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, 2010




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  ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files.) Yes  ̈  No  ̈




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  ̈
              Accelerated
      filer  ̈
              Non-accelerated
      filer  ̈
              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  ̈  No x




The
number of shares of the issuer’s Common Stock, par value $0.01 per share,
outstanding as of February 28, 2010 was 2,850,928.













Part
I. FINANCIAL INFORMATION





Item
1: Financial Statements




RF
INDUSTRIES, LTD.


CONDENSED
BALANCE SHEETS


(UNAUDITED)





January 31,
                  2010
                
                
                October 31,
                  2009(Note
      1)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                
                $
                1,196,284
                
                
                $
                1,225,927Certificates
      of deposit
                
                
                6,674,292
                
                
                
                6,476,981Trade
      accounts receivable, net of allowance for doubtful accounts of $62,620 and
      $52,892
                
                
                1,985,887
                
                
                
                2,263,265Inventories
                
                
                5,191,669
                
                
                
                4,984,921Other
      current assets
                
                
                512,241
                
                
                
                340,362Deferred
      tax assets
                
                
                478,200
                
                
                
                478,200TOTAL
      CURRENT ASSETS
                
                
                16,038,573
                
                
                
                15,769,656Equipment
      and furnishings:Equipment
      and tooling
                
                
                2,375,446
                
                
                
                2,365,160Furniture
      and office equipment
                
                
                490,784
                
                
                
                425,3892,866,230
                
                
                
                2,790,549Less
      accumulated depreciation
                
                
                2,267,625
                
                
                
                2,224,745TOTALS
                
                
                598,605
                
                
                
                565,804Goodwill
                
                
                137,328
                
                
                
                137,328Amortizable
      intangible asset, net
                
                
                20,367
                
                
                
                27,156Note
      receivable from stockholder
                
                
                66,980
                
                
                
                66,980Other
      assets
                
                
                31,276
                
                
                
                31,276TOTAL
      ASSETS
                
                $
                16,893,129
                
                
                $
                16,598,200


2





Item 1: Financial Statements
(continued)




RF
INDUSTRIES, LTD.


CONDENSED
BALANCE SHEETS


(UNAUDITED)





January 31,
                  2010
                
                
                October 31,
                  2009(Note
      1)LIABILITIES AND STOCKHOLDERS’
      EQUITYCURRENT
      LIABILITIESAccounts
      payable
                
                $
                297,042
                
                
                $
                224,974Accrued
      expenses
                
                
                643,284
                
                
                
                673,080Income
      taxes payable
                
                
                86,323
                
                
                
                75,134TOTAL
      CURRENT LIABILITIES
                
                
                1,026,649
                
                
                
                973,188Deferred
      tax liabilities
                
                
                50,500
                
                
                
                50,500Other
      long-term liabilities
                
                
                337,077
                
                
                
                321,030TOTAL
      LIABILITIES
                
                
                1,414,226
                
                
                
                1,344,718COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS’
      EQUITYCommon
      stock - authorized 10,000,000 shares of $0.01 par value; 2,850,928 and
      2,848,313 shares issued and outstanding
                
                
                28,509
                
                
                
                28,483Additional
      paid-in capital
                
                
                6,584,475
                
                
                
                6,502,447Retained
      earnings
                
                
                8,865,919
                
                
                
                8,722,552TOTAL
      STOCKHOLDERS’ EQUITY
                
                
                15,478,903
                
                
                
                15,253,482TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                $
                16,893,129
                
                
                $
                16,598,200




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)





2010
                
                
                2009Net
      sales
                
                $
                3,312,871
                
                
                $
                3,582,583Cost
      of sales
                
                
                1,682,931
                
                
                
                1,936,897Gross
      profit
                
                
                1,629,940
                
                
                
                1,645,686Operating
      expenses:Engineering
                
                
                193,722
                
                
                
                255,726Selling
      and general
                
                
                1,217,733
                
                
                
                1,248,791Totals
                
                
                1,411,455
                
                
                
                1,504,517Operating
      income
                
                
                218,485
                
                
                
                141,169Other
      income - interest
                
                
                26,073
                
                
                
                82,348Income
      before taxes
                
                
                244,558
                
                
                
                223,517Provision
      for income taxes
                
                
                101,189
                
                
                
                61,078Net
      income
                
                $
                143,369
                
                
                $
                162,439Basic
      earnings per share
                
                $
                0.05
                
                
                $
                0.05Diluted
      earnings per share
                
                $
                0.05
                
                
                $
                0.05Basic
      weighted average shares outstanding
                
                
                2,848,773
                
                
                
                3,122,700Diluted
      weighted average shares outstanding
                
                
                3,179,413
                
                
                
                3,447,665




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





2010
                                          
                                          
                                          2009OPERATING
      ACTIVITIES:Net
      income
                                          
                                          $
                                          143,369
                                          
                                          
                                          $
                                          162,439Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Bad
      debt expense
                                          
                                          
                                          9,728
                                          
                                          
                                          
                                          4,956Depreciation
      and amortization
                                          
                                          
                                          49,669
                                          
                                          
                                          
                                          62,420Stock-based
      compensation expense
                                          
                                          
                                          72,055
                                          
                                          
                                          
                                          49,646Changes
      in operating assets and liabilities:Trade
      accounts receivable
                                          
                                          
                                          267,649
                                          
                                          
                                          
                                          166,715Inventories
                                          
                                          
                                          (206,748
                                          )
                                          
                                          
                                          170,558Other
      current assets
                                          
                                          
                                          (171,880
                                          )
                                          
                                          
                                          (330,840
                                          )Other
      long-term assets
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (6,394
                                          )Accounts
      payable
                                          
                                          
                                          72,068
                                          
                                          
                                          
                                          (111,041
                                          )Income
      taxes payable
                                          
                                          
                                          11,189
                                          
                                          
                                          
                                          (213,466
                                          )Accrued
      expenses
                                          
                                          
                                          (19,800
                                          )
                                          
                                          
                                          (6,156
                                          )Other
      long-term liabilities
                                          
                                          
                                          16,047
                                          
                                          
                                          
                                          (7,761
                                          )Net
      cash provided by (used in) operating activities
                                          
                                          
                                          243,346
                                          
                                          
                                          
                                          (58,924
                                          )INVESTING
      ACTIVITIES:Purchase
      of short term investments
                                          
                                          
                                          (1,661,636
                                          )
                                          
                                          
                                          (1,500,000
                                          )Sale
      of short term investments
                                          
                                          
                                          1,464,327
                                          
                                          
                                          
                                          2,572,386Capital
      expenditures
                                          
                                          
                                          (75,680
                                          )
                                          
                                          
                                          (114,725
                                          )Net
      cash provided by (used in) investing activities
                                          
                                          
                                          (272,989
                                          )
                                          
                                          
                                          957,661FINANCING
      ACTIVITIES:Purchases
      of treasury stock
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (705,010
                                          )Dividends
      paid
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (94,780
                                          )Net
      cash used in financing activities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (799,790
                                          )Net
      increase (decrease) in cash and cash equivalents
                                          
                                          
                                          (29,643
                                          )
                                          
                                          
                                          98,947Cash
      and cash equivalents, beginning of period
                                          
                                          
                                          1,225,927
                                          
                                          
                                          
                                          1,060,838Cash
      and cash equivalents, end of period
                                          
                                          $
                                          1,196,284
                                          
                                          
                                          $
                                          1,159,785Supplemental
      cash flow information – income taxes paid
                                          
                                          $
                                          90,000
                                          
                                          
                                          $
                                          295,000Noncash
      investing and financing activities:Retirement
      of treasury stock
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          705,010Stock
      issuance related to contingent liability
                                          
                                          $
                                          10,000
                                          
                                          
                                          $
                                          30,000




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, 2009, (consisting of
only normal recurring adjustments) has been derived from, and certain terms used
herein are defined in, the audited financial statements of the Company as of
October 31, 2009 included in the Company’s Annual Report on Form 10-K (“Form
10-K”) for the year ended October 31, 2009 that was previously filed with the
Securities and Exchange Commission (“SEC”). Operating results for the three
month period ended January 31, 2010 are not necessarily indicative of the
results that may be expected for the year ending October 31, 2010. 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, 2009. The Company has evaluated subsequent
events through the date of the filing for this Form 10-Q.




Revenue
Recognition




Four
basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred or services
rendered; (3) the fee is fixed and determinable; and (4) collectability is
reasonably assured. The Company recognizes revenue from product sales after
purchase orders are received which contain a fixed price and the products are
shipped. Most of the Company’s products are sold to continuing customers with
established credit histories.





Note 2 - 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,
                  2010
                
                
                October 31,
                  2009Raw
      materials and supplies
                
                $
                1,463,203
                
                
                $
                1,355,504Work
      in process
                
                
                19,426
                
                
                
                8,105Finished
      goods
                
                
                3,723,509
                
                
                
                3,685,950Inventory
      reserve
                
                
                (14,469
                )
                
                
                (64,638Totals
                
                $
                5,191,669
                
                
                $
                4,984,921





Purchases
of connector products from four major vendors in the three month period ended
January 31, 2010, represented 23%, 17%, 12%, and 12% compared to two major
vendors who represented 21%, and 14% of the total inventory purchases for the
same period in 2009. The Company has arrangements with these vendors to purchase
product based on purchase orders periodically issued by the
Company.





Note
3 - 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, 2010, the effects of the assumed exercise of options to purchase
471,101 shares of the Company’s common stock, at a price range of $4.49 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, 2009, the
effects of the assumed exercise of options to purchase 385,423 shares of the
Company’s common stock, at a price 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.


6




The
following table summarizes the computation of basic and diluted weighted average
shares outstanding:




Three Months Ended January
    312010
                  
                  
                  2009Weighted
      average shares outstanding for basic earnings per share
                  
                  
                  2,848,773
                  
                  
                  
                  3,122,700Add
      effects of potentially dilutive securities-assumed exercise of stock
      options
                  
                  
                  330,640
                  
                  
                  
                  324,965Weighted
      average shares for diluted net earnings per share
                  
                  
                  3,179,413
                  
                  
                  
                  3,447,665





Note 4
- 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, 2010 vest and are exercisable immediately and expire in five
years from date of grant. The Company satisfies the exercise of options by
issuing previously unissued common shares.




The
weighted average fair value of employee stock options granted by the Company in
the three months ended January 31, 2010 and 2009 was estimated to be $1.63 and
$1.32 per share, respectively, using the Black-Scholes option pricing model with
the following assumptions:





2010
                  
                  
                  2009Risk-free
      interest rate
                  
                  
                  1.41
                  %
                  
                  
                  1.01
                  %Dividend
      yield
                  
                  
                  0.00
                  %
                  
                  
                  2.96
                  %Expected
      life of the option
                  
                  2.5 years
                  
                  
                  2.5 yearsVolatility
      factor
                  
                  
                  57.67
                  %
                  
                  
                  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 2010 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, 2010, the Company issued 2,615 shares of
common stock valued at approximately $10,000 to the former owner of RadioMobile
to fully satisfy the earn out contingency accrual.  This transaction
related to the RadioMobile Purchase Agreement earn-out contingency as more fully
described in Note 11 of the Company’s Annual Report 10-K for the year ended
October 31, 2009.





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, 2009. A summary of the
status of the options granted under the Company’s stock option plans as of
January 31, 2010 and the changes in options outstanding during the three months
then ended is presented in the table that follows:




Shares
                  
                  
                  Weighted
                    Average
                    Exercise PriceOutstanding
      at November 1, 2009
                  
                  
                  1,243,306
                  
                  
                  $
                  3.74Options
      granted
                  
                  
                  16,000
                  
                  
                  $
                  4.49Options
      exercised
                  
                  
                  -
                  
                  
                  $
                  -Options
      canceled or expired
                  
                  
                  (333
                  )
                  
                  $
                  4.50Options
      outstanding at January 31, 2010
                  
                  
                  1,258,973
                  
                  
                  $
                  3.75Options
      exercisable at January 31, 2010
                  
                  
                  903,909
                  
                  
                  $
                  3.73Options
      vested and expected to vest at January 31, 2010
                  
                  
                  1,250,711
                  
                  
                  
                  3.69


7





Weighted
average remaining contractual life of options outstanding as of January 31,
2010: 4.91 years





Weighted
average remaining contractual life of options exercisable as of January 31,
2010: 4.75 years





Weighted
average remaining contractual life of options vested and expected to vest as of
January 31, 2010: 4.88 years





Aggregate
intrinsic value of options outstanding at January 31, 2010:
$1,891,643





Aggregate
intrinsic value of options exercisable at January 31,
2010:  $1,583,402





Aggregate
intrinsic value of options vested and expected to vest at January 31,
2010:  $1,879,229





As of
January 31, 2010, $553,651 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 4.87 years.





Stock
Option Expense





During
the three months ended January 31, 2010 and 2009, stock-based compensation
expense totaled $72,055 and $49,646, respectively. For the three months ended
January 31, 2010 and 2009, stock-based compensation classified in cost of sales
amounted to $8,826 and $3,498 and stock-based compensation classified
in selling and general expense amounted to $63,229 and $46,148
respectively.




Note 5
- Concentration of Credit Risk





One
customer accounted for approximately 19% of the Company’s net sales for the
three month period ended January 31, 2010. Two customers accounted for
approximately 14% and 13% of the Company’s net sales for the three month period
ended January 31, 2009. Although these customers have been on-going major
customers of the Company continuously during the past ten and thirteen 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 6
- Segment Information





The
Company aggregates operating divisions into operating segments which have
similar economic characteristics and divisions are similar in the majority of
the following areas: (1) the nature of the product and services; (2) the nature
of the production process; (3) the type or class of customer for their products
and services; (4) the methods used to distribute their products or services; (5)
if applicable, the nature of the regulatory environment. The Company has three
segments - RF Connector and Cable Assembly, Medical Cabling and Interconnector,
and RF Wireless based upon this evaluation.




The RF
Connector and Cable Assembly segment is comprised of three divisions, the
Medical Cabling and Interconnector is comprised of one division while the RF
Wireless segment is comprised of two.  The three divisions that meet
the quantitative thresholds for segment reporting are Connector / Cable
Assembly, Bioconnect and RF Neulink.  Each of the other divisions
aggregated into these segments have similar products that are marketed to their
respective customer base; production and product development processes are
similar in nature. The specific customers are different for each division;
however, there is some overlapping of product sales to them. The methods used to
distribute products are similar within each division aggregated.




Management
identifies the Company’s segments based on strategic business units that are, in
turn, based along market lines. These strategic business units offer products
and services to different markets in accordance with their customer base and
product usage. For segment reporting purposes, the Company aggregates Connector
and Cable Assembly, Aviel Electronics, and Worswick divisions into the RF
Connector and Cable Assembly segment while RF Neulink and RadioMobile are part
of the RF Wireless segment. The Bioconnect division makes up the Company’s
Medical Cabling and Interconnector segment.




As
reviewed by the Company’s chief operating decision maker, the Company evaluates
the performance of each segment based on income or loss before income taxes. The
Company charges depreciation and amortization directly to each division within
the segment. All stock based compensation is attributed to the RF Connector and
Cable Assembly segment. Inventory, fixed assets, goodwill and intangible assets
are the only assets identified by segment. Except as discussed above, the
accounting policies for segment reporting are the same as for the Company as a
whole.


8


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 month periods ended January 31, 2010 and 2009:





Three Months Ended January 312010
                
                
                2009United
      States
                
                $
                2,828,082
                
                
                $
                2,773,233Foreign
      countries:Israel
                
                
                190,634
                
                
                
                512,149All
      other
                
                
                294,155
                
                
                
                297,201Totals
                
                $
                3,312,871
                
                
                $
                3,582,583




Net
sales, income (loss) before provision for income taxes and other related segment
information for the three months ended January 31, 2010 and 2009 are as
follows:







2010
                  
                  RF Connectors
                    and
                    Cable Assembly
                  
                  
                  Medical
                    Cabling and
                    Interconnector
                  
                  
                  RF
                    Wireless
                  
                  
                  Corporate
                  
                  
                  TotalNet
      sales
                  
                  $
                  2,901,876
                  
                  
                  $
                  358,188
                  
                  
                  $
                  52,807
                  
                  
                  
                  
                  
                  $
                  3,312,871Income
      (loss) before provision for income taxes
                  
                  
                  342,699
                  
                  
                  
                  48,392
                  
                  
                  
                  (172,606)
                  
                  
                  $
                  26,073
                  
                  
                  
                  244,558Depreciation
      and amortization
                  
                  
                  38,664
                  
                  
                  
                  4,040
                  
                  
                  
                  6,965
                  
                  
                  
                  
                  
                  
                  
                  49,6692009Net
      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
                  
                  
                  
                  
                  
                  
                  
                  62,420




Note 7 - Income tax
provision




The
income tax provision reflected in the accompanying unaudited condensed statement
of income for the three months ended January 31, 2010 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%. Interim tax provisions are determined using an
estimate of the annual effective tax rate. As of January 31, 2010, the Company
estimated that its effective annual tax rate for the year ending October 31,
2010 will be approximately 41.4%, 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 2010 was
$101,189 (or an effective tax rate of approximately 41%), compared to
$61,078 in the fiscal quarter ended January 31, 2009 (or an effective tax rate
of approximately 27%). The significant increase in the tax rate in the first
fiscal quarter of 2010 is primarily due to the Company’s recognition of a one
time tax benefit of approximately $32,000 in the prior comparable quarter 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
higher and comparable to the 2010 rate.


9





Note 8
- Amortizable Intangible assets:





Amortizable
intangible assets are comprised of the following:





January 31, 2010
                
                
                October 31, 2009Intangible
      assetsSoftware
                
                $
                47,522
                
                
                $
                47,522Accumulated
      amortization
                
                
                (35,641
                )
                
                
                (31,681
                )11,881
                
                
                
                15,841Customer
      list
                
                
                33,945
                
                
                
                33,945Accumulated
      amortization
                
                
                (25,459
                )
                
                
                (22,630
                )8,486
                
                
                
                11,315Totals
                
                $
                20,367
                
                
                $
                27,156





Note 9
– Goodwill:





As of January 31, 2010 and October 31,
2009, the goodwill balance related solely to the Aviel division. Management
believes this goodwill balance is not currently impaired. However, at October
31, 2009 the estimated fair value of the goodwill balance exceeded the carrying
value of the Aviel reporting unit by only 2%. This indicates that the fair value
could be less than the associated carrying value at some point in the future.
The key assumptions that drive the fair value estimate are sales. For the
quarter ended January 31, 2010, primarily due to the current effects of the
global recession, the Aviel reporting unit experienced a net loss of
approximately $4,000. Management believes that future years for this division
will be profitable; however, there is no assurance that this will in fact be the
case. Future recurring losses at the Aviel reporting unit could cause an
impairment charge to goodwill in the future.





Note
10 – Related party transactions:





The note
receivable from stockholder of $66,980 at January 31, 2010 and October 31, 2009
is due from the President of the Company, bears interest at 6%, payable
annually, and has no specific due date. The note is collateralized by personal
property owned by the President. During the three months ended January 31, 2010
and 2009, $4,019 of interest was paid.





Note
11- Accrued expenses and other long-term liabilities




Accrued
expenses consist of the following:




January 31, 2010
                    
                    
                    October 31, 2009Wages
      payable
                    
                    $
                    335,269
                    
                    
                    $
                    426,596Accrued
      receipts
                    
                    
                    252,712
                    
                    
                    
                    183,212Other
      current liabilities
                    
                    
                    55,303
                    
                    
                    
                    63,272Totals
                    
                    $
                    643,284
                    
                    
                    $
                    673,080





Accrued
receipts represent purchased inventory for which invoices have not been
received.


10


Other
long-term liabilities consist of the following:




January 31, 2010
                  
                  
                  October 31, 2009Tax
      related liabilities
                  
                  $
                  241,344
                  
                  
                  $
                  241,344Deferred
      lease liabilities
                  
                  
                  89,085
                  
                  
                  
                  79,686Other
      long-term liabilities
                  
                  
                  6,648
                  
                  
                  
                  -Totals
                  
                  $
                  337,077
                  
                  
                  $
                  321,030





Deferred lease liabilities represent the excess of
recognized rent expense over scheduled lease payments.




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, 2009
and other reports and filings made with the Securities and Exchange
Commission.




Critical
Accounting Policies




The
condensed financial statements of the Company are prepared in conformity with
accounting principles generally accepted in the United States of America
(“GAAP”). One of the accounting policies that involves significant judgments and
estimates concerns our inventory valuation. Inventories are valued at the
weighted average cost value. Certain items in the inventory may be considered
obsolete or excess and, as such, we establish an allowance to reduce the
carrying value of these items to their net realizable value. Based on estimates,
assumptions and judgments made from the information available at the time, we
determine the amounts of these allowances. Because inventories have, during the
past few years, represented approximately one-third of our total assets, any
reduction in the value of our inventories would require us to take write-offs
that would affect our net worth and future earnings.





Another
accounting policy that involves significant judgments and estimates is our
accounts receivable allowance valuation. The Company routinely assesses the
financial strength of its customers and maintains an allowance for doubtful
accounts that management believes will adequately provide for credit
losses.




Another
critical accounting policy that involves significant judgments and estimates is
management’s assessment of goodwill for impairments. We review our goodwill for
impairment annually in the fourth quarter at the reporting unit level. We also
analyze each quarter whether any indicators of impairment exist.




The
Company uses the Black-Scholes model to value the stock option grants which
involves significant judgments and estimates.




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 88% of the Company’s net sales during the three month period ended
January 31, 2010, the Company’s results of operations and liquidity are
principally dependent upon the results of its RF connector and cable
operations.


11




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, 2010, the
      amount of cash and cash equivalents was equal to $1,196,000 in the
      aggregate and the Company had $6,674,000 of investments in certificates of
      deposit.
 
 ·
                As of January 31, 2010, the
      Company had $16,039,000 in current assets and $1,027,000 in current
      liabilities.
 
 ·
              As of January 31, 2010, 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.  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.




The
Company recognized net income of $143,369 for the three months ended January 31,
2010. The Company used $206,748 for the purchase of inventory, and $171,880 for
prepaid expenses and deposits. These outlays were partially offset by increased
collections of accounts receivable of $267,649 and a decrease in income taxes
paid of $11,189, which resulted in cash provided from operating activities of
$243,346 during the three months ended January 31, 2010.  The Company
liquidated $1,464,327 of short term investments, which consisted entirely of
certificates of deposit, during the January 31, 2010 quarter and invested
$1,661,636 of those, and other funds in new certificates of
deposit.  The Company spent $75,680 on capital expenditures during the
three months ended January 31, 2010. As a result of these investment activities,
the Company used $272,989 in investing activities. The Company’s overall cash
position decreased by $29,643 during the three months ended January 31,
2010.




Trade
accounts receivable (net of allowances for doubtful accounts) at January 31,
2010 decreased approximately 12%, or by $277,378 to $1,985,887 compared to the
October 31, 2009 balance of $2,263,265. The decrease in accounts receivable is
due to improved receivables management and collection efforts by the
Company.




Inventories
at January 31, 2010 increased 4%, or $206,748 to $5,191,669 compared to
$4,984,921 at October 31, 2009. The increase in inventories is due to
increased purchases during the three months ended January 31,
2010.  In order to obtain better quantity discounts from our vendors,
we have increasingly purchased inventories in larger bulk quantities, which
purchases result in larger fluctuations in inventory levels.  In
addition, we adjusted our inventory purchases to reflect changes in actual and
anticipated sales.




Other
current assets, including prepaid expenses and deposits, increased $171,879 to
$512,241 as of January 31, 2010, from $340,362 on October 31, 2009 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, 2010 increased $72,068 to $297,042 from $224,974 on
October 31, 2009. The change in accounts payable is related to an increase in
the purchase of inventories during the current period.




Net cash
used in investing activities was $272,989 for the three months ended January 31,
2010 and was attributable to the purchase of $1,661,636 of certificates of
deposit (the proceeds of which were received, in part, from the sale of
$1,464,327 of certificates of deposit), and $75,680 of capital
expenditures.





As of January 31, 2010, the Company had
a total of $1,196,284 of cash and cash equivalents compared to a total of
$1,225,927 of cash and cash equivalents as of October 31, 2009. However, the
amount of short term investments in certificates of deposits increased by
$197,311 to $6,674,292 from $6,476,981 on October 31, 2009 due to more
investments in certificates of deposits compared with prior period.
Collectively, the amount of cash and certificates of deposits that the Company
held on January 31, 2010 increased by $167,668 from the amount held on October
31, 2009 due to the cash flows from operations and cash flows from investing
activities during the fiscal quarter ended January 31, 2010.At the end of the
January 31, 2010 fiscal quarter, the Company had working capital of $15,011,924
and a current ratio of approximately 16:1.


12





Results
Of Operations




Three
Months Ended January 31, 2010 vs. Three Months Ended January 31,
2009




Net sales
in the current fiscal quarter ended January 31, 2010, decreased 8%, or $270,000
to $3,313,000 from $3,583,000 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 world-wide 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 2010.   The decrease in sales in
the RF connector segment and the wireless segment was partially offset by an
increase in sales in the medical cabling segment.





Part of
the $270,000 decrease in total sales was the result of a decrease in foreign
sales.  Domestically, the Company’s net sales
increased.  However, foreign sales during the fiscal quarter ended
January 31, 2010 decreased significantly by $324,561 to $484,789 compared to
foreign sales of $809,350during the
fiscal quarter ended January 31, 2009. Foreign sales represented approximately
15% and 23% of the Company’s net sales during the fiscal quarters ended January
31, 2010 and 2009, respectively. The decrease in foreign sales is primarily due
to a significant decrease in cable assembly sales to one major international
customer in Israel.




The
Company’s gross profit as a percentage of sales increased 3% to 49% during the
current fiscal quarter compared to 46% 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 increased by
2%, and the gross profit margin of the Medical Cabling & Interconnector
segment increased by 22%, the gross profit margin of the RF Wireless segment was
negative during the fiscal 2010 quarter.  The negative gross margin
was due to a decrease in sales of wireless radio modems, which caused net sales
to decrease by $128,362 to $52,807 from $181,169 in the prior comparable
period. The Company was unable to reduce its fixed cost of sales 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 increased by 22%
to 32% compared with 10% in the prior comparable quarter primarily as a result
of the increase in sales compared to the comparable quarter in
2009.  During the first quarter of fiscal 2010, the Company’s fixed
component cost of labor was lower than in the prior comparable quarter of fiscal
2009, which caused an increase in gross margins in its Connector and Cable
Assembly and Medical Cabling and Interconnector segments.  Sales of
the RF Connector and Cable assembly segment accounted for approximately 88% of
the Company’s total sales and 82% of the total cost of sales in the current
three month period, compared to 87% of the Company’s total sales and 81% of the
total cost of sales in the comparable quarter of prior year.




Engineering
expenses decreased 24%, or $62,004, to $193,722 from $255,726 in the comparable
quarter of the prior year due to current outstanding projects nearing
completion.




Selling
and general expenses decreased 2% or $31,058 to $1,217,733 from $1,248,791 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
attributable to cost cutting initiatives.  These decreases were
partially offset by an increase in non-cash stock option expenses incurred
during the quarter ended January 31, 2010.




Other
income for the first quarter of 2010 decreased $56,275 or 68% to $26,073
compared to $82,348 in the comparable quarter of the prior year due to lower
investment interest income reflecting a decrease in interest rates on the
Company’s investments in certificates of deposit.




Despite
the decrease in net sales for the fiscal 2010 quarter, the Company generated
income before the provision for income taxes during the fiscal quarter ended
January 31, 2010 of $244,558 because of the increase in gross profit as a
percentage of sales and a decrease in operating expenses.  Income
before provision for income taxes for the fiscal quarter ended January 31, 2009
was $223,517.





The
provision for income taxes during the first quarter of 2010 was $101,189 (or an
effective tax rate of approximately 41%), compared to $61,078 in the fiscal
quarter ended January 31, 2009 (or an effective tax rate of approximately 27%).
The significant increase in the tax rate in the first fiscal quarter of 2010 is
primarily due to the Company’s recognition of a one-time tax benefit of
approximately $32,000 in the prior comparable quarter 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 higher and
comparable to the 2010 rate.




Although
net sales decreased in the fiscal 2010 quarter by $270,000 compared to prior
year’s fiscal period, gross profits only decreased by $16,000 due to an increase
in gross margins.  The Company’s ability to decrease its engineering
expenses by $62,000 and it selling and general expenses by $31,000 from prior
comparable quarter resulted in an increase in the Company’s operating income for
the first fiscal quarter of 2010 (operating income increased by $77,316 to
$218,485 from prior comparable quarter from $141,169). The increase in operating
income was offset by lower interest income and higher income taxes. Accordingly,
net income for the fiscal quarter ended January 31, 2010 was $143,369 compared
to $162,439 for the same period last year.


13





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,
2010.





There has
been no change in the Company’s internal control over financial reporting during
the quarter ended January 31, 2010 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, 2009 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.




Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.





Unregistered Sales of Equity
Securities.  In January 2010, the Company issued 2,615 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.





Item
3.  Defaults upon Senior Securities




Nothing
to report.




Item
5.  Other Information




Nothing
to report.


14





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, dated March 11,
2010.


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  11, 2010
              By:
              /s/ Howard F. HillHoward
      F. Hill, PresidentChief
      Executive OfficerDated:
      March  11, 2010
              By:
              /s/ James DossJames
      DossChief
      Financial Officer


16