<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, 2000
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 June 30, 2000, 6,196,318 shares of the Registrant's Common Stock, $.001
par value, were outstanding.
<PAGE>
RF MONOLITHICS, INC.
FORM 10-Q
QUARTER ENDED MAY 31, 2000
TABLE OF CONTENTS
Item
Number Page
------ ----
Part I. Condensed Financial Information
1. Condensed Financial Statements:
Condensed Balance Sheets
May 31, 2000 (Unaudited), and August 31, 1999 1
Condensed Statements of Operations - Unaudited
Three Months Ended May 31, 2000 and May 31, 1999,
and Nine months ended May 31, 2000 and May 31, 1999 2
Condensed Statements of Cash Flows - Unaudited
Nine months ended May 31, 2000 and May 31, 1999 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
6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
PART I. CONDENSED FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RF MONOLITHICS, INC.
CONDENSED BALANCE SHEETS
(In Thousands)
------------------------------------------------------------------------------------------------------------
May August
31, 2000 31, 1999
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 17 $ 672
Short-term investments 3,494 4,516
Trade receivables - net 9,034 10,840
Inventories 10,920 11,593
Prepaid expenses and other 1,100 1,208
Income taxes receivable 1,092 851
Deferred income tax benefits -- 647
-------------------- ---------------
Total Current Assets 25,657 30,327
PROPERTY AND EQUIPMENT - Net 15,169 17,645
OTHER ASSETS AND DEFERRED TAX BENEFITS - Net 3,497 536
-------------------- ---------------
TOTAL ASSETS $ 44,323 $ 48,508
==================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and line of credit $ 6,898 $ 5,452
Accounts payable - trade 3,829 4,305
Accounts payable - construction and equipment 639 844
Accrued expenses and other liabilities 2,074 2,340
-------------------- ---------------
Total Current Liabilities 13,440 12,941
LONG-TERM DEBT - 68
STOCKHOLDERS' EQUITY:
Common stock $.001 par value: 6,117 and 5,875 shares issued 6 6
Additional paid-in capital 29,745 28,043
Treasury stock, 36 common shares (227) (227)
Retained earnings 1,710 8,082
Unearned compensation (351) (405)
-------------------- ---------------
Total Stockholders' Equity 30,883 35,499
-------------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 44,323 $ 48,508
==================== ===============
See notes to condensed financial statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
RF MONOLITHICS, INC.
CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
(In Thousands, Except Per-Share Amounts)
-------------------------------------------------------------------------------------------------------------------------------
Three months Nine months
Ended May 31 Ended May 31
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
SALES $12,697 $12,967 $34,212 $38,949
COST OF SALES 10,642 8,263 32,225 25,117
---------------- ------------- --------------- --------------
GROSS PROFIT 2,055 4,704 1,987 13,832
OPERATING EXPENSES:
Research and development 1,263 1,155 3,520 3,808
Sales and marketing 1,493 1,378 4,490 3,996
General and administrative 746 785 2,716 2,175
---------------- ------------- --------------- --------------
Total Operating Expenses 3,502 3,318 10,726 9,979
---------------- ------------- --------------- --------------
INCOME (LOSS) FROM OPERATIONS (1,447) 1,386 (8,739) 3,853
OTHER INCOME (EXPENSE):
Interest income 65 55 173 176
Interest expense (228) (101) (601) (269)
Other income(expense) 9 (3) (428) (86)
---------------- ------------- --------------- --------------
Total Other Income(Expense) (154) (49) (856) (179)
---------------- ------------- --------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES (1,601) 1,337 (9,595) 3,674
INCOME TAX (BENEFIT) EXPENSE (488) 475 (2,796) 1,337
---------------- ------------- --------------- --------------
NET INCOME (LOSS) $(1,113) $ 862 $(6,799) $ 2,337
================ ============= =============== ==============
EARNINGS (LOSS) PER SHARE:
Basic $(0.18) $0.15 $(1.06) $0.42
================ ============= =============== ==============
Diluted $(0.18) $0.15 $(1.06) $0.41
================ ============= =============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 6,116 5,818 5,998 5,757
================ ============= =============== ==============
Diluted 6,116 5,894 5,998 5,907
================ ============= =============== ==============
See notes to condensed financial statements.
</TABLE>
2
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<TABLE>
<CAPTION>
RF MONOLITHICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
(In Thousands)
---------------------------------------------------------------------------------------------------- --------------------
Nine Months
Ended May 31
---------------------------------------------
<S> <C> <C>
2000 1999
OPERATING ACTIVITIES:
Net income (loss) $(6,371) $ 2,430
Noncash items included in net income (loss):
Deferred taxes (2,257) 307
Depreciation and amortization 3,788 3,114
Provision for doubtful accounts 46 95
Other 102 53
Cash from (used in) operating working capital:
Trade receivables 1,760 (157)
Inventories 673 (4,489)
Prepaid expenses and other 108 33
Accounts payable - trade (475) 728
Accrued expenses and other liabilities (298) (435)
Income taxes receivable (241) (169)
------------------- --------------------
NET CASH (USED IN) FROM OPERATIONS (3,165) 1,510
INVESTING ACTIVITIES:
Increase in short-term investments (4,639) (4,458)
Decrease in short-term investments 5,661 5,107
Acquisition of property and equipment (1,251) (4,208)
Increase in other assets (118) (12)
------------------- --------------------
NET CASH USED IN INVESTING ACTIVITIES (347) (3,571)
FINANCING ACTIVITIES:
Borrowings on notes payable and line of credit 2,298 3,000
Repayments on notes payable and line of credit (568) (375)
Repayments on capital leases (321) (479)
(Repayments)Borrowings of accounts payable - construction and equipment (205) 133
Treasury Stock transactions - (227)
Common stock issued for options exercised 1,493 204
Common stock issued under the Purchase Plan 160 273
------------------- --------------------
NET CASH FROM FINANCING ACTIVITIES 2,857 2,529
------------------- --------------------
(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (655) 468
CASH AND CASH EQUIVALENTS:
Beginning of period 672 199
------------------- --------------------
End of period $ 17 $ 667
=================== ====================
SUPPLEMENTAL INFORMATION:
Interest paid $ 601 $ 284
=================== ====================
Income taxes (received)paid - net $ (709) $ 1,178
=================== ====================
Property and equipment acquisitions by debt $ - $ 53
=================== ====================
See notes to condensed financial statements.
</TABLE>
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 May
31, 2000, the results of operations for the three and nine months ended May 31,
2000 and May 31, 1999, and cash flows for the nine months ended May 31, 2000 and
May 31, 1999. 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, 1999, filed with the Securities and Exchange Commission.
Operating results for the nine months ended May 31, 2000, are not necessarily
indicative of the results to be achieved for the full fiscal year ending August
31, 2000.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
May August
31, 2000 31, 1999
<S> <C> <C>
Raw materials and supplies $ 5,794 $ 5,713
Work in process 2,288 3,099
Finished goods 2,838 2,781
---------------- ----------------
Total $ 10,920 $ 11,593
================ ================
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment includes construction in progress of $2,157,338 at May
31, 2000, and $2,679,000 at August 31, 1999, 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
As of May 31, 2000, the Company was in violation of certain covenants under its
line of credit with a commercial bank. The bank has waived the covenant
violations. The amount of the credit line was reduced to the amount outstanding
as of May 31, 2000, to $6,897,879, and the interest rate was increased from 1
percent to 2 percent over prime rate. The structure of the loan was previously
modified in February, 2000, to tie amounts borrowed under the agreement to a
borrowing base consisting of certain receivables, inventory, cash and marketable
securities, all of which are pledged as collateral. The current credit facility
contains restrictions and financial covenants relating to various matters,
including net worth, interest coverage and levels of debt. There is no
assurance that these covenants can be met. The expiration date of the current
line of credit is December 31, 2000. As a result, the debt is classified as
current. The Company is currently negotiating a new credit facility that is
intended to extend beyond that date. Although the Company believes that this
effort will be successful, there is no assurance that a satisfactory new
facility will be in place by December 31, 2000. Should that not occur, there
could be a significant adverse impact on the Company's operations. No
adjustments have been made to the financial statements to reflect that
possibility.
During the current fiscal year, the Company has utilized approximately $4.6
million under an equipment-collateralized lease facility. This utilization has
been recorded as an operating lease. As of May 31, 2000, there is no additional
availability remaining under this lease facility.
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/loss to arrive
at income/loss for either per share calculation.
Reconciliation of share amounts is as follows (in thousands):
<TABLE>
<CAPTION>
Three months Nine months
Ended May 31 Ended May 31
------------------------------- ------------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
Shares outstanding for basic
earnings per share 6,116 5,818 5,998 5,757
Effect of dilutive stock -- 76 -- 150
options
------------- -------------- ------------- -------------
Shares outstanding for dilutive
earnings per share 6,116 5,894 5,998 5,907
============= ============== ============= =============
</TABLE>
6. CAPITAL STOCK
On April 18, 2000, the Company granted to employees Non-Qualified Stock
Options to purchase 3,000 shares of the Company's Common Stock and Incentive
Stock Options to purchase 89,500 shares of the Company's Common Stock, at an
exercise price of $10.25. The options were granted in accordance with the
Company's 1999 Equity Incentive Plan and the 1997 Equity Incentive Plan,
respectively, resulting in approximately 19,000 and 175,000 shares of common
stock remaining available for grant under the plans, respectively, at May 31,
2000.
On June 20, 2000, the Company granted to employees Non-Qualified Stock
Options to purchase 3,500 shares of the Company's Common Stock and Incentive
Stock Options to purchase 49,000 shares of the Company's Common Stock, at an
exercise price of $13.0625. The options were granted in accordance with the
Company's 1999 Equity Incentive Plan and the 1997 Equity Incentive Plan,
respectively.
7. LITIGATION AND CONTINGENCIES
Included in the accounts receivable balance is a past-due receivable totaling
$889,000. The Company is seeking to recover the entire $889,000 of this past
due account, plus an additional $819,000 for custom finished goods manufactured
and raw material purchased. The Company believes that reserves are not
necessary with regard to this mater. As a result, no additional allowance for
uncollectible amounts has been established.
In April 1999, the Company became involved in a lawsuit filed in the US
District Court in Connecticut (Civil Action No. 399cv00311) seeking to collect
outstanding receivables that were incurred by Akom Technologies, Inc. (Akom) in
connection with Raytheon Company's (Raytheon) Goldmine Project. Also named in
the action were Raytheon, Raycom, Inc. (Raycom), and sixteen other companies who
supplied materials and services for the Goldmine Project. No party is seeking
to collect monetary amounts from the Company, rather the parties are seeking
declaration from the courts that they do not owe monetary amounts to the
Company. The Company has filed a counter claim against Akom and cross claims
against Raytheon and Raycom and asserts damages to the extent of unpaid invoices
and custom inventory parts and materials approximating $1.7 million. Akom,
Raytheon and Raycom have denied liability. In an opinion issued on March 31,
2000, the court denied Raytheon's and Raycom's motion to dismiss the Company's
breach of contract claims, but dismissed the Company's claims for
misrepresentation, fraud, and unfair trade practices. When the case began there
were 17 suppliers seeking recovery for products provided to Akom for and at the
request of Raytheon and Raycom. Raytheon has now settled with all but 4 of the
suppliers. The Company believes it has meritorious claims and continues to
prepare for trial.
5
<PAGE>
8. SALES REVENUE
The following table sets forth the components of the Company's sales by
product area for the periods ended as indicated (in thousands):
<TABLE>
<CAPTION>
Amounts
------------------------------------------------------------------------
Three Months Nine Months
Ended May 31 Ended May 31
---------------------------------- ---------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Low-power components $ 8,504 $ 9,116 $22,760 $27,470
Virtual Wire(R) short-range radio products 1,456 2,129 5,175 4,688
--------------- --------------- --------------- ---------------
Low-Power Products Group 9,960 11,245 27,935 32,158
Frequency control modules 515 875 1,543 3,047
Filters 2,164 791 4,465 3,624
--------------- --------------- --------------- ---------------
Communications Products Group 2,679 1,666 6,008 6,671
Technology development sales 58 56 269 120
--------------- --------------- --------------- ---------------
Total Sales $12,697 $12,967 $34,212 $38,949
=============== =============== =============== ===============
</TABLE>
9. DEFERRED TAX ASSET
The Company's deferred tax asset of approximately $2.9M at May 31, 2000 is
primarily due to the tax effect of unused net operating loss carryforwards
("NOL's"), tax credit carryforwards and tax effected net taxable deductions.
There is no reserve against this asset. As of May 31, 2000, the Company
has NOL's of approximately $11.9M for federal income tax purposes. While the
Company believes that it is likely that it will realize these carryforwards,
there can be no assurance that they will be available to such extent and be
fully realized.
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, 1999, filed with the Securities and Exchange
Commission.
General
RFM offers products in four product areas: low-power components, Virtual
Wirea short-range radio device systems, frequency control modules and filters.
In the Second Quarter of fiscal year 2000, marketing and product development
efforts for these four product areas were realigned into two product groups.
The Low-Power Product Group consists of the low power component products and the
Virtual Wirea short range radio products. The Communications Product Group
includes the filter and frequency control product areas. The Company sells to
original equipment manufacturers and distributors in automotive, computer,
consumer, industrial and telecommunications market segments worldwide.
This report and other presentations made by us contain "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Such statements involve known and unknown risks, uncertainties
and other factors that could cause our actual results to differ materially from
the results expressed or implied by such statements, including general economic
and business
6
<PAGE>
conditions, conditions affecting the industries served by us, conditions
affecting our customers and suppliers, competition, the overall market
acceptance of the Company's services, and other factors disclosed in this report
and our Form 10-K for the year ended August 31, 1999. Accordingly although we
believe that the expectations reflected in such forward-looking statements are
reasonable, there can be no assurance that such expectations will prove to be
correct.
Any forward-looking statement speaks only as of the date on which such
statement was made, and we do not undertake any obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement was made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for us to
predict all of such factors, nor can it assess the impact of each such factor or
the extent to which any factor, or combination of factors, may cause results to
differ materially from those contained in any forward-looking statement.
The Company incurred significant losses in the first three quarters of its
fiscal year 2000. As a result, it does not expect to overcome these losses this
year and anticipates reporting a loss for fiscal year 2000.
Results of Operations
The following discussion relates to the financial statements of the
Company for the three months ended May 31, 2000 (current quarter), of the fiscal
year ending August 31, 2000, in comparison to the three months ended May 31,
1999 (comparable quarter of the prior fiscal year). In addition, certain
comparisons with the three months ended February 29, 1999 (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.
The following table sets forth, for the three months and nine months ended
May 31, 2000, and May 31, 1999, (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 period and the comparable period 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 Ended May
----------------------------- -----------------------------
2000 1999 2000 1999 1999 to 2000 1999 to 2000
------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Sales 100 % 100 % 100 % 100 % (2)% (12)%
Cost of sales 84 64 94 64 29 28
------------ ------------ ------------ ------------ ------------------- -----------------
Gross profit 16 36 6 36 (56) (86)
Research and 10 9 10 10 9 (8)
development
Sales and marketing 12 11 13 10 8 12
General and 6 6 8 6 (5) 25
administrative
------------ ------------ ------------ ------------ ------------------- -----------------
Total operating 28 26 31 26 6 8
expenses
------------ ------------ ------------ ------------ ------------------- -----------------
Income from (12) 10 (25) 10 (204) (327)
operations
Other income (1) (1) 214 398
(expense), net
------------ ------------ ------------ ------------ ------------------- -----------------
Income before (13) 10 (26) 10 (220) (343)
income taxes
Income tax expense (4) 3 (8) 4 (203) (309)
------------ ------------ ------------ ------------ ------------------- -----------------
Net Income(Loss) (9)% 7 % (18)% 6 % (229)% (362)%
============ ============ ============ ============ =================== =================
</TABLE>
7
<PAGE>
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 Nine Months Three Months Nine Months
Ended May 31 Ended May 31 Ended May 31 Ended May 31
-------------------------- -------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000 1999 2000 1999 2000 1999 2000 1999
Low-power components $ 8,504 $ 9,116 $22,760 $27,470 67 % 70 % 67 % 71 %
Virtual Wire(R)
short-range
radio products 1,456 2,129 5,175 4,688 11 16 15 12
-------------------------- ------------ ----------- -------- ---------------------- ---------
Low-Power Products 9,960 11,245 27,935 32,158 78 86 82 83
Group
Frequency control modules 515 875 1,543 3,047 4 7 5 8
Filters 2,164 791 4,465 3,624 17 6 13 9
-------------------------- ------------ ----------- -------- ---------------------- ---------
Communications 2,679 1,666 6,008 6,671 21 13 18 17
Products Group
Technology development 58 56 269 120 1 1 - -
sales
-------------------------- ------------ ----------- -------- ---------------------- ---------
Total Sales $12,697 $12,967 $34,212 $38,949 100 % 100 % 100 % 100 %
========================== ============ =========== ======== ====================== =========
</TABLE>
Net sales for the third quarter ended May 31, 2000, were $12.7 million, as
compared to $13.0 million in the third quarter of the prior fiscal year and
$12.2 million for the second quarter of fiscal year 2000. Sales decreased in the
Low Power Products Group from prior year's third quarter due to lower average
selling prices resulting from anticipated competitive pricing pressures. Low-
power component sales were the highest that they have been the four quarters
since the third quarter of the prior year and average selling prices have
stabilized during this period, as a result of the Company's discontinuation of
special sales promotion programs used to stimulate quarterly turns business.
The Company believes that stabilizing prices will allow for low-power component
sales to stabilize.
Sales of Virtual Wire(R) short-range radio products declined from $2.2
million in the previous quarter to $1.5 million in the current quarter due to
the anticipated slow down in the number of units shipped. Customers for second
generation Virtual Wire(R) radio products which took prototype quantities of
product in prior quarters are completing their designs and getting
qualifications from their customers. The Company believes these products offer
robust operation, small size, low-power consumption and low costs for short-
range wireless data applications. The Company is helping 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. As a result, it is difficult to
predict when, or if, these new products will have a significant impact on the
Company's sales. In the current quarter, the Company completed a last time buy
opportunity for its customers to buy first generation receiver products and took
orders for approximately $1.5 million, which will ship in the next few quarters.
First generation Virtual Wire(R) short-range radio products have relatively low
gross margins, so that will likely have an adverse impact on gross margins
during those periods. A last time buy opportunity for first generation
transmitter products will be completed by the end of the calendar year.
Sales of Filter products increased 174% over prior year's third quarter due
primarily to an increase in the number of units shipped. This was the Company's
highest quarterly shipment of filter products into the communication markets.
The Company continues to devote 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 Company sales.
8
<PAGE>
The Company's top five customers accounted for approximately 39%, 28% and
36% of the Company's sales in the current quarter, the comparable quarter of the
prior year and the previous quarter, respectively. One customer accounted for
approximately 14% of sales in the current quarter, while no customer accounted
for more than 10% of sales in the comparable quarter of the prior year and the
same customer accounted for 11% of sales in the previous quarter.
International sales (primarily to Europe and Asia) were approximately 67%,
53% and 67% of the Company's sales during the current quarter, the comparable
quarter of the prior year and the previous quarter, 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. However, international sales are subject to
fluctuations as a result of local economic conditions and competition.
Therefore, the Company cannot predict whether it will continue to derive a
significant portion of its business from international sales.
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 advances 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, including alternative
technologies or competitors duplicating the Company's technologies, may
adversely affect the selling prices and market share.
Gross Profit
The current quarter gross margin of 16% decreased from 36% in the
comparable quarter of the prior year but increased from an 11% gross margin in
the previous quarter. Year-to-date gross margins were 6%, compared to 35% for
the comparable year-to-date period. The decrease from the prior year was due to
several factors and occurred in most of the product lines.
The first factor decreasing gross margins was the continuing decline in
per-unit selling prices, for the Company's Low Power Component and Virtual Wirea
short-range radio products due to competitive pressures. There was not a
corresponding decrease in manufacturing costs per unit, and in fact
manufacturing costs increased, as explained below. Therefore gross margins for
those product lines decreased in the current quarter, as well as the current
year-to-date period. While prices have stabilized for these products in recent
quarters, the Company believes this trend towards reduced sales prices could
continue for both of these product lines. It is not certain if the Company can
reduce per unit manufacturing costs in future periods to the same extent as the
decrease in selling prices. If sufficient cost reductions are not made, gross
margins would be adversely impacted in a material way.
The second factor was the decline in sales that resulted in the large fixed
cost portion of overhead costs to be a higher percentage of total sales. The
decrease in selling prices caused the need to produce more units to reach the
same sales dollars. The Company has added equipment and other manufacturing
overhead costs to increase the capacity in each of its facilities. This has
increased fixed manufacturing costs by approximately $300,000 per quarter. If
additional sales dollars are not obtained in future periods, manufacturing
overhead costs may not decline as a percentage of total sales.
A third factor that has impacted recent quarters, but not the current
quarter has been the fact that the Company has experienced a significant change
in the mix of its product sales. On a year to date basis, Virtual Wirea short-
range radio product sales increased to 15% of total sales in the current year,
compared to 12% in the prior year. These products include both first generation
products, for which costs have been historically very high relative to sales,
and second generation products, which have been ramping to production rates and
are still experiencing yield and process issues. This shift in product sales
mix from a historically higher margin product to a currently lower margin
product has produced an overall reduction in gross profit. The Company expects
the change in mix to continue but also believes that the negative impact on
gross margins will be reduced significantly as the second generation of the
transceiver and related Virtual Wirea short-range radio products represent the
majority of total production in the second half of the next fiscal year. The
second-generation products are designed to be more cost-effective than first
generation products. There may be an increase in sales of first generation
products until then as the Company is offering customers the opportunity to buy
more of these products before they are discontinued. Because of the uncertainty
of volume and the new product introduction process, the Company may not be able
to
9
<PAGE>
manufacture these future generation products at a cost low enough to produce an
improved gross profit margin result.
Gross margins in the current quarter increased 5 margin points from the
previous quarter. Management efforts to return manufacturing productivity yield
and production rates closer to historic levels resulted in lower per unit
manufacturing costs. Management intends to continue this focus on improved
operations, although there can be no assurance these efforts will result in
lower per unit costs.
The Company has started a program to outsource some of its assembly
operations offshore. The initial focus is to enhance the Company's capability
to produce filter products. A successful offshore manufacturing program could
result in a material reduction in manufacturing costs. The Company plans to
have some production offshore by the end of the calendar year: however, there
can be no assurance if this program will be successful.
The Company has experienced sudden increases in demand in the past which
pressured the manufacturing facilities to increase capacity in order 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 over the past few years to increase capacity and
improve 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 any 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 $108,000 or 9%, from the comparable quarter of the prior year.
These expenses were comparable to first quarter levels. The Company believes
that the continued development of its technology and new products is essential
to its success and is committed to continue to devote significant resources to
research and development. The Company expects that research and development
expenses may increase, or stay approximately the same in future periods.
Sales and Marketing
Current quarter sales and marketing expenses increased approximately
$115,000, or 8%, from the prior year comparable quarter. This increase was due
primarily to increased sales commission expenses related to the completion of
the Company's sales program to increase coverage around the world. The Company
expects to incur higher sales and marketing expenses in absolute dollars in
future periods as it continues to expand its sales and marketing efforts.
General and Administrative
General and administrative expenses for the current quarter decreased
approximately $39,000, or 5%, from the prior year comparable quarter. The
Company expects general and administrative expenses may increase, or stay
approximately the same in absolute dollars in future periods.
Income Tax (Benefit) Expense
The Company's income tax benefit was $488,000 in the current quarter,
compared to income tax expenses of $475,000 in the prior year comparable
quarter, reflecting the comparable income before income taxes for the respective
periods. The Company's effective tax benefit rate was approximately 31% in the
current quarter, compared to approximately 36% in the prior year due to the
Foreign Sales Corporation.
Net (Loss) Income
Net income/(loss) was ($1.1) million, or ($0.18) per diluted share, in the
current quarter, compared to net income of $862,000, or $0.15 per diluted share,
for the prior year comparable quarter. The net loss declined from the previous
quarter's $1.4 million loss. The current fiscal year-to-date loss is $6.4
million, compared to a $2.4 million net income in the prior year-to-date period.
The Company does not expect to overcome this loss this year and anticipates
reporting a loss for fiscal year 2000.
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Liquidity and Capital Resources
The prime source of liquidity at May 31, 2000, consisted of $3.5 million of cash
and short-term investments. As of May 31, 2000, the Company was in violation of
certain covenants under its line of credit with a commercial bank. The bank has
waived the covenant violations. The amount of the credit line was reduced to
the amount outstanding as of May 31, 2000, to $6,897,879, and the interest rate
was increased from 1 percent to 2 percent over prime rate. The structure of the
loan was previously modified in February, 2000, to tie amounts borrowed under
the agreement to a borrowing base consisting of certain receivables, inventory,
cash and marketable securities, all of which are pledged as collateral. The
current credit facility contains restrictions and financial covenants relating
to various matters, including net worth, interest coverage and levels of debt.
There is no assurance that these covenants can be met. The expiration date of
the current line of credit is December 31, 2000. As a result, the debt is
classified as current. The Company is currently negotiating a new credit
facility that is intended to extend beyond that date. Although the Company
believes that this effort will be successful, there is no assurance that a
satisfactory new facility will be in place by December 31, 2000. Should that
not occur, there could be a significant adverse impact on the Company's
operations. No adjustments have been made to the financial statements to
reflect that possibility.
During the current fiscal year, the Company has utilized approximately $4.6
million under an equipment-collateralized lease facility. This utilization has
been recorded as an operating lease. As of May 31, 2000, there is no additional
availability remaining under this lease facility. To move the leased
manufacturing equipment to support an expansion of the Company's offshore
manufacturing initiative, it will be necessary to purchase the equipment. There
is no assurance that this can be done on favorable terms. Should that not
occur, there could be a slowdown in the company's plans to expand offshore
production.
Net cash used in operating activities was $3.3 million in the year-to-date
period of fiscal 2000 as compared to net cash provided from operating activities
of $1.5 million for the year-to-date period of fiscal 1999. The decrease in cash
available from operations is due to the $6.4 million net loss in the current
year-to-date period that was partially offset by a $2.5 million reduction in
accounts receivable and inventories. The Company's internal plan is to achieve
nearly a breakeven cash flow from operations by the end of its current fiscal
year. There can be no assurance that this will be achieved.
Cash used in investing activities was $0.3 million for the current year-to-
date period, as compared to, $3.6 million of cash used in investing activities
for the comparable year-to-date period of the prior year, primarily as a result
of approximately $1.2M in capital expenditures offset by a net reduction of
$1.0M in short-term investments. Cash used in investing activities was $3.6M
million in the prior year, due to $4.2 million in capital expenditures. The
Company expects to acquire a total of approximately $1.3 million to $1.7 million
of capital equipment by the end of fiscal 2000, consisting primarily of
equipment needed for its manufacturing facilities.
Net cash generated from financing activities was $3.0 million and $2.6
million for the year-to-date period of fiscal 2000 and 1999, respectively. In
the current year, approximately $1.2 million was raised from a net increase in
borrowings and $1.7 million in sales of stock from stock options and the
employee stock purchase plan. In the prior year, $2.3 million was raised in a
net increase in borrowings and $500,000 in sales of stock.
The Company believes that cash generated from operations and the $3.5
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 or operating 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.
Should that occur, there could be significant adverse impact on the Company's
operations. No adjustments have been made to the financial statements to
reflect that possibility.
Year 2000 Readiness Disclosure
The Company completed its plan to prepare for the Year 2000 computer
issue. The Company did not experience any significant problems related to the
Year 2000 issue in the current quarter and does not expect to experience any in
future periods.
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PART II. OTHER INFORMATION
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, 1999.
(b) The Company did not file any reports on Form 8-K during the quarter ended
May 31, 2000.
(c) Exhibits Included Description
----------------- -----------
10.31 Waiver and Fourth Amendment to Loan Agreement, dated
as of May 31, 2000, among RF Monolithics, Inc., Banc
One Leasing Corporation, and Bank One, Texas,
National Association
10.32 Promissory Note, dated May 31, 2000, in the
principal amount of $7,500,000, executed and
delivered by RF Monolithics, Inc. to Bank One,
Texas, National Association
10.33 Waiver and Amendment to Master Lease Agreement dated
as of May 31, 2000, by and between RF Monolithics,
Inc. and Banc One Leasing Corporation
10.34 Collateral Pledge Agreement dated as of May 31,
2000, by RF Monolithics, Inc. in favor of Bank One,
Texas, National Association
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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 17, 2000 By: /s/ JAMES P. FARLEY
------------------------------------
James P. Farley
Authorized Officer
By: /s/ JAMES P. FARLEY
------------------------------------
James P. Farley
VP Finance, Controller
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