UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 
  Form
10-Q
 
  Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
  For
the quarterly period ended January 31, 2009
  Commission
file number:  0-13301
  
 RF
INDUSTRIES, LTD.
 (Exact name of registrant as specified
in its charter)
  Nevada
                  88-0168936(State
      or other jurisdiction of incorporation or organization)
                  (I.R.S.
      Employer Identification No.)7610
      Miramar Road, Building 6000
                    San
      Diego, California
                  92126(Address
      of principal executive offices)
                  (Zip
      Code)
  (858) 549-6340(Registrant’s
      telephone number, including area
code)
  
 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 o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check one):
  Large
      accelerated filer o
              Accelerated
      filer o
              Non-accelerated
      filer o
              Smaller
      reporting company x
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes o  No x
  The
number of shares of the issuer’s Common Stock, par value $0.01 per share,
outstanding as of February 26, 2009 was 3,064,150.
  
  
 
 Part
I. FINANCIAL INFORMATION
 
 Item
1: Financial Statements
  RF
INDUSTRIES, LTD.
 CONDENSED
BALANCE SHEETS
 (UNAUDITED)
 
 January 31,
                    2009
                  
                  
                  October 31,
                    2008(Note 1)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                  
                  $
                  1,159,785
                  
                  
                  $
                  1,060,838Certificates
      of deposit
                  
                  
                  5,791,324
                  
                  
                  
                  6,315,864Investments
      in available-for-sale securities
                  
                  
                  
                  
                  
                  
                  547,847Trade
      accounts receivable, net of allowance for doubtful accounts of $49,737 and
      $46,775
                  
                  
                  1,899,678
                  
                  
                  
                  2,071,349Inventories
                  
                  
                  5,779,150
                  
                  
                  
                  5,949,708Other
      current assets
                  
                  
                  548,283
                  
                  
                  
                  217,443Deferred
      tax assets
                  
                  
                  542,100
                  
                  
                  
                  542,100TOTAL
      CURRENT ASSETS
                  
                  
                  15,720,320
                  
                  
                  
                  16,705,149Equipment
      and furnishings:Equipment
      and tooling
                  
                  
                  2,320,250
                  
                  
                  
                  2,205,525Furniture
      and office equipment
                  
                  
                  377,286
                  
                  
                  
                  377,2862,697,536
                  
                  
                  
                  2,582,811Less
      accumulated depreciation
                  
                  
                  2,072,582
                  
                  
                  
                  2,016,951TOTAL
                  
                  
                  624,954
                  
                  
                  
                  565,860Goodwill
                  
                  
                  347,091
                  
                  
                  
                  347,091Amortizable
      intangible asset, net
                  
                  
                  47,522
                  
                  
                  
                  54,311Note
      receivable from stockholder
                  
                  
                  66,980
                  
                  
                  
                  66,980Other
      assets
                  
                  
                  34,776
                  
                  
                  
                  28,382TOTAL
      ASSETS
                  
                  $
                  16,841,643
                  
                  
                  $
                  17,767,773
  2
  Item 1: Financial Statements
(continued)
  RF
INDUSTRIES, LTD.
 CONDENSED
BALANCE SHEETS
 (UNAUDITED)
 
 January 31,
                    2009
                  
                  
                  October 31,
                    2008(Note 1)LIABILITIES AND STOCKHOLDERS’
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
                  
                  $
                  218,469
                  
                  
                  $
                  329,509Accrued
      expenses
                  
                  
                  722,326
                  
                  
                  
                  760,762Income
      taxes payable
                  
                  
                  19,461
                  
                  
                  
                  232,927TOTAL
      CURRENT LIABILITIES
                  
                  
                  960,256
                  
                  
                  
                  1,323,198Deferred
      tax liabilities
                  
                  
                  105,700
                  
                  
                  
                  105,700Other
      long-term liabilities
                  
                  
                  209,424
                  
                  
                  
                  217,185TOTAL
      LIABILITIES
                  
                  
                  1,275,380
                  
                  
                  
                  1,646,083COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITYCommon
      stock - authorized 10,000,000 shares of $0.01 par value; 3,083,671 and
      3,226,264 shares issued and outstanding
                  
                  
                  30,837
                  
                  
                  
                  32,263Additional
      paid-in capital
                  
                  
                  6,455,381
                  
                  
                  
                  6,411,810Retained
      earnings
                  
                  
                  9,080,045
                  
                  
                  
                  9,677,617TOTAL
      STOCKHOLDERS’ EQUITY
                  
                  
                  15,566,263
                  
                  
                  
                  16,121,690TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
                  $
                  16,841,643
                  
                  
                  $
                  17,767,773
  See Notes
to Condensed Unaudited Financial Statements
  3
 
 Item 1: Financial Statements
(continued)
  RF
INDUSTRIES, LTD.
 CONDENSED
STATEMENTS OF INCOME
 THREE
MONTHS ENDED JANUARY 31
 (UNAUDITED)
 
 2009
                  
                  
                  2008Net
      sales
                  
                  $
                  3,582,583
                  
                  
                  $
                  3,826,566Cost
      of sales
                  
                  
                  1,936,897
                  
                  
                  
                  1,955,493Gross
      profit
                  
                  
                  1,645,686
                  
                  
                  
                  1,871,073Operating
      expenses:Engineering
                  
                  
                  255,726
                  
                  
                  
                  272,392Selling
      and general
                  
                  
                  1,248,791
                  
                  
                  
                  1,331,543Totals
                  
                  
                  1,504,517
                  
                  
                  
                  1,603,935Operating
      income
                  
                  
                  141,169
                  
                  
                  
                  267,138Other
      income - interest
                  
                  
                  82,348
                  
                  
                  
                  69,706Income
      before income taxes
                  
                  
                  223,517
                  
                  
                  
                  336,844Provision
      for income taxes
                  
                  
                  61,078
                  
                  
                  
                  154,603Net
      income
                  
                  $
                  162,439
                  
                  
                  $
                  182,241Basic
      earnings per share
                  
                  $
                  0.05
                  
                  
                  $
                  0.06Diluted
      earnings per share
                  
                  $
                  0.05
                  
                  
                  $
                  0.05Basic
      weighted average shares outstanding
                  
                  
                  3,122,700
                  
                  
                  
                  3,291,503Diluted
      weighted average shares outstanding
                  
                  
                  3,447,665
                  
                  
                  
                  3,723,300
  See Notes
to Condensed Unaudited Financial Statements
  4
  Item 1: Financial Statements
(continued)
  RF
INDUSTRIES, LTD.
 CONDENSED
STATEMENTS OF CASH FLOWS
 THREE
MONTHS ENDED JANUARY 31
 UNAUDITED
 
 2009
                          
                          
                          2008OPERATING
      ACTIVITIES:Net
      income
                          
                          $
                          162,439
                          
                          
                          $
                          182,241Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Bad
      debt expense adjustment
                          
                          
                          4,956
                          
                          
                          
                          (3,502
                          )Depreciation
      and amortization
                          
                          
                          62,420
                          
                          
                          
                          68,903Deferred
      income taxes
                          
                          
                          
                          
                          
                          
                          49,000Stock-based
      compensation expense
                          
                          
                          49,646
                          
                          
                          
                          139,981Changes
      in operating assets and liabilities:Trade
      accounts receivable
                          
                          
                          166,715
                          
                          
                          
                          209,808Inventories
                          
                          
                          170,558
                          
                          
                          
                          (492,277
                          )Income
      taxes payable
                          
                          
                          (213,466
                          )
                          
                          
                          (124,935
                          )Other
      current assets
                          
                          
                          (330,840
                          )
                          
                          
                          (129,929
                          )Other
      long-term assets
                          
                          
                          (6,394
                          )
                          
                          
                          -Accounts
      payable
                          
                          
                          (111,041
                          )
                          
                          
                          78,886Accrued
      expenses
                          
                          
                          (6,156
                          )
                          
                          
                          212,742Other
      long-term liabilities
                          
                          
                          (7,761
                          )
                          
                          
                          23,739Net
      cash provided by (used in) operating activities
                          
                          
                          (58,924
                          )
                          
                          
                          214,657INVESTING
      ACTIVITIES:Purchase
      of short term investments
                          
                          
                          (1,500,000
                          )
                          
                          
                          (1,200,000
                          )Sale
      of short term investments
                          
                          
                          2,572,386
                          
                          
                          
                          1,400,000Capital
      expenditures
                          
                          
                          (114,725
                          )
                          
                          
                          -Net
      cash provided by investing activities
                          
                          
                          957,661
                          
                          
                          
                          200,000FINANCING
      ACTIVITIES:Proceeds
      from exercise of stock options
                          
                          
                          -
                          
                          
                          
                          29,789Purchases
      of treasury stock
                          
                          
                          (705,010
                          )
                          
                          
                          -Dividends
      paid
                          
                          
                          (94,780
                          )
                          
                          
                          -Net
      cash provided by (used in) financing activities
                          
                          
                          (799,790
                          )
                          
                          
                          29,789Net
      increase in cash and cash equivalents
                          
                          
                          98,947
                          
                          
                          
                          444,446Cash
      and cash equivalents, beginning of period
                          
                          
                          1,060,838
                          
                          
                          
                          3,400,566Cash
      and cash equivalents, end of period
                          
                          $
                          1,159,785
                          
                          
                          $
                          3,845,012Supplemental
      cash flow information:Income
      taxes paid
                          
                          $
                          295,000
                          
                          
                          $
                          230,000Retirement
      of treasury stock
                          
                          
                          705,010Stock
      issuance related to contingent liability
                          
                          
                          30,000Dividends
      declared
                          
                          
                          
                          
                          
                          
                          98,230
  See Notes
to Condensed Unaudited Financial Statements
  5
 
 RF
INDUSTRIES, LTD.
 NOTES
TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
  Note
1 - Unaudited interim condensed financial statements
  The
accompanying unaudited condensed financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments have been included in order to make the information not misleading.
Information included in the balance sheet as of October 31, 2008 has been
derived from, and certain terms used herein are defined in, the audited
financial statements of the Company as of October 31, 2008 included in the
Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended October
31, 2008 that was previously filed with the Securities and Exchange Commission
(“SEC”). Operating results for the three month period ended January 31, 2009,
are not necessarily indicative of the results that may be expected for the year
ending October 31, 2009. The unaudited condensed financial statements should be
read in conjunction with the financial statements and footnotes thereto included
in the Company’s Annual Report on Form 10-K for the year ended October 31,
2008.
  Revenue
Recognition
  The
Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No.
104, “Revenue Recognition in Financial Statements” (“SAB 104”). SAB 104 requires
that four basic criteria must be met before revenue can be recognized: (1)
persuasive evidence of an arrangement exists; (2) delivery has occurred or
services rendered; (3) the fee is fixed and determinable; and (4) collectability
is reasonably assured. The Company recognizes revenue from product sales after
purchase orders, which contain fixed prices, are received and the products are
shipped. Most of the Company’s products are sold to continuing customers with
established credit histories.
  Note
2 - Fair value measurements
 
 Effective
November 1, 2008, the Company adopted the methods of fair value as
described  in SFAS No. 157 ”Fair Value Measurements” (“SFAS 157”), to
value its financial assets and liabilities. As defined in SFAS 157, fair value
is based on the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. In order to increase consistency and comparability in fair
value measurements, SFAS 157 establishes a fair value hierarchy that prioritizes
observable and unobservable inputs used to measure fair value.  The
adoption of SFAS 157 did not impact our financial position, results of
operations or cash flows.
 
 In
addition, on November 1, 2008 the Company adopted SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (“SFAS 159”). Under SFAS
159, companies may elect to measure certain financial instruments and certain
other items at fair value. SFAS 159 requires that unrealized gains and losses on
items for which the fair value option has been elected be reported in earnings.
We did not elect to use the fair value option.  Therefore, the
adoption of SFAS 159 did not impact our financial position, results of
operations or cash flows.
 
 Note
3 - Components of inventory
  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.
  January 31, 2009
                  
                  
                  October 31, 2008Raw
      materials and supplies
                  
                  $
                  1,538,391
                  
                  
                  $
                  1,496,364Work
      in process
                  
                  
                  20,817
                  
                  
                  
                  31,131Finished
      goods
                  
                  
                  4,234,293
                  
                  
                  
                  4,502,890Inventory
      reserve
                  
                  
                  (14,351
                  )
                  
                  
                  (80,677
                  )Total
                  
                  $
                  5,779,150
                  
                  
                  $
                  5,949,708
  6
 
 Purchases
of connector products from two major vendors in the three month period ended
January 31, 2009 represented 21%, and 14% compared to three major vendors who
represented 28%, 18%, and 11% of the total inventory purchases for the same
period in 2008. The Company has arrangements with these vendors to purchase
product based on purchase orders periodically issued by the
Company.
 
 Note
4 - Earnings per share
  Basic
earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is computed by dividing net income by the weighted average number of
common shares outstanding increased by the effects of assuming that other
potentially dilutive securities (such as stock options) outstanding during the
period had been exercised and the treasury stock method had been applied. At
January 31, 2009, the effects of the assumed exercise of options to purchase
385,423 shares of the Company’s common stock, at a price range of $4.94 to $7.56
per share, were not included in the computation of diluted per share amounts
because they were anti-dilutive for that purpose. At January 31, 2008, the
effects of the assumed exercise of options to purchase 256,646 shares of the
Company’s common stock, at a price of $6.62 to $7.56 per share, were not
included in the computation of diluted per share amounts because they were
anti-dilutive for that purpose.
  The
following table summarizes the computation of basic and diluted weighted average
shares outstanding:
  Three Months Ended January 312009
                  
                  
                  2008Weighted
      average shares outstanding for basic earnings per share
                  
                  
                  3,122,700
                  
                  
                  
                  3,291,503Add
      effects of potentially dilutive securities-assumed exercise of stock
      options
                  
                  
                  324,965
                  
                  
                  
                  431,797Weighted
      average shares for diluted net earnings per share
                  
                  
                  3,447,665
                  
                  
                  
                  3,723,300
 
 Note
5 - Stock-based compensation and equity transactions
 
 The
stock incentive plans provide for the granting of qualified and nonqualified
options to the Company’s officers, directors and
employees.  Non-qualified stock options granted during the quarter
ended January 31, 2009 vest and are exercisable immediately and expire in five
years from date of grant.  Options granted prior to fiscal 2008 were
generally exercisable one year after the date of the grant and expire no more
than ten years after the date of grant. The Company satisfies the exercise of
options by issuing previously unissued common shares.  Options granted
in the three months ended January 31, 2008 were subsequently cancelled,
therefore the weighted average fair value is not presented.
  The
weighted average fair value of employee stock options granted by the Company in
the three months ended January 31, 2009 was estimated to be $1.32 per share,
using the Black-Scholes option pricing model with the following
assumptions:
  Risk-free
      interest rate
                                  
                                  
                                  1.01
                                  %Dividend
      yield
                                  
                                  
                                  2.96
                                  %Expected
      life of the option
                                  
                                  2.5
      yearsVolatility
      factor
                                  
                                  
                                  60.37
                                  %
  Expected
volatilities are based on historical volatility of the Company’s stock and other
factors. The Company used the simplified method to calculate the expected life
of the 2009 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.
  Issuances
of common stock by the Company
  During
the three months ended January 31, 2009, the Company issued 7,407 shares of
common stock to the former owner of RadioMobile.  This transaction
related to the RadioMobile Purchase Agreement earn-out contingency as more fully
described in Note 11 of the Company’s Annual Report on Form 10-K for the year
ended October 31, 2008 .
  7
 
 Company
Stock Option Plans
  Descriptions
of the Company’s stock option plans are included in Note 7 of the Company’s
Annual Report on Form 10-K for the year ended October 31, 2008. A summary of the
status of the options granted under the Company’s stock option plans as of
January 31, 2009 and the changes in options outstanding during the three months
then ended is presented in the table that follows:
  Shares
                      
                      
                      Weighted
                        Average Exercise
                        Price
                      
                      Weighted Average
                        Remaining
                        Contractual Term
                      
                      Aggregate
                        Intrinsic
                        ValueOutstanding
      at November 1, 2008
                      
                      
                      1,067,041
                      
                      
                      $
                      3.77Options
      granted
                      
                      
                      16,000
                      
                      
                      $
                      4.05Options
      exercised
                      
                      
                      -
                      
                      
                      $
                      -Options
      canceled or expired
                      
                      
                      (22,210
                      )
                      
                      $
                      6.08Options
      outstanding at January 31, 2009
                      
                      
                      1,060,831
                      
                      
                      $
                      3.72
                      
                      5.38 years
                      
                      $
                      $1,463,357Options
      exercisable at January 31, 2009
                      
                      
                      833,648
                      
                      
                      $
                      3.77
                      
                      5.73 years
                      
                      $
                      1,284,057
 
 As of
January 31, 2009, $319,073 of expense with respect to nonvested share-based
arrangements has yet to be recognized which is expected to be recognized over a
weighted average period of 3.11 years.
 
 Stock
Option Expense
 
 During
the three months ended January 31, 2009 and 2008, stock-based compensation
expense totaled $49,646 and $139,981, respectively.
 
 Note
6 - Concentration of Credit Risk
 
 Two
customers accounted for approximately 14% and 13% of the Company’s net sales for
the three months ended January 31, 2009. One customer accounted for 15% of the
Company’s net sales for the three months ended January 31, 2008. Although these
customers have been on-going major customers of the Company continuously during
the past eight and eleven years, respectively, the written agreements with these
customers do not have any minimum purchase obligations and the customers could
stop buying the Company’s products at any time and for any reason. A reduction,
delay or cancellation of orders from these customers or the loss of these
customers could significantly reduce the Company’s revenues and
profits.
  Note
7 - Segment Information
  The
Company follows the provisions of SFAS No. 131, “Disclosures about Segments of
an Enterprise and Related Information (“SFAS 131”).” Pursuant to the provisions
of SFAS 131, the Company reports segment sales in the same format reviewed by
the Company’s management chief decision maker (the “management
approach”).
  The
Company aggregates operating divisions into operating segments which have
similar economic characteristics and divisions are similar in the majority of
the following areas: (1) the nature of the product and services; (2) the nature
of the production process; (3) the type or class of customer for their products
and services; (4) the methods used to distribute their products or services; (5)
if applicable, the nature of the regulatory environment. The Company has three
segments - RF Connector and Cable Assembly, Medical Cabling and Interconnector,
and RF Wireless based upon this evaluation.
 
 The RF
Connector and Cable Assembly segment is comprised of three divisions, the
Medical Cabling and Interconnector is comprised of one division while the RF
Wireless segment is comprised of two. The three divisions that meet the
quantitative thresholds for segment reporting are Connector / Cable Assembly,
Bioconnect and RF Neulink. Each of the other divisions aggregated into these
segments that have similar products that are marketed to their respective
customer base; production and product development processes are similar in
nature. The specific customers are different for each division; however, there
is some overlapping of product sales to them. The methods used to distribute
products are similar within each division aggregated.
 
 Management
identifies the Company’s segments based on strategic business units that are, in
turn, based along market lines. These strategic business units offer products
and services to different markets in accordance with their customer base and
product usage. For segment reporting purposes, the Company aggregates Connector
and Cable Assembly, Aviel Electronics, and Worswick divisions into the RF
Connector Cables Assembly segment while RF Neulink and RadioMobile are part of
the RF Wireless segment. The Bioconnect division makes up the Company’s Medical
Cabling and Interconnector segment.  The Company had previously
aggregated BioConnect within the RF Connector and Cables Assembly segment as it
represented only a small portion and had similar economic characteristics of the
overall segment. During Fiscal Year 2008, the BioConnect division met one of the
quantitative threshold required for separate segment reporting. Prior year’s
information has been revised to conform with the current year’s
presentation.
  8
  As
reviewed by the Company’s chief operating decision maker, the Company evaluates
the performance of each segment based on income or loss before income taxes. The
Company charges depreciation and amortization directly to each division within
the segment. All stock-based compensation is attributed to the RF Connector
Cable Assembly segment. 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
three months ended January 31, 2009 and 2008:
  Three Months Ended January 312009
                  
                  
                  2008United
      States
                  
                  $
                  2,773,233
                  
                  
                  $
                  3,167,140Foreign
      countries:Israel
                  
                  
                  512,149
                  
                  
                  
                  225,134All
      other
                  
                  
                  297,201
                  
                  
                  
                  434,292$
                  3,582,583
                  
                  
                  $
                  3,826,566
  Net
sales, income (loss) before provision for income taxes and other related segment
information for the three months ended January 31, 2009 and 2008 are as
follows:
 
 2009
                    
                    RF
      Connectors
                      and
                      Cable Assembly
                    
                    
                    Medical
                      Cabling
      and
                      Interconnector
                    
                    
                    RF
                      Wireless
                    
                    
                    Corporate
                    
                    
                    TotalNet
      sales
                    
                    $
                    3,128,257
                    
                    
                    $
                    273,157
                    
                    
                    $
                    181,169
                    
                    
                    
                    
                    
                    $
                    3,582,583Income
      (loss) before provision for income taxes
                    
                    
                    300,348
                    
                    
                    
                    (15,795)
                    
                    
                    
                    (143,384)
                    
                    
                    $
                    82,348
                    
                    
                    
                    223,517Depreciation
      and amortization
                    
                    
                    52,090
                    
                    
                    
                    3,421
                    
                    
                    
                    6,909
                    
                    
                    
                    
                    
                    
                    
                    62,420207
      2008Net
      sales
                    
                    $
                    3,277,369
                    
                    
                    
                    202,404
                    
                    
                    $
                    346,793
                    
                    
                    $
                    
                    
                    
                    $
                    3,826,566Income
      (loss) before provision for income taxes
                    
                    
                    338,626
                    
                    
                    
                    (16,420)
                    
                    
                    
                    (55,068)
                    
                    
                    
                    69,706
                    
                    
                    
                    336,844Depreciation
      and amortization
                    
                    
                    53,981
                    
                    
                    
                    5,571
                    
                    
                    
                    9,351
                    
                    
                    
                    
                    
                    
                    
                    68,903
  Note 8 - Income tax
provision
  The
income tax provision reflected in the accompanying unaudited condensed statement
of income for the three months ended January 31, 2009 is different than the
expected tax provision computed based on the pre-tax income and the applicable
statutory Federal income tax rate of 34% and the state income tax rate, net of
Federal tax effects, of 6.4%. Interim tax provisions are determined using an
estimate of the annual effective tax rate. As of January 31, 2009, the Company
estimated that its effective annual tax rate for the year ending October 31,
2009 will be approximately 39.3%, which is above the expected statutory rate
primarily due to state income taxes, net of federal benefit.
 
 The
provision for income taxes during the first quarter of 2009 was $61,078 (or an
effective tax rate of approximately 27%), compared to $154,603 in the fiscal
quarter ended January 31, 2008 (or an effective tax rate of approximately 46%).
The significant decrease in the tax rate in the first fiscal quarter of 2009 is
the result of the Company recognized a one time tax benefit of approximately
$32,000 that related to a domestic product activity adjustment. Without this
adjustment, the effective tax rate for the three months ended January 31, 2009
would have been closer to the projected effective rate of 39.3% for fiscal
2009.
  9
 
 Note
9 - Dividend Declaration
  On
December 15, 2008, the Board of Directors of the Company declared a quarterly
cash dividend of $0.03 per share.  The dividend date of record was
December 31, 2008 and the dividend, totaling $94,780, was paid to the
stockholders on January 15, 2009.
 
 Note
10 - Amortizable Intangible assets:
 
 Amortizable
intangible assets are comprised of the following:
  January 31,
                                        2009
                                      
                                      
                                      October
      31,
                                        2008Intangible
      assetsNon-compete
      agreement
                                      
                                      $
                                      120,000
                                      
                                      
                                      $
                                      120,000Accumulated amortization
                                      
                                      
                                      (120,000
                                      )
                                      
                                      
                                      (120,000
                                      )—
                                      
                                      
                                      
                                      —Software
                                      
                                      
                                      47,522
                                      
                                      
                                      
                                      47,522Accumulated
      amortization
                                      
                                      
                                      (19,801
                                      )
                                      
                                      
                                      (15,841
                                      )27,721
                                      
                                      
                                      
                                      31,681Customer
      List
                                      
                                      
                                      33,945
                                      
                                      
                                      
                                      33,945Accumulated
      amortization
                                      
                                      
                                      (14,144
                                      )
                                      
                                      
                                      (11,315
                                      )19,801
                                      
                                      
                                      
                                      22,630Totals
                                      
                                      $
                                      47,522
                                      
                                      
                                      $
                                      54,311
  Note
11 – Related party transactions:
 
 The note
receivable from stockholder of $66,980 at January 31, 2009 and October 31, 2008
is due from the President of the Company, bears interest at 6%, payable
annually, and has no specific due date. The note is collateralized by a lien on
certain personal property. During the three months ended January 31, 2009 and
January 31, 2008, $4,019 of interest was paid.
 
 Note
12 – Repurchase and retirement of treasury stock:
 
 In
September 2008, the Company announced that our Board of Directors had authorized
a stock repurchase program to repurchase up to 100,000 shares of the Company’s
common stock.  In October 2008, Company announced that our Board of
Directors had authorized a stock repurchase program to repurchase up to an
additional 100,000 shares of the Company’s common stock. The repurchases were to
be made from time to time in the open market transactions in compliance with the
Securities Exchange Act of 1934, or the Exchange Act, Rule
10b-18.  During the three months ended January 31, 2009, the Company
repurchased 100,000 shares of its common stock in accordance with this plan for
$498,510.  In addition to the Rule 10b-18 public repurchase program,
the Company also repurchased 50,000 shares in a private transaction during the
three months ended January 31, 2009 for $206,500.
  Note
13 – Subsequent Events:
 
 In
February 2009, the Company repurchased an additional 19,521 shares of the
Company’s common stock in the open market. The average price of the shares
repurchased was $4.30 per share.
  10
 
 Item 2:   Management’s Discussion and Analysis
of Financial Condition and Results of Operations
  This
report contains forward-looking statements. These statements relate to future
events or the Company’s future financial performance. In some cases, you can
identify forward-looking statements 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 statements are only predictions. Actual events or results may
differ materially.
  Although
the Company believes that the expectations reflected in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance or achievements. Moreover, neither the Company, nor any
other person, assumes responsibility for the accuracy and completeness of the
forward-looking statements. The Company is under no obligation to update any of
the forward-looking statements after the filing of this Quarterly Report on Form
10-Q to conform such statements to actual results or to changes in its
expectations.
  The
following discussion should be read in conjunction with the Company’s financial
statements and the related notes and other financial information appearing
elsewhere in this Form 10-Q. Readers are also urged to carefully review and
consider the various disclosures made by the Company which attempt to advise
interested parties of the factors which affect the Company’s business, including
without limitation the disclosures made under the caption “Management’s
Discussion and Analysis and Plan of Operation,” under the caption “Risk
Factors,” and the audited financial statements and related notes included in the
Company’s Annual Report filed on Form 10-K for the year ended October 31, 2008
and other reports and filings made with the Securities and Exchange
Commission.
  Critical
Accounting Policies
  The
financial statements of the Company are prepared in conformity with accounting
principles generally accepted in the United States of America (“GAAP”). The
preparation of these financial statements requires the Company’s management to
make estimates and assumptions about future events that affect the amounts
reported in the financial statements and related notes. Future events and their
effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. The Company’s
significant accounting policies are summarized in Note 1 to the financial
statements contained in its Annual Report on Form 10-K filed for the fiscal year
ended October 31, 2008.
  Executive
Overview
  The
Company markets connectors and cables to numerous industries for use in
thousands of products, primarily for the wireless marketplace. In addition, to a
limited extent, the Company also markets wireless products that incorporate
connectors and cables. Since sales of RF connectors and cable assemblies
represented 87% of the Company’s net sales during the three month period ended
January 31, 2009, the Company’s results of operations and liquidity are
principally dependent upon the results of its RF connector and cable
operations.
  Liquidity
and Capital Resources
  Management
believes that 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 at least twelve months.
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’s beliefs that its
existing assets and the cash expected to be generated from operations will be
sufficient during the current fiscal year are based on the
following:
  ·
                As
      of January 31, 2009, the amount of cash and cash equivalents was equal to
      $1,159,785 in the aggregate and the Company had $5,791,324 of investments
      in certificates of deposit.
  ·
                As
      of January 31, 2009, the Company had $15,720,320 in current assets, and
      $960,256 in current liabilities.
  ·
                As of January 31, 2009, the
      Company had no outstanding indebtedness (other than accounts payable,
      accrued expenses and income taxes
  payable).
 The
Company does not anticipate needing material additional capital equipment in the
next twelve months as it purchased most of the necessary additions during the
first quarter of fiscal 2009. In the past, the Company has financed some of its
equipment and furnishings requirements through capital leases. No additional
capital equipment purchases have been currently identified that would require
significant additional leasing or capital expenditures during the next twelve
months. Management also believes that based on the Company’s current financial
condition, the absence of outstanding bank debt and recent operating results,
the Company would be able to obtain bank loans to finance its expansion, if
necessary, although there can be no assurance any bank loan would be obtainable
or, if obtained, would be on favorable terms or conditions.
  11
  The
Company recognized net income of $162,439 for the three months ended January 31,
2009.  However, because the Company used $213,466 to pay income taxes,
$111,041 to further reduce its accounts payable, and $330,804 for prepaid
expenses and deposits, which outlays were partially offset by increased
collections of its accounts receivable and a decrease in its inventory levels,
the Company had a negative cash outlay of $58,924 in operating activities during
the three months ended January 31, 2009.  The Company liquidated
$2,572,386 short term investments which consist mainly of Certificates of
Deposit during the January 31, 2009 quarter and invested $1,500,000 of those
funds in other Certificates of Deposit.  As a result of these
investment activities, the Company realized $957,661 from investing
activities.  During the fiscal quarter, the Company also used $799,790
of its funds to repurchase some of its outstanding common stock for a total of
($705,010) pursuant to the publicly announced stock repurchase program, and to
pay dividends ($94,780).  As a result, the Company’s overall cash
position increased by $98,947 during the three months ended January 31,
2009.
  Trade
accounts receivable (net of allowances for doubtful accounts) at January 31,
2008 decreased approximately 8%, or by $171,671 to $1,899,678 compared to the
October 31, 2008 balance of $2,071,349. The decrease in accounts receivable is
due to improved receivables management and collection efforts by the
Company.
  Inventories
at January 31, 2009 decreased 3%, or $170,558 to $5,779,150 compared to
$5,949,708 at October 31, 2008. The decrease in inventories is due to
decreased sales during the three months ended January 31, 2008. We adjusted our
inventory purchases to reflect the decrease in actual and anticipated
sales.
  Other
current assets, including prepaid expenses and deposits, increased $330,840 to
$548,283 as of January 31, 2009, from $217,443 on October 31, 2008 mainly
as a result of the renewal of certain insurance contracts as well as the
addition of prepaid inventory purchases.
  Accounts
payable at January 31, 2009 decreased $111,040 to $218,469 from $329,509 on
October 31, 2008. The change in accounts payable is related to a decrease in
sales and a decrease in the purchase of inventories during the current
period.
  Net cash
provided by investing activities was $957,661 for the three months ended January
31, 2009 and was attributable to the purchase of $1,500,000 of
available-for-sale securities, the sale of $2,572,386 of available-for-sale
securities, and $114,725 of capital expenditures.
  Net cash
used in financing activities was $799,790 for the three months ended January 31,
2009, and was attributable to the purchase of $705,010 of treasury stock and
$94,780 to pay cash dividends.
  As of January 31, 2009, the Company had
a total of $1,159,785 of cash and cash equivalents compared to a total of
$1,060,838 of cash and cash equivalents as of October 31, 2008. However, the
amount of short term investments in short-term investments decreased by
$1,072,387 to $5,791,324 from $6,863,711 on October 31, 2008 due to certain of
the Company’s Certificates of Deposit maturing. Collectively, the amount of cash
and available-for-sale securities that the Company held on January 31, 2009
decreased by $973,440 from the amount held on October 31, 2008 due to the cash
flows from operations and cash flows from investing activities during the fiscal
quarter ended January 31, 2009. The Company had working capital of
$14,760,064 and a current ratio of approximately 16:1.
 
 Results
Of Operations
  Three
Months Ended 2009 vs. Three Months Ended 2008
  Net sales
in the current fiscal quarter ended January 31, 2009, decreased 6%, or $243,983
to $3,582,583 from $3,826,566 in the comparable fiscal quarter of prior year,
due to decreased sales of the Company’s connectors and radio modems. Sales
decreased from the prior year’s period due to current negative economic
conditions, which caused some of the Company’s distributors to carry lower
inventory levels and in turn resulted in lower sales to these distributors in
the first quarter of fiscal 2009.
 
 The
decrease in domestic sales was partially offset by increased foreign
sales.  Foreign sales during the fiscal quarter ended January 31, 2009
increased by $149,924 to $809,350 compared to foreign sales of $659,426 during
the fiscal quarter ended January 31, 2008. Foreign sales represented
approximately 23% and 17% of the Company’s net sales during the fiscal quarters
ended January 31, 2009 and 2008, respectively. The increase in foreign sales is
primarily due to cable assembly sales to one major international customer in
Israel.
  12
  The
Company’s gross profit as a percentage of sales decreased 3% to 46% during the
current fiscal quarter compared to 49% in the comparable fiscal quarter of prior
year.  The Company operates in three segments.  Although the
gross profit margin of the RF Connector and Cable Assembly segment decreased
slightly (by 1%), the principal decreases in gross profits occurred in the RF
Wireless segment and in the Bioconnect segment.  The gross profit
margin of the RF Wireless segment decreased 18% to 29% compared with 47% in the
prior comparable quarter.  This was due to a decrease in sales of
wireless radio modems, which caused net sales to decrease by $165,624 to
$181,169 from $346,793 in the prior comparable period.  The Company
was unable to reduce its fixed cost of goods in the RF Wireless segment to match
the decrease in sales in that segment.  The gross profit margin of the
Medical Cabling and Interconnector segment decreased by 12% to 10% compared with
22% in the prior comparable quarter.  This was due to an increase in
sales of $70,753 from the prior comparable quarter offset by an increase of
$89,808 in cost of goods sold from the prior comparable quarter. During the
first quarter of fiscal 2009, the Company’s fixed component cost of labor was
higher than in the prior comparable quarter of fiscal 2008, which caused a
decrease in gross margins in its segments. The increase in sales was primarily
attributable to increased sales to one customer, while the increase in cost of
goods sold was due to the fact that manufacturing labor costs increased from
prior comparable quarter.  Sales of the RF Connector and Cable
assembly segment accounted for approximately 87% of the Company’s total sales
and 81% of the total cost of goods sold in the current three month period,
compared to 86% of the Company’s total sales and 83% of the total cost of goods
sold in the comparable quarter of prior year.
  Engineering
expenses decreased 5%, or $16,666, to $255,726 from $272,392 in the comparable
quarter of the prior year due to a decrease in contract labor and stock option
expense.
  Selling
and general expenses decreased 6% or $82,752 to $1,248,791 from $1,331,543 in
the comparable quarter of the prior fiscal year. The decrease in selling and
general expenses was due primarily to a decrease in accounting and legal fees
and stock option expense from the comparable period in 2008 and to other cost
cutting initiatives that the Company commenced implementing as a result of
future market uncertainties.
  Other
income for the first quarter of 2009 increased $12,642 over the same period in
the prior year due to higher investment interest income reflecting an increase
in interest rates attributable to the mix of the Company’s investment
portfolio.
  As a
result of the decrease in revenues and the decrease in gross profit as a
percentage of sales, income before the provision for income taxes during the
fiscal quarter ended January 31, 2009 decreased by $113,326 to $223,518. Income
before provision for income taxes for the fiscal quarter ended January 31, 2008
was $336,844.
 
 The
provision for income taxes during the first quarter of 2009 was $61,078 (or an
effective tax rate of approximately 27%), compared to $154,603 in the first
quarter ended January 31, 2008 (or an effective tax rate of approximately 46%).
The significant decrease in the tax rate in the first quarter of 2009 is the
result of the Company recognized a one time tax benefit of approximately $32,000
that related to a domestic product activity adjustment. Without this adjustment,
the effective tax rate for the three months ended January 31, 2009 would have
been closer to the projected effective rate of 39.3% for fiscal
2009.
  The
combination of an overall decrease in sales compared to prior period, and a
decrease in gross margins resulted in a $225,387 decrease in gross profits. The
decrease in gross profits was offset slightly by decreases in engineering and
selling and general expenses.  As a result, the Company’s operating
income for the first fiscal quarter of 2009 decreased $125,969 to $141,169 from
prior comparable quarter.  Operating income for the three months ended
January 31, 2008 was $267,138. The decrease in operating income was partially
offset by higher interest income and lower income taxes. Accordingly, net income
for the fiscal quarter ended January 31, 2009 was $162,439 compared to $182,241
for the same period last year.
 
 Item
3.  Quantitative and Qualitative Disclosures about Market
Risk
 
 Not applicable
  Item 4T.   Controls and
Procedures
  The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company’s Exchange Act reports
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms and that
such information is accumulated and communicated to this Company’s management,
including the Company’s Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
  As
required by Securities and Exchange Commission Rule 13a-15(b), the Company
carried out an evaluation, under the supervision and with the participation of
the Company’s management, including the Company’s Chief Executive Officer and
the Company’s Chief Financial Officer, of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures as of the end of
the fiscal quarter covered by this report. Based on the foregoing, the Company’s
Chief Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures were effective as of January 31,
2009.
  13
 
 There has
been no change in the Company’s internal control over financial reporting during
the quarter ended January 31, 2009 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
 
 Part
II. OTHER INFORMATION
  Item
1.  Legal Proceedings
  Nothing
to report.
  Item
1A.  Risk Factors
  The
discussion of our business and operations should be read together with the risk
factors contained in Item 1A of our Annual Report on Form 10-K for the
fiscal year ended October 31, 2008 filed with the SEC, which describe
various risks and uncertainties to which we are or may become subject. These
risks and uncertainties have the potential to affect our business, financial
condition, results of operations, cash flows, strategies or prospects in a
material and adverse manner. We are updating the risk factors set forth in our
Annual Report on Form 10-K by including the following risk factor:
 
 Difficult
conditions in the global economy in general have affected our business and
results of operations and these conditions are not expected to improve in the
near future and may worsen.
 
 A
prolonged economic downturn, both in the U.S. and worldwide, may lead to lower
sales or reduced sales growth, reduced prices, lower gross margins, and
increased bad debt risks, all of which could adversely affect the Company’s
results of operations, financial condition and cash flows.  Slowing
economic growth, particularly in the telecommunication and data communication
and wireless communications industries that represent the Company’s largest
target market, may adversely impact the demand for the Company’s
products.  Although the Company’s results of operations have to date
only been moderately affected by the factors noted above, if the current
economic downturn continues or intensifies, the Company’s results could be more
adversely affected in the future.  There could be a number of other
follow-on effects from the credit crisis on the Company’s business, including
insolvency of certain key distributors, key suppliers, contract manufacturers
and customers.
 
 Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
 Unregistered Sales of Equity
Securities.  In January 2009, the Company issued 7,407 shares
of its common stock to Radiomobile, Inc. as additional consideration under an
earn-out provision for the Radiomobile assets that the Company acquired in
August 2007.    The foregoing securities were issued without
the use of a placement agent or underwriter and were exempt from registration
under the Securities Act of 1933 pursuant to Section 4(2) thereof.
 
 Repurchase of
Securities.  In September 2008, the Company announced that our
Board of Directors had authorized a stock repurchase program to repurchase up to
100,000 shares of the Company’s common stock.  In October 2008,
Company announced that our Board of Directors had authorized a stock repurchase
program to repurchase up to an additional 100,000 shares of the Company’s common
stock. The repurchases were to be made from time to time in the open market
transactions in compliance with the Securities Exchange Act of 1934, or the
Exchange Act, Rule 10b-18.  In addition to the Rule 10b-18 public
repurchase program, the Company also repurchased 50,000 shares in a private
transaction.
 
 Period:
                                          
                                          Total
      Number
                                            of
      Shares
                                            Purchased
                                          
                                          Average
      Price
                                            Paid
      per Share
                                          
                                          Total
      Number of
                                            Shares
                                            Purchased
      as
                                            Part
      of Publicly
                                            Announced Plans
                                            of
      Programs
                                          
                                          Approximate
                                            Dollar
      Value of
                                            Shares
      that May
                                            Yet
      Be
                                            Purchased
                                            Under
      the Plans
                                            or
      ProgramsNovember
      1, 2008 through November 31, 2008
                                          
                                          50,000
                                          
                                          $
                                          4.96
                                          
                                          50,000
                                          
                                          $
                                          0December
      1, 2008 through December 31, 2008
                                          
                                          100,000(1)
                                          
                                          $
                                          4.57
                                          
                                          50,000
                                          
                                          $
                                          0Total
                                          
                                          150,000
                                          
                                          
                                          
                                          
                                          100,000
  
 
 (1)
              In
      December of 2008, the Company purchased 50,000 shares of common stock in a
      privately negotiated transaction at a price of $4.13 per
      share.
  14
 
 Item
3.  Defaults upon Senior Securities
  Nothing
to report.
  Item
4.  Submission of Matters to a Vote of Security Holders
  Nothing
to report.
  Item
5.  Other Information
  Nothing
to report.
  Item
6. Exhibits
  ExhibitNumber31.1:
                      
                      Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2:
                      
                      Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1:
                      
                      Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2:
                      
                      Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.99.1
                      
                      Press
      Release issued March  17,
2009
  15
  SIGNATURES
  In
accordance with 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  17, 2009
                    By:
                    /s/
      Howard F. HillHoward
      F. Hill, PresidentChief
      Executive Officer
  Dated:
      March  17, 2009
                    By:
                    /s/
      James DossJames
      DossChief
      Financial Officer
  16