<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 November 30, 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 (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 December 31, 2000, 6,838,257 shares of the Registrant's Common Stock,
$.001 par value, were outstanding.
<PAGE>
RF MONOLITHICS, INC.
FORM 10-Q
QUARTER ENDED NOVEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item
Number Page
------ ----
<S> <C>
PART I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
November 30, 2000 (Unaudited), and August 31, 2000 3
Condensed Consolidated Statements of Operations - Unaudited
Three Months Ended November 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows - Unaudited
Three Months Ended November 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
1. Legal Proceedings 17
2. Changes in Securities 17
3. Defaults Upon Senior Securities 17
4. Submission of Matters to a Vote of Security Holders 17
5. Other Information 17
6. Exhibits and Reports on Form 8-K 17
</TABLE>
SIGNATURES
INDEX TO EXHIBITS
<PAGE>
PART I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RF MONOLITHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 30, August 31,
ASSETS 2000 2000
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 311 $ 542
Short-term investments 3,608 3,543
Trade receivables - net 8,807 9,868
Inventories 11,047 11,176
Prepaid expenses and other 1,732 1,111
Income taxes receivable 1,342 1,342
Deferred income tax benefits 855 756
------------ ------------
Total current assets 27,702 28,338
PROPERTY AND EQUIPMENT - Net 13,202 14,063
OTHER ASSETS - Net 3,978 3,366
------------ ------------
TOTAL $ 44,882 $ 45,767
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and line of credit $ 1,785 $ 6,928
Accounts payable - trade 6,391 5,602
Accounts payable - construction and equipment 445 469
Accrued expenses and other liabilities 1,949 2,314
------------ ------------
Total current liabilities 10,570 15,313
LONG-TERM DEBT 5,173 68
STOCKHOLDERS' EQUITY:
Common stock: 6,207 and 6,208 shares issued 6 6
Additional paid-in capital 30,562 30,562
Treasury stock, 36 common shares (227) (227)
Retained earnings (858) 474
Unearned compensation (309) (359)
Unrealized gain on short-term investments (35) (70)
------------ ------------
Total stockholders' equity 29,139 30,386
------------ ------------
TOTAL $ 44,882 $ 45,767
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
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RF MONOLITHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In Thousands, Except Per-Share Amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
November 30,
---------------------------------------------
2000 1999
<S> <C> <C>
SALES $ 12,181 $ 9,329
COST OF SALES 10,826 10,766
------------- -------------
GROSS PROFIT 1,355 (1,437)
OPERATING EXPENSES:
Research and development 1,001 1,231
Sales and marketing 1,417 1,496
General and administrative 709 1,265
------------- -------------
Total operating expenses 3,127 3,992
------------- -------------
INCOME (LOSS) FROM OPERATIONS (1,772) (5,429)
OTHER INCOME (EXPENSE):
Interest income 56 55
Interest expense (281) (175)
Other expense (52) (4)
------------- -------------
Total (277) (124)
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (2,049) (5,553)
INCOME TAX (BENEFIT) EXPENSE (717) (1,694)
------------- -------------
NET (LOSS) INCOME $ (1,332) $ (3,859)
============= =============
EARNINGS PER SHARE
Basic $ (0.21) $ (0.65)
============= =============
Diluted $ (0.21) $ (0.65)
============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 6,207 5,894
============= =============
Diluted 6,207 5,894
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
4
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RF MONOLITHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
(In Thousands)
---------------------------------------------------------------------------------------------------------------------------
Three Months Ended
November 30,
-----------------------------------------
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (1,332) $ (3,859)
Noncash items included in net (loss) income:
Deferred taxes (739) (448)
Depreciation and amortization 1,146 1,217
Provision for doubtful accounts - 15
Amortization of unearned compensation 41 40
Other 22 33
Cash from (used in) operating working capital:
Trade receivables 1,061 2,691
Inventories 129 95
Prepaid expenses and other (621) 313
Accounts payable - trade 789 260
Accrued expenses and other liabilities (365) (51)
Income taxes payable/receivable - (1,439)
----------- -----------
Net cash from (used in) operations 131 (1,133)
INVESTING ACTIVITIES:
Increase in short-term investments (1,538) (1,099)
Decrease in short-term investments 1,473 1,490
Acquisition of property and equipment (335) (292)
Disposition of property and equipment 76
Decrease (increase) in other assets 15 (107)
----------- -----------
Net cash from (used in) investing activities (309) (8)
FINANCING ACTIVITIES:
Repayments of notes payable - (125)
Repayments of capital lease obligations (38) (211)
Borrowings (repayments) of accounts payable - construction and equipment (24) (426)
Borrowings of line of credit - 2,000
Common stock issued for options exercised 9 126
----------- -----------
Net cash from (used in) financing activities (53) 1,364
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (231) 223
CASH AND CASH EQUIVALENTS:
Beginning of period 542 672
----------- -----------
End of period $ 311 $ 895
=========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid $ 206 $ 175
=========== ===========
Income taxes paid $ 22 $ 95
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
RF MONOLITHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed consolidated 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 November 30, 2000, and the results of operations and cash flows for the
three months ended November 30, 2000 and 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, 2000, filed
with the Securities and Exchange Commission.
Operating results for the three months ended November 30, 2000, are not
necessarily indicative of the results to be achieved for the full fiscal year
ending August 31, 2001.
2. INVENTORIES
Inventories consist of the following (in thousands):
Nov. 30, Aug. 31,
2000 2000
Raw materials and supplies $ 5,721 $ 6,362
Work in process 3,270 2,631
Finished goods 2,056 2,183
--------- ---------
Total $ 11,047 $ 11,176
========= =========
3. PROPERTY AND EQUIPMENT
Property and equipment includes construction in progress of $1,394,000 at
November 30, 2000, and $1,059,000 at August 31, 2000, 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 / SUBSEQUENT EVENTS
As of November 30, 2000, the Company was in violation of certain covenants in
regards to a $7.5 million line of credit with a commercial bank. In December
2000, the Company entered into an agreement with another commercial bank for a
new credit facility consisting of a $13.5 million revolving credit facility and
a $3 million term note. Included in the revolving credit facility is an $8
million loan that is supported by the Export/Import bank (Exim bank). Both
facilities terminate on December 31, 2003. The proceeds of these new loans and
the sale of approximately $3.6 million in short term investments were used to
pay off approximately $6.9 million for the revolving credit facility that was in
effect as of November 30, 2000, and $8.8 million in obligations related to the
equipment-collateralized operating lease facility that was also in effect as of
November 30, 2000. As a result, the Company completely satisfied its
obligations to its former bank and acquired approximately $8.3 million in
capital assets that had formerly been utilized under
6
<PAGE>
operating leases. The amount of debt under the new agreement that is not
expected to be paid off within the next twelve months has been classified as
long term.
The structure of the new banking agreement ties amounts borrowed under the
agreement to a borrowing base consisting of certain receivables, inventory, and
fixed assets. Essentially all the assets of the Company, tangible and
intangible, are pledged as collateral under both facilities. The term loan
requires equal monthly payments of principal totaling $50,000 plus interest
beginning January 2001. The interest rate for both facilities is 2% over prime
rate. As part of the agreement, the bank was given a ten-year warrant to
purchase 30,000 shares of the Company's common stock at $5.00 per share. This
new credit facility contains financial covenants relating to various matters,
including but not limited to, minimum net worth, quarterly and monthly earnings,
and limitations on changes in corporate structure, and restrictions on dividends
and capital spending. Although the Company believes that it will be able to meet
the covenants, there is no assurance that this will occur. Should there be a
covenant violation without a waiver on favorable terms, there could be a
significant adverse impact on the Company's operations. To move manufacturing
equipment to support the offshore manufacturing initiative, it will be necessary
to pay off the portion of the term note related to the equipment being moved.
There is no assurance that this can be accomplished on favorable terms. Should
that not occur, there could be a slowdown in the Company's plans to expand
offshore production.
5. CAPITAL STOCK
During the first quarter of 2001, the Company granted to officers and employees
Incentive Stock Options to purchase 81,000 shares of the Company's Common Stock
at an exercise price ranging between $4.875 and $6.625, which was the market
value on the date of grant. The options were granted in accordance with the 1997
Equity Incentive Plan. Also during the first quarter, the Company granted to
consultants Non-qualified Stock Options to purchase 20,000 shares of the
Company's Common Stock at an exercise price of $6.625, which was the market
value on the date of grant. The options were granted in accordance with the
Company's 1999 Equity Incentive Plan (representing 10,000 shares) and the 1997
Equity Incentive Plan (representing 10,000 shares). Stock options granted to
consultants are recorded under guidance of FASB Interpretation 44 by recording
unearned compensation and expensing the amount over the remaining vesting or
consulting period, whichever is shorter.
On December 6, 2000, the Company also granted to certain employees restricted
stock for 26,000 shares of the Company's common stock and Non-qualified Stock
Options to purchase 130,500 shares of common stock. The items were granted in
accordance with the Company's 1997 Equity Incentive Plan and the 1999 Equity
Incentive Plan, respectively. The options were granted at an exercise price of
$3.875, which was equal to the fair value of the common stock at the date of
grant.
In December 2000, the Company entered into an agreement to raise approximately
$2,000,000 in cash by the sale of common stock and warrants to purchase common
stock. The sale consisted of 533,332 units. Each unit was sold at a price of
$3.75 and consisted of one share of common stock and a three-year warrant to
purchase on share of common stock at $7.50. The agreement called for certain
restrictions on the sale or further acquisition of stock by the investors, as
well as the right to require registration in the future. The proceeds of the
sale of this stock will be used to support the operations of the Company.
7
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6. EARNINGS PER SHARE
Reconciliation of share amounts is as follows (in thousands):
Three months ended
November 30,
--------------------------
2000 1999
Shares outstanding for basic
earnings per share 6,207 5,894
Effect of dilutive stock options - -
-------- --------
Shares outstanding for dilutive
earnings per share 6,207 5,894
======== ========
There are no adjustments to net earnings to arrive at income for either per
share calculation.
7. SALES REVENUE
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>
Quarter Ended
----------------------------------------------------------------------------------
November 30, November 30,
2000 1999
--------------------------------------- ---------------------------------------
Amounts % of Total Amounts % of Total
----------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Low-power Product Group:
Low-power components $ 7,801 64 % $ 6,424 69 %
Virtual Wire/R/ radio products 2,333 19 1,525 16
----------- ----------- ----------- -----------
Subtotal 10,134 83 7,949 85
Communications Products Group:
Frequency control modules 650 5 488 5
Filters 1,156 10 779 9
----------- ----------- ----------- -----------
Subtotal 1,806 15 1,267 14
----------- ----------- ----------- -----------
Total product sales 11,940 98 9,216 99
Technology development sales 241 2 113 1
----------- ----------- ----------- -----------
Total sales $ 12,181 100 % $ 9,329 100 %
=========== =========== =========== ===========
</TABLE>
8. DEFERRED TAX ASSET
The Company's deferred tax asset of approximately $4.3 million at November 30,
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 November 30, 2000, the Company
has NOL's of approximately $6.8 million 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.
8
<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, 2000, filed with the Securities and Exchange
Commission.
General
RFM designs, develops, manufactures and markets a broad range of radio
frequency components and modules. The Company's products are organized into two
Product Groups, the Communications Products Group and the Low-power Products
Group. The Communications Products Group includes Frequency Control Modules and
Filter products. The Low-power Products Group includes Low-power Components, as
well as Virtual Wire(R) Short-range Radio products. The Company's products are
based on SAW technology, and the Company's strategy is to leverage its radio
frequency design skills and its packaging technology to provide SAW-based
solutions to the current and emerging needs of the electronics industry. The
Company sells to original equipment manufacturers and distributors in wireless
communications, optical networks, automotive, consumer and industrial market
segments worldwide.
The Company incurred a significant loss in the first quarter of its fiscal
year 2001. As a result, it is possible that it will be reporting a loss for
fiscal year 2001.
Results of Operations
The following discussion relates to the financial statements of the Company
for the three months ended November 30, 2000 (current quarter and current year-
to-date period), of the fiscal year ending August 31, 2001, in comparison to the
three months ended November 30, 1999 (comparable quarter of the prior year and
prior year-to-date period). In addition, certain comparisons with the three
months ended August 31, 2000 (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.
9
<PAGE>
The following table sets forth, for the three months ended November 30,
2000 and 1999, (i) the percentage relationship of certain items from the
Company's statements of operations 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 Percentage Change
Total Sales From Quarter Ended
Quarter Ended November 30, 1999
November 30, to Quarter Ended
----------------------------------------
2000 1999 November 30, 2000
------------------ ------------------ -----------------------------
<S> <C> <C> <C>
Sales 100 % 100 % 31 %
Cost of sales 89 115 1
---------- ---------- ----------
Gross profit 11 (15) (194)
---------- ---------- ----------
Research and development 8 13 (19)
Sales and marketing 12 16 (5)
General and administrative 6 14 (44)
---------- ---------- ----------
Total operating expenses 26 43 (22)
---------- ---------- ----------
Income (loss) from operations (15) (58) (67)
Other expense, net (2) (1) 123
---------- ---------- ----------
Income (loss) before income taxes (17) (59) (63)
Income tax (benefit) expense (6) (18) (58)
---------- ---------- ----------
Net(loss) income (11) % (41) % (66) %
========== ========== ==========
</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>
Quarter Ended
------------------------------------------------------------------------------
November 30, November 30,
2000 1999
---------------------------------------- ----------------------------------------
Amounts % of Total Amounts % of Total
------------------ ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Low-power Product Group:
Low-power components $ 7,801 64 % $ 6,424 69 %
Virtual Wire/R/ radio products 2,333 19 1,525 16
------------ ------------ ------------ ------------
Subtotal 10,134 83 7,949 85
Communications Products Group:
Frequency control modules 650 5 488 5
Filters 1,156 10 779 9
------------ ------------ ------------ ------------
Subtotal 1,806 15 1,267 14
------------ ------------ ------------ ------------
Total product sales 11,940 98 9,216 99
Technology development sales 241 2 113 1
------------ ------------ ------------ ------------
Total sales $ 12,181 100 % $ 9,329 100 %
============ ============ ============ ============
</TABLE>
10
<PAGE>
Total sales increased 31% in the current quarter compared to the comparable
quarter of the prior year and decreased 7% compared to the previous quarter. The
increase was primarily due to a management decision in the prior year quarter to
limit special promotions to obtain turns business because of the potential
impact such promotions have on long-term gross margins. This resulted in a
substantial increase in the number of units shipped for each of the Company's
product lines. The decrease in sales from the previous quarter will be
discussed below.
Low-power components product sales declined 9% from the previous fourth
quarter. The decrease was primarily due to a decreased number of units sold of
these products, particularly for the older style TO-39 products. The increase
in orders from the newer surface mount products that occurred late in the
quarter did not occur soon enough to prevent this decline. In addition, some
labor shortages that limited production in the quarter. The Company is seeking
to increase its domestic assembly capacity, as well as obtaining capacity from
its offshore partners. The Company believes it has the opportunity to increase
its low-power component sales to historical levels, although there is no
assurance that this will happen. Average selling prices for these products
remained approximately stable, although there is no assurance that this will
continue in this competitive market. As a result, sales for low-power
components may not increase or return to the levels they had been in previous
periods.
Virtual Wire(R) short-range radio products sales in the current quarter
increased 11% in comparison to the previous quarter. This was primarily
attributable to an increased number of units sold for those products.
Approximately half the sales were for first generation products and half were
second generation products. The Company has devoted significant capital,
technical, sales and marketing resources to the Virtual Wire(R) short-range
radio products, and has experienced increased orders for these products in
recent quarters. The current Company focus is to ramp its capacity to produce
such products. The Company could have had significantly larger sales if all
potential customer orders had been shipped. One of the efforts is to finish
production of first generation products and convert this production capacity to
second generation products. The last orders have been received for the
relatively less profitable first generation products and production should be
completed in the next two quarters for these products. Another effort is to
build domestic capacity via process improvements and conversion of capacity for
new products as production of other products is moved offshore. There is no
assurance that the Company will be able to put in place all the capacity
required to meet customer demand for these products, or that the relatively new
demand for these products will continue.
Sales of filter products decreased 17% from the previous quarter due to a
lower number of units shipped and a decrease in average selling price for these
products, as newer products generally have lower average selling prices than
older products. The decreases were mainly due to delayed shipments from our
offshore partners. This is not unusual in starting up production from new
offshore partners. The Company is working very closely with its offshore
partners, but there is no assurance that sufficient offshore production capacity
will be available to meet customer demand. 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 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.
Sales of Frequency Control products decreased 21% from the previous
quarter. Sales were adversely impacted by a manufacturing process sealing issue
that limited capacity to ramp production of new products targeted at the optical
timing market. This process has since been improved and a new machine has been
ordered which will increase capacity in the second half of the fiscal year. The
Company believes its new line of optical timing oscillators will provide a
significant sales opportunity, particularly after a surface mount version is
introduced later in the year. The timing and impact of these new products is too
uncertain to assure that increased sales will result.
11
<PAGE>
The Company's top five customers accounted for approximately 33%, 34% and
34% of the Company's sales in the current quarter, the comparable quarter of the
prior year and the previous quarter, respectively. Distribution related
customers accounted for approximately 23%, 22% and 19% of the Company's total
sales in the current quarter, the comparable quarter of the prior year and the
previous quarter, respectively. One single customer accounted for more than 10%
of sales for the current quarter, while none did for the other time periods
mentioned. The company's sales strategy is to seek diversification in its
customer base, but due to the very competitive nature of the markets in which it
competes, the Company is not certain it will be able to continue to achieve this
diversification.
International sales were approximately 50%, 57% and 56% 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 includes alternative
technologies and competitors duplicating the Company's technologies that may
adversely affect the selling prices and market share.
Gross Profit
The current quarter gross margin of 11.1% increased from a negative 15.4%
in the comparable quarter of the prior year and decreased from 15.6% gross
margin in the previous quarter. The increase from the comparable quarter of the
prior year was primarily due to three factors. First, the large increase in
sales allowed relatively large fixed manufacturing costs to be spread over more
units. Second, the prior year contained approximately $1.2 million in special
charges primarily related to the transition to new products that did not recur
this year in nearly that magnitude. Third, the current year yields and
productivity were much improved as a result of focused management process
improvement programs. The decrease from the previous quarter will be discussed
below.
The decrease in gross margin from the previous quarter was the result of
several factors. The first factor was the decline in sales from the previous
fourth quarter to the current quarter that resulted in a large fixed cost base
being allocated across fewer units. This is an ongoing factor that results from
increases or decreases in sales volume. To address this issue, the Company has
embarked on efforts to increase manufacturing capacity via process improvements
and adding offshore manufacturing capability. The Company cannot be assured
that the resulting sales volume increases, if any, will be enough to
significantly reduce overhead costs as a percentage of sales. In future
quarters, one element of these costs will be reduced as a result of the
refinancing of some manufacturing equipment that occurred in the second quarter
of fiscal year 2001. Expenses related to equipment that had formerly been
leased were approximately $600,000 per quarter. Depreciation on the same
equipment is expected to be significantly less, although interest expense as
part of nonoperating expenses will increase. The net reduction in manufacturing
expense related to this equipment is expected to be approximately $150,000 to
$200,000 per quarter.
12
<PAGE>
The second factor decreasing gross margins from the previous quarter was an
unfavorable shift in product mix from relatively profitable communications
products to relatively less profitable Virtual Wire(R) short-range radio
products, particularly for first generation products. A decision has been made
to stop selling the first generation version of these products, after allowing
customers an opportunity to have a last time buy. The second generation products
are designed to be more cost effective than first generation products. The
negative impact on gross margins of selling the first generation products should
be largely completed by the third quarter of fiscal year 2001.
The third factor decreasing gross margins from the previous quarter was
additional costs associated with ramping production of new products related to a
sealing process. This additional expense impacted several new products and is
expected to be resolved with new equipment by the second half of the fiscal
year. Because of the uncertainty of volume and the new product introduction
process, the Company may not be able to manufacture these future generation
products at a cost low enough to produce an improved gross profit margin result.
The Company has also embarked upon efforts to reduce manufacturing costs.
The first effort involves a focused program to improve production rates, yields
and productivity within the existing facilities. This has resulted in a
significant reduction in per unit manufacturing costs in the current quarter
compared to the comparable quarter of the prior year. 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 other major cost reduction effort is a program to outsource some
assembly operations offshore. The Company has signed agreements with two
different partners to manufacture its filter and TO-39 products. Production also
began in the current quarter. The Company believes a successful offshore
manufacturing program could result in a material reduction in manufacturing
costs. The Company plans to phase in the transition of products over several
quarters, to insure uninterrupted product delivery to customers. In addition,
the transition will be supported with ample resources to address any
contingencies that may arise. As a result, the full benefit of the offshore
program is not expected until fiscal year 2002. Given the complexities of the
manufacturing processes involved, there can be no assurance that the offshore
program will be successful.
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 the current quarter, for instance, the Company experienced some
difficulty in securing the additional labor resources necessary to meet rising
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 decreased
approximately $230,000, or 19%, from the comparable quarter of the prior year,
primarily due to decreased personnel costs. Reduced personnel costs included
significant reallocation of engineering design resources to manufacturing
process engineering functions to meet current priorities. 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 absolute dollars in
future periods.
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Sales and Marketing
Current quarter sales and marketing expenses decreased approximately
$80,000 (approximately 5%) due primarily to reduced marketing expenses, as these
resources were redirected elsewhere in the company. The Company expects to incur
higher sales and marketing expenses in absolute dollars in future periods,
particularly for sales commission expenses, as it continues to expand its sales
and marketing efforts.
General and Administrative
General and administrative expenses for the current quarter decreased
approximately $560,000, or 44%, from the prior comparable period. This decrease
mainly resulted from approximately $600,000 in severance costs related to work
force reductions that occurred in the prior year that did not recur in the
current year. The Company expects to incur higher general and administrative in
future periods to support increased operations.
Loss from Operations
Loss from operations was $1.8 million, or 15% of total sales in the current
quarter, compared to loss from operations of $5.4 million or 58% of sales in the
comparable quarter of the prior. The decrease in loss from operations results
from both an improvement in gross margin and a reduction of operating expenses.
Other Income (Expense)
Total other expenses were $277,000 in the current quarter, compared to
$124,000 for the comparable quarter of the prior year. The increase in total
other expenses primarily results from increased expenses as a result of
increased borrowings and an increase in interest rates. The Company expects that
increased borrowings will result in increased interest expense in future
periods, particularly after the refinancing that occurred in the second quarter
of fiscal year 2001. As a result, total other expenses are expected to increase
approximately $150,000 to $200,000 per quarter. This is offset mostly by a
reduction in manufacturing expense. The new credit agreement has leased
equipment converted to a purchase. The depreciation is expected to be
significantly less than the lease expense.
Income Tax Benefit
The Company's income tax benefit was $717,000 in the current quarter,
compared to income tax benefit of $1,694,000 in the comparable quarter of the
prior year, reflecting the comparable loss before income taxes for the
respective periods. The company's effective tax benefit rate was approximately
35% in the current quarter, compared to approximately 31% in the prior year
reflecting decreased impact from a Foreign Sales Corporation.
Net Loss
Net loss was $1,332,000, or $.21 per diluted share, in the current
quarter, compared to net loss of $3,859,000, or $.68 per diluted share, for the
comparable quarter of the prior year. As a result, the Company may not be able
to overcome this loss and could report a loss for fiscal year 2001.
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Financial Condition
New Financing Arrangements
In December 2000, the Company entered into an agreement with a commercial
bank for a new credit facility consisting of a $13.5 million revolving credit
facility and a $3 million term note. Included in the revolving credit facility
is an $8 million loan that is supported by the Export/Import bank (Exim bank).
Both facilities terminate on December 31, 2003. The proceeds of these new loans
and the sale of approximately $3.6 million in short term investments were used
to pay off approximately $6.9 million for the revolving credit facility that was
in effect as of November 30, 2000, and $8.8 million in obligations related to
the equipment-collateralized operating lease facility that was also in effect as
of November 30, 2000. As a result, the Company completely satisfied its
obligations to its former bank and acquired approximately $8.3 million in
capital assets that had formerly been utilized under operating leases.
The structure of the new banking agreement ties amounts borrowed under the
agreement to a borrowing base consisting of certain receivables, inventory, and
fixed assets. Essentially all the assets of the Company, tangible and
intangible, are pledged as collateral under both facilities. The term loan
requires equal monthly payments of principal totaling $50,000 plus interest
beginning January 2001. The interest rate for both facilities is 2% over prime
rate. As part of the agreement, the bank was given a ten-year warrant to
purchase 30,000 shares of the Company's common stock at $5.00 per share. This
new credit facility contains financial covenants relating to various matters,
including but not limited to, minimum net worth, quarterly and monthly earnings,
and limitations on changes in corporate structure, and restrictions on dividends
and capital spending. Although the Company believes that it will be able to meet
the covenants, there is no assurance that this will occur. Should there be a
covenant violation without a waiver on favorable terms, there could be a
significant adverse impact on the Company's operations. To move manufacturing
equipment to support the offshore manufacturing initiative, it will be necessary
to pay off the portion of the term note related to the equipment being moved.
There is no assurance that this can be accomplished on favorable terms. Should
that not occur, there could be a slowdown in the Company's plans to expand
offshore production.
In December 2000, the Company entered into an agreement to raise
approximately $2,000,000 in cash by the sale of common stock and warrants to
purchase common stock. The sale consisted of 533,332 units. Each unit was sold
at a price of $3.75 and consisted of one share of common stock and a three-year
warrant to purchase one share of common stock at $7.50. The agreement called
for certain restrictions on the sale or further acquisition of stock by the
investors, as well as the right to require registration in the future. The
proceeds of the sale of this stock will be used to support the operations of the
Company.
Cash Flows
The major source of liquidity at November 30, 2000, consisted of
approximately $0.3 million of cash. Net cash provided from operating activities
was $0.1 million for the current year-to-date period of fiscal 2001 as compared
to net cash utilized in operating activities of $1.1 million for the year-to-
date period of fiscal 2000. The increase in cash available from operations is
due to the $1.3 million net loss in the current year-to-date period that was
offset by approximately $0.5 million in net noncash items such as depreciation
and $1.0 million net reduction in various working capital accounts. In the
prior year-to-date period, a $3.9 million loss was partially offset by $0.9 in
net noncash items such as depreciation and $1.9 million net reduction in various
working capital accounts. The Company's internal plan is to maintain a nearly
breakeven cash flow from operations for fiscal year 2001. 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 approximately zero of cash used in investing
activities for the prior year-to-date period, primarily as a result of
approximately $0.3 million in capital expenditures. Cash used in investing
activities was approximately zero in the prior year-to-date period, due to $0.3
million in capital expenditures, offset by a similar reduction
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in short term investments. The Company expects to acquire a total of
approximately $1 million to $3 million of capital equipment by the end of fiscal
2001, consisting primarily of equipment needed for its wafer fabrication
manufacturing facilities. Due to its offshore manufacturing initiative, the
Company does not expect to require significant additions to its assembly
facilities or equipment. Some of this equipment may be acquired under equipment
financing facilities in the future.
Net cash utilized in financing activities was $0.1 million in the current
year-to-date period and cash generated from financing activities was $1.4
million in the prior year-to-date period. In the current year-to-date period,
approximately $0.1 million was used to reduce capital lease obligations and
capital equipment payables. In the prior year-to-date period, $1.7 million was
raised in a net increase in borrowings and $0.1 million in sales of stock,
offset by a $0.4 million reduction in capital equipment payables.
As of the date of this report, the Company had approximately $2 million
available in cash under the new credit arrangement based upon the borrowing base
at that time. In addition, approximately $4 million may become available under
the Revolving Credit facility if the Company's borrowing base were to increase
sufficiently to support the increased borrowing. There can be no assurance that
this will happen. The Company believes that cash generated from operations, if
any, its cash balances, and the amounts available under its new credit facility
will be sufficient to meet the Company's operating cash requirements through the
fiscal year 2001. 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.
Forward-looking Statements
This report and other presentations made by RF Monolithics, Inc. (RFM)
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 actual results
to differ materially from the results expressed or implied by such statements.
Although RFM believes that in making any such statements its expectations are
based on reasonable assumptions, any such statement involves uncertainties and
is qualified in its entirety by reference to the following important factors,
among others, that could cause the actual results of RFM to differ materially
from those statements: (i) timely development, acceptance and pricing of new
products; (ii) timely implementation of manufacturing processes and transition
to offshore manufacturing; (iii) ability to obtain production material and
labor; (iv) the potential transition to value-added products; (v) the impact of
competitive products and pricing; (vi) general industry trends; (vii) general
economic conditions as they affect RFM's customers; and (viii) availability of
required financing on favorable terms; and (ix) other factors disclosed in this
report and the Form 10-K for the year ended August 31, 2000.
Any forward-looking statement speaks only as of the date on which such
statement was made, and the Company does 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 the
Company to predict all 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1999, the Company become involved in a lawsuit filed in the US District
Court in Connecticut (Civil Action No. 399cv 00311) 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. and fifteen other companies who supplied
materials and services for the Goldmine Project. The plaintiffs sought a
declaratory judgment against the Company seeking a declaration that plaintiffs
owed no monetary amounts to the Company. The Company filed a counterclaim
against Akom and cross claims against Raytheon and Raycom asserting damages to
the extent of unpaid invoices and custom inventory parts and materials
approximating $1.7 million. The Company settled all pending claims by and
against Akom, Raytheon and Raycom on October 11, 2000. The terms of the
settlement are covered by a non-disclosure agreement.
ITEM 2. CHANGES IN SECURITIES
On December 11, 2000, the Company approved the Second Amendment to the Rights
Agreement (the "Second Amendment") between the Company and Fleet National Bank,
f/k/a BankBoston, N.A., f/k/a The First National Bank of Boston, as Rights
Agent. The Rights Agreement governs the terms of the preferred share purchase
rights of the Company registered on Form 8-A and filed with the Securities and
Exchange Commission on December 30, 1994. The Second Amendment provides a
limited exemption for Orin Hirschman from the provisions in the Rights Agreement
which become exercisable upon any person becoming a Beneficial Owner of 15% or
more of the voting shares of the Company. The Second Amendment provides that
Orin Hirschman may beneficially own up to 16.6% of the voting shares of the
Company without resulting in the rights set forth in the Rights Agreement
becoming exercisable.
ITEM 5. OTHER INFORMATION
The information that is allowed to be reported under this item is found under
Part II, Item 2 of this Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of this report:
Exhibit Description
------- -----------
4.2 Specimen Right Certificate (1)
4.3 Rights Agreement, dated as of
December 20, 1994 between
Registrant and The First National
Bank of Boston, with exhibits (1)
4.4 First Amendment to Rights
Agreement, dated as of August 14,
1996 between Registrant and The
First National Bank of Boston (2)
4.5 Second Amendment to Rights
Agreement, dated as of December 11,
2000 between Registrant and Fleet
National Bank (3)
(1) Previously filed as an exhibit to the Form 8-K filed December 29,
1994, and incorporated herein by reference.
(2) Previously filed as an exhibit to the Form 8-K filed December 19,
1996, and incorporated herein by reference.
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(3) Filed as an exhibit to this Form 10-K.
(b) The Company did not file any reports on Form 8-K during the quarter ended
November 30, 2000.
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 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.
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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: January 16, 2001 By: /s/ David Kirk
------------------------------
David Kirk
CEO, President and Director
By: /s/ James P. Farley
------------------------------
James P. Farley
VP Finance, Controller
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INDEX TO EXHIBITS
Exhibit Description
------- -----------
4.2 Specimen Right Certificate (1)
4.3 Rights Agreement, dated as of December
20, 1994 between Registrant and The
First National Bank of Boston, with
exhibits (1)
4.4 First Amendment to Rights Agreement,
dated as of August 14, 1996 between
Registrant and The First National Bank
of Boston (2)
4.5 Second Amendment to Rights Agreement,
dated as of December 11, 2000 between
Registrant and Fleet National Bank (3)
(1) Previously filed as an exhibit to the Form 8-K filed December 29, 1994, and
incorporated herein by reference.
(2) Previously filed as an exhibit to the Form 8-K filed December 19, 1996, and
incorporated herein by reference.
(3) Filed as an exhibit to this Form 10-K.
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