<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 February 28, 1999
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 (972) 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 MARCH 31, 1999, 5,764,697 SHARES OF THE REGISTRANT'S COMMON STOCK, $.001
PAR VALUE, WERE OUTSTANDING.
<PAGE>
RF MONOLITHICS, INC.
FORM 10-Q
QUARTER ENDED FEBRUARY 28, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM
NUMBER Page
------ ----
<S> <C>
Part I. Condensed Financial Information
1. Condensed Financial Statements:
Condensed Balance Sheets
February 28, 1999 (Unaudited), and August 31, 1998 1
Condensed Statements of Income - Unaudited
Three Months Ended February 28, 1999 and 1998,
and Six Months Ended February 28, 1999 and 1998 2
Condensed Statements of Cash Flows - Unaudited
Six Months Ended February 28, 1999 and 1998 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 13
2. Changes in Securities 13
3. Defaults Upon Senior Securities 13
4. Submission of Matters to a Vote of Security Holders 13
5. Other Information 14
6. Exhibits and Reports on Form 8-K 14
</TABLE>
SIGNATURES
<PAGE>
PART I. CONDENSED FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
RF MONOLITHICS, INC.
CONDENSED BALANCE SHEETS
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 28, August 31,
ASSETS 1999 1998
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 662 $ 199
Short-term investments 5,127 5,414
Trade receivables - net 11,398 11,357
Inventories 10,943 8,514
Prepaid expenses and other 1,064 976
Deferred income tax benefits 353 635
------- -------
Total current assets 29,547 27,095
PROPERTY AND EQUIPMENT - Net 19,043 17,129
OTHER ASSETS - Net 519 566
------- -------
TOTAL $49,109 $44,790
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and line of credit $ 4,144 $ 2,699
Accounts payable - trade 4,918 3,400
Accounts payable - construction and equipment 1,619 866
Accrued expenses and other liabilities 1,810 2,405
Income taxes payable 9 439
------- -------
Total current liabilities 12,500 9,809
LONG-TERM DEBT 361 815
STOCKHOLDERS' EQUITY:
Common stock: 5,760 and 5,696 shares issued and outstanding 6 6
Additional paid-in capital 27,325 26,862
Retained earnings 8,919 7,353
Unearned compensation (46) (75)
Unrealized gain on short-term investments 44 20
------- -------
Total stockholders' equity 36,248 34,166
------- -------
TOTAL $49,109 $44,790
======= =======
</TABLE>
See notes to condensed financial statements.
1
<PAGE>
RF MONOLITHICS, INC.
CONDENSED STATEMENTS OF INCOME - UNAUDITED
(In Thousands, Except Per-Share Amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
------------------------ --------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
SALES $13,102 $13,214 $25,982 $26,096
COST OF SALES 8,516 7,889 16,854 15,523
------- ------- ------- -------
GROSS PROFIT 4,586 5,325 9,128 10,573
OPERATING EXPENSES:
Research and development 1,509 1,313 2,653 2,780
Sales and marketing 1,322 1,476 2,618 2,870
General and administrative 735 819 1,390 1,486
Litigation - 580 - 641
------- ------- ------- -------
Total operating expenses 3,566 4,188 6,661 7,777
------- ------- ------- -------
INCOME FROM OPERATIONS 1,020 1,137 2,467 2,796
OTHER INCOME (EXPENSE):
Interest income 55 73 121 151
Interest expense (75) (69) (168) (138)
Other expense - 11 10 9
------- ------- ------- -------
Total (20) 15 (37) 22
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 1,000 1,152 2,430 2,818
INCOME TAX EXPENSE 355 412 862 1,045
------- ------- ------- -------
NET INCOME $ 645 $ 740 $ 1,568 $ 1,773
======= ======= ======= =======
EARNINGS PER SHARE:
Basic $0.11 $0.13 $0.27 $0.32
======= ======= ======= =======
Diluted $0.11 $0.12 $0.27 $0.30
======= ======= ======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 5,744 5,586 5,726 5,553
======= ======= ======= =======
Diluted 5,927 5,949 5,907 6,012
======= ======= ======= =======
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
RF MONOLITHICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
FEBRUARY FEBRUARY
28, 1999 28, 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,568 $ 1,773
Noncash items included in net income:
Deferred taxes 282 348
Depreciation and amortization 2,032 1,792
Provision for doubtful accounts 68 60
Other 27 24
Cash from (used in) operating working capital:
Trade receivables (109) (500)
Inventories (2,429) (1,635)
Prepaid expenses and other (88) (170)
Accounts payable - trade 1,518 742
Accrued expenses and other liabilities (595) 206
Income taxes payable (430) (373)
--------- ---------
Net cash from operations 1,844 2,267
INVESTING ACTIVITIES:
Increase in short-term investments (2,722) (2,719)
Decrease in short-term investments 3,033 2,550
Acquisition of property and equipment (3,854) (2,537)
Decrease in other assets 8 49
--------- ---------
Net cash used in investing activities (3,535) (2,657)
FINANCING ACTIVITIES:
Borrowings on notes payable and line of credit 1,500 500
Repayments of notes payable and line of credit (250) (250)
Repayments of capital leases (312) (310)
Borrowings (repayments) of accounts payable - construction and equipment 753 (391)
Common stock issued for options exercised 190 123
Common stock issued under the Purchase Plan 273 500
--------- ---------
Net cash from financing activities 2,154 172
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 463 (218)
CASH AND CASH EQUIVALENTS:
Beginning of period 199 482
--------- ---------
End of period $ 662 $ 264
========= =========
SUPPLEMENTAL INFORMATION:
Interest paid $ 175 $ 106
========= =========
Income taxes paid $ 996 $ 995
========= =========
Property and equipment acquisitions by debt $ 53 $ 37
========= =========
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
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, 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
February 28, 1999, the results of operations for the three and six months ended
February 28, 1999 and 1998, and cash flows for the six months ended February 28,
1999 and 1998. 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, 1998, filed with the Securities and Exchange Commission.
Operating results for the six months ended February 28, 1999, are not
necessarily indicative of the results to be achieved for the full fiscal year
ending August 31, 1999.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
FEBRUARY AUGUST
28, 1999 31, 1998
<S> <C> <C>
Raw materials and supplies $ 5,521 $ 4,677
Work in process 3,579 2,139
Finished goods 1,843 1,698
--------- ---------
Total $ 10,943 $ 8,514
========= =========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment includes construction in progress of $5,806,000 at
February 28, 1999, and $3,941,000 at August 31, 1998, which is composed 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 February 1999, the Company utilized $964,000 available under a $4.0 million
equipment collateralized lease facility. This initial utilization will be
recorded as an operating lease and leaves approximately $3.0 million available
under this facility with a commercial bank, to be advanced in stages prior to
October 22, 1999.
4
<PAGE>
5. EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE,
requires a reconciliation of both the numerator and denominator of the earnings
per share calculations. There are no adjustments to net earnings to arrive at
income for either per share calculation.
Reconciliation of share amounts is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
------------------------ ----------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Shares outstanding for basic
earnings per share 5,744 5,586 5,726 5,553
Effect of dilutive stock options 183 363 181 459
----- ----- ----- -----
Shares outstanding for dilutive
earnings per share 5,927 5,949 5,907 6,012
===== ===== ===== =====
</TABLE>
6. CAPITAL STOCK
In March 1999, the Company began a program to repurchase stock on the open
market. As of April 10, 1999, a total of 30,000 shares of common stock had been
purchased at an average cost of $6.225. The shares will be accounted for using
the treasury stock method.
In April 1999, the Board of Directors of the Company approved and established
the 1999 Equity Incentive Plan. The plan allows for non-qualified options to
purchase 200,000 shares of stock in the Company to be granted to non-officer
employees and consultants at the fair market value. Additionally, options to
purchase 127,000 shares were granted to employees, such rights will vest over a
four year period.
In April 1999, the Board of Directors of the Company approved the grant of
73,700 shares of restricted stock and incentive stock options to purchase
107,500 shares of stock, both in accordance with the 1997 Equity Incentive Plan,
leaving approximately 120,000 shares available for future grants in this plan.
7. LITIGATION EXPENSE
Litigation expense, which amounted to $580,000 in the first quarter of the prior
year and $641,000 in the prior year-to-date period, consists of expenses related
to the resolution of the legal matter with TimeKeeping Systems, Inc. Expenses
include legal expenses, settlement costs and related travel. There were no
legal expenses related to the matter in the current year.
8. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," requires companies to report and display comprehensive income and its
components (revenues, expenses, gains and losses). Comprehensive income includes
all changes in equity during a period except those resulting from investments by
owners and distributions to owners. Comprehensive income consists of the
following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28 1999 FEBRUARY 28 1999
------------------ ----------------
<S> <C> <C>
Net income, as reported $ 645 $1,568
Current period change in unrealized gain on
short-term investments 21 24
------ ------
Comprehensive Income $ 666 $1,592
====== ======
</TABLE>
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 of financial condition and results of operations
contained in the Company's Annual Report on Form 10-K for the year ended August
31, 1998, filed with the Securities and Exchange Commission.
GENERAL
RFM offers products in four product areas: Low-power components, low-
power Virtual Wirea radio systems, frequency control modules and filters. The
Company sells to original equipment manufacturers in automotive, computer,
consumer, industrial and telecommunications market segments world-wide.
The Company received certification of ISO9001 and QS9000 registration in
the current quarter. ISO9001 and QS9000 registration has been adopted worldwide
as the standard for quality and assures a fundamental quality system is in
place. The Company believes the registration is recognized around the world as
a key element to do business in a global marketplace and is the foundation of
the Company's strategy for continuous improvement and excellence, and reflects
our commitment to customer satisfaction.
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, and those
discussed in the Company's Form 10-K for the year ended August 31, 1998.
RESULTS OF OPERATIONS
The following discussion relates to the financial statements of the Company
for the three and six months ended February 28, 1999 (current quarter and
current year-to-date period), of the fiscal year ending August 31, 1999, in
comparison to the three and six months ended February 28, 1998 (comparable
quarter of the prior year and comparable year-to-date period). In addition,
certain comparisons with the three months ended November 30, 1998 (previous
quarter), are provided where management believes it is useful to the
understanding of trends.
The selected financial data for the periods presented may not be indicative
of the Company's future financial condition or results of operations.
6
<PAGE>
The following table sets forth, for the three and six months ended February
28, 1999 and 1998, (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 Six Months Three Months Six Months
Ended February 28, Ended February 28, Ended Feb. 28, Ended Feb. 28,
--------------------------- -------------------------
1999 1998 1999 1998 1998 to 1999 1997 to 1998
------------ ----------- ---------- ----------- ------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Sales 100 % 100 % 100 % 100 % (1)% (1)%
Cost of sales 65 60 65 59 8 9
---- ---- ---- ---- ----- -----
Gross profit 35 40 35 41 (14) (14)
---- ---- ---- ---- ----- -----
Research and development 11 10 10 11 15 (1)
Sales and marketing 10 11 10 11 (10) (9)
General and administrative 6 6 5 6 (10) (7)
Litigation - 4 0 2 (100) (100)
---- ---- ---- ---- ----- -----
Total operating expenses 27 31 25 30 (15) (14)
---- ---- ---- ---- ----- -----
Income from operations 8 9 10 11 (10) (12)
Other income (expense), net - - (1) - (233) (268)
---- ---- ---- ---- ----- -----
Income before income taxes 8 9 9 11 (13) (14)
Income tax expense 3 3 3 4 (14) (18)
---- ---- ---- ---- ----- -----
Net income 5 % 6 % 6 % 7 % (13) % (12) %
==== ==== ==== ==== ===== =====
</TABLE>
SALES
The following table sets forth the components of the Company's sales and the
percentage relationship of the components to sales by product area for the
periods ended as indicated (in thousands, except percentage data):
<TABLE>
<CAPTION>
Amounts % of Total
----------------------------------------------------------- -----------------------------------------
Three Months Six Months Three Months Six Months
Ended February 28, Ended February 28, Ended February 28, Ended February 28,
----------------------------------------------------------- -----------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
----------------------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Low-power components $ 9,143 $ 9,234 $18,354 $18,462 70 % 70 % 71 % 71 %
Low-power Virtual Wire(R)
radio systems 1,510 696 2,559 1,378 12 5 10 5
Frequency control modules 1,090 911 2,172 1,713 8 7 8 6
Filters 1,341 2,232 2,833 4,347 10 17 11 17
Technology development sales 18 141 64 196 0 1 0 1
------- ------- ------- ------- ---- ---- ---- ----
Sales $13,102 $13,214 $25,982 $26,096 100 % 100 % 100 % 100 %
======= ======= ======= ======= ==== ==== ==== ====
</TABLE>
Sales were down less than 1% from the current quarter over the comparable
quarter of the prior year and increased 2% from the previous quarter. Current
year-to-date period sales decreased less than 1% from the comparable year-to-
date period. The change in sales performance in the current quarter over
comparable quarter of the prior year was the result of an increased number of
units shipped in three of the Company's four product areas partially offsetting
a decrease in prices in low-power components and Virtual Wire(R) short-range
radio device systems.
Due to pricing pressure in the low-power components line, as well as delay in
receipt from the vendor of a custom designed application specific integrated
circuit (ASIC) for the new transceiver product, the Company anticipates flat to
modest sales growth for the second half of fiscal 1999.
7
<PAGE>
Low-power components unit sales increased 15% while prices decreased,
resulting in a 1% decline in sales when compared to the comparable quarter of
the prior year. The low-power component product line experienced a decline in
the average per unit selling price of approximately 13% in the current quarter
compared to the comparable quarter of the prior year and approximately 4% in
comparison to the previous quarter sales. This is an ongoing trend in a very
competitive business and continued decreases in selling prices may result in
decreases in sales for low-power components in future periods, despite increases
in the number of units sold.
Virtual Wire(R) short-range radio device systems sales increased 117% in
comparison to the comparable period of the prior year. This was primarily
attributable to an increased number of units sold for those products, offset by
a decrease in average selling price. The Company has devoted significant
capital and technical, sales and marketing resources to the Virtual Wire(R)
short-range radio device systems products. The latest product offering in this
product family, is the transceiver module, which is a fully integrated short-
range radio device module. The transceiver module offers robust operation, small
size, low-power consumption and low costs for short range wireless data
applications. The transceiver was introduced in the current quarter. The Company
believes these types of products provide an opportunity to exploit its
proprietary technology and pursue its strategy of focusing on value-added
products. The Company is assisting a number of customers incorporate these
products into a wide variety of new applications. The timing of when any sales
resulting from such new applications reach the production phase is dependent
upon the timing of both the customers' product development cycles and their
product introduction cycles. In addition, a key component for this product is a
custom designed ASIC. It is uncertain if the Company's vendors for these
products will be able to deliver enough components to meet potential customer
requirements for the second half of fiscal 1999. As a result, it is difficult to
predict when, or if, these new products will have a significant impact on the
Company's sales.
Sales of filter products decreased 40% in the current quarter and 35% in the
current year-to-date period when compared to the comparable periods of the prior
year, respectively. The decrease in year-to-date filter sales in comparison to
last year, results from the elimination of sales to a single wireless LAN
customer of approximately $1.8 million. The Company believes this customer was
impacted by economic conditions in Asia and ceased production at the end of the
second quarter of the Company's 1998 fiscal year. The Company has devoted
significant resources to developing and supporting the growth of its filter
products. The product development and introduction cycle for filter products
takes between six to eighteen months to complete. As a result, it is difficult
to predict when, or if, this strategy to focus on filter products will have a
significant impact on the Company's sales.
International sales (primarily in Europe and Asia) were approximately 55% of
the Company's sales during both the current quarter and the comparable quarter
of the prior year. International sales were approximately 55% and 54% of sales
during the current year-to-date period and the comparable year-to-date period,
respectively. Sales to customers in Asia was 11% of total sales in the current
quarter, compared to 10% in the comparable quarter of the prior year and 9% in
the previous quarter. There can be no assurance that economic conditions in Asia
will not result in additional reductions in sales either directly to customers
in Asia or to customers in North American or Europe who may have end customers
in Asia.
The Company considers all product sales with a billing address and a delivery
destination in North America to be domestic sales. All other sales are
considered international. 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. This focus on international sales may not
be achieved. Even if achieved, the Company's international sales are highly
sensitive to fluctuations in such markets. There can be no assurance that these
sales will continue as there are inherent risks in the Company's international
business activities which include unexpected changes in regulatory requirements,
tariffs and other trade barriers, additional cost of marketing and delivering
products
8
<PAGE>
into foreign countries, the impact of fluctuations in foreign exchange rates and
longer accounts receivable cycles.
The Company's top five customers accounted for approximately 29% of the
Company's sales in the current quarter, 34% in the comparable quarter of the
prior year and 31% in the previous quarter. The decrease in the relative
portion of the revenues to the Company's top five customers from the comparable
quarter of the prior year to the current quarter was primarily a result of
decreased sales to a filter customer.
While the Company has achieved sales increases in prior periods, there can be
no assurance that such sales increases 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. Competition includes
alternative technologies and duplication of the Company's technologies and could
adversely affect the Company's selling prices and market share. Sales in any
specific quarter also dependent on the Company being able to respond to customer
demand with increasingly smaller lead times. The Company attempts to anticipate
customer requirements with its planning systems, but there can be no assurances
that demand occurring late in a quarter can be delivered in that same quarter.
GROSS PROFIT
The current quarter gross margin and year-to-date gross margin were 35.0% and
35.1% respectively, down from 40.3% and 40.5% in the comparable periods of the
prior year, respectively. The decrease was primarily due to decreased gross
margins for the Company's low-power component products. Margins for these
products decreased because the per-unit selling prices decreased, amid
competitive pressures, more rapidly than per-unit manufacturing costs. Per-unit
manufacturing costs continued to decrease due to improved production processes
that increased yields and productivity. However, the trend toward lower per-
unit manufacturing costs, which occurred in recent years, may not necessarily
continue. If average selling prices were to decrease faster than per-unit
manufacturing costs decrease, then the Company's gross profit margins would be
adversely impacted. Gross margins for the Company's other products were
relatively stable in comparison to the prior year in both the current quarter
and current year-to-date periods.
The Company has experienced a requirement by its customers for shorter lead
times resulting in less accessibility to future customer order information.
These events put pressure on the Company's manufacturing facilities to improve
delivery lead time. Costs in the current quarter and year-to-date period
included a significant amount of overtime and other costs needed to meet
customer demand that occurred late in the quarter. The Company is attempting to
improve its planning systems with the implementation of a new software system.
However, there can be no assurance that in future periods the Company will be
able to avoid significant overtime and other costs related to responding to
customer requirements with greatly reduced lead times.
The Company has in the past experienced sudden increases in demand which have
put pressure on its manufacturing facilities to increase capacity to meet this
demand. In addition, new products sometimes require different manufacturing
processes than the Company currently possesses. The Company has devoted the
bulk of its capital expenditures to increasing capacity and improving its
manufacturing processes. The Company may not be able to continue to increase
its manufacturing capacity and improve its manufacturing processes in a timely
manner so as to take advantage of increased market demand. Failure to do this
would result in a loss of potential sales in the periods impacted.
RESEARCH AND DEVELOPMENT
Research and development expenses in the current quarter increased
approximately $196,000, or 15%, over the comparable quarter of the prior year.
Current year-to-date research and development expenses decreased 5% in
comparison to the comparable year-to-date period. Increases in the current
quarter reflect the impact of over $300,000 in development costs for a new
packaging process introduced in the quarter.
9
<PAGE>
The year-to-date period fluctuation reflects prior year activity that included
unusually large amounts of material usage expense incurred on several
development projects, as well as outside testing costs incurred while developing
a low cost sealing process. The Company expects that research and development
expenses will increase in absolute dollars in future periods, although spending
related to the introduction of the new packaging process is expected to
decrease. Since research and development expenses increased faster than sales,
such expenses increased to 11% of sales in the current quarter, compared to 10%
of sales in the comparable quarter of the prior year.
SALES AND MARKETING
Current quarter sales and marketing expenses decreased approximately
$154,000, or 10%, from the prior comparable period and 9% on a year-to-date
basis. This decrease reflects an effort to control costs and to lower program
costs in relation to flat sales and as a result, sales and marketing expenses
were 10% of sales in the current quarter, compared to 11% of sales in the
comparable quarter of the prior year. The Company expects to incur higher sales
and marketing expenses in absolute dollars in future periods as it continues to
increase its contacts with customers.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the current quarter decreased
approximately $84,000, or 10%, from the prior comparable period and 6% in
comparison to the comparable year-to-date period. Such decreases were primarily
the result of controlling expenses during the quarter. Current year-to-date
general and administrative expenses increased slightly in comparison with the
comparable year-to-date period. The Company expects general and administrative
expenses will increase in absolute dollars in future periods.
LITIGATION
Litigation expense, which amounted to $580,000 in the comparable quarter of
the prior year and $641,000 in the comparable year-to-date period, consisted of
expenses related to the resolution of the legal matter with TimeKeeping Systems,
Inc. Expenses included legal expenses, settlement costs and related travel..
There were no legal expenses related to the matter in the current year. The
Company does not expect expenses with regard to this matter in future periods.
INCOME FROM OPERATIONS
Income from operations was approximately $1,020,000, or 8% of sales in the
current quarter, compared to approximately $1,137,000 or 9% of sales in the
comparable quarter of the prior year. On a year-to-date basis, current year
income from operations was 10% of sales, compared to 11% of sales for the
comparable year-to-date period. The decrease in income from operations as a
percent of sales is due to the previously discussed decrease in gross margin
offset partially by overall decreases in operating expenses.
INCOME TAX EXPENSE
The Company's income tax expense in the current quarter and current year-to-
date period decreased slightly compared to the comparable periods of the prior
year, reflecting a decrease in both income tax rates and income before taxes.
NET INCOME
Net income decreased 13% to approximately $645,000 ($.11 per diluted common
share) in the current quarter, compared to approximately $740,000 ($.12 per
diluted common share) for the comparable quarter of the prior year. On a year-
to-date basis, net income decreased 12% over the comparable year-to-date period.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of liquidity at February 28, 1999, consisted of $5.8
million of cash and short-term investments and $5.0 million of unused credit
facilities. These credit facilities include $2.0 million unused under a line of
credit agreement with a commercial bank which expires December 31, 1999, and
$3.0 million in an equipment-collateralized term lease facility with a
commercial bank, available until October 22, 1999. The credit facilities
contain restrictions and financial covenants relating to various financial
ratios, including net worth, interest coverage and levels of debt compared to
tangible net worth. As of February 28, 1999, the Company was in compliance with
such restrictions and covenants.
Net cash provided by operating activities was approximately $1.8 million and
$2.3 million for the year-to-date periods of fiscal 1999 and 1998, respectively.
The decrease in cash generated from operations was primarily due to an increase
in cash used in operating working capital.
Cash used in investing activities was approximately $3.5 million and $2.7
million for the year-to-date periods of fiscal 1999 and 1998, respectively,
primarily as a result of capital expenditures. The Company expects to acquire a
total of approximately $7 million to $10 million of capital equipment by the end
of fiscal 1999, consisting primarily of equipment needed for its manufacturing
facilities. Some of this equipment may be acquired under the equipment-
collateralized operating lease facility.
Net cash generated from financing activities was $2.2 million and $0.2
million for the current year-to-date periods of fiscal 1999 and 1998
respectively, primarily related to cash from borrowings on the line of credit
and borrowings for capital equipment acquisitions.
The Company believes that cash generated from operations, if any, banking
facilities and the $5.8 million balance in cash and short-term investments will
be sufficient to meet the Company's operating cash requirements through the rest
of the fiscal 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.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue involves potential inability of information or
other data dependent systems to properly distinguish year references as of the
turn of the century. The Company believes the Year 2000 issue represents a
material risk to the Company.
The Company itself is heavily dependent upon the proper functioning of
its own computer systems, including (1) computers and related software for its
financial and manufacturing information systems, (2) computers, programmable
logic controllers and other data dependent equipment in its manufacturing
processes, and (3) computers, scientific equipment and related software for its
engineering, research and development activities. Any failure or malfunctioning
on the part of these or other systems could cause disruptions of operations,
including a temporary inability to process financial transactions, manufacture
products or engage in ordinary business activities in ways that are not
currently known, discernible, quantifiable or otherwise anticipated by the
Company.
The Company has formed a team to evaluate and deal with the impact of
the Year 2000 issue. It has developed a plan (the "Plan") for the Company to
become Year 2000 compliant in a timely manner. The Plan covers both systems
such as networked computers and software that are commonly called information
technology ("IT") systems and those such as embedded technology in manufacturing
equipment ("non-IT") systems.
The Company's Plan consists of several phases. The first is the
inventory and prioritization of potential Year 2000 items, and the assessment of
Year 2000 compliance. The next phase is the remediation
11
<PAGE>
of any noted problems. The third phase is the testing of material items. The
last phase is the preparation of contingency plans.
For the Company's most significant IT systems, the inventory and
remediation phases have been completed. The Company's core business information
systems have been recently replaced by Glovia(TM) and Oracle(R) software, which
are represented by providers to be Year 2000 compliant. The inventory of non-IT
systems is complete. The remediation of remaining systems and testing for all
systems is scheduled for completion by June 30, 1999.
The Company currently has completed contingency plans to deal with
some of the most likely worst case scenarios. The Company currently anticipates
that it will complete contingency planning by June 30, 1999.
The Company's suppliers (particularly sole-source and long lead time
suppliers) and key customers may be adversely affected by their respective
failures to address the Year 2000 issue. If the Company's suppliers are unable
to provide goods or services, the Company's operations could be materially
adversely effected. Key customers which encounter Year 2000 difficulties could
fail to order or take delivery of the Company's products, or could fail to make
or delay payments to the Company. Such failure or delay could have a material
adverse effect on the Company's business and results of operations. While some
of these risks are outside the control of the Company, the Company's Plan
includes communications with suppliers and customers to ascertain the state of
their Year 2000 compliance program. The questionnaire phase of this activity
has been completed. Phone and on-site interviews of critical suppliers is in
progress. Remediation activities and preparation of contingency plans related to
suppliers and customers is scheduled for completion by June 30, 1999.
The total cost of the purchase and implementation of the business
information systems recently implemented is expected to be approximately $2
million, most of which has already been incurred. The remaining remediation
costs for the other IT and non-IT systems is expected to be less than $100,000.
Such costs will be funded either from operating cash flows or by utilizing
existing Company credit facilities. Time spent by implementation team members
is not included in the above estimates but are included in the Company's normal
operating budget. The Year 2000 implementation program is not expected to cause
material delays in non-Year 2000 related IT projects.
The Company has determined that its products are not effected by
calendar dating. Therefore, there is no known or anticipated Year 2000 impact
on its product offering.
The Company believes its Year 2000 Plan will significantly reduce the
probability of significant interruptions of normal operations resulting from
Year 2000 issues. However, the Company may not properly identify and assess all
Year 2000 issues, or it may not remediate and test all its IT and non-IT systems
in a timely or adequate manner. In addition, its key suppliers or customers
could experience Year 2000 problems. If any of these potential situations
occur, the Company's contingency plans may not be adequate to protect the
Company from the adverse effects of such problems. The worst case scenario
resulting from Year 2000 issues would be a material adverse impact on the
Company's results of operations, caused by an interruption in normal business
operations, or an adverse impact on the Company's relationships with customers,
suppliers or others.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
Pursuant to the Annual Meeting of Stockholders held on January 27, 1999, of the
stockholders of RF Monolithics, Inc. as of December 10, 1998, the following
actions were taken:
1. The stockholders approved the election of directors for the ensuing year
and until their successors are duly elected and have qualified. The action
was approved by the following vote totals and percentages for each nominee
of the Company's then outstanding stock:
<TABLE>
<S> <C> <C>
Sam L. Densmore:
For 4,294,069 74%
Against 187,907 3%
Michael R. Bernique
For 4,297,688 74%
Against 184,288 3%
Cornelius C. Bond, Jr.
For 4,298,265 74%
Against 183,711 3%
Dean C. Campbell
For 4,299,415 74%
Against 182,561 3%
Matthew J. Desch
For 4,298,465 74%
Against 183,511 3%
Francis J. Hughes, Jr.
For 4,300,415 74%
Against 181,561 3%
</TABLE>
13
<PAGE>
2. The stockholders approved the Company's 1997 Equity Incentive Plan to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 200,000 shares. In accordance with Delaware
law and the Company's by-laws, the action was approved by the following
vote totals and percentages of the Company's then outstanding stock:
<TABLE>
<S> <C> <C>
For 3,787,771 65%
Against 668,352 11%
Abstain 25,852 1%
</TABLE>
3. The stockholders ratified the selection of Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending August 31,
1999. The action was approved by the following vote totals and percentages
of the Company's then outstanding stock:
<TABLE>
<S> <C> <C>
For 4,447,586 76%
Against 12,149 0%
Abstain 22,241 1%
</TABLE>
ITEM 5. OTHER INFORMATION
Not applicable.
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, 1998 and the
Form 10-Q for the quarter ended November 30, 1998.
(b) The Company did not file any reports on Form 8-K during the quarter ended
February 28, 1999.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Act"), 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 Act 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 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.
14
<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: April 14, 1999 By: /s/ Sam L. Densmore
------------------------------------
Sam L. Densmore
CEO, President and Director
/s/ James P. Farley
------------------------------------
James P. Farley
VP and Controller
15
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<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
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0
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