Note 7 - Stock options

Incentive and non-qualified stock option plans

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 was authorized to 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 was authorized to issue under options granted under the 2000 Option Plan initially was 300,000, which number automatically increased 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. Subsequently, the Board of Directors and Stockholders approved several increases in the authorized number of options to the 2000 Option Plan. The 2000 Option Plan expired in May of 2010. At time of expiration, the 2000 Plan had authorized the Company to grant options to purchase a total of 1,320,000 shares. Upon the expiration of the 2000 Plan, the Company was no longer able to grant any stock options to its employees, officers and directors. Accordingly, as of October 31, 2011, there were no shares of common stock authorized by the Company to be issued under the 2000 Option Plan. However, there were options for 955,396 shares that had been granted under the 2000 Plan, of which 772,572 were still outstanding and available for exercise. Under the 2000 Option Plan, the Company was authorized to grant both incentive stock options and non-qualified stock options. Incentive and non-qualified stock options under the 2000 Option Plan were granted at an exercise price no less than the fair value of the common stock on the date of grant.

On March 9, 2010, our Board of Directors adopted the RF Industries, Ltd. 2010 Stock Incentive Plan (the “2010 Plan”). In June 2010, our stockholders approved the 2010 Plan by vote as required by the NASDAQ Capital Market listing standards. Accordingly, the Company may now make awards under the 2010 Plan as described below. The Board adopted the 2010 Plan because the Company’s prior stock option plan, the 2000 Option Plan that was adopted in May 2000, expired on May 5, 2010. An aggregate of 1,000,000 shares of common stock was set aside and reserved for issuance under the 2010 Plan. As of October 31, 2011, 640,583 shares of common stock were remaining for future grants of stock options under the 2010 Plan.

Additional disclosures related to stock option plans

The fair value of each option granted in 2011 and 2010 was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	2011			2010

Expected volatility		35.9%-55.8	%		50.9%-57.7	%
Weighted-average volatility		52.7	%		52.1	%
Expected dividends		1.9%-6.3	%		1.7	%
Expected term (in years)		2.5-3.5			2.5-3.5
Risk-free interest rate		0.7%-1.2	%		0.5%-1.4	%
Weighted average fair market value of options granted during the year	$	0.89		$	1.07
Weighted average fair market value of options vested during the year	$	0.94		$	0.89

Expected volatilities are based on historical volatility of the Company’s stock. During fiscal 2011, the Company granted options for the purchase of 31,000 shares that vested immediately with an option life of five years, and options for the purchase of 147,009 shares with a vesting period of three years and an option life of five years. Since the Company has little historical experience in determining the expected life of these new option terms, the Company used the simplified method to calculate the expected life of these option grants. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. The dividend yield is based upon the historical dividend yield. The Company estimates forfeiture rates based upon historical exercise behavior.

Additional information regarding all of the Company's outstanding stock options at October 31, 2011 and 2010 and changes in outstanding stock options in 2011 and 2010 follows:

	2011					2010
	Shares or Price Per Share			Weighted Average Exercise Price		Shares or Price Per Share			Weighted Average Exercise Price
Options outstanding at beginning of year		2,454,952		$	2.00		2,486,612		$	1.87
Options granted		178,009			3.24		184,908			3.20
Options exercised		(517,817	)		1.90		(159,908	)		1.29
Options forfeited		(15,472	)		2.70		(56,660	)		2.20

Options outstanding at end of year		2,099,672		$	2.13		2,454,952		$	2.00

Options exercisable at end of year		1,599,095		$	2.00

Options vested and expected to vest at end of year		2,070,866		$	2.02

Option price range at end of year	$	0.05 - $3.78				$	0.05 - $3.78

Aggregate intrinsic value of options exercised during year:	$	693,490				$	338,580

Included in the options outstanding are 907,724 in 2011 and 1,054,408 in 2010 previously granted to six officers and/or key employees of the Company under employment agreements entered into by the Company with each of these officers and employees.

Weighted average remaining contractual life of options outstanding at October 31, 2011: 4.44 years.

Weighted average remaining contractual life of options exercisable at October 31, 2011: 4.25 years.

Weighted average remaining contractual life of options vested and expected to vest at October 31, 2011: 4.38 years.

Aggregate intrinsic value of options outstanding at October 31, 2011: $2,447,115

Aggregate intrinsic value of options exercisable at October 31, 2011: $2,101,218

Aggregate intrinsic value of options vested and expected to vest at October 31, 2011: $2,413,542

As of October 31, 2011, $410,935 of expense with respect to nonvested share-based arrangements has yet to be recognized and is expected to be recognized over a weighted average period of 4.21 years.