from non-recurring expenses. The combination of the legal, accounting, investment banking, and administrative expenses associated with the acquisition of Cables Unlimited added to the general and administrative expenses for the quarter.

Additionally, RF Industries incurred approximately $60,000 in additional legal, corporate, and administrative expenses to address certain stockholder issues and activities. All told, $562,000 of additional 1-time expenses impacted the quarter. This reduced operating profitability and resulted in net income of $63,000, or $0.01 per diluted share. For the year, though, however, the net sales are still up 19% to $13.48 million compared to the $11.32 million in the same period last year.

Gross margin has improved to 51% from 49% of sales in the same period last year. The net income for the 9 months to-date decreased 5% to $832,000, or $0.12 per diluted share from $785,000, or $0.12 per diluted share from the same period last year -- I am sorry, that was a 5% increase, not decrease.

Let's turn a little bit to our segments. I am going to start with the RF connectors, which comprises over two-thirds of our total sales. The RF connector segment declined in the third quarter 7.7% to $3.274 million compared to $3.546 million in third quarter last year, and this was primarily due to the slowdown in the industry that started in late June. We don't think that these are sales that have been lost; we believe these are sales that have been delayed by our large customers as they adjust their inventory levels for the coming months.

The operating results for this segment were affected by the non-recurring 1-time charges that I had previously discussed. For the 9 months to-date though, the RF connector segment sales increased 4% to $10.144 million from $9.719 million in the same period last year. The gross margin declined slightly to 54% compared to 55% of sales, and this is primarily due to the slowing of the coax and the cable assembly just in the very last portion of that third quarter, as previously mentioned.

At Cables Unlimited, our newest segment, it contributed, in its first 45 days, sales of $909,000. Cables Unlimited's strong gross margin of 37% is well above their historical average of 27% to 30%, as previously stated in our recently filed 8-K. Cables Unlimited's 2010 sales were $6.260 million, and that generated the 27% gross margin with an operating profit of $598,000. As part of the acquisition, RF Industries will be working hard with Cables Unlimited in order to increase and improve those gross margins and operating margins in the coming fiscal year.

Bioconnect sales have declined in the third quarter slightly, from $563,000 to $510,000 in this third quarter. The decline is principally related to the summer seasonality that does affect Bioconnect, and from its major customers. However, gross profits were still very strong at 41% of sales compared to 42% of sales in the same quarter of last year.

The operating profits for the quarter did fall 24% from 27% in the same period of last year. However, for the 9 months, the Bioconnect sales are up 34% to a record $1.8 million from $1.34 million in the same period last year. The gross margin's also up to 39% of sales from 38% of sales in the same period last year. Operating income is very strong, and has increased 44% to $427,000 from $297,000 in the same period last year, despite the weakness in the third quarter. Bioconnect should post continued strong sales and profitability throughout the remaining of the fiscal year.

The RF wireless segment did have a sales increase of 112% to $255,000 from $120,000 in the same period of last year. The sales gains were due primarily to the state of recovery of the market for the wireless transceivers. This resulted in Neulink's sales, which is 1 of the 2 divisions which comprise the wireless segment -- their sales tripled for the quarter to over $200,000. Neulink was profitable in the quarter, which helps contribute to the increase of the wireless segment performance.

However, this business still lost $118,000 in the quarter, which was compared to $392,000 in the same quarter last year. It needs to be pointed out, however, of that $392,000 that they lost last year, $248,000 of that was related to a 1-time inventory write-off within the Neulink division.

For the year, the wireless sales for this segment have increased 142% to $617,000 from only $256,000 in the same period last year. This is primarily due to the improved sales at Neulink, and with also increased sales at RadioMobile. Although the operating loss has narrowed to $509,000 compared to $756,000, as mentioned before, a majority of that is attributed to the fact that last year in the same period there was $248,000 of inventory write-offs.

As we turn to the balance sheet, the Company still has, we feel, an extremely strong balance sheet. We finished the quarter with some $7.4 million in cash, cash equivalents, certificates of deposit, and long-term investments and CDs. It should be noted, however, that of that $7.4 million, $2.3 million of that has been already, as part of the special dividend payment of $0.25 per share, and as part of the scheduled declared dividend that is payable on October 17. The Company's $2.6 million in cash as part of the acquisition of Cables Unlimited, and along with that, you will see the large increases in the inventories and along some other of the current assets, and property and equipment.

I would like to point out as yesterday's release with our 10-Q results, you'll see something new on our balance sheet. The Company, as part of the acquisition, has a VIE obligation that it must account for. What a VIE obligation is, is it is a variable interest entity, and the building in which Cables Unlimited operates in had a guarantee by Cables Unlimited on it. That obligation, that guarantee, we anticipate going away by the end of our fiscal year, and the VIE obligation that's associated with that will also go away. The biggest portion of this you will see under the property and equipment, and it has to do with the land and the building. Those are actually not assets that we anticipate staying on the books as part of the VIE obligation. Those will go away as their was no -- as part of the acquisition, the building and the land associated was not part of it. This has to do with accounting rules that we must follow, obviously, as a public company, and that we must disclose until the guarantee of that loan goes away.

Inventories for the year are up $1.7 million. $500,000 of that inventory has to do with the Cables Unlimited acquisition and inventories that they hold. The other $1.2 million increase in the inventory, that I would like to point out, has to do with strategic buys that RF Industries has made recently and over the course of the year. We have done this in order to take advantage of pricing conditions, and get ahead of any pricing increases that we have heard that are coming down the pipeline for us in the near future. We think this is an extremely good use of our cash, as it helps us maintain our high gross margins within this industry.

If I may interrupt and add something to that -- it was mainly because of the tremendous increase in copper, and the copper prices were going sky high, and precious metals along with that. And before the big price increases of 20%, we made a large purchase to our suppliers to get an edge on our competitors. So, this was a use of our cash at that time.

Thank you, Howard. And as related to the Cables Unlimited acquisition, RF Industries' goodwill and amortizable assets increased on our recent filing by $5.1 million, with our total assets increasing to $26.2 million compared to the $19.1 million as was reported at the end of our last fiscal year. Reflecting the CUI acquisition and continued business growth over the first 9 months, we believe that our strong balance sheet will only help and enhance, and give us the opportunities to move forward with that.

Turning to the liability side, the biggest increase that you will see has to do with our short-term liabilities. Of that, a majority has to do with, at the end of the reporting period, as I previously mentioned, the large special 1-time dividend that the Company recently paid out to its investors, and also the other declared and payable dividend that we have on October 17 that will also be distributed to our shareholders.

This concludes my discussion for our third quarter and our year-to-date financial results, and I would like to turn it back over to Howard.

Thank you, Jim. I would like to take a few minutes to discuss the future businesses. As mentioned earlier, RF connector and cable assembly weakness in July sales rate was followed by a much improved sales rate in August. We should have our 19th year of profitability at the end of October.

One of the factors affecting this business was delays in the installation of high-speed Internet and wireless access systems in less populated regions of the United States. Additionally, another 1 of our end users working through our distributor had experienced difficulty securing funding for the project that they are working on, and we believe that this also was a factor affecting July. The businesses not going away; it is being delayed. We understand that the funding has since been secured, and we believe that the project will continue throughout the coming year.

Another potential area is cable assembly sales growth in the coming years as an opportunity to start production of custom prefabricated cable assemblies for 1 of our major distributors. Cable Unlimited has already begun receiving orders from RF Industries' major distributors for fiber-optic products and connectors. We are here at a conference right now, and we are the hit of the show, let's call it, because of our fiber-optic products, which is going to be in demand in the future. Fiber-optic is very important to the industry right now, and is mainly in the jumper world, which Cable Unlimited will provide these jumpers as a certified Corning house.

Most of CU's sales and OEMs are in New York in the past, while RFI sales are nation and worldwide distributors. We are confident the combination of these 2 businesses will lead to increased synergies in years to come.

We are working to expand Bioconnect sales base, most of which is 2 major customers. While we are achieving some success with this effort, our medical cabling business will continue to be affected by seasonal ordering patterns of its customers. We believe that RF Neulink wireless transceiver business will continue to be profitable in years to come. Sales of existing and new transceiver products are promising. We are, of course, closely monitoring the losses incurred by RadioMobile business, and the continued delay in receipt of purchase orders for this project, some of which are clearly funded, appear to be significant opportunity for RadioMobile's growth. The decision regarding the future of RadioMobile will not be put off indefinitely.

Operator, I would like to turn the floor over to question and answers.

Thank you, sir. (Operator Instructions).

Hello, anybody there?

Our first question will come to the line of William Reynolds. You may proceed.

I just wanted to let you know I was on the line.

Thank you. I got cut off there when they went from music to the group, I guess. I got cut off and when I called in, it was about 2 minutes later. I recognized this voice. What can we answer for you.

Nothing. You have answered all the questions that I have right now.

Okay. Thank you for joining our conference call. We appreciate your support. I look at every one of our stockholders as my boss, and I always listen to a boss.

Next question will come from the line of Vincent Staunton with Wedbush. You may proceed.

Hi, guys.

Hello there.

I have a question regarding Cables Unlimited. You mentioned during the call that gross margins improved from 27% to 37%. Do you think that is sustainable going forward?

Yes, we do. I don't know about the exact -- as far as the 37% goes, but we do feel that we will be able to bring up that historical level of 27%. One of the things that we really see as part of the -- one of the synergies that we can bring to this is that, the way we operate our supply chain is significantly different than the way they have operated their supply chain in the past, and also regards to our labor pool. Very shortly, we started to address some of those issues in the third quarter without even getting into the level that we would like to address it, and it helped. Now, the 37% was also due to such the high level of sales, it didn't obviously achieve some efficiencies on their own, that you would see -- if the sales level were lower, perhaps that -- it wouldn't have maintained that 37%. We do think we will be able to do much better in the future than the 27% that they have historically ran at.

To add to a little bit of that, Jim, is they'll be buying product from us, or RF Connector and so forth, and they will be getting it at our cost where now, prior to our acquisition, they had to pay the margin of some supplier besides us. They were a customer of ours before our acquisition. Also, we are planning to move some assembly over to Cable Unlimited where they are more efficient and vice versa. So, they will be moving some to us and covering the west coast. So, we are using the Mississippi as a separation point of shipping and so forth to give our customers a better cost on shipping and everything else. So, we plan on achieving a lot more business, and that volume should lower -- definitely increase the gross margin.

Okay. Sounds good.

That is our future plans, and I'm telling you right now it is in motion.

Okay. Great. In terms of RF Wireless, sales increased pretty significantly but still reported operating loss. Is the level of sales at which point it will be breakeven?

Well, each -- there are 2 divisions that operate within that RF Wireless segment. The other is actually -- for the Neulink division, depending on which products that they sell, it generally runs around, I would say $700,000 a year while as the RadioMobile side of is significantly higher. The RadioMobile, depending on -- also, its product mix that itself probably needs to achieve a minimum sales level of 1.2 to 1.3 for a breakeven. However, both of these obviously are impacted by which of their product mix that they are selling. The Neulink one for last quarter, obviously, as we said, as a standalone division was profitable, which was very encouraging. It was the first profitable quarter in 7 quarters, I believe.

One of the areas of RadioMobile that we feel is a real niche is that we have a software department with engineers developing software for future customers, customizing for their needs. Our competitors bring in a product and say, this is it, buy it. We are customizing and looking for that niche. The public utility markets are really tight right now on budgets, as we well know. That is holding back some of our larger contracts we're looking at. But I think this will have to break. They can't have public places like the fire department and police departments not to be in proper communication. You can't use cell phones. It is not acceptable. You have to have an area network, and that is RadioMobile's niche, and customizing for each city will be very important. I think we'll get a niche at that.

Okay. Thanks guys.

I hope that answered your questions.

Our next question will come from the line of [Ethram Deals] with Accolade Capital. You may proceed.

Hi, good morning. A couple of questions. One is, and I apologize if I missed it, did you say that this quarter there is about $62,000 of nonrecurring expenses related to a shareholder?

No, no, not to a single shareholder, not at all. It had to do shareholder related items. Our proxy that has been -- that will be fully filed, on September 16, I think there is a preliminary one. You'll notice there's a couple items in there that related to Articles of Incorporation and other things that we had to address. And really have to do that -- we were addressing, researching those items and what we needed to do during the third quarter.

Okay. And for the rest of the year, what are you anticipating in terms of some of these nonrecurring expenses, both from the legal perspective as well as result of the acquisition?

We think that the majority of the legal expenses related to the acquisition are completed. We have recently completed all of the audit requirements and financial reporting requirements that we had to that acquisition. Some of those costs, I believe approximately $100,000 to $125,000 will come through -- and I'm being a worse case estimate on that number, because I don't have them in front of me, related, will come through the fourth quarter of this year. There will be some other system costs, acquisition costs as we migrate our system together. Those will be not until next year, and we'll actually be going to the Board with that with that capital budget and will be having those costs in their next fiscal year.

This is Howard again. We have got a few more wrinkles to wrinkle out or straighten out with Cable Unlimited, but we're going to on our acquisition partners again and go after some more companies and so forth. That is why we have the money in the bank. That is why we have put a reserve there to, as cash is king, to make sure that our acquisition program is active.

Okay. I'm a little new to this story. Could you walk me through some of the rationale behind the Cables Unlimited? Because if one looks at it just on a reported basis, it seems like you paid a rather full price, but I'm sure there is more to it.

That is a great question, and I think we've really seen -- as Howard mentioned, we're at this -- we're at a large customer training -- they call it summit, this week. And our Company has basically gone from where we were a nice connector and coax assembly house. We were able to fill one small niche within that wireless industry, which was really the copper side of it.

What we're able to do now from a product line is we can offer, basically within the wireless infrastructure arena, there is 2 main components of it. There's in building, which it's called, and then there's tower -- cell tower building portion of it. We are able to offer now a complete cabling solution for both of these markets. And when I talk about that, I am talking about for a cell tower, for instance. Besides coax cable that goes on that cell tower, all towers now being built have fiber-optics running on it. There are power cords that are running on that. There is ethernet cords that are running on it, patch cables and jumpers. And we are able to address that completely for a full -- one-stop shopping for our distributors. It is very strategic for them and saving a lot of money, time money and hassle. They do a lot of [kidding] projects for both in building and for cell tower projects. And what they wanted to do is they want to go to one person.

Now, this acquisition, it was driven by our customers' needs coming to us, saying listen, these are the markets we would like you guys to get into. And what we also wanted is, we didn't want to come in at the wrong level of this. We wanted to come in with a good quality company and a good quality name. Being a Corning Gold house gives us instant credibility in the top tier market of the fiber area, and that is what we wanted to do. We needed to come in with that credibility also. Could we have paid less for a company with a lesser reputation and not as much sales and product breadth? Yes, we could have, but we really feel in the long run this was much more of a strategic acquisition.

If I may add some things to this. Corning Gold house is very important. There's only a few houses in the United States that actually are Gold certified. There are 15 or 16, something like that. Cable Unlimited is one of the top ones for Corning. Corning comes in and certifies every year Cable Unlimited, and they put a 25 year warranty with Corning. So, it's really not certified through Cable Unlimited, it is certified through Corning. And they do not build jumpers, so they want to make sure they have some really good manufacturing facilities that do what they need to do. Our -- as Jim said, and we sit down with our distributors quite frequently with training and so forth, and they said, get into fiber, get into fiber. And as I said before, they are my boss, too, so we want to make sure we provide the products or somebody else will.

Besides the different product mix that we have, the other part of it that was really -- we felt had a lot of strength to it was the fact that Cables Unlimited -- their customer base is OEM and direct user base. Whereas a large part of RF Industries' historical customer base has been distribution. So, we were not stepping on each other's toes per se, as far as competing in the marketplace. Bringing Cables Unlimited to our distributors, we -- and all their product lines we feel is going to be a lot of strength in the future.

Okay.

We had a meeting with, here where we are at with our major distributor, and the president of the company, the CEO of the company and all the top officials were in their with the strategic planning committee. He grabbed me and gave me a hug and he said, I am so glad you guys are doing this. He said, we can rely on you. And this is a reputation we have in the industry.

And those were the areas we're trying to leverage was our reputation and our access that we have to market that they previously did not have.

They didn't want to go out and find another supplier.

Right, okay. I will follow up on this matter directly with you guys. One last question, though. What is your CapEx going to be over the next 12 months, assuming no acquisitions?

Actually we have, as part of our year end meeting, we will be addressing that with the Board and with our budgeting committee. I can't tell you a number off the top of my head. I would love to, but we haven't sat down and done that planning yet for the next year. Although we do feel that there will be more than historically, and it is related to the acquisition of Cables Unlimited.

As I pointed out, it should be a record year for RF Industries.

Okay. Thank you.

Next question, please.

Our next question is from the line of John Curti with a Singular Research. You may proceed.

Good morning. My question, first question has to do with Cables Unlimited. I think you mentioned the ability to impact gross margins as well as some labor adjustments, and I was wondering if you could be a little more specific about what you meant about on the labor side.

Sure. On the labor side right now, there is a need there to put in a second shift, I will be quite frank with you. And have a production throughput that is more steady throughout the day, throughout the week and throughout the month then currently what they have. That is one of the things that we are working on there. We think in the long run that will significantly drive down some of the labor costs in relation to the throughput that you are getting through with it.

So, at this point, you are having to run more overtime and --

Yes, exactly.

One of the areas also is coax, for instance. Even though they are very strong in fiber-optic., they do minimal coax. What we wanted -- our operation in San Diego is highly automated. We have the most, the best state-of-the-art equipment that we could possibly buy that we buy around the world. And we are going to move some of that equipment to Cable Unlimited, and they will be doing most of customers east of the Mississippi to cut down costs and make us more favorable against our competition. So, this is a big asset.

We have got it scheduled two weeks from now, our chief operating officer to go back and spend time with them. We have already bought some equipment, it is on order, and we're're going to send it back there and just automate them. It has been mostly manual in the past. But like I said, it has been small. We are going to make it grow back there.

Yes, it'll -- there are certain areas where we will able to do that with, and that is very easy for us to address. The other part of it, their input cost that they have that Howard mentioned on some of their products. The cable itself, but more importantly, the connectors. They will be transferring that stuff at cost, which will significantly reduce the cost inputs that they have on a number of the products that they sell.

Okay.

Vertical integration.

Exactly.

It's perfect.

And how much business do you believe that that existing facility can do without having to expand the facility or go to another building?

There is room in the facility for expansion right now. The building actually sits on a pretty big piece of land, and the owners of that building, they are not opposed to expanding it or us redoing what we need to do within the production facility.

Everybody thinks New York is a bunch of tall buildings. I was shocked, this is the first time I'd ever been to Long Island. There is so much vacant land there it is unbelievable (laughter).

We probably think it could probably double its current sales volume with the right second shift on and doing it correctly without outgrowing that facility.

And they've got plenty of office area they can expand in and so forth. It is really nice building. They've only been there a couple of years.

Yes, two years.

How many employees do they have working the one shift?

They have roughly 40 employees total, and of that, I believe about 25 to 26 of them are production employees. The rest of it is the management, the front office and sales people.

And then on the RF Wireless side, you mentioned that the RadioMobile business would need to do -- get up to around $1.2 million or $1.3 million in revenues to hit a breakeven point. At what level are you currently running on an annualized basis? How far away from that are you?

They are significantly away from that right now.

I'm sorry, I didn't hear you.

They are significantly below that at this point. There are annualized right now. I don't have the numbers in front of me. I apologize. I want to say it is just under $400,000 for the current run rate for the year.

They are not quite halfway yet. As I said before, there are is the contracts that are funded, and this is part of our decision factor that we just reviewed in board meeting a couple of weeks ago that are supposedly in process, and the engineers are telling us, and we are quite involved with that. We have actually units that are working right now in that area and so far, we have positive input from the user of those products. So, that has been our decision delay.

As pointed out in a recent press release that we had, our newly formed strategic committee will be taking a look at RadioMobile and the opportunities and the issues that it has very shortly.

And not to make it too positive, nothing is guaranteed. I'd bet on a horse now and then.

(Laughter) Okay. The Bioconnect medical cabling division. Is most of the revenue coming from just 2 customers?

They have one very large OEM that accounts for, I want to say about 45% of their revenues. It's a very strong relationship. It has been nurtured and been grown over the last few years. We are a key supplier to them.

It is basically the same thing as any business, it's the 80/20 rule that 20% of your customers are bringing in 80% of your business. That's the same thing as our connector, our cable assembly and so forth. We have 3 top distributors that we do very good with, and then we got a handful more of other ones. We have close to 60 distributors worldwide, but the 3 top are 80% of our business. Not quite, but using that (inaudible).

So, you're working to expand the customer base within Bioconnect.

Yes, we are. One of our target for acquisition is another medical division. And the neat thing about that medical division, it's a total different market. It doesn't get affected as much by the wireless industry, these big companies like Verizon, et cetera, et cetera, buying up other companies and then wait for months to integrate their technology and stop all projects. As I said in my -- in our original talk, these projects aren't going away, they're just delayed. And also look at the economy. Our big companies -- our big customers are concerned of the recession that we are involved in. So, they are watching their nickels. As far as inventory adjustment, that means exactly there is really tight inventory. They're really watching it. They don't want to be stuck with a bunch of inventory. A couple of our customers are public. If that inventories sits, that they have to write it off. It is really a big push right now. It is the lack of knowledge of what the future will bring.

And lastly, what do you anticipate CapEx will be for the current year?

For this current year? We have no more large capital expenditures scheduled for the current year at this point.

All right. That is all my questions. Thank you.

Thank you Jim.

(Operator Instructions). Our next question will come from the line of [Leonard Brisman], you may proceed.

Hi, I am Leonard Brisman. I have one question. I would like to know what impact do you see that Red Oak Partners that will have on future business.

Most of all, gaining Red Oak partners and being neglected to a board with the present proxy, we have a one common goal. We want to make money. So, that is the common goal that we will be working with, and we will be working very close with them.

We have engaged with these guys for, probably 6 to 8 months now, and they've got a lot of good ideas. We think they are going to help grow the Company, we think they're going to help maintain strong, and they're going to bring some outside influences on that we haven't had in the past, so we view it as a positive relationship.

Okay. Thank you.

It remains to be seen.

(Operator Instructions). Sir, I show no questions in queue. I will turn it back to you for any closing remarks.

Well, we thank you, gentlemen, for your time -- ladies and gentlemen, for your time and helping us sort through our first earnings call, and we look forward to these in the future.

I will be closing our books in October, a couple months away, and it is going to be a good year. 19 years of making money, I hope.

Thank you gentlemen, for your time -- ladies and gentlemen, for your time.

Thank you, sir,and thank you, participants for your participation in today's conference. You may now disconnect. Have a great day.