<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended May 31, 1996
Commission File No. 0-24414
RF MONOLITHICS, INC.
(Exact name of registrant as specified in its charter)
________________________
DELAWARE 75-1638027
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification)
4441 SIGMA ROAD, DALLAS, TEXAS 75244
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 233-2903
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [_] NO
AS OF JUNE 30, 1996, 5,190,587 SHARES OF THE REGISTRANT'S COMMON STOCK, $.001
PAR VALUE, WERE OUTSTANDING.
<PAGE>
RF MONOLITHICS, INC.
FORM 10-Q
QUARTER ENDED MAY 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM
NUMBER PAGE
- - ------ ----
<C> <S> <C>
PART I. CONDENSED FINANCIAL INFORMATION
1. Condensed Financial Statements:
Condensed Balance Sheets
May 31, 1996 (Unaudited), and August 31, 1995 1
Condensed Statements of Income - Unaudited
Three months Ended May 31, 1996 and May 31, 1995,
and Nine Months Ended May 31, 1996 and May 31, 1995 2
Condensed Statements of Cash Flows - Unaudited
Nine Months Ended May 31, 1996 and May 31, 1995 3
Notes to Condensed Financial Statements 4
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION
1. Legal Proceedings 12
2. Changes in Securities 12
3. Defaults Upon Senior Securities 12
4. Submission of Matters to a Vote of Security Holders 12
5. Other Information 13
6. Exhibits and Reports on Form 8-K 13
</TABLE>
SIGNATURES
<PAGE>
PART I. CONDENSED FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
RF MONOLITHICS, INC.
CONDENSED BALANCE SHEETS
(In Thousands)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
ASSETS 1996 1995
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 948 $ 433
Short-term investments 4,485 4,653
Trade receivables - net 6,153 6,195
Inventories 5,001 4,708
Prepaid expenses and other 384 477
Deferred income tax benefits 562 549
-------- --------
Total current assets 17,533 17,015
PROPERTY AND EQUIPMENT - Net 10,472 10,743
DEFERRED INCOME TAX BENEFITS 1,685 2,031
OTHER ASSETS - Net 804 756
-------- --------
TOTAL $ 30,494 $ 30,545
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term
debt $ 3,018 $ 2,208
Account payable - trade 1,365 2,616
Accounts payable - construction and equipment 150 773
Accrued expenses and other liabilities 1,612 1,773
Income taxes payable (37) 29
-------- --------
Total current liabilities 6,108 7,399
LONG-TERM DEBT 2,611 2,854
STOCKHOLDERS' EQUITY:
Common stock: 5,166 and 5,024 shares issued and
outstanding 5 5
Additional paid-in-capital 24,009 23,368
Deferred compensation (329) -
Accumulated deficit (1,910) (3,103)
Unrealized gain on short-term investments 0 22
-------- --------
Total stockholders' equity 21,775 20,292
-------- --------
TOTAL $ 30,494 $ 30,545
======== ========
</TABLE>
See notes to condensed financial statements.
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RF MONOLITHICS, INC.
CONDENSED STATEMENTS OF INCOME - UNAUDITED
(In Thousands, Except Per-Share Amounts)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ----------------------
MAY 31, MAY 31, MAY 31, MAY 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
SALES $ 9,029 $ 8,268 $ 25,684 $ 23,846
COST OF SALES 5,625 5,438 16,312 14,759
--------- --------- --------- ---------
GROSS PROFIT 3,404 2,830 9,372 9,087
OPERATING EXPENSES:
Research and development 896 863 2,387 2,386
Sales and marketing 1,078 1,053 3,148 3,154
General and administrative 687 600 2,046 1,679
--------- --------- --------- ---------
Total operating expenses 2,661 2,516 7,581 7,219
--------- --------- --------- ---------
INCOME FROM OPERATIONS 743 314 1,791 1,868
OTHER INCOME (EXPENSE):
Interest income 98 97 256 252
Interest expense (134) (47) (380) (85)
Other expense 109 10 130 10
--------- --------- --------- ---------
Total other income 73 60 6 177
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 816 374 1,797 2,045
INCOME TAX EXPENSE 211 110 604 778
--------- --------- --------- ---------
NET INCOME $ 605 $ 264 $ 1,193 $ 1,267
========= ========= ========= =========
EARNINGS PER SHARE $ 0.11 $ 0.05 $ 0.22 $ 0.24
========= ========= ========= =========
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 5,461 5,329 5,407 5,327
========= ========= ========= =========
</TABLE>
See notes to condensed financial statements.
-2-
<PAGE>
RF MONOLITHICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
(In Thousands)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
--------------------
May 31, May 31,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,193 $ 1,267
Noncash item included in net income:
Deferred taxes 333 452
Depreciation and amortization 1,868 1,052
Provision for doubtful accounts 147 22
Other 36 18
Cash from (used in) operating working capital:
Trade receivables (105) (1,283)
Inventories (293) (2,154)
Prepaid expenses and other 93 (15)
Accounts payable - trade (1,251) 1,186
Accrued and other liabilities (161) 329
Income taxes payable (66) 42
------- -------
Net cash from operations 1,794 916
INVESTING ACTIVITIES:
Decrease in short-term investments 3,035 3,813
Increase in short-term investments (2,888) (3,498)
Acquisition of property and equipment (1,594) (2,853)
Disposition of property and equipment-net 34 -
Increase in other assets (83) (153)
------- -------
Net cash used in investing activities (1,496) (2,691)
FINANCING ACTIVITIES:
Borrowings on notes payable 2,384 1,500
Repayments of notes payable (1,595) -
Repayments of capital lease obligations (224) (228)
Borrowings (repayments) of accounts payble - construction and equipment (623) 597
Common stock issued for options exercised 279 198
Payment of costs of initial public offering - (674)
Dividends paid on preferred stock (4) (456)
------- -------
Net cash from financing activities 217 937
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 515 (838)
CASH AND CASH EQUIVALENTS:
Beginning of period 433 1,648
------- -------
End of period $ 948 $ 810
======= =======
SUPPLEMENTAL INFORMATION:
Interest paid $ 386 $ 99
======= =======
Income taxes paid $ 120 $ 135
======= =======
Noncash investing and financing items:
Dividends payable $ 22 $ 37
======= =======
Property and equipment acquisitions by debt $ 2 $ 1,064
======= =======
Total cash and noncash property and equipment additions $ 1,596 $ 3,917
======= =======
See notes to condensed financial statements.
</TABLE>
- 3 -
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RF MONOLITHICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed financial statements include all adjustments,
consisting only of normal recurring adjustments and accruals (except as noted
below) that in the opinion of the management of RF Monolithics, Inc. (the
"Company" or "RFM") are necessary for a fair presentation of the Company's
financial position as of May 31, 1996, and the results of operations and cash
flows for the three and nine months ended May 31, 1996 and May 31, 1995. These
unaudited interim condensed financial statements should be read in conjunction
with the audited financial statements of the Company and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended August
31, 1995, filed with the Securities and Exchange Commission.
Operating results for the nine months ended May 31, 1996, are not necessarily
indicative of the results to be achieved for the full fiscal year ending August
31, 1996. Certain reclassifications of fiscal 1995 period amounts have been made
to be consistent with the current fiscal 1996 period presentation.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MAY 31, AUG 31,
1996 1995
<S> <C> <C>
Raw materials and supplies $2,349 $2,125
Work in process 1,065 1,220
Finished goods 1,587 1,363
------ ------
Total $5,001 $4,708
====== ======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment includes construction and equipment installation in
progress of $188,000 at May 31, 1996, and $1,648,000 at August 31, 1995, which
is comprised of equipment and other assets not yet placed in service primarily
related to increasing the capacity of the Company's manufacturing facilities
4. CREDIT FACILITIES
In November 1995, the Company entered into a new $3.5 million equipment lease
facility with a commercial bank. The facility has covenants substantially
similar to the Company's other credit facilities. During December 1995, the
Company leased property and equipment of $.7 million, leaving $2.8 million
available on this lease facility at May 31, 1996. The Company has accounted for
the acquisition of equipment under this facility as an operating lease.
-4-
<PAGE>
On March 1, 1996, the line of credit was negotiated with a new commercial bank
with an increased credit line to $5 million and an expiration date of December
31, 1997. The line bears interest at LIBOR plus certain percentages. The
covenants include maintaining quick ratio, tangible net worth, fixed charge
ratio, and a ratio of liabilities and tangible net worth. At June 30, 1996, the
availability on this line was $3.3 million.
5. CAPITAL STOCK
In March of 1996, the Company granted to employees stock options in accordance
with the Company's existing stock option plans for 65,000 shares of the
Company's common stock. The options have an exercise price of $6.75, the fair
market value of the stock at the date of grant.
6. INCOME TAX EXPENSE
Current quarter expense included the one time favorable impact of $115,000,
resulting from the recognition of the effects of a research and development tax
credit recovery study.
7. CONTINGENCY
On June 7, 1996, the Company was served with a complaint filed by TimeKeeping
Systems, Inc. ("TimeKeeping") in the Court of Common Pleas for Cuyahoga County,
Ohio, captioned TimeKeeping Systems, Inc. v. R.F. Monolithics, Inc., No. 308658.
The Company is the only defendant named in the complaint. The complaint purports
to state a single cause of action for breach of contract and alleges that the
Company failed to timely fulfill certain purchase orders TimeKeeping issued in
1995. The complaint seeks damages of $900,000 based primarily on a claim of lost
profits. The Company has removed the action to the United States District Court
for the Northern District of Ohio, where it is pending as No. 1:96 CV 1451. The
Company has not yet responded to the complaint but believes that it has
meritorious defenses to the complaint and intends to vigorously defend the
action. Accordingly, no provision has been made by the Company.
-5-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion may be understood more fully by reference to the
financial statements, notes to the financial statements and management's
discussion and analysis contained in the Company's Annual Report on Form 10-K
for the year ended August 31, 1995, and Forms 10-Q for the three months ended
November 30, 1995, and for the six months ended February 29, 1996, filed with
the Securities and Exchange Commission.
GENERAL
RF Monolithics, Inc. designs, develops, manufactures and markets a broad
range of RF components and modules for the low-power wireless, high-frequency
timing and telecommunications markets. The Company's products are based on
surface acoustic wave ("SAW") technology, and the Company's strategy is to
leverage its RF design skills to provide SAW-based solutions to the current and
emerging needs of the electronics industry. The Company's products include more
than 500 resonators, filters, delay lines and related modules. The Company's
average selling prices within these product lines generally range from $1 to $30
for low-power products, $10 to $350 for high-frequency timing devices and $5 to
$50 for telecommunications products.
During fiscal 1994 and the first two quarters of fiscal 1995, the Company
constructed and tested its new surface mount technology ("SMT") manufacturing
facility. The purpose of the facility is to provide the capability to
manufacture products utilizing surface mount packaging in a highly automated
environment. During these periods, the facility had not reached production
status, so the related equipment was not placed into service and certain
associated costs were capitalized as start-up costs. In the third quarter of
fiscal 1995, this facility achieved production status for the initial product,
and depreciation on the equipment and amortization of capitalized start-up costs
began. As a result, current year to date period expenses include three quarter's
impact of the depreciation and amortization of the related factory assets, while
the comparable period of the previous year includes only one quarter's impact of
these expenses.
RESULTS OF OPERATIONS
The following discussion relates to the financial statements of the Company
for the three and nine months ended May 31, 1996 (current quarter and current
year-to-date period), of the fiscal year ending August 31, 1996, in comparison
to the three and nine months ended May 31, 1995 (comparable quarter of the prior
year and comparable year-to-date period). In addition, certain comparisons with
the three months ended February 29, 1996 (previous quarter), are provided where
management believes it is useful to the understanding of trends. Certain
reclassifications of fiscal 1995 period amounts have been made to be consistent
with the current fiscal 1996 period presentation.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to those discussed in this section, as well as in
the sections entitled Item 1, Business and Item 7, Management's Discussion and
Analysis in the Company's Form 10-K for the year ended August 31, 1995.
-6-
<PAGE>
The following table sets forth, for the three and nine months ended May 31,
1996 and May 31, 1995, (i) the percentage relationship of certain items from the
Company's statements of income to sales and (ii) the percentage change in these
items between the current periods and the comparable periods of the prior year:
<TABLE>
<CAPTION>
Percentage of Total Sales Percentage Change From
--------------------------------------- -----------------------------------
Three Months Nine Months Three Months Nine Months
Ended May 31, Ended May 31, Ended May 31, Ended May 31,
------------------- -------------------
1995 to May 1995 to May
1996 1995 1996 1995 31, 1996 31, 1996
-------- -------- -------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Sales 100% 100% 100% 100% 9% 8%
Cost of sales 62 66 64 62 3 11
---- ----- ----- ----- ------ ------
Gross profit 38 34 36 38 20 3
---- ----- ----- ----- ------ ------
Research and development 10 10 9 10 4 -
Sales and marketing 12 13 13 13 2 -
General and administrative 8 7 8 7 15 22
---- ----- ----- ----- ------ -----
Total operating expenses 30 30 30 30 6 5
---- ----- ----- ----- ------ -----
Income from operation 8 4 6 8 137 (4)
Other income, net 1 - - 1 22 (97)
---- ----- ----- ----- ------ -----
Income before income taxes 9 4 6 9 118 (12)
Income tax expense 2 1 2 4 92 (22)
---- ----- ----- ----- ------ -----
Net income 7% 3% 4% 5% 129% ( 6)%
==== ===== ===== ===== ====== =====
</TABLE>
SALES
The following table sets forth the components of the Company's sales and
the percentage relationship of the components to sales for the periods ended as
indicated (in thousands, except percentage data):
<TABLE>
<CAPTION>
Amounts % of Total
------------------------------------------- -------------------------------------------
Three Months Nine Months Three Months Nine Months
Ended May 31, Ended May 31, Ended May 31, Ended May 31,
--------------------- -------------------- ---------------------- -------------------
1996 1995 1996 1995 1996 1995 1996 1995
-------- ----------- --------- --------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Low-power wireless $6,819 $5,320 $19,327 $14,171 75% 64% 75% 59%
High frequency timing 1,508 2,237 4,752 8,307 17 27 18 35
Telecommunications 697 507 1,532 897 8 6 6 4
Technology development revenues 5 204 73 471 0 3 1 2
------ ------ ------- ------- ----- ----- ----- -----
Sales $9,029 $8,268 $25,684 $23,846 100% 100% 100% 100%
====== ====== ======= ======= === === === ===
</TABLE>
Sales increased 9% in the current quarter, compared to the comparable
quarter of the prior year, and increased 10% from the previous quarter. Current
year-to-date period sales increased 8% compared to the comparable year-to-date
period. The increase in the current quarter and current year-to-date sales from
the respective comparable periods was primarily attributable to increased units
shipped of low-power wireless products. Low-power wireless sales in the current
quarter increased 28% over the comparable quarter of the prior year and in the
current year-to-date period increased 36% over the comparable year-to-date
period, primarily due to increasing demand for the Company's new SMT low-power
wireless products for customers in automotive markets. SMT products accounted
for approximately 33% of total year-to-date low-power wireless sales. The
Company has invested a considerable amount of its capital, technical, sales and
marketing resources into new SMT products that were primarily targeted toward
the low-power wireless market. For most of the time that the SMT facility has
been operational, only the surface-mount resonator product had been released to
manufacturing in an automated production status. However, late in the second
quarter of the current year, the
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<PAGE>
more complex SMT transmitter and receiver products were released to
manufacturing for volume production. There can be no assurance as to when, if
ever, the demand for these transmitter and receiver products will achieve volume
levels required to significantly impact per unit costs.
Sales of high-frequency timing products decreased 33% from the comparable
quarter of the prior year and 43% from the comparable year-to-date period,
primarily due to a decrease in the average selling price of products sold to the
Company's largest customer, Digital Equipment Corporation ("Digital"). Sales to
Digital, primarily of high-frequency timing products for use in systems based on
the Alpha microprocessor, accounted for approximately 8%, 16% and 13% of total
sales for the current quarter, the comparable quarter of the prior year and the
previous quarter, respectively. The number of units shipped to Digital in the
current quarter increased 14% in comparison to the comparable quarter of the
prior year, although lower average selling prices resulted in lower overall
sales to Digital for the period. The lower average selling prices to Digital
resulted from the customer's conversion to lower-priced units. The lower-priced
units represent a new line of clock oscillator products that were introduced to
respond to competition from products that utilize phased lock loop ("PLL")
technology. The Company has no long-term volume purchase commitments from its
major customers, including Digital. Orders from Digital have fluctuated in the
past, and there can be no assurance that such fluctuations will not recur or
that Digital will continue to purchase the Company's products at all. As the
Company increases its focus on low-power wireless and telecommunications
products, it expects a trend of a decreasing percentage of total revenues to
Digital will continue.
Sales of telecommunications products in the current quarter increased 37%
in comparison to the comparable quarter of the prior year and 26% in comparison
to the previous quarter. The increase in sales of telecommunications products
was primarily due to an increase in the average selling price of these products
over the comparable periods.
International sales (primarily in Europe and Asia) were approximately 57%,
48% and 46% of the Company's sales during the current quarter, the comparable
quarter of the prior year and the previous quarter, respectively. International
sales were approximately 51% and 46% of total sales during the current year-to-
date period and the comparable year-to-date period, respectively. The Company
considers all product sales with a delivery destination outside of North America
to be international sales. These sales are denominated primarily in U.S.
currency. The Company intends to continue its focus on international sales in
the future and expects that international sales will continue to represent a
significant portion of its business. There can be no assurance, however, that
this can be achieved.
The Company's top five customers accounted for approximately 24%, 33% and
32% of the Company's sales in the current quarter, the comparable quarter of the
prior year and the previous quarter, respectively. The reduction in the relative
portion of the revenues to the Company's top five customers from the prior
comparable periods to the current quarter was primarily a result of the decrease
in sales to Digital. In addition, a significant portion of the increased sales
for the Company's new SMT products were to new customers, which increased the
total number of customers receiving RFM products.
While the Company has achieved sales increases in prior periods, there can
be no assurance that this can be achieved in future periods. The Company's
success is highly dependent on achieving technological advantages in its product
design and manufacturing capabilities, as well as its ability to sell its
products in a competitive marketplace that can be influenced by outside factors
such as economic and regulatory conditions. The Company experiences increased
competition from companies that offer alternative solutions such as PLL
technology. There can be no assurance that competition from alternative
technologies or from competitors duplicating the Company's technologies will not
adversely affect selling prices and market share.
-8-
<PAGE>
GROSS PROFIT
The current quarter gross margin of 37.7% increased from 34.2% in the
comparable period of the prior year, primarily reflecting the impact of
increased margins for low-power wireless products. Margins for this segment have
been favorably impacted by lower per unit manufacturing costs resulting from
continued improvements in yield and productivity.
Gross margins in the current quarter of 37.7% improved from 36.8% in the
previous quarter. This was the third consecutive quarter of improvement. This is
primarily a result of lower per-unit manufacturing costs for the Company's low-
power wireless products. Improved manufacturing yields and productivity gains
have occurred in all of the Company's factories over the past several quarters.
There can be no assurance that these manufacturing improvements will continue.
While current year-to-date margins for the new SMT low-power wireless
products have increased over the margins in the comparable year-to-date period,
they are still relatively low compared to the older style TO-39 packaged
products. The high cost of the new facility, including the effect approximately
$450,000 in additional depreciation and amortization of equipment and start-up
costs between the comparable year-to-date periods, contributed to a relatively
high per-unit manufacturing cost of the Company's SMT low-power wireless
products. Much of the production capacity in the SMT facility was created for
the Company's developing products, namely the SMT transmitter and receiver
products, which reached production status late in the second quarter. Due to the
high fixed costs associated with this new facility, the Company expects that its
results of operations, while improving, will continue to be adversely affected
until such time as the Company is able to cost-effectively produce and sell
substantial volumes of products using the SMT facility.
The year-to-date gross margin of 36.5% decreased from 38.1% in the
comparable period primarily due to decreased deliveries of higher-margin, high-
frequency timing products. High-frequency timing product sales declined from 35%
to 18% of total sales over the comparable year-to-date period. Additionally, the
average selling price for the high-frequency timing products decreased,
adversely affecting the margin of this product line. Historically, the Company
has achieved substantially higher gross profit margins on its high-frequency
timing products than its low-power wireless products due in part to the higher
engineering and technical content of the high-frequency timing products. To the
extent that the higher-margin, high-frequency timing products continue to
decrease as a percent of sales, the overall gross profit margin may be adversely
affected. Year-to-date gross margins were also affected by the previously
discussed higher costs from the depreciation and amortization of equipment and
start-up costs related to the SMT facility. There can be no assurance that
current product margin trends will continue.
At times in the past two years, the Company has operated its current
manufacturing facilities, including the wafer fabrication and component assembly
facilities, at capacity. Therefore, its future success could be impacted by its
ability to continue to expand its original manufacturing facilities as well as
achieve sufficient volume production on its new SMT facility in a timely manner.
There can be no assurance that the Company will achieve acceptable production
yields in a timely manner from such SMT facility or that the Company will not
experience unacceptable product warranty expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses in the current quarter increased
approximately 4%, from the comparable quarter of the prior year. Current year-to
date expenses did not change from the prior comparable
-9-
<PAGE>
period. The Company believes that the continued development of its technology
and new products is essential to its success and is committed to continue its
investment in research and development. The Company expects that research and
development expenses will increase in absolute dollars in future periods.
SALES AND MARKETING
Current quarter sales and marketing expenses increased 2% and were
unchanged on a year-to-date comparison. Since sales increased faster than sales
and marketing expenses, these expenses decreased from 13% of sales in the
comparable quarter of the prior year to 12% in the current quarter. The Company
expects to incur higher sales and marketing expenses in absolute dollars in
future periods as it expands its sales and marketing efforts.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the current quarter and year-to-
date period increased 15% and 22% from the prior comparable periods,
respectively, primarily due to increased support for the Company's expansion, as
well as costs related to satisfying the Company's status as a publicly held
company. Current quarter general and administrative expenses included an
increase in the provision for doubtful accounts over the comparable quarter of
the prior year of $75,000, due to a specific customer's bankruptcy. Since
general and administrative expenses increased faster than sales, these expenses
increased from 7% of total revenue in the comparable quarter of the prior year
to 8% in the current quarter. The Company expects general and administrative
expenses will increase in absolute dollars in future periods.
OTHER INCOME (EXPENSE)
While there was little change in total other income (expense) in the
current quarter from the comparable quarter of the prior year, current year to
date other income decreased $171,000 from the prior comparable year-to-date
period, primarily due to an increase in interest expense resulting from
additional borrowings.
INCOME TAX EXPENSE
The Company's income tax expense was $211,000 in the current quarter,
compared to $110,000 in the comparable quarter of the prior year. Current
quarter expense included the one time favorable impact of $115,000, resulting
from the recognition of the effects of a research and development tax credit
recovery study.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of liquidity at May 31, 1996, consisted of $5.4
million of cash and short-term investments and $5.6 million of unused credit
facilities. These credit facilities include $2.8 million unused under a line of
credit agreement with a commercial bank which expires December 31, 1997, and
$2.8 million in an equipment-collateralized operating lease facility which
expires October 18, 1996. The credit facilities contain restrictions and
financial covenants substantially similar to the Company's other credit
facilities. As of May 31, 1996, the Company was in compliance with such
restrictions and covenants.
Net cash provided by operating activities was $1.8 million and $.9 million
for the year-to-date periods of fiscal 1996 and 1995, respectively. Increased
cash generated from operations was primarily due to net income of $1.2 million
and an increase in non-cash items included in net income, specifically $1.9
million in
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<PAGE>
depreciation and amortization . This was partially offset by a use of cash for
working capital requirements, primarily the reduction of accounts payable of
$1.3 million.
Cash used in investing activities was $1.5 million and $2.7 million for the
year-to-date periods of fiscal 1996 and 1995, respectively, primarily as a
result of a decreased amount of capital expenditures when comparing the periods.
The Company expects to acquire a total of approximately $3 million to $4 million
of capital equipment for fiscal year 1996, consisting primarily of equipment for
its manufacturing facilities. A portion of these acquisitions will be financed
with the $2.8 million availability on the operating leases with a commercial
bank.
Net cash generated from financing activities was $.2 million and $.9
million for the year-to-date periods of fiscal 1996 and 1995, respectively. This
reduction is primarily the result of a decrease in total borrowings net of
repayments for both the notes payable and accounts payable for construction and
equipment. In the prior period borrowings were offset by the payment of costs of
the Company's initial public offering and dividends on preferred stock and were
not used to reduce debt in amounts similar to this fiscal year.
The Company believes that cash generated from operations, if any, banking
facilities and the $5.4 million balance in cash and short-term investments will
be sufficient to meet the Company's operating cash requirements through the rest
of the calendar year. To the extent that these sources of funds are insufficient
to meet the Company's capital requirements, the Company may be required to raise
additional funds. No assurance can be given that additional financing will be
available or, if available, that it will be available on acceptable terms.
-11-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 7, 1996, the Company was served with a complaint filed by TimeKeeping
Systems, Inc. ("TimeKeeping") in the Court of Common Pleas for Cuyahoga County,
Ohio, captioned TimeKeeping Systems, Inc. v. R.F. Monolithics, Inc., No. 308658.
The Company is the only defendant named in the complaint. The complaint purports
to state a single cause of action for breach of contract and alleges that the
Company failed to timely fulfill certain purchase orders TimeKeeping issued in
1995. The complaint seeks damages of $900,000 based primarily on a claim of lost
profits. The Company has removed the action to the United States District Court
for the Northern District of Ohio, where it is pending as No. 1:96 CV 1451. The
Company has not yet responded to the complaint but believes that it has
meritorious defenses to the complaint and intends to vigorously defend the
action. Accordingly, no provision has been made by the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
On July 9, 1996, the Board of Directors appointed Sam L. Densmore as President
and Chief Executive Officer. Mr. Densmore formerly served as the Executive Vice
President, Chief Operating Officer, Chief Financial Officer and Secretary of the
Company. This appointment comes after the resignation of Gary Andersen.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The Company hereby incorporates by reference all exhibits filed
in connection with Form 10-K for the year ended August 31, 1995, the Forms
10-Q for the quarters ended November 30, 1995, and February 29, 1996, and
the Forms S-8 filed with the Commission on January 17, 1996 and February
14, 1996.
(b) The Company did not file any reports on Form 8-K during the quarter ended
May 31, 1996.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by
-12-
<PAGE>
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RF MONOLITHICS, INC.
Dated: July 11, 1996 By: /s/ Sam L. Densmore
---------------------------------
Sam L. Densmore
CEO, President and Director
-14-
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