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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, 2004

Commission File No. 0-24414

RF Monolithics, Inc.

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of June 30, 2004: 7,744,320 shares of the Registrant’s Common Stock, $.001 par value, were outstanding.

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RF MONOLITHICS, INC.

FORM 10-Q

QUARTER ENDED MAY 31, 2004

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PART I. CONDENSED FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS

RF MONOLITHICS, INC.

CONDENSED BALANCE SHEETS

(In Thousands)

See notes to condensed financial statements.

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RF MONOLITHICS, INC.

CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED

(In Thousands, Except Per-Share Amounts)

See notes to condensed financial statements.

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RF MONOLITHICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED

(In Thousands)

See notes to condensed financial statements.

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RF MONOLITHICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. INTERIM FINANCIAL STATEMENTS

The accompanying condensed financial statements include all adjustments, consisting only of normal recurring adjustments and accruals, that in the opinion of the management of RF Monolithics, Inc., or the Company, or RFM, are necessary for a fair presentation of our financial position as of May 31, 2004, and the results of operations and cash flows for the three and nine months ended May 31, 2004 and 2003. These unaudited interim consolidated financial statements should be read in conjunction with our audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended August 31, 2003, filed with the Securities and Exchange Commission. We did not have any subsidiaries in the periods covered by these condensed financial statements.

Operating results for the nine months ended May 31, 2004, are not necessarily indicative of the results to be achieved for the full fiscal year ending August 31, 2004.

2. INVENTORIES

Inventories consist of the following (in thousands):

In the third quarter of fiscal 2003, we increased inventory reserves by recording a $2.6 million charge related to obsolescence and write-down of inventory associated with our product line modification and rationalization program. The charge was recorded as cost of sales in our statement of operations. In the fourth quarter of fiscal 2003 and the first three quarters of fiscal 2004, approximately $2.5 million of inventory was disposed of and charged to this reserve, leaving approximately $0.1 million related to this particular obsolete inventory, most of which will be disposed of in the balance of fiscal 2004.

3. PROPERTY AND EQUIPMENT

Property and equipment includes construction in progress of $400,000 at May 31, 2004, and $109,000 at August 31, 2003. These amounts are composed primarily of software and other assets not yet placed in service.

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4. CREDIT FACILITIES

Balances outstanding under our credit facilities were as follows (in thousands):

As of May 31, 2004, our revolving line-of-credit facility and our term note were paid off and the mortgage was paid down to a balance of $166,000. We used proceeds from common stock issued under employee stock programs and from our positive cash flow from operations to pay these obligations.

Revolving Line of Credit and Term Note – On December 8, 2000, we entered into a banking agreement, which was amended and restated on February 3, 2003, and consists of (a) a revolving line-of-credit facility of up to $7,500,000 (recently lowered at our request from $13,500,000), limited to an available borrowing base, which is based on the levels of eligible accounts receivable and inventory, (b) a term note of $3,000,000 and (c) a real estate mortgage of $1,050,000. Substantially all of our assets, tangible and intangible, are pledged as collateral. The banking agreement calls for an interest rate of bank prime plus 1.5% (5.50% on May 31, 2004) and expires in December 2005.

At May 31, 2004, our revolving line-of-credit facility loan balance was zero, but a loan advance of $7,185,000 was available under our current borrowing base. An additional $315,000 may become available if our borrowing base were to increase sufficiently to support the increased borrowing. We eliminated the Export/Import (“Exim”) facility within this agreement effective December 31, 2003. This had the effect of lowering our interest expense and lowering the amount available by approximately $1,300,000. Our revolving line of credit was classified as short-term at August 31, 2003 due to a lockbox arrangement with the bank, which requires the use of cash receipts to repay the amounts outstanding.

Real estate mortgage - To finance our purchase of a building at our Dallas headquarters, a real estate mortgage was established under our banking agreement on February 3, 2003 for $1,050,000. The real estate mortgage requires monthly principal payments of $8,750 plus interest, which began in March 2003. On February 26, 2004, we made an additional payment of $752,500 to pay down the mortgage note. The remaining 22 monthly principal payments of $8,750 after this pay down will reduce the loan to zero by the banking agreement expiration date.

Upon signing our banking agreement, we also entered into a warrant purchase agreement with the lender and issued warrants to purchase 30,000 shares of our common stock at an exercise price of $5.00 per share. The warrants expire 10 years from date of issuance. The fair value assigned to these warrants of $85,000 was accounted for as a debt issuance cost and is being amortized over the period of our banking agreement. In connection with the amendment in May 2003 to our banking agreement, we entered into a warrant purchase

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agreement with the lender and issued warrants to purchase 30,000 shares of our common stock at an exercise price of $3.75 per share. The warrants expire 3 years from date of issuance. The fair value assigned to these warrants of $42,000 was accounted for as a debt issuance cost and also is being amortized over the remaining period of our banking agreement.

Our banking agreement contains financial covenants relating to various matters, including but not limited to, minimum net worth, quarterly and monthly earnings, limitations on changes in corporate structure, and restrictions on dividends and capital spending. Some of these covenants become increasingly restrictive over time. We were in compliance with all covenants as of May 31, 2004. Although we believe that we will be able to continue to meet the covenants, there is no assurance that this will occur. Should there be a covenant violation without a waiver or amendment, the maturity of our debt could be accelerated and other sources of cash would be needed.

5. CAPITAL STOCK

Stock Warrants – In December 2000, we sold 533,332 unregistered shares of common stock to a group of investors for $3.75 per share. Attached to the common stock were warrants to purchase 533,332 additional shares of our common stock at an exercise price of $7.50 per share. The warrants had a term of three years, expiring in December 2003.

In November 2003, 109,998 of such warrants were exercised in cashless transactions. The excess of market price of $8.062 per share at the time of exercise over the grant price of $7.50 per share was issued to the warrant holders in the form of 7,665 shares of new common stock. In December 2003, the rest of such warrants (423,334) were exercised in cashless transactions. The excess of market price of $10.198 per share at the time of exercise over the grant price of $7.50 per share was issued to the warrant holders in the form of 111,994 shares of new common stock.

Stock Options

The following table illustrates the stock option grant activity for fiscal 2004 by quarter as of May 31, 2004:

In the first three quarters of fiscal 2004, 8,373 stock options were cancelled due to employee terminations and option period expirations.

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We currently account for our stock option plans under APB No. 25 and related Interpretations. All options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Accordingly, no compensation expense was recognized for options granted to employees and directors. Options granted to consultants are accounted for under SFAS No. 123 and are valued using the Black-Scholes model. Compensation expense of such options is recognized over the vesting life of the options, which is aligned with the consulting service life. As permitted by SFAS No. 123 and amended by SFAS No. 148, we will continue to apply APB No. 25 to our stock-based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share.

The following table illustrates the effect on net income and earnings per share as if the fair value based method under SFAS No. 123 had been applied to all outstanding vested and unvested awards in each period (in thousands, except per share amounts):

See Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional discussion of our stock option plans.

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6. SALES REVENUE

The following table sets forth the components of our sales and the percentage relationship of the components to sales by product area for the periods indicated (in thousands, except percentage data):

International sales were approximately $8,705, or 64%, during the current quarter and $5,368, or 50%, during the comparable quarter of the prior year. On a year to date basis, the international sales were approximately $21,845, or 61% for the current year and $15,666, or 49% for the comparable period of the prior year. We consider all product sales with a delivery destination outside of North America to be international sales.

7. RESTRUCTURING AND IMPAIRMENT

In the third quarter of fiscal 2003, we recorded an impairment expense of approximately $1.2 million associated with our board-approved plan to consolidate our Dallas, Texas operations and facilities for the write-down or write-off of equipment and other assets that were no longer usable in our operations. Additionally, we incurred approximately $33,000 in restructuring costs related to the severance of 12 employees. This employment reduction resulted from the consolidation of operations at our Dallas, Texas facility.

8. INCOME TAXES

For the nine months ended May 31, 2004 we recorded book income before income taxes of $1,688,000. No federal income tax provision was recorded related to such earnings as we have offset taxable income with tax loss carryforwards. We do not expect to pay federal income tax in the U.S. for the foreseeable future. Income tax expense recorded in the accompanying condensed statement of operations is reflective of state taxes, consistent with prior periods.

We continue to maintain a full valuation allowance on our deferred tax assets due to prior period losses. However, we retain the tax benefits involved and we will realize the benefit in future periods to the extent we are profitable. As of the end of the last fiscal year, we had income tax carry forwards and other potential tax benefits available to reduce future federal taxable income by approximately $16.8 million. The net operating loss carry forwards begin to expire August 31, 2023.

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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 our Annual Report on Form 10-K for the year ended August 31, 2003 filed with the Securities and Exchange Commission, or SEC.

General

We design, develop, manufacture and market a broad range of radio frequency components and modules. Our products are organized into two groups: (a) the Low-power Products Group and (b) the Communications Products Group. The Low-power Products Group includes low-power components, as well as Virtual Wire® Short-range Radio products. The Communications Products Group includes frequency control modules and filter products. Our products generally utilize SAW technology.

Executive Summary

We operate in a very competitive environment characterized by declining average selling prices and frequent product innovation. Our strengths include (a) our ability to identify and capitalize on trends in a rapidly growing wireless marketplace, (b) the capability to develop products that have superior technical characteristics, (c) the expertise to assist our customers in incorporating our products into their applications and (d) our demonstrated ability to manufacture products cost effectively in volume with excellent delivery and quality performance. Our manufacturing capabilities are greatly enhanced by our relationships with several offshore contractors and our own wafer foundry expertise.

We have competed successfully for over 25 years by cultivating close customer relationships with a diverse group of customers in varied applications, markets and geographic locations. We do compete against several large competitors who have superior financial and other resources.

Our base Low-power Component business has declined in sales due to decreased average selling prices in competitive automotive and other markets. As a result, we have focused our product and market development on higher-value products which we feel offer a technical edge and have greater gross margin potential. A key factor in our sales performance is whether or not we develop and sell enough new products to offset the decline in selling price and unit volume of our older products. The overall economic conditions in the electronics industry, which has historically experienced extreme increases and decreases in demand within short periods of time, is another key factor that influences our sales performance. We believe our markets are currently in a period of increased demand. A key factor in our gross margin performance is whether or not we can reduce our costs (through innovation and increased volume) and improve our product mix towards higher margin products to offset expected declines in gross margins on more mature products.

We have controlled our operating expenses and generated positive cash flows in recent years and we intend to continue this strategy. We have an effective agreement with our bank, and feel we currently have the financial resources necessary to carry out our business plans.

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Critical Accounting Policies

We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the periods presented. We described our most significant accounting policies, which we believe are the most critical to aid in fully understanding and evaluating reported financial results, in our Annual Report for the year ended August 31, 2003, which was filed with the SEC on November 20, 2003. Those policies continue to be our most critical accounting policies for the period covered by this report.

Results of Operations

In this next section we will discuss our financial statements. In this discussion, we will make comparisons between the following periods, which we believe are relevant to understanding trends in our business:

The selected financial data for the periods presented may not be indicative of our future financial condition or results of operations.

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The following table illustrates operating results for the four quarters of fiscal 2003 and the first three quarters of fiscal 2004 (in thousands, except percentage data). These figures will be used when discussing trends in the following section.