Summary of R F INDUSTRIES LTD

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 83% and 85% of the Company's net sales during the three and six month periods ended April 30, 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 April 30, 2009, the amount of cash and cash equivalents was equal to $1,140,215 in the aggregate and the Company had $5,580,592 of investments in certificates of deposit.

· As of April 30, 2009, the Company had $15,249,952 in current assets, and $899,162 in current liabilities.

· As of April 30, 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.

The Company earned net income of $377,053 for the six months ended April 30, 2009. The Company used $214,408 of cash to pay income taxes, $125,938 to further reduce its accounts payable and $184,387 for prepaid expenses and deposits, all of which further reduced the Company's cash. However, because the Company generated $242,174 by reducing its inventories and $188,711 from increased collections of its accounts receivable, the Company had a positive net cash flow of $462,760 from operating activities during the six months ended April 30, 2009. The Company liquidated $3,400,303 of certificates of deposit during the six months ended April 30, 2009 and invested $2,117,184 of those funds in other certificates of deposit as well as purchased $155,807 of new assets. As a result of these investing activities, the Company realized $1,127,312 of net cash from investing activities. During the six month period, the Company also used $1,415,915 to repurchase shares of its outstanding common stock pursuant to the publicly announced stock repurchase program and used $94,780 to pay dividends in January 2009. As a result of the $462,760 of net cash provided by its operating activities and the $1,127,312 of net cash provided by investing activities, the Company's overall cash position increased by $79,377 during the six month period ended April 30, 2009 despite the use of $1,510,695 for financing activities.

Trade accounts receivable (net of allowances for doubtful accounts) at April 30, 2008 decreased approximately 9% or by $193,668 to $1,877,681 compared to the October 31, 2008 balance of $2,071,349. The decrease in accounts receivable is due to improved receivables management, tighter credit policies and increased collection efforts by the Company.

Inventories at April 30, 2009 decreased 4% or $242,174 to $5,707,534 compared to $5,949,708 at October 31, 2008. The decrease in inventories is the result of lower inventory purchases as the Company adjusted its inventory levels in anticipation of anticipated lower levels of sales in the near future.

Other current assets, including prepaid expenses and deposits, increased $184,387 to $401,830 as of April 30, 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 April 30, 2009 decreased $125,938 to $203,571 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 $1,127,312 for the six months ended April 30, 2009 and was attributable to the sale of $3,400,303 of certificates of deposit, which funds were partially reduces by the Company' purchase of $2,117,184 of certificates of deposit securities and the use of $155,807 for capital expenditures.

Net cash used in financing activities was $1,510,695 for the six months ended April 30, 2009, and was attributable to the purchase of $1,415,915 of treasury stock and $94,780 to pay cash dividends.

As of April 30, 2009, the Company had a total of $1,140,215 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 investments in available-for-sale securities decreased by $1,283,119 to $5,580,592 from $6,863,711 on October 31, 2008 due to certain of the Company's certificates of deposit maturing. Collectively, the amount of cash, available-for-sale securities and certificates of deposit that the Company held on April 30, 2009 decreased by $1,203,742 from the amount held on October 31, 2008 due primarily to the use of $1,415,915 to repurchase and retire outstanding shares of common stock. As of April 30, 2009, the Company had working capital of $14,350,790 and a current ratio of approximately 17:1.

Results Of Operations

Three Months Ended April 30, 2009 vs. Three Months Ended April 30, 2008

Net sales in the current fiscal quarter ended April 30, 2009, decreased by 22%, or $983,163, to $3,524,716 from $4,507,879 in the comparable fiscal quarter of prior year, as a result of decreased sales in all three of the Company's business segments. The RF Connectors and Cable Assembly segment, the Company's largest business unit, experienced a $394,000 decrease in sales during the April 30, 2009 fiscal quarter compared to the sales in the comparable quarter in 2008. Sales at the Medical Cabling and Interconnector division decreased by $125,000, and sales at the RF Wireless division decreased by $464,000. Sales decreased in all of the business units compared to the prior year's period due to current negative economic conditions, which has caused some of the Company's distributors to carry lower inventory levels and in turn resulted in lower sales to these distributors in the second quarter of fiscal 2009. The Company believes that the decrease in sales is the result of a general slowdown of economic activity as a result of the worldwide recession and financial crisis, and not due to any shift in demand for the Company's products.

Foreign sales during the fiscal quarter ended April 30, 2009 decreased by $91,202 to $545,264 compared to foreign sales of $636,466 during the fiscal quarter ended April 30, 2008. Foreign sales represented approximately 15% and 14% of the Company's net sales during the fiscal quarters ended April 30, 2009 and 2008, respectively. The decrease in foreign sales is primarily due to a decrease in cable assembly sales to one major international customer.

The Company's gross profit as a percentage of sales decreased 3% to 49% during the current fiscal quarter compared to 52% 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 by 8% to 47% compared with 55% in the prior comparable quarter due to a decrease in sales of wireless radio modems (net sales decreased by $464,398 to $284,460 in the current period from $748,858 in the prior year's 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 17% to 22% compared with 39% in the prior comparable quarter. This was due to a decrease in sales of $125,148 from the prior comparable quarter and a decrease of $22,838 in cost of goods sold from the prior comparable quarter. During the second 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. Sales of the RF Connector and Cable assembly segment accounted for approximately 83% of the Company's total sales and 78% of the total cost of goods sold in the current three month period, compared to 74% of the Company's total sales and 72% of the total cost of goods sold in the comparable quarter of prior year.

Engineering expenses increased 31%, or $70,042, to $294,514 from $224,472 in the comparable quarter of the prior year due to an increase in projects at the RF Wireless Division started in the second quarter of fiscal 2009, offset by lower contract labor and stock option expense. The Company continues to invest in the development of new and improved products in its RF Wireless business segment.

Selling and general expenses decreased by 14% in the 2009 fiscal quarter to $1,147,488 from $1,330,084 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 second quarter of 2009 decreased $24,572 compared to the same period in the prior year as a result of lower investment balances and lower rates of return.

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 April 30, 2009 decreased by $549,966 to $324,430. Income before provision for income taxes for the fiscal quarter ended April 30, 2008 was $874,396.

The provision for income taxes during the second fiscal quarter of 2009 was $109,817 (or a combined estimated Federal and state income tax rate of approximately 34%), compared to $332,644 in the fiscal quarter ended April 30, 2008 (or a combined estimated Federal and state income tax rate of approximately 38%). The 34% tax rate for the second quarter resulted from recording our expected annual tax rate of 38% (before the effects of a $39,000 expense reduction related to a domestic product activity).

The combination of an overall decrease in sales compared to prior period and a decrease in gross margins resulted in a $637,948 decrease in gross profits. The decrease in gross profits was offset slightly by decreases in selling and general expenses. As a result, the Company's operating income for the first fiscal quarter of 2009 decreased by $525,394 to $280,665 from prior comparable quarter of 2008. Operating income for the three months ended April 30, 2008 was $806,059. The decrease in operating income was partially offset by lower income taxes. Accordingly, net income for the fiscal quarter ended April 30, 2009 was $214,613 compared to $541,752 for the same quarterly period last year.

Six Months Ended April 30, 2009 vs. Six Months Ended April 30, 2008

Net sales in the six months ended April 30, 2009, decreased 15%, or $1,227,146 to $7,107,299 from $8,334,445 in the comparable fiscal quarter of prior year, due to decreased sales of the Company's connectors and radio modems. Sales decreased during the six month period ended April 30, 2009 from the prior year's period due lower sales in all three of the Company's business segments as a result of the 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. The largest decreases in sales occurred in the RF Wireless segment, whose sales decreased by $630,000 in the six-months ended April 30, 2009. Sales of RF Wireless products in the six-month period of 2008 reflected revenues from a large sales order of wireless transponders from the US Military. The RF Connector and Cable Assembly segment also had a significant decrease in net sales during the 2009 fiscal period (a decrease of $542,000), which decrease is attributable to a general industry wide slowdown due to the worldwide recession.

The decrease in domestic sales during the six-months ended April 30, 2009 was partially offset by increased foreign sales. Foreign sales during the six-month period ended April 30, 2009 increased by $57,658 to $1,353,550 compared to foreign sales of $1,295,892 during the six-month period ended April 30, 2008.
Foreign sales represented approximately 19% and 16% of the Company's net sales during the six-month period ended April 30, 2009 and 2008, respectively. The increase in foreign sales is primarily due to cable assembly sales to one major international customer in Israel.

The Company's gross profit as a percentage of sales decreased 4% to 47% during the six-month period ended April 30, 2009 compared to 51% in the comparable six-month period 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 13% to 40% compared with 53% in the prior comparable six-month period ended. This was due to a decrease in sales of wireless radio modems, which caused net sales to decrease by $630,023 to $465,629 from $1,095,652 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 18% to 16% compared with 34% in the prior comparable quarter. This was due to a decrease in sales of $54,394 from the prior comparable quarter coupled with an increase of $66,970 in cost of goods sold from the prior comparable quarter. During the six-month period ended April 30, 2009, the Company's fixed component cost of labor was higher than in the prior comparable period of fiscal 2008, which caused a decrease in gross margins in its segments. Sales of the RF Connector and Cable assembly segment accounted for approximately 85% of the Company's total sales and 80% of the total cost of goods sold in the current six-month period, compared to 79% of the Company's total sales and 77% of the total cost of goods sold in the comparable six-month period of prior year.

Engineering expenses increased 11% or $53,375 to $550,239 from $496,864 in the comparable six-month period of the prior year due to increased investment in the development of products for the RF Wireless segment.

Selling and general expenses decreased 10% or $265,348 to $2,396,279 from $2,661,627 in the comparable six-month period of the prior 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 six months ended April 30, 2009 decreased $11,930 compared with the same six-month period of the prior year due to lower rates of return on the Company's investment portfolio and also lower investment balances compared with prior period.

As a result of the decrease in revenues, the decrease in gross profit as a percentage of sales and the increase in engineering expenses, income before provision for income taxes during the six months ended April 30, 2009 decreased by 55% or $663,292 to $547,948 from $1,211,240 in the comparable six-month period of the prior year.

The provision for income taxes during the six months ended April, 30 2009 was $170,895 (or a combined estimated Federal and state income tax rate of approximately 31%), compared to $497,247 in the six months ended April 30, 2008 (or a combined estimated Federal and state income tax rate of approximately 41%). The 10% decrease in the tax rate in the six-month period of fiscal year 2009 compared to the prior year comparable period is the result of the company recognized a one time tax benefit of approximately $39,000 related to a domestic product activity. Without this adjustment, the effective tax rate would have approximated the projected rate for fiscal 2009.

The combination of an overall decrease in sales compared to prior period and a decrease in gross margins resulted in a $863,335 decrease in gross profits. The decrease in gross profits was offset slightly by decreases in selling and general expenses. As a result, the Company's operating income for the six months ended April 30, 2009 decreased $651,362 to $421,835 from prior comparable six-month period. The decrease in operating income was partially offset by lower income taxes. Accordingly, net income for the fiscal quarter ended April 30, 2009 was $377,053 compared to $713,993 for the same period last year.