RF Industries, Ltd. Annual Report 2004

FY2004 Annual Report · RF Industries, Ltd.

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Fiscal 2004
Annual Report

President’s Letter to Shareholders
– 05/9/2005 –

Page 1 of 3

Fellow Shareholders -

I want to start by saying THANK YOU to our shareholders, customers and dedicated employees
for another record year in fiscal 2004. The record sales and record income for 2004 marked our
46th consecutive profitable quarter.
This strong performance underscores our objective to continue growing the Company by helping
our customers succeed, investing in our employees, holding ourselves to the highest ethical
standards and demonstrating our commitment to you, RFI’s shareholders.

First Quarter, Fiscal 2005 Results:
RF Industries’ five division sales for the first quarter ending January 31st, 2005, typically our
seasonally weakest quarter for the fiscal year, increased 17% to $2,868,000 compared to
$2,449,000 for the first three months of fiscal 2004. The growth in sales reflects a general
increase in demand for wireless connectors, cable assemblies, custom connectors, wireless
modems and medical interconnect products.
Net income for the three months ending January 31st, 2005 was $206,000 or $0.05 per diluted
share, compared to $233,000 or $0.07 per diluted share in the first quarter of fiscal 2004. Net
income was impacted by higher selling, general and administrative expenses, which increased
31% to $991,000, compared to $759,000 for the same quarter ended January 31st, 2004. This
increase is primarily attributable to approximately $80,000 in expenses for compliance with the
provisions of Section 404 of the Sarbanes-Oxley Act, combined with higher insurance and
selling expenses. We anticipate that compliance expenses for the Sarbanes-Oxley Act, which are
expected to peak this year at approximately $300,000, will begin to decline in the third quarter of
fiscal 2005 and to be somewhat lower in future years. The increased sales and marketing
expenses will support RFI’s future growth and we believe that these efforts not only contributed
to the first quarter’s 17% sales gain, but will help support sales growth for the balance of the
year.

Fiscal 2004 Results:
For the fiscal year ended October 31st, 2004 net income increased 72% to $1,224,000 or $0.33
per diluted share, compared to $711,000 or $0.19 per diluted share for the fiscal year ending
October 31st, 2003. Sales increased 14% to a record $11,227,000, compared to record sales of
$9,875,000 in fiscal 2003.

The fourth quarter acquisition of Aviel Electronics added approximately $190,000 in sales and
$36,000 in operating profits to the fiscal year 2004.

Operating income improved to 18% of sales, compared to 12% of sales in fiscal 2003, and
profitability benefited from a strong product mix at RF Connectors, higher Military RF cable
assembly sales and improved sales performance at Bioconnect.
At October 31st, 2004 RF Industries reported cash and cash equivalents of $4,497,000, working
capital of $9,696,000, an 18 to 1 current ratio, no long-term debt and stockholders equity of
$10,445,000, or $3.49 per share.

Page 2 of 3

Productivity Focus

In 2004, we made considerable progress toward improving productivity across all company
divisions. This is reflected in higher operating income, which improved to 18% of sales from
12% of sales last year and a higher gross margin, which reached 51% of sales compared to 49%
of sales in 2003. Our management team is focused on continuing to improve the Company’s
operating performance in the current year, with the aim of strengthening our financial position
and delivering increased value to our shareholders.

Employee’s Culture of Accountability in Fiscal 2005 and years to come:

At RF Industries we’re committed to doing the right thing the first time. The Company has
undertaken a number of actions to improve our financial information and internal control
procedures.

We currently anticipate that the financial costs for these new controls, combined with expenses
related to Sarbanes-Oxley Act compliance, will primarily impact the Company’s financial
performance for the first six months ending April 30th, 2005. These expenses are anticipated to
range from $200,000 to $300,000 for the full fiscal year ending October 31st, 2005. Although
these costs will affect the Company’s profitability, based on cash and cash equivalents, the
Company’s strong financial position, the absence of outstanding bank debt and continuing
profitable operating results, RFI has more than sufficient capital resources to fund these new
financial controls and meet any expenses associated with Sarbanes-Oxley Act compliance costs.

Product Update:

The RF Connectors Division is currently designing new connector and connector tools for digital
applications, cellular and PCS telephones, Wi-Fi, broadband wireless, GPS, mobile radio,
aircraft, video surveillance, audio and satellite applications. RF Connectors now markets
approximately 1,500 different types of connectors and connector tools.

RF Connectors’ Cable Assembly group also designs, produces and markets cable assemblies in a
variety of sizes and combinations of RF coaxial connectors and cabling. The majority of these
cable assemblies are manufactured to customer specifications. Applications include data and
voice communication systems for local and wide-area networks, Internet, PCS/Cellular systems,
TV dish/cable networks, test equipment, military/aerospace (including military standard and
commercial off the shelf “COTS”) applications and entertainment systems. Cable Assembly is
one of the fastest growing areas in RF Industries.

The Bioconnect Division designs, manufactures and sells specialized electronic cabling and
interconnect products used in the medical monitoring market. These products consist primarily
of patient monitoring cables, ECG cables, snap leads and molded safety leads for neonatal
monitoring electrodes. These products are used in hospitals, clinics, doctor offices, ambulances,
homes and private facilities where cabling is frequently replaced to ensure maximum
performance and cleanliness.

Page 3 of 3

The RF Neulink Division developed a new radio modem in fiscal 2004. The upscale radio
modem meets the FCC’s new mandatory requirement to provide narrow-band channels that
became effective January 1st, 2005. The NL6000 is a high-speed narrow-band compliant radio
modem that operates on 12.5 KHz channel at a 12 kbps data transfer rate. Some of the other
products offered by the RF Neulink Division are:

• RF9600 UHF and VHF wireless modems
• DAC9600’s Incorporating RF9600’s Digital, Analog and Relay I/O modules.
• NL6000 UHF and VHF wireless modems
• NL900 and NL2400 Spread Spectrum point-to-point wireless modems
• Ornnex Control Systems 900mhz Spread-Spectrum wireless modems and I/O modules
• Teledesign high-speed wireless modems in VHF, UHF and 900 MHz frequencies
• BlueWave Maxrad and Antennex antennas
• Custom Design and Engineering services

The various worldwide applications for Neulink products include seismic and volcanic
monitoring, industrial remote censoring/control, oil field and pipelines data monitoring,
warehousing, lottery remote data terminals, various military applications, remote camera control
and tracking, perimeter and security system control/monitoring, water and waste management,
inventory control, HVAC remote control and monitoring, biomedical hazardous material
monitoring, fish farming, automation of food dispensing, water aeration and monitoring, remote
emergency generator startup and monitoring and police usage for mobile warrant database
access.

In August 2004, RF Industries completed the acquisition of the Aviel Electronics Division which
designs, manufactures and sells standard and specialized connectors, including custom
connectors which range from subminiature to type “L” to Nan-Hex, SMA, SMB, SMC, TNC,
BNC, SC and NL. Aviel also specializes in the design and manufacture of non-standard
connector configurations for specific applications, hard to locate and discontinued connectors for
aerospace and other unique applications.

We believe that the product lines and capabilities of these five businesses can generate, for many
years to come, cash to fuel new growth opportunities, potential acquisitions and enhance bottom-
line results. We are continuously exploring new product lines and business opportunities and are
confident that, with the help of our dedicated employees, RF Industries will achieve even more
rapid growth in the coming years.

We are focused and committed to the task at hand and are absolutely convinced that RF
Industries’ best days are ahead of us.

All of us at RF Industries are thankful for your continuing support.

Sincerely,

Howard F. Hill
President/CEO

Abridged and Edited Copy of Annual Report

(Form 10-KSB)

For the fiscal year ended October 31, 2004

Commission File Number 0-13301

RF INDUSTRIES, LTD.

7610 Miramar Road, Bldg. 6000, San Diego, California 92126-4202

(858) 549-6340 FAX (858) 549-6345

Revenues for the year ended October 31, 2004 were $11,227,000.

The approximate aggregate market value of the voting stock held by non-affiliates of the registrant as of October 31, 2004, based
on the average of the closing price of one share of the Common Stock of the Company, as reported on October 31, 2004 was
$14,876,246. As of October 31, 2004, the registrant had 2,996,937 outstanding shares of common stock, $.01 par value.

Forward-Looking Statements:

Certain statements in this Annual Report on Form 10-KSB, and other oral and written statements made by
the Company from time to time are “forward looking statements” within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, including those that discuss strategies, goals, outlook
or other non-historical matters, or projected revenues, income, returns or other financial measures. In
some cases forward-looking statements can be identified 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 forward-looking statements are subject to numerous
risks and uncertainties that may cause actual results to differ materially from those contained in such
statements. Among the most important of these risks and uncertainties are the ability of the Company to
continue to source its raw materials and products from its suppliers and manufacturers, and the market
demand for its products, which market demand is dependent to a large part on the state of the
telecommunications industry.

Important factors which may cause actual results to differ materially from the forward looking statements
are described in the Section entitled “Risk Factors” in the Form 10-KSB, and other risks identified from
time to time in the Company’s filings with the Securities and Exchange Commission, press releases and
other communications. The Company assumes no obligation to update these forward-looking statements
to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

PART I

ITEM 1.

BUSINESS

General:

RF Industries, Ltd. (hereinafter the “Company”) is a provider of interconnect products and
systems for radio frequency (RF) communications products and wireless digital transmission systems.
For internal operational purposes, and for marketing purposes, the Company currently classifies its
operations into the following five related divisions: (i) The RF Connector Division designs, manufactures
and distributes coaxial connectors; (ii) the Cable Assembly Division assembles and sells cable assemblies
that are integrated with coaxial connectors; (iii) the Bioconnect Division manufactures and distributes
cabling and interconnect products to the medical monitoring market; (iv) the Aviel Electronics Division
designs, manufactures and distributes RF connectors primarily for aerospace and military customers, and
(v) the Neulink Division distributes complete wireless data products such as radio frequency data links
and wireless modems.

The Company’s principal executive office is located at 7610 Miramar Road, Building #6000, San
Diego, California. The Company was incorporated in the State of Nevada on November 1, 1979,
completed its initial public offering in March 1984 under the name Celltronics, Inc. and changed its name
to RF Industries, Ltd. in November 1990. Unless the context requires otherwise, references to the
“Company” in this report include RF Industries, Ltd. and its divisions.

Operating Divisions

Connector Division The Connector Division is engaged in the design, manufacture and
distribution of coaxial connector solutions for companies that design, build, operate, maintain and use
wireless voice, data, messaging, and location tracking systems. Coaxial connector products consist
primarily of connectors which, when attached to a coaxial cable, facilitate the transmission of analog and
digital signals in various frequencies. Although most of the connectors are designed to fit standard

products, the Company also sells custom connectors specifically designed and manufactured to suit its
customers’ requirements such as the Wi-Fi and broadband wireless markets. The Company’s RF
connectors are used in thousands of different devices, products and types of equipment. While the models
and types of devices, products and equipment may change from year to year, the demand for the types of
connectors used in such products and offered by the Company does not fluctuate with the changes in the
end product incorporating the connectors. In addition, since the Company’s standard connectors can be
used in a number of different products and devices, the discontinuation of one product does not make the
Company’s connectors obsolete. Accordingly, most connectors carried by the Company can be marketed
for a number of years and are only gradually phased out. Furthermore, because the Company’s connector
products are not dependent on any line of products or any market segment, the Company’s overall sales of
connectors do not fluctuate materially when there are changes to any product line or market segment.
Sales of the Company’s connector products are more dependent upon the overall economy and on the
Company’s ability to market its products. The Company’s sales of connectors and cable assemblies have
increased in the past two years as the overall market demand for wireless products that use the
Company’s connectors has increased. The Company believes that the continuing growth in new wireless
products as well as its increased sales in the military/aerospace markets will result in an overall increase
in the demand for the radio frequency connectors and cable assemblies that the Company distributes.

Third party foreign manufacturers located in Asia manufacture the Company’s RF connectors for
the Company. The Company has been designing, producing and selling coaxial connectors since 1987,
and the Connector Division therefore represents the Company’s oldest and most established division. The
Connector Division has, during all of the recent fiscal years, generated the majority of the Company’s
revenues.

The Cable Assembly Group is engaged in the manufacture and distribution of RF cable
assemblies. These cable assemblies consist of various types of coaxial cables that are attached to
connectors (usually the Company’s connectors) for use in a variety of communications applications.
Cable assemblies are manufactured at the Company’s California facilities and are sold through
distributors or directly to major OEM (Original Equipment Manufacturer) accounts. Cable assemblies
consist of both standard cable assemblies and assemblies that are custom manufactured for the
Company’s clients The Company offers a line of cable assemblies with over 100,000 cable products.
The Company launched its cable assembly operations in 2000, and the operations of this division
constituted the second largest generator of revenues for the Company during the fiscal year ended
October 31, 2004.

Bioconnect Division The Bioconnect Division is engaged in the design, manufacture and sale of
cables and interconnects for medical monitoring applications, such as disposable ECG cables, infant
apnea monitors in hospitals, patient leads, snap leads and connecting wires. The Company acquired the
Bioconnect Division in December 2000.

Aviel Electronics Division In August 2004, the Company acquired the business and all of the
assets of Aviel Electronics, a privately held Las Vegas, Nevada based manufacturer and marketer of
microwave and radio frequency (RF) connectors. Aviel Electronics has a 47 year history serving the
microwave transmission industries, and is an approved vendor to leading aerospace, electronics, OEM’s
and government agencies in the United States and abroad. The acquisition of Aviel Electronics
complemented the Company’s Connector Division’s capabilities by providing additional custom design
capabilities, expanding the Company’s products in the military and commercial aerospace markets, and
by expanding the Company’s client base.

RF Neulink Division The RF Neulink Division designs and manufactures, through outside
contractors, wireless data products commonly known as RF data links and wireless modems. These radio

modems and receivers provide high-speed wireless connections over longer distances where wire
connections may not be desirable or feasible. In addition to selling its own radio modem, RF Neulink
also distributes antennas, transceivers and related products of other manufacturers. The RF Neulink
Division also offers complete turnkey packages for numerous remote data transmission applications. The
Company established the RF Neulink Division in 1984.

Product Description:

The Company produces a broad range of interconnect products and assemblies. The products that

are offered and sold by the Company’s various divisions consist of the following:

Connector Division:

The Company’s Connector Division designs and distributes coaxial connectors for the
numerous products, devices and instruments. Coaxial connectors have applications in commercial,
industrial, automotive, scientific and military markets. The types of connectors offered by the RF
Connectors Division include 2.4mm and 3.5mm, 7-16 DIN, BNC, MCX, MHV, Mini-UHF, MMCX, N,
SMA, SMB, TNC, QMA and UHF. These connectors are offered in several configurations for both plugs
and jacks. There are hundreds of applications for these connectors, some of which include digital
applications, cellular and PCS telephones, Wi-Fi and broadband wireless applications, cellular and PCS
infrastructure, GPS (Global Positioning Systems), mobile radio products, aircraft, video surveillance
systems, cable assemblies and test equipment.
Users of the Company’s connectors include
telecommunications companies, circuit board manufacturers, OEM, consumer electronics manufacturers,
audio and video product manufacturers and installers, and satellite companies. The Connector Division
markets approximately 1,500 types of connectors, which range in price from $0.40 to $125.00 per unit.

The Connector Division also designs and sells a variety of connector tools and hand tools that are
assembled into kits used by lab and field technicians, R&D technicians and engineers. The Company also
designs and now offers some of its own tools, which differ from those offered elsewhere in the market.
These tools are manufactured for the Company by outside contractor. Tool products are carried as an
accommodation to the Company’s customers and have not materially contributed to the Company’s
revenues.

The Cable Assembly Group produces and markets cable assemblies in a variety of sizes and
combinations of RF coaxial connectors and coax cabling. Cabling is purchased from a variety of major
unaffiliated suppliers and is assembled with the Company’s connectors as complete cable assemblies.
Coaxial cable assemblies have thousands of applications including local area networks, wide area
networks, Internet systems, PCS/cellular systems, TV/dish network systems,
test equipment,
military/aerospace (mil-standard and COTS (Commercial Off The Shelf)) and entertainment systems.
Most cable assemblies are manufactured to the purchaser’s specifications.

Bioconnect Division

The Bioconnect group designs, manufactures and sells specialized electrical cabling and
interconnect products used in the medical monitoring market. These products consist primarily of patient
monitoring cables, ECG cables, snap leads, and molded safety leads for neonatal monitoring electrodes.
The products, which are used in hospitals, clinics, doctor offices, ambulances and at home are replaced
frequently in order to ensure maximum performance.

Aviel Electronics Division

The Aviel Electronics Division designs, manufactures and sells specialized connectors. Standard
configuration and custom connectors include connectors ranging from subminiature to type “L” to Nan-
Hex, SMA, SMB, SMC, TNC, BNC, SC and NL. Aviel also specializes in the design and manufacture of
non-standard configurations required for specific applications, hard to locate and discontinued connectors
for aerospace and other unique applications.

RF Neulink Division:

The wireless data products available from the RF Neulink Division come in a variety of
configurations to satisfy the requirements of the various vertical markets. Transmitter and receiver
modules come in a wide range of power output and frequency ranges and are used to convey data or voice
from point to point. Additionally, dumb or smart programmable modems are available in a wide range of
speeds and frequency/price ranges. Accessory modules have been developed for remotely controlling and
monitoring electrical devices.

The products sold by the RF Neulink Division include both its own products and products of
other manufacturers that are distributed by the Neulink Division. The products offered by the Neulink
Division include:

• RF9600 UHF and VHF wireless modems.
• DAC9600'S incorporating RF9600's with Digital, Analogue, and Relay I/O modules
• NL6000 UHF and VHF wireless moderns
• NL900 and NL2400 Spread Spectrum point to point wireless modems
• Ornnex Control Systems 900mhz Spread-Spectrum wireless modems and I/O modules
• Teledesign high-speed wireless modems in VHF, UHF and 900 MHz frequencies
• BlueWave, Maxrad. and Antenex antennas
• Custom Design and Engineering services

Current applications in use worldwide for Neulink products are various and include seismic and
volcanic monitoring, industrial remote censoring/control in oil fields, pipelines and warehousing, lottery
remote terminals, various military applications, remote camera control and tracking, perimeter and
security system control/monitoring, water and waste management, inventory control, HVAC remote
control and monitoring, biomedical hazardous material monitoring, fish farming automation of food
dispensing, water aeration and monitoring, remote emergency generator startup and monitoring, police
usage for mobile warrant database access

During the 2004 fiscal year, the Neulink Division introduced a new radio modem that it developed. The
new NL6000 radio modem was repositioned within the marketplace to compete against a more upscale
market segment and was designed to meet the FCC’s new mandatory requirement to provide narrow-band
channels that became effective in January 2005. This product is a high-speed narrow band compliant
radio modem, that operates on a 12.5 KHz channel at a 12 Kbps data transfer rate.

Foreign Sales:

Direct export sales by the Company to customers in South America, Canada, Mexico, Europe,
Australia, the Middle East, and Asia accounted for approximately 8.9% of Company sales for the fiscal
year ended October 31, 2004. The majority of the export sales during these periods were to Canada and
Mexico. The Company is attempting to expand its foreign distribution efforts under its “RFI” logo, and is
attempting to obtain additional foreign private label customers.

The Company does not own, or directly operate any manufacturing operations or sales offices in

foreign countries.

Distribution, Marketing and Customers:

Sales methods vary greatly between its divisions.

The Connector and Cable Assembly Divisions currently sell their products primarily through
warehousing distributors and OEM customers who utilize coaxial connectors and cable assemblies in the
manufacture of their products. Since there are many OEMs who are not served by any of the Company’s
distributors, the Company’s goal is to increase the number of OEMs that purchase connectors directly
from the Company. The Aviel Division will continue to sell products to its customer base with the
addition of customers referred through the Connector Division. The Aviel and Connector Divisions sell
to similar customer market segments and will combine marketing efforts where economically
advantageous. The Bioconnect group markets its products to the medical market through hospital dealers
and distributors. The Bioconnect Division also sells its products to OEMs who incorporate the leads and
cables into their product offerings.

The Neulink Division sells its products directly or through manufacturers representatives, system
integrators and OEM’s. System integrators and OEMs integrate and/or mate Company’s products with
their hardware and software to produce turnkey wireless systems. These systems are then either sold or
leased to other companies, including utility companies, financial institutions, petrochemical companies,
government agencies, and irrigation/water management companies.

Manufacturing:

The Company contracts with outside third parties for the manufacture of all its coaxial
connectors, and Neulink products. However, virtually all of RF cable assemblies sold by the Company
during the fiscal year ended October 31, 2004 were manufactured by the Company at its facilities in
California. The Connector Division has its manufacturing performed at numerous manufacturing plants
in Japan, Korea, the United States and International Standards Organization (ISO) approved factories in
Taiwan. The Company is not dependent on any one or only a few manufacturers for its coaxial
connectors and cable assemblies. The Company does not have any agreements with manufacturers for its
connectors, cable assemblies or Neulink products. RF Industries has in-house design engineers who
create the engineering drawings for fabrication and assembly of connectors and cable assemblies.
Accordingly, the manufacturers are not primarily responsible for design work related to the manufacture
of the connectors and cable assemblies. However, the third party manufacturers of the Neulink products
are solely responsible for design work related to the manufacture of the Neulink Division’s products.
Neulink’s products are manufactured by numerous manufacturers in the United States, and the Company
is not dependent on one or a few manufacturers for its Neulink products.

The Bioconnect Division has designed and manufactured its own products for over 20 years
(including as an unaffiliated company before being acquired by the Company in 2000). The
manufacturing process for the Bioconnect medical cables includes all aspects of the product, from the
design to mold design, mold fabrication, assembly and testing. The Bioconnect product line produces its
medical interconnect products in both high volume manufacturing and for custom or low volume uses.

The Aviel Electronics Division manufactures all its connectors at its Las Vegas, Nevada
manufacturing facility. The Aviel Electronics Division has designed and manufactured its own products
for 47 years (including as an unaffiliated company before being acquired by the Company in 2004). The
manufacturing process for the Aviel connectors includes all aspects of the product from design, tooling,

fabrication, assembly and testing. The Aviel Electronics product line produces its connector products for
low volume custom manufacturing uses, for the military, aerospace and other unique applications.

There are certain risks associated with the Company’s dependence on third party manufacturers
for some of its products, including reduced control over delivery schedules, quality assurance,
manufacturing costs, the potential lack of adequate capacity during periods of excess demand and
increases in prices. See “Risk Factors.”

Raw Materials:

Connector materials are typically made of commodity metals and include small applications of
precious materials, including silver and gold. The RF Connector Division purchases most of its connector
products from contract manufacturers located in Asia and the United States. The Company believes that
the raw materials used in its products are readily available and that the Company is not currently
dependent on any supplier for its raw materials. The Company does not currently have any long-term
purchase or supply agreements with its connector or Neulink product suppliers. The RF Connector cable
assembly division obtains coaxial connectors from RF Connector. The Company believes there are
numerous domestic and international suppliers of coaxial connectors. Nevertheless, should the Company
experience a material delay in obtaining raw materials and component parts from its existing suppliers,
until alternate arrangements are made, the Company’s ability to meet its customer’s needs may be
adversely affected.

Neulink purchases its electronic products from various U.S. suppliers, and all Neulink wireless
modem transceivers are built in the United States. The Company believes electronic components used in
these products are readily available from a number of domestic suppliers and from other foreign suppliers.

Aviel Electronics Division connector materials are typically made of commodity metals and
include some application of precious materials, including silver and gold. The Aviel Electronic Division
purchases almost all of its connector products from vendors in Asia and the United States. The Company
believes the connector materials used in the manufacturing of its connector products are readily available
from a number of foreign and domestic suppliers.

Personnel:

As of December 31, 2004, the Company employed 72 full-time employees, of whom 16 were in
management, 43 were in manufacturing and assembly, 2 were engineers engaged in design, research and
development, and the rest were in various administrative positions. The Company also occasionally hires
part-time employees. The Company believes that it has a good relationship with its employees and, at
this time, no employees are represented by a union.

Research and Development:

The Company has spent approximately $40,000 and $234,000 on research and development in
the fiscal years ended October 31, 2004 and 2003, respectively. A significant portion of research and
development expenses during the past two years were spent on the development of the Neulink Division's
NL6000 radio modem. Since the development of the NL6000 has now been completed, research and
development expenses decreased significantly. Research and development activities of the Company
consist of activities intended to produce new products not marketed by others that can be marketed to the
industry in general.

In addition to research and development activities, the Company also spent approximately
$1,000,000 during the past two fiscal years on engineering. Engineering activities consist of the design
and development of new products for specific customers, the design and engineering of new products and
the redesign of existing products to keep up with changes in the industry and products offered by the
Company's competitors. Engineering work often is carried out in collaboration with the Company's
customers.

The increase in business in the military/aerospace sector has encouraged the Company to pursue

the development of an ISO 9000 system thereby improving its’ competitive edge.

Patents, Trademarks and Licenses:

The Company does not own any patents on any of its products, nor has it registered any product
trademarks. Because of the Company carries thousands of separate types of connectors and other
products, most of which are available to the Company’s customers from other sources, the Company does
not believe that its business or competitive position is dependent on patent protection.

Warranties and Terms:

The Company warrants its products to be free from defects in material and workmanship for
varying warranty periods, depending upon the product. Products are generally warranted to the dealer for
one year, with the dealer responsible for any additional warranty it may make. Certain Neulink products
are sold directly to end-users and are warranted to those purchasers. The RF Connector products are
warranted for the useful life of the connectors. Although the Company has not experienced any
significant warranty claims to date, there can be no assurance that it will not be subjected to such claims
in the future.

The Company usually sells to customers on 30-day terms pursuant to invoices and does not
generally grant extended payment terms. Sales to most foreign customers are made on cash terms at time
of shipment. Customers may delay, cancel, reduce, or return products after shipment subject to a
restocking charge.

Competition:

Management estimates that the Connector Division has over 50 competitors in the approximately
$900,000,000 annual coaxial connector market. Management believes no one competitor has over 15%
of the total market, while the three leaders hold no more than 30% of the total market. Many of the
competitors of the RF Connector Division have significantly greater financial resources and broader
product lines. RF Connector competes on the basis of product quality, product availability, price, service,
delivery time and value-added support to its distributors and OEM customers. Since the Company’s
strategy is to provide a broad selection of products in the areas in which it competes and to have a ready
supply of those products available at all times, the Company normally has a significant amount of
inventory of its connector products. The Bioconnect group competes with numerous other companies in
all areas of its operations, including the manufacture of OEM custom products and medical cable
products. Most of the competitors of Bioconnect are larger and have significantly greater financial
resources than Bioconnect.

There are numerous small privately held manufacturers and marketers of connectors, but Aviel
Electronics has specialized in microwave and radio frequency (RF) custom connectors which lowers the
number of its direct competitors. Because Aviel Electronics is an approved vendor of leading aerospace,

electronics, OEM and government agencies in the United States and abroad, competition is limited to
those manufacturers who have been approved.

Major competitors for Neulink include Microwave Data Systems and Data Radio. Although a
number of larger firms could enter Neulink’s markets with similar products, Neulink’s strategy is focused
on serving and providing specific hardware and software combinations with the goal of maintaining a
strong position in selected “niche” wireless applications. While the Neulink Division’s competitors offer
products that are substantially similar to Neulink’s radio modems, the Neulink Division tries to enhance
its competitive position by offering additional service before, during, and after the sale.

Government Regulations:

The Company’s products are designed to meet all known existing or proposed governmental
regulations. Management believes that the Company currently meets existing standards for approvals by
government regulatory agencies for its principal products. Because the products designed and sold by the
Aviel Electronics Division are used in commercial and military aerospace products, its products are
regulated by various government agencies in the United States and abroad.

Neulink products are subject to the regulations of the Federal Communications Commission
(FCC) in the United States, the Department of Communications (D.O.C.) in Canada, and the future
E.C.C. Radio Regulation Division in Europe. The Company’s present equipment is “type-accepted” for
use in the United States and Canada. Neulink offers products that comply with current FCC, Industry
Canada, and some European union regulations. The system integrator, or end user, is responsible for
compliance with applicable government regulations.

Bioconnect’s products are subject to the regulations of the U.S. Food and Drug Administration.

ITEM 2.

PROPERTIES:

The Company leases its corporate headquarters building at 7610 Miramar Road, Building 6000,
San Diego, California. The building consists of approximately 11,000 square feet which houses
administrative, sales and marketing, engineering, production and warehousing for the Company’s
Connector Division. In addition, the Company also leases the following facilities:

(i) The Bioconnect Division operates in a 3,180 square foot facility that is located adjacent to the
Company’s corporate headquarters. The lease for this space expires on May 31, 2005.

(ii) The Neulink Division operates from a separate building that is located near the Company’s
corporate headquarters at 7606 Miramar Road, Building 7200. RF Neulink’s building consists of
approximately 2,400 square feet of administrative and manufacturing space and houses the
production and sales staff of the Neulink Division. The lease for this space expires on May 31,
2005.

(iii) In August 2004, the Company established its Aviel Electronics Divisions through its
acquisition of the assets and the lease of Aviel Electronics in Las Vegas, Nevada. Accordingly,
the Aviel Electronics division currently leases an approximately 3,000 square feet facility located
at 5530 S. Valley View Blvd., Suite 103, Las Vegas, Nevada. The lease for the Las Vegas offices
will expire on March 31, 2005.

The aggregate monthly rental for all the Company’s facilities currently is approximately $13,500 per
month, plus utilities, maintenance and insurance.

The Company currently believes that its facilities are sufficient to meet its foreseeable needs.
However, should the Company require additional space, the Company believes that suitable additional
space is available near the Company’s current facilities. In addition, the Company believes that it will be
able to renew its existing leases upon the expiration of the current leases or, if desirable or necessary,
locate alternate facilities on substantially similar terms.

ITEM 3.

LEGAL PROCEEDINGS:

The Company is not currently a party to any pending legal proceedings.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:

None.

PART II

ITEM 5.

MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.

The Company’s Common Stock is listed and trades on the NASDAQ Small Cap Market under

the symbol “RFIL.”

For the periods indicated, the following tables sets forth the high and low sales prices per share of
Common Stock. These prices represent inter-dealer quotations without retail mark-up, markdown or
commission and may not necessarily represent actual transactions.

Quarter

Fiscal 2004

High

Low

November 1, 2003 - January 31, 2004 ...............
February 1, 2004 - April 30, 2004......................
May 1, 2004 - July 31, 2004...............................
August 1, 2004 - October 31, 2004 ....................

Fiscal 2003

November 1, 2002 - January 31, 2003 ...............
February 1, 2003 - April 30, 2003......................
May 1, 2003 - July 31, 2003...............................
August 1, 2003 - October 31, 2003 ....................

$9.04
8.48
10.49
8.44

$3.85
5.95
7.35
6.20

$2.69
2.87
3.78
4.50

On January 24, 2005, the closing sales price of the Company’s Common Stock was $8.52.

As of January 9, 2005, there were 556 holders of the Company’s Common Stock according to the
records of the Company’s transfer agent, Continental Stock Transfer & Trust Company, New York, New
York, not including holders who hold their stock in “street name”.

The Company has not paid any dividends to date and does not presently intend to pay cash

dividends on its Common Stock in the foreseeable future.

There were no sales of equity securities by the Company that were not registered under the

Securities Act during fiscal 2004.

The Company did not repurchase any of its shares during the fourth quarter of the fiscal year

covered by this report.

ITEM 6.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our financial statements have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us to make significant
estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and
related disclosure of contingent assets and liabilities. We evaluate our estimates, including those related to
bad debts, inventories and contingencies on an ongoing basis. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. One of the accounting policies that involve 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 may
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 over 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.

RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2004, the FASB issued SFAS No. 123 (R), “Accounting for Stock-Based
Compensation.” SFAS 123 (R) establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. SFAS No. 123 (R) focuses primarily on
accounting for transactions in which an entity obtains employee services in share-based payment
transactions. SFAS 123 (R) requires that the fair value of such equity instruments be recognized as
expense in the historical financial statements as services are performed. Prior to SFAS 123 (R), only
certain pro forma disclosures of fair value were required. SFAS 123 (R) shall be effective for small
business issuers such as this Company as of the beginning of the first interim or annual reporting period
that begins after December 15, 2005. The adoption of this new accounting pronouncement is expected to
have a material impact on the financial statements of this Company during the fiscal year 2006.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity.” SFAS No. 150 changes the accounting for certain
that, under previous
financial

instruments with characteristics of both

liabilities and equity

pronouncements, issuers could account for as equity. The new accounting guidance contained in SFAS
No. 150 requires that those instruments be classified as liabilities in the balance sheet.

SFAS No. 150 affects the issuer’s accounting for three types of freestanding financial
instruments. One type is mandatory redeemable shares, which the issuing company is obligated to buy
back in exchange for cash or other assets. A second type included put options and forward purchase
contracts, which involves instruments that do or may require the issuer to buy back some of its shares in
exchange for cash or other assets. The third type of instruments that are liabilities under SFAS No. 150
are obligations that can be settled with shares, the monetary value of which is fixed, tied solely or
predominantly to a variable such as market index, or varies inversely with the value of the issuers’ shares.
SFAS No. 150 does not apply to features embedded in a financial instrument that is not a derivative in its
entirety.

Most of the provisions of SFAS No. 150 are consistent with the existing definition of liabilities in
FASB Concepts Statement No. 6, “Elements of Financial Statements.” The remaining provisions of SFAS
No. 150 are consistent with the FASB’s proposal to revise that definition to encompass certain obligations
that a reporting entity can or must settle by issuing its own shares. SFAS No. 150 shall be effective for
financial instruments entered into or modified after May 31, 2003 and otherwise shall be effective at the
beginning of the first interim period beginning after June 15, 2003. The adoption of this new accounting
pronouncement is not expected to have a material impact on the Company’s financial statements.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter
4. This statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the
accounting for abnormal amounts idle facility expense, freight, handling costs, and wasted material
(spoilage). Paragraph 5 of ARB No. 43, Chapter 4, previously stated that "...under some circumstances,
items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so
abnormal as to require treatment as current period charges..." SFAS No. 151 requires that those items be
recognized as current-period charges regardless of whether they meet the criterion of "so abnormal". In
addition, this statement requires that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. The provisions of SFAS 151 shall be applied
prospectively and are effective for inventory costs incurred during fiscal years beginning after the date this
Statement was issued. The adoption of SFAS No. 151 is not expected to have a material impact on our
financial position and results of operations.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of
APB Opinion No. 29. The guidance in APB Opinion No 29, Accounting for Nonmonetary Transactions,
is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value
of assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle.
This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS No. 153 is effective for nonmonetary exchanges occurring in fiscal periods beginning
after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material impact on our financial
position and results of operations.

OVERVIEW

Historically, over 87% of the Company’s revenues are generated by the Connector Divisions from the
sale of connector products and connector cable assemblies. Sales of connectors are expected to constitute
an even larger portion of revenues in the future since the Company acquired the Aviel Electronics
Division in August 2004. Because the Company sells thousands of connector products for uses in
thousands of end products, sales are relatively stable and not dependent upon any one industry sector or

product line. As a result, the Company’s revenues and expenses are typically not subject to major
fluctuations. During the fiscal year ended October 31, 2004, sales did, however, increase by 14% over
the sales in the prior year due to an overall increase in the economy and, in particular, a rebound in the
telecommunications and wireless industries, which resulted in increased sales to those industries. In
addition, revenues increased due to the acquisition of the Aviel Division during the fourth quarter.

The Company also continued to manage its operating costs by reducing its selling and general expenses as
a percentage of net sales during fiscal 2004.

As a result of our increased sales and control of our operating expenses, the Company generated net
income for the 11th consecutive year.

During the 2004 fiscal year. the Company generated $1,464,000 of cash from our operations. As a result,
the amount of cash and cash equivalents held by the Company as of October 31, 2004 increased to
$4,497,000 from $2,684,000 in the prior year. Since the Company has no debt, other than normal
accounts payable and accrued expenses, it will continue to have sufficient cash to fund all of its
anticipated financing and liquidity needs for the foreseeable future.

Financial Condition:

The following table presents the key measures of financial condition as of October 31, 2004 and 2003:

Amount
Cash and cash equivalents………. $4,497,322
10,259,453
Current assets…………………….
Current liabilities………………...
563,056
9,696,397
Working capital………………….
Property and equipment – net……
563,040
Total assets……………………… 11,070,722
Stockholders’ equity…………….. 10,454,666

Liquidity and Capital Resources:

2004

2003

% Total
Assets

40.6%
92.7%
5.1%
87.6%
5.1%
100.0%
94.4%

Amount
$2,683,896
8,146,211
509,992
7,636,219
328,124
8,608,090
8,058,098

% Total
Assets

31.2%
94.6%
5.9%
88.7%
3.8%
100.0%
93.6%

Management believes that its 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 the fiscal year ending October 31, 2005. 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 believes that its existing
assets and the cash it expects to generate from operations will be sufficient during the current fiscal year
are based on the following:

• As of October 31, 2004, the amount of cash and cash equivalents was equal to $4,497,000 in the
aggregate. This amount exceeds the amount of the selling and general expenses of the Company for
the entire fiscal year ended October 31, 2004. Accordingly, the Company believes that it has
sufficient cash available to operate for an entire year even if it did not generate any profits.

• As of October 31, 2004, the Company had approximately $10,259,000 in current assets, and only

$563,000 of current liabilities.

The principal expenditures that the Company currently anticipates for fiscal 2005 that will
negatively affect the Company’s liquidity and financial results will be the additional costs it expects to
incur in order to comply with the new Sarbanes-Oxley Act of 2002 requirements that go into effect this
year, particularly those related to implementing and verifying new internal financial control systems. The
Company estimates that these additional compliance costs could be approximately $800,000 during the
fiscal year ended October 31, 2005. These additional expenditures will reduce the amount of cash and
cash equivalents that the Company has in reserves. Nevertheless, management believes that based on the
Company’s financial condition at October 31, 2004, the absence of outstanding bank debt, and its recent
operating results, it has sufficient capital resources to fund its operations (including the new Sarbanes-
Oxley Act of 2002 compliance costs) for at least the next twelve months. Should the Company need to
obtain additional funds for its unexpected acquisitions of assets or other expansion activities, based on its
balance sheet and its history of profitability, the Company believes that it would be able to obtain bank
loans to finance these expenditures. However, there can be no assurance any bank loan would be
obtainable, or if obtained, would be on favorable terms or conditions.

The Company is not a party to off-balance sheet arrangements and does not engage in trading
activities involving non-exchange traded contracts. In addition, the Company has no financial guarantees,
debt or lease agreements or other arrangements that could trigger a requirement for an early payment or
that could change the value of the Company’s assets.

Inventories as of October 31, 2004 were $3,790,000, a $335,000 increase from October 31, 2003.
As part of its business strategy, and because of its offshore manufacturing arrangements, the Company
normally maintains a high level of inventory. As described elsewhere in this Annual Report, one of the
Company’s competitive advantages and strategies is to maintain customer satisfaction by having
sufficient inventory on hand to fulfill most customer orders on short notice. Accordingly, the Company
maintains a significant amount of inventory, which amount it increases or decreases to reflect its sales.
The Company continuously monitors its inventory levels and, because of recent increases in sales, may
commence increasing its inventory levels. Because sales have been increasing, the Company has
increased its inventory levels to be able to meet anticipated demand.

The net income for the current year was $1,224,000, and net cash provided by operating activities
for the year ended October 31, 2004 was $1,464,000. For the prior year ended October 31, 2003, net
income was $711,000, and cash provided by operating activities was $1,129,000. Net cash provided by
operating activities exceeded net income as a result of non-cash depreciation and amortization expenses,
and a reduction in trade accounts receivable, the collection of which increased cash without affecting net
income. In fiscal 2003, net cash provided from operations exceeded net income due to the reduction in
inventories (which enabled the Company to generate sales and increase accounts receivable without
having to expend cash to purchase or replenish those inventories), non-cash depreciation and amortization
expenses, and certain other factors.

Net cash used in investing activities was $650,000 as a result of the acquisition of the Aviel
Electronics Division in August 2004 and the purchase of additional equipment. In August 2004, the
Company purchased all of the assets of Aviel Electronics, an established connector manufacturer and
marketer located in Las Vegas, Nevada. The purchase price paid for the acquisition was $510,000, of
which $410,000 was paid in cash to the seller at the closing and $100,000 is being held in escrow for one
year as security for certain representations made by the seller. In fiscal 2003, net cash used in investing
activities was only $44,000, consisting primarily of capital expenditures made during that year.

Financing activities increased the Company’s net cash by $999,000 in the current year due to the
receipt of funds from the exercise of stock options by the Company’s employees. In fiscal 2003,

financing activities reduced the Company’s net cash by $2,340,000 primarily as a result of the repurchase
of 752,167 of its outstanding shares of common stock.

Results of Operations:

The following summarizes the key components of the results of operations for the years ended

October 31, 2004 and 2003:

Amount
Net sales ............................ $11,227,242
5,539,945
Cost of sales ......................
Gross profit .......................
5,687,297
Engineering expenses........
486,202
Selling and general
expenses ........................
Operating income..............
Other income.....................
Income before income
taxes ..............................
Income taxes .....................
Net income ........................

3,154,074
2,047,021
17,110

2,064,131
840,000
1,224,131

2004

2003

% of Sales
100.0%
49.3%
50.7%
4.3%

28.1%
18.2%
.2%

18.4%
7.5%
10.9%

Amount
$9,875,499
5,079,307
4,796,192
753,562

2,849,506
1,193,124
22,321

1,215,445
504,700
710,745

% of Total
Sales
100.0%
51.4%
48.6%
7.6%

28.9%
12.1%
.2%

12.3%
5.1%
7.2%

Net sales of the Company increased by $1,352,000, or 14%, for the fiscal year ended October 31,
2004 compared to the fiscal year ended October 31, 2003. The increase in fiscal 2004 is attributable to an
increase in sales as the overall market demand for connector products increased, particularly for wireless
applications during the fiscal year. In addition to an increase in demand in the Company’s connector and
cable assembly products as a result of an increase in the wireless market, sales of the Bioconnect
Division’s medical products also increased during the October 31, 2004 fiscal year. Finally, the
acquisition of the Aviel Division in August 2004 contributed revenues during the last fiscal quarter of the
October 31, 2004 fiscal year. Since the Company did not own or operate the Aviel Division in fiscal
2003, the addition of Aviel Division improved revenues in 2004 and will continue to supplement the
Company’s connector sales in the future. The increase in revenues at the Company’s four other divisions
were partly offset by a decrease in revenues in the Neulink Division. Revenues in the Neulink Division
decreased due to the loss of a primary customer.

The Company’s gross profit increased by $891,000 to $5,687,000 in 2004 from $4,796,000 in
2003 due to the increase in net sales and a reduction in cost of sales as a percentage of sales. As a percent
of sales, gross profit increased to 50.7% in fiscal 2004 from 48.6% of sales in fiscal 2003. The increase in
the gross profit percentage is primarily due to product mix, and increased sales volume, which increased
volume enabling the Company to obtain better pricing on its product purchases and reduce its per unit
labor costs.

Engineering expenses, which include research and development expenses, decreased by $268,000
from $754,000 in fiscal 2003 to $486,000 in fiscal 2004. As a percent of sales, engineering expenses
decreased from 7.6% in fiscal 2003 to 4.3% in fiscal 2004. The decrease in engineering expenses is
attributable to termination of the design and development activities related the development of the new
Neulink modem.

Selling and general expenses increased by $304,000, or by 10.7%, from $2,850,000 in fiscal 2003
to $3,154,000 in fiscal 2004. The increase is primarily due to additional costs related to increased sales
and increased marketing activities, as well as the addition of the Aviel Division and the costs related to
operating a new office in a different state. However, as a percentage of net sales, selling and general
expenses decreased in fiscal 2004 to 28% from 29% in fiscal 2003. The decrease in selling and general
expenses reflects the Company’s continuing emphasis on cost controls. General and administrative
expenses are, however, expected to significantly increase during the next fiscal year due to the additional
costs the Company expects to incur in order to comply with the new Sarbanes-Oxley Act of 2002
requirements that go into effect this year, particularly those related to implementing and verifying new
internal financial control systems. The Company estimates that these additional compliance costs could
be approximately $800,000 during the fiscal year ending October 31, 2005.

Operating income increased by $854,000 from $1,193,000 in fiscal 2003 to $2,047,000 in fiscal
2004. The increase in operating income is primarily attributable to increased sales, the higher gross
margins.

Net income increased by $513,000 to $1,224,000, compared to net income of $711,000 in fiscal

2003. The increase in net income is due to the overall increase in net sales.

ITEM 7.

FINANCIAL STATEMENTS

The following Financial Statements of the Company with related Notes and Report of
Independent Registered Public Accounting Firm are attached hereto as pages F-1 to F-17 and filed as part
of this Annual Report:

•

Report of J.H. Cohn LLP, Independent Registered Accounting Firm

Balance Sheets as of October 31, 2004 and 2003

Statements of Income for the years ended October 31, 2004 and 2003

Statements of Stockholders’ Equity for the years ended October 31, 2004 and 2003

Statements of Cash Flows for the years ended October 31, 2004 and 2003

Notes to Financial Statements

Index
[Attachment to Item 7]

Report of Independent Registered Accounting Firm

Balance Sheets

October 31, 2004 and 2003

Statements of Income

Years Ended October 31, 2004 and 2003

Statements of Stockholders’ Equity

Years Ended October 31, 2004 and 2003

Statements of Cash Flows

Years Ended October 31, 2004 and 2003

Notes to Financial Statements

* * *

Page

F-2

F-3

F-4

F-5

F-6

F-7/17

F-1

RF INDUSTRIES, LTD.

BALANCE SHEETS
OCTOBER 31, 2004 AND 2003

ASSETS

Current assets:

Cash and cash equivalents
Trade accounts receivable, net of allowance for
doubtful accounts of $38,513 and $55,322

Notes receivable
Inventories
Other current assets
Deferred tax assets

Total current assets

Equipment and furnishings:
Equipment and tooling
Furniture and office equipment

Less accumulated depreciation

Totals

Goodwill
Notes receivable from related parties
Note receivable from stockholder
Other assets

Totals

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable
Accrued expenses

Total current liabilities

Deferred tax liabilities

Total liabilities

Commitments and contingencies

Stockholders' equity:

Common stock - authorized 10,000,000 shares at $.01
par value; 2,996,937 and 2,692,683 shares issued

Additional paid-in capital
Retained earnings
Treasury stock, at cost, 7,300 shares in 2003

Total stockholders' equity

Totals

See Notes to Financial Statements.

F-3

2004

2003

$ 4,497,322

$ 2,683,896

1,516,035
12,000
3,789,958
303,138
141,000
10,259,453

1,701,618
12,000
3,455,018
158,079
135,600
8,146,211

1,489,297
299,423
1,788,720

1,125,485
260,183
1,385,668

1,225,680
563,040

1,057,544
328,124

137,328
26,730
70,000
14,171

49,584
70,000
14,171

$11,070,722

$ 8,608,090

$ 209,956
353,100
563,056

$ 181,637
328,355
509,992

53,000
616,056

40,000
549,992

29,970
3,566,760
6,857,936

10,454,666

26,927
2,418,033
5,633,805
(20,667)
8,058,098

$11,070,722

$ 8,608,090

RF INDUSTRIES, LTD.

STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 2004 AND 2003

Net sales
Cost of sales

Gross profit

Operating expenses:

Engineering
Selling and general

Totals

Operating income

Other income - interest

2004

2003

$ 11,227,242
5,539,945

$ 9,875,499
5,079,307

5,687,297

4,796,192

486,202
3,154,074
3,640,276

753,562
2,849,506
3,603,068

2,047,021

1,193,124

17,110

22,321

Income before income taxes

2,064,131

1,215,445

Provision for income taxes

840,000

504,700

Net income

Earnings per share:
Basic

Diluted

$ 1,224,131

$ 710,745

.42

.33

.23

.19

See Notes to Financial Statements.

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S

RF INDUSTRIES, LTD.

STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2004 AND 2003

Operating activities:

Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for bad debts
Depreciation
Deferred income taxes
Income tax benefit on non-qualified stock options
Changes in operating assets and liabilities:

Trade accounts receivable
Inventories
Other assets
Accounts payable
Accrued expenses

Net cash provided by operating activities

Investing activities:

Payment for acquisition
Capital expenditures
Payments of note receivable from related party

Net cash used in investing activities

Financing activities:

Exercise of stock options
Purchase of treasury stock
Payments on notes payable
Repayments of receivables from sale of stock

2004

2003

$ 1,224,131

$ 710,745

2,000
168,136
7,600
173,000

183,583
(202,928)
(145,059)
28,319
24,745
1,463,527

(510,000)
(162,392)
22,854
(649,538)

999,437

54,000
158,040
(40,800)
47,500

(609,179)
688,599
8,617
110,831
1,084
1,129,437

(51,341)
6,921
(44,420)

90,695
(2,388,248)
(44,582)
1,715
(2,340,420)

Net cash provided by (used in) financing activities

999,437

Net increase (decrease) in cash and cash equivalents

1,813,426

(1,255,403)

Cash and cash equivalents at beginning of year

2,683,896

3,939,299

Cash and cash equivalents at end of year

$ 4,497,322

$2,683,896

Supplemental cash flow information - income taxes paid

$ 900,000

$ 514,700

Noncash financing activities - retirement of common stock

20,667

$2,422,792

See Notes to Financial Statements.

F-6

RF INDUSTRIES, LTD.

NOTES TO FINANCIAL STATEMENTS

Note 1 - Business activities and summary of significant accounting policies:

Business activities:

The Company’s business is comprised of the design, manufacture and/or sale of
communications equipment primarily to the radio and other professional
communications related industries. The Company currently conducts its operations
through four divisions (i) RF Connector Division is engaged in the design and
distribution of coaxial connectors used primarily in radio and other professional
communications applications; (ii) Neulink Division is engaged in the design,
manufacture and sale of radio links for receiving and transmitting control signals
for remote operation and monitoring of equipment; (iii) Bioconnect Division is
engaged in the design, manufacture and sales of medical cable interconnects for
medical monitoring applications; and (iv) Aviel Division is engaged in the design,
manufacture and sales of radio frequency, microwave and specialized connectors
for aerospace, original electronics manufacturers and military electronics
applications (see Note 10).

Prior to fiscal 2004, the Company had reported separate segment information in its
filings for the operations of its RF Connector, Neulink and Bioconnect Divisions in
the same format as reviewed by the Company’s management. The sales,
operating income and assets of the Neulink and Bioconnect Divisions no longer
meet the thresholds that require separate disclosures. Accordingly, commencing
with fiscal 2004, the Company has discontinued reporting segment information on
the Neulink and Bioconnect segments separately.

Use of estimates:

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Actual results may differ from those estimates.

Cash equivalents:

The Company considers all highly-liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.

Revenue recognition:

Revenue from product sales is recognized when the product is shipped and
collectibility is assured.

F-7

RF INDUSTRIES, LTD.

NOTES TO FINANCIAL STATEMENTS

Note 1 - Business activities and summary of significant accounting policies (continued):

Inventories:

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.

Equipment and furnishings:

Equipment, tooling and furniture are recorded at cost and depreciated over their
estimated useful lives (generally 3 to 7 years) using the straight-line method.

Goodwill:

The Company follows Statement of Financial Accounting Standards No. 142
(“SFAS 142”), “Goodwill and Other Intangible Assets”, which requires that goodwill
and certain intangible assets, including those recorded in past business
combinations, no longer be amortized against earnings, but instead be tested for
impairment at least annually. There was no impairment of goodwill or other
intangible assets as a result of impairment tests performed according to SFAS
142.

Long-lived assets:

The Company assesses potential impairments to its long-lived assets when there
is evidence that events or changes in circumstances indicate that the carrying
amount of an asset may not be recovered. An impairment loss is recognized when
the undiscounted cash flows expected to be generated by an asset (or group of
assets) is less than its carrying amount. Any required impairment loss is measured
as the amount by which the assets carrying value exceeds its fair value, and is
recorded as a reduction in the carrying value of the related asset and a charge to
operations.

Advertising:

The Company expenses the cost of advertising and promotions as incurred.
Advertising costs charged to operations were $114,558 and $66,890 in 2004 and
2003, respectively.

Research and development:

The Company expenses the cost of research and development costs as incurred.
Research and development costs charged to operations and included in
engineering were approximately $40,000 and $234,000 in 2004 and 2003,
respectively.

F-8

RF INDUSTRIES, LTD.

NOTES TO FINANCIAL STATEMENTS

Note 1 - Business activities and summary of significant accounting policies (continued):

Income taxes:

The Company accounts for income taxes pursuant to the asset and liability method
which requires deferred income tax assets and liabilities to be computed for
temporary differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in future periods
based on enacted laws and rates applicable to the periods in which the temporary
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. The income tax provision is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.

Stock options:

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-
Based Compensation,” as amended by Statement of Financial Accounting
Standards No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation-
Transition Disclosure.” The Company follows Accounting Principles Board Opinion
No. 25 (“APB 25”), “Accounting for Stock Issued to Employees” and related
interpretations, in accounting for its employee stock options. Under APB 25, the
Company accounts for stock options using the intrinsic value method and no
compensation expense is recognized when the exercise price of stock options
equals or exceeds the market price of the underlying stock on the date of grant.
Options granted to non-employees are recorded at fair value in accordance with
SFAS 123.

Had the Company elected to recognize compensation expense based upon the
fair value at the grant dates for awards under these plans and amortized the cost
over the vesting period, net income would have been decreased to the pro forma
amounts listed in the table below. The fair value of each option granted was
estimated on the date of grant using the Black-Scholes option pricing model. The
Company’s pro forma information is as follows:

Net income:

As reported
Deduct total stock-based employee

compensation expense determined
under the fair value based method for all
awards

2004

2003

$ 1,224,131 $ 710,745

(267,000) (297,665)

Pro forma

$ 957,131 $ 413,080

F-9

RF INDUSTRIES, LTD.

NOTES TO FINANCIAL STATEMENTS

Note 1 - Business activities and summary of significant accounting policies (continued):

Stock options (concluded):

Basic earnings per share:

As reported
Pro forma

Diluted earnings per share:

As reported
Pro forma

2004

2003

$.42
$.33

$.33
$.26

$.23
$.14

$.19
$.11

The fair value of each option granted in 2004 and 2003 was estimated on the date
of grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:

Dividend yield
Expected volatility
Risk-free interest rate
Expected lives

Earnings per share:

2004

2003

0%
76%
4.24%
4 years

0%
60%
4.33%
10 years

Basic earnings per share is calculated by dividing net income applicable to
common stockholders by the weighted average number of common shares
outstanding during the period. The calculation of diluted earnings per share is
similar to that of basic earnings per share, except that the denominator is
increased to include the number of additional common shares that would have
been outstanding if all potentially dilutive common shares, principally those
issuable upon the exercise of stock options, were issued and the treasury stock
method had been applied during the period.

F-10

RF INDUSTRIES, LTD.

NOTES TO FINANCIAL STATEMENTS

Note 1 - Business activities and summary of significant accounting policies (continued):

Earnings per share (concluded):

The following table summarizes the calculation of basic and diluted earnings per
share:

Numerators:

Net income (A)

Denominators:

2004

2003

$ 1,224,131

$ 710,745

Weighted average shares outstanding for basic

earnings per share (B)

2,906,806

3,053,352

Add effects of potentially dilutive securities -

assumed exercise of stock options

844,475

617,273

Weighted average shares for diluted

earnings per share (C)

3,751,281

3,670,625

Basic net earnings per share (A)÷(B)

Diluted net earnings per share (A)÷(C)

$.42

$.33

$.23

$.19

Note 2 - Concentration of credit risk and sales to major customers:

The Company maintains its cash balances primarily in one financial institution. As of
October 31, 2004, the balance exceeded the Federal Deposit Insurance Corporation
limitation for coverage of $100,000 by $270,800. As of October 31, 2004, the
Company had two uninsured money market accounts totaling $4,149,900. The
Company reduces its exposure to credit risk by maintaining such balances with
financial institutions that have high credit ratings.

Accounts receivable are financial instruments that also expose the Company to
concentration of credit risk. Such exposure is limited by the large number of
customers comprising the Company's customer base and their dispersion across
different geographic areas. In addition, 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.

Sales to one customer represented 14% and 16% of total sales in 2004 and 2003,
respectively. The Company does not have a written agreement with this customer
and, therefore, this customer does not have any minimum purchase obligations and
could stop buying the Company’s products at any time. A reduction, delay or
cancellation of orders from this customer or the loss of this customer could
significantly reduce the Company’s revenues and profits.

F-11

RF INDUSTRIES, LTD.

NOTES TO FINANCIAL STATEMENTS

Note 3 - Inventories:

Inventories consisted of the following as of October 31, 2004 and 2003:

Raw materials and supplies
Finished goods
Less inventory reserve

Totals

Note 4 - Commitments:

2004

2003

$ 777,765
3,120,909
(108,716)

591,892
$
2,997,902
(134,776)

$ 3,789,958

$ 3,455,018

The Company leases its facilities in San Diego, California and Las Vegas, Nevada
under noncancelable operating leases. The Company amended its San Diego lease in
November 2004, adding additional square feet. The amended lease expires in May
2010 and requires minimum annual rental payments that are subject to fixed annual
increases. The minimum annual rentals under this lease are being charged to expense
on a straight-line basis over the lease term. Deferred rentals were not material at
October 31, 2004. The Las Vegas lease expires on March 31, 2005. The San Diego
lease also requires the payment of the Company's pro rata share of the real estate
taxes and insurance, maintenance and other operating expenses related to the
facilities. The Company also leases certain automobiles under operating leases which
expire at various dates through December 2005.

Rent expense under all operating leases totaled approximately $238,000 and $218,000
in 2004 and 2003, respectively.

Minimum lease payments under these operating leases in each of the five years
subsequent to October 31, 2004 and thereafter are as follows:

Year Ending
October 31,

2005
2006
2007
2008
2009
Thereafter

Total

Amount

197,000
240,000
240,000
232,000
235,000
139,000

$ 1,283,000

The Company has an employment agreement with its President and Chief Executive
Officer for a term which expires on February 24, 2005. The aggregate amount of
compensation to be provided over the remaining term of the agreement amounted to
$71,667 at October 31, 2004.

F-12

RF INDUSTRIES, LTD.

NOTES TO FINANCIAL STATEMENTS

Note 5 - Geographical information:

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 years ended October 31, 2004 and 2003:

United States
Foreign countries

Totals

2004

2003

$ 10,226,766
1,000,476

$ 8,675,099
1,200,400

$ 11,227,242

$ 9,875,499

Note 6 - Income taxes:

The provision for income taxes consists of the following:

Current:

Federal
State

Deferred:
Federal
State

Totals

2004

2003

$ 651,400
181,000
832,400

$ 426,500
119,000
545,500

2,600
5,000
7,600

(30,800)
(10,000)
(40,800)

$ 840,000

$ 504,700

Income tax at the Federal statutory rate is reconciled to the Company's actual net
provision for income taxes as follows:

2004

2003

Amount

% of Pretax
Income

Amount

% of Pretax
Income

$ 702,000

34.0%

$413,200

34.0%

Income tax at Federal

statutory rate

State tax provision, net
of Federal tax benefit

Nondeductible differences

7,000

123,000

6.0

0.3

72,000

6,600

5.9

0.5

Other

8,000

0.4

12,900

1.1

Provision for income

taxes

$ 840,000

40.7%

$504,700

41.5%

F-13

RF INDUSTRIES, LTD.

NOTES TO FINANCIAL STATEMENTS

Note 6 - Income taxes (concluded):

The Company's total deferred tax assets and deferred tax liabilities at October 31,
2004 and 2003 are as follows:

Assets:

Allowance for doubtful accounts
Inventory obsolescence
Accrued vacation
State income taxes
Capital loss carryforwards
Other

Totals

Liabilities:

Depreciation

Less valuation allowance

2004

2003

16,000
47,000
48,000
62,000
34,000
5,000
212,000

$ 23,700
57,700
34,600
36,900
33,900
39,100
225,900

(90,000)

(96,400)

(34,000)

(33,900)

Net deferred tax assets

88,000

$ 95,600

A valuation allowance has been established for the capital loss carryforward, due to the
Company no longer investing in assets to offset these losses in the foreseeable future.

Note 7 - Stock options:

Incentive and Non-Qualified Stock Option Plans:

The Board of Directors approved an Incentive Stock Option Plan (the "1990
Incentive Plan") during fiscal 1990 that provides for grants of options to employees
to purchase up to 500,000 shares of common stock of the Company. Under its
terms, the 1990 Incentive Plan terminated in 2000, and no additional options can
be granted under that option plan. However, options previously granted under the
1990 Incentive Plan remain outstanding and continue in effect until they either
expire, are forfeited or are exercised. As of October 31, 2004, a total of 8,313
options were still outstanding under the 1990 Incentive Plan, all of which are
currently exercisable.

The Board of Directors also approved a Non-Qualified Stock Option Plan (the
"1990 Non-Qualified Plan") during fiscal 1990 that provides for grants of options to
purchase up to 200,000 shares of common stock to officers, directors and other
recipients selected by the Board of Directors. Under its terms, the 1990 Non-
Qualified Plan terminated in 2000, and no additional options can be granted under
that option plan. However, options previously granted under the 1990 Non-
Qualified Plan remain outstanding and continue in effect until they either expire,
are forfeited or are exercised. As of October 31, 2004, a total of 12,000 options
were still outstanding under the 1990 Non-Qualified Plan, all of which are currently
exercisable.

F-14

RF INDUSTRIES, LTD.

NOTES TO FINANCIAL STATEMENTS

Note 7 - Stock options (continued):

Incentive and Non-Qualified Stock Option Plans (concluded):

In May 2000, the Board of Directors adopted the Company’s 2000 Stock Option
Plan (the “2000 Option Plan”). Under the 2000 Option Plan, the Company may
grant options to purchase shares of common stock to officers, directors, key
employees and others providing services to the Company. The number of shares
of common stock that the Company is authorized to issue under options granted
under the 2000 Option Plan initially was 300,000, which number automatically
increases on January 1 of each year by the lesser of (i) 4% of the total number of
shares of common stock then outstanding or (ii) 10,000 shares. Accordingly, as of
October 31, 2004, the authorized number of shares of common stock that could be
issued under the 2000 Option Plan was 440,000, of which 108,851 shares were
still available to be granted. Under the 2000 Option Plan, the Company is
authorized to grant both incentive stock options and non-qualified stock options.
Incentive stock options are granted at an exercise price no less than the fair value
of the common stock on the date of grant, while non-qualified options are granted
at no less than 85% of the fair value of the common stock on the date of grant.

Additional required disclosures related to stock option plans:

Additional information regarding all of the Company's outstanding stock options at
October 31, 2004 and 2003 and changes in outstanding stock options in 2004 and
2003 follows:

2004

2003

Weighted
Average
Shares
or Price
Exercise
Per Share Price

Options outstanding at beginning of year 1,287,867
67,651
Options granted
(311,554)
Options exercised
(8,250)
Options forfeited

$1.67
5.75
3.21
2.30

Shares
or Price
Per Share

1,245,764
170,365
(73,296)
(54,966)

Weighted
Average
Exercise
Price

$1.71
2.83
1.23
3.39

Options outstanding at end of year

1,035,714

1.63

1,287,867

1.67

Option price range at end of year

$.10 -$6.38

$.10-$5.75

Weighted average fair value of

options granted during the year

$3.83

$2.05

F-15

RF INDUSTRIES, LTD.

NOTES TO FINANCIAL STATEMENTS

Note 7 - Stock options (concluded):

Additional required disclosures related to stock option plans (concluded):

The following table summarizes information about stock options outstanding at
October 31, 2004, all of which are at fixed-prices:

Range of
Exercise
Price

$0.10
$1.33 - $2.50
$2.66 - $3.95
$5.12 - $6.38

Number
Outstanding

460,000
273,943
235,870
65,901
1,035,714

Weighted
Average
Exercise
Price

Weighted Average
Remaining
Contractual Life
of Options

Outstanding *

Number
of Options
Exercisable

Weighted
Average
Exercise Price
of Options
Exercisable

0.10
1.87
3.12
6.03
1.63

1 yr. after termination
6 yrs.
9 yrs.
10 yrs.
8 yrs.

460,000
186,943
115,870
4,700
767,513

0.10
1.75
3.34
5.12
0.96

* Some of the options, in addition to the 460,000, expire 1-year after employee’s

termination.

Note 8 - Retirement plan:

The Company sponsors a deferred savings and profit sharing plan under Section
401(k) of the Internal Revenue Code. Substantially all of its employees may
participate in and make voluntary contributions to this defined contribution plan after
they meet certain eligibility requirements. The Board of Directors of the Company can
authorize additional discretionary contributions by the Company. The Company did
not make contributions to the plan in 2004 or 2003.

Note 9 - Related party transactions:

The note receivable from stockholder of $70,000 at October 31, 2004 and 2003 is due
from the President of the Company, bears interest at 6%, payable annually, and has
no specific due date.

The notes receivable from related parties of $26,730 and $49,584 at October 31, 2004
and 2003, respectively, are due from employees of the Company, bear interest at 6%
and are due when shares of the Company’s common stock are sold by the
employees. The notes are collateralized by properties owned by the employees.

A director of the Company is an employee of Neil Berkman Associates, the
Company’s public relations firm. For the fiscal years ended October 31, 2004 and
October 31, 2003, the Company paid to Neil Berkman Associates $43,050 and
$39,360, respectively, for services rendered.

F-16

RF INDUSTRIES, LTD.

NOTES TO FINANCIAL STATEMENTS

Note 10- Business acquisition:

On August 16, 2004, the Company purchased the business and substantially all of the
assets of Jacelaine, Inc., a Nevada based designer, manufacturer and seller of
microwave and radio frequency connectors. Jacelaine, Inc. has been conducting
business under the name “Aviel Electronics.” The purchase price of the assets was
$510,000, of which $410,000 was paid in cash at the closing and $100,000 was
deposited into an escrow account for one year as security for the seller’s
representations, warranties and covenants. The purpose of the acquisition was to
complement the Company’s coaxial connector business with military, governmental
and aerospace customers.

The acquisition has been accounted for as a purchase and, accordingly, the net
assets acquired were recorded at estimated fair values on the date of acquisition. A
summary of the allocation of the cost of the acquisition to the net assets acquired as
of August 16, 2004 follows:

Inventory
Property and equipment
Goodwill

Total assets acquired

Purchase price

$ 132,012
240,660
137,328

$ 510,000

Assuming the acquisition had taken place on the first day of the years ended October
31, 2004 and 2003, unaudited net sales would have been approximately $11,748,000
and $10,836,000, respectively, while unaudited net income and earnings per share
information would not have been materially different than the amounts shown on the
accompanying statements of income for the years then ended.

F-17

Officers and Directors

Linde Kester
Chairman

John R. Ehret
Director

Marvin H. Fink
Director

Conrad Neri
VP Operations
RF Connectors and
RF Cable Assemblies Division

Investor Relations
Neil G. Berkman Associates
1900 Avenue of the Stars,
Ste. 2850
Los Angeles, CA 90067
(310) 277-5162

David Lamb
Director of Operations
RF Neulink Division

Common Stock
Nasdaq Small Cap Market
Symbol: RFIL

Annual Meeting
June 10, 2005
1:30 p.m., PST
Corporate Office
7610 Miramar Road
San Diego, CA 92126
(858) 549-6340

Howard F. Hill
Director, President and C.E.O.

Robert White
Director of Sales and Marketing
RF Neulink Division

Henry E. Hooper
Director

Robert Jacobs
Director

William L. Reynolds
Director

Terrie A. Gross
Corporate Secretary

William T. Gochnauer
Acting C.F.O.

Manny Gutsche
VP Sales and Marketing
RF Industries

Robert Macias
VP Product Assurance
RF Industries

Richard “Joe” LaFay
President/General Manager
RF Connectors Division

George R. Marks
President/General Manager
Bioconnect Division

Jack Kaufman
President
Aviel Electronics Division

Independent Accountants
J.H. Cohn LLP
James Ledwith, CPA
5415 Oberlin Drive
San Diego, CA 92121
(858) 535-2000

Securities Counsel
Troy and Gould
1801 Century Park East, 16th Floor
Los Angeles, CA 90067-2367
(310) 553-4441

Transfer Agent and Registrar
Continental Stock & Transfer Co.
17 Battery Place South, 8 th Floor
New York, NY 10004
(212) 509-4000

Annual reports, 10Ks, 10Qs and news releases are available by contacting Howard Hill
at (858) 549-6340 or (800) 233-1728 or e-mail: rfi@rfindustries.com. Website: www.rfindustries.com

RF INDUSTRIES

7610 MIRAMAR ROAD

SAN DIEGO, CA 92126-4202

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