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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE
ACT OF 1934



For the Quarterly Period Ended November 30,
2003



Commission File No. 0-24414



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RF Monolithics, Inc.

(Exact name of registrant as specified in its charter)



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|Delaware                                                       |  | 75-1638027                      
|-------------------------------------------------------------- |  | --------------------------------
|(State or other jurisdiction of incorporation of organization) |  | (I.R.S. Employer Identification)
|                                                               | 
|4441 Sigma Road, Dallas, Texas                                 |  | 75244                           
|(Address of principal executive offices)                       |  | (Zip Code)                      



Registrants
telephone number, including area code (972) 233-2903



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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 December 31, 2003: 7,458,339 shares of the Registrants Common
Stock, $.001 par value, were outstanding.



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RF MONOLITHICS, INC.



FORM 10-Q



QUARTER ENDED NOVEMBER 30, 2003



TABLE OF CONTENTS



|ItemNumber |  |                                                                                              |  | Page
|---------- |  | -------------------------------------------------------------------------------------------- |  | ----
|           |  | PART I.
CONDENSED FINANCIAL INFORMATION                                                      |  |     
|           |  |                                                                                             
|1.         |  | Condensed Financial Statements:                                                              |  |     
|           |  | Condensed Balance Sheets November 30, 2003 (Unaudited), and August 31, 2003                  |  | 2   
|           |  |                                                                                             
|           |  | Condensed Statements of Operations - Unaudited Three Months Ended November 30, 2003 and 2002 |  | 3   
|           |  |                                                                                             
|           |  | Condensed Statements of Cash Flows - Unaudited Three Months Ended November 30, 2003 and 2002 |  | 4   
|           |  |                                                                                             
|           |  | Notes to Condensed Financial Statements - Unaudited                                          |  | 5   
|           |  |                                                                                             
|2.         |  | Managements Discussion and Analysis of Financial Condition and Results of Operations        |  | 9   
|           |  |                                                                                             
|3.         |  | Quantitative and Qualitative Disclosures About Market Risk                                   |  | 24  
|           |  |                                                                                             
|4.         |  | Controls and Procedures                                                                      |  | 24  
|           |  |                                                                                             
|           |  | PART II.
OTHER INFORMATION                                                                   |  |     
|           |  |                                                                                             
|6.         |  | Exhibits and Reports on Form 8-K                                                             |  | 24  
|           |  |                                                                                             
|           |  | SIGNATURES                                                                                   |  |     
|           |  |                                                                                             
|           |  | INDEX TO EXHIBITS                                                                            |  |     



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PART I. CONDENSED FINANCIAL INFORMATION



ITEM 1. CONDENSED FINANCIAL STATEMENTS



RF MONOLITHICS, INC.



CONDENSED BALANCE SHEETS

(In Thousands)



|                                               |  | November 30, 2003 |         |   | August 31,2003 |  
|---------------------------------------------- |  | ----------------- | ------- | - | -------------- | -
|                                               |  | (Unaudited)       |         |   |                |  
|ASSETS                                         |  |                   |         |   |                |  
|                                               |  |                  
|CURRENT ASSETS:                                |  |                   |         |   |                |  
|Cash and cash equivalents                      |  | $                 | 155     |   |                | $
|Trade receivables - net                        |  |                   | 7,230   |   |                |  
|Inventories                                    |  |                   | 7,742   |   |                |  
|Prepaid expenses and other                     |  |                   | 318     |   |                |  
|                                               |  |                   |         |   |                |  
|Total current assets                           |  |                   | 15,445  |   |                |  
|                                               |  |                  
|PROPERTY AND EQUIPMENT - Net                   |  |                   | 8,714   |   |                |  
|                                               |  |                  
|OTHER ASSETS - Net                             |  |                   | 263     |   |                |  
|                                               |  |                   |         |   |                |  
|TOTAL                                          |  | $                 | 24,422  |   |                | $
|                                               |  |                   |         |   |                |  
|LIABILITIES AND STOCKHOLDERS EQUITY           |  |                   |         |   |                |  
|                                               |  |                  
|CURRENT LIABILITIES:                           |  |                   |         |   |                |  
|Current portion of long-term debt              |  | $                 | 1,355   |   |                | $
|Accounts payable - trade                       |  |                   | 2,369   |   |                |  
|Accrued expenses and other current liabilities |  |                   | 1,775   |   |                |  
|                                               |  |                   |         |   |                |  
|Total current liabilities                      |  |                   | 5,499   |   |                |  
|                                               |  |                  
|LONG-TERM DEBT - Less current portion          |  |                   | 866     |   |                |  
|                                               |  |                  
|OTHER LIABILITIES                              |  |                   | 185     |   |                |  
|                                               |  |                  
|STOCKHOLDERS EQUITY:                          |  |                   |         |   |                |  
|Common stock: 7,310 and 7,260 shares issued    |  |                   | 7       |   |                |  
|Additional paid-in capital                     |  |                   | 33,800  |   |                |  
|Common stock warrants                          |  |                   | 695     |   |                |  
|Treasury stock, 36 common shares at cost       |  |                   | (227    | ) |                |  
|Accumulated deficit                            |  |                   | (16,149 | ) |                |  
|Unearned compensation                          |  |                   | (254    | ) |                |  
|                                               |  |                   |         |   |                |  
|Total stockholders equity                     |  |                   | 17,872  |   |                |  
|                                               |  |                   |         |   |                |  
|TOTAL                                          |  | $                 | 24,422  |   |                | $
|                                               |  |                   |         |   |                |  



See
notes to condensed financial statements.



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RF MONOLITHICS, INC.



CONDENSED STATEMENTS OF
OPERATIONS - UNAUDITED

(In Thousands, Except Per-Share Amounts)



|                                           |  | Three Months EndedNovember 30, |       
|------------------------------------------ |  | ------------------------------ | ------
|                                           |  | 2003                           |       
|SALES                                      |  | $                              | 11,139
|                                           |  |                               
|COST OF SALES                              |  |                                | 7,833 
|                                           |  |                                |       
|GROSS PROFIT                               |  |                                | 3,306 
|                                           |  |                               
|OPERATING EXPENSES:                        |  |                                |       
|Research and development                   |  |                                | 854   
|Sales and marketing                        |  |                                | 1,269 
|General and administrative                 |  |                                | 713   
|                                           |  |                                |       
|Total operating expenses                   |  |                                | 2,836 
|                                           |  |                                |       
|INCOME FROM OPERATIONS                     |  |                                | 470   
|                                           |  |                               
|OTHER INCOME (EXPENSE):                    |  |                                |       
|Interest income                            |  |                                |      
|Interest expense                           |  |                                | (114  
|Other expense                              |  |                                | 50    
|                                           |  |                                |       
|Total other income (expense)               |  |                                | (64   
|                                           |  |                                |       
|INCOME BEFORE INCOME TAXES                 |  |                                | 406   
|                                           |  |                               
|INCOME TAX EXPENSE                         |  |                                | 5     
|                                           |  |                                |       
|NET INCOME                                 |  | $                              | 401   
|                                           |  |                                |       
|EARNINGS PER SHARE                         |  |                                |       
|Basic                                      |  | $                              | 0.06  
|                                           |  |                                |       
|Diluted                                    |  | $                              | 0.05  
|                                           |  |                                |       
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |  |                                |       
|Basic                                      |  |                                | 7,278 
|                                           |  |                                |       
|Diluted                                    |  |                                | 7,752 
|                                           |  |                                |       



See
notes to condensed financial statements.



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RF MONOLITHICS, INC.



CONDENSED STATEMENTS OF
CASH FLOWS - UNAUDITED

(In Thousands)



|                                                      |  | Three Months EndedNovember 30, |        
|----------------------------------------------------- |  | ------------------------------ | -------
|                                                      |  | 2003                           |        
|OPERATING ACTIVITIES:                                 |  |                                |        
|Net income                                            |  | $                              | 401    
|                                                      |  |                                |        
|Noncash items included in net income:                 |  |                                |        
|Depreciation and amortization                         |  |                                | 743    
|Provision for trade receivable allowance              |  |                                | 3      
|Amortization of unearned compensation                 |  |                                | 46     
|Gain on disposal of property and equipment            |  |                                |       
|                                                      |  |                                |        
|Sub-total                                             |  |                                | 792    
|                                                      |  |                                |        
|Cash provided by (used in) operating working capital: |  |                                |        
|Trade receivables                                     |  |                                | (320   
|Inventories                                           |  |                                | 152    
|Prepaid expenses and other                            |  |                                | 4      
|Accounts payable - trade                              |  |                                | 601    
|Accrued expenses and other liabilities                |  |                                | 293    
|                                                      |  |                                |        
|Sub-total                                             |  |                                | 730    
|                                                      |  |                                |        
|Net cash provided by operating activities             |  |                                | 1,923  
|                                                      |  |                                |        
|INVESTING ACTIVITIES:                                 |  |                                |        
|Acquisition of property and equipment                 |  |                                | (271   
|Proceeds from disposition of property and equipment   |  |                                | 32     
|Change in other assets                                |  |                                | (3     
|                                                      |  |                                |        
|Net cash used in investing activities                 |  |                                | (242   
|                                                      |  |                               
|FINANCING ACTIVITIES:                                 |  |                                |        
|Borrowings on line of credit                          |  |                                | 9,279  
|Repayments of notes payable                           |  |                                | (11,156
|Proceeds from common stock issued                     |  |                                | 135    
|                                                      |  |                                |        
|Net cash used in financing activities                 |  |                                | (1,742 
|                                                      |  |                                |        
|NET DECREASE IN CASH AND CASH EQUIVALENTS             |  |                                | (61    
|                                                      |  |                               
|CASH AND CASH EQUIVALENTS:                            |  |                                |        
|Beginning of period                                   |  |                                | 216    
|                                                      |  |                                |        
|End of period                                         |  | $                              | 155    
|                                                      |  |                                |        
|SUPPLEMENTAL INFORMATION:                             |  |                                |        
|Interest paid                                         |  | $                              | 45     
|                                                      |  |                                |        
|Income taxes paid                                     |  | $                              | 3      
|                                                      |  |                                |        



See
notes to condensed financial statements.



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RF MONOLITHICS, INC.



NOTES TO CONDENSED
FINANCIAL STATEMENTS - UNAUDITED



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 November 30, 2003, and the
results of operations and cash flows for the three months ended November 30, 2003 and 2002. These unaudited interim condensed 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 this report.



Operating results for the three months ended November 30, 2003, 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):



|                           |  | Nov. 30,2003 |        |   | Aug. 31,2003 |  
|-------------------------- |  | ------------ | ------ | - | ------------ | -
|Raw materials and supplies |  | $            | 3,218  |   |              | $
|Work in process            |  |              | 2,286  |   |              |  
|Finished goods             |  |              | 3,900  |   |              |  
|                           |  |              |        |   |              |  
|Total gross inventories    |  |              | 9,404  |   |              |  
|Less inventory reserves    |  |              | (1,662 | ) |              |  
|                           |  |              |        |   |              |  
|Total inventories          |  | $            | 7,742  |   |              | $
|                           |  |              |        |   |              |  



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 first quarter of fiscal 2004, approximately $2.0 million and $.2 million respectively, of inventory was disposed of and charged to this reserve, leaving approximately $0.4 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 $359,000 at November 30, 2003, and $109,000 at August 31, 2003, which is composed of equipment 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):



|                         |  | November 30,2003 |       |   | August 31,2003 |  
|------------------------ |  | ---------------- | ----- | - | -------------- | -
|Revolving line-of-credit |  | $                | 984   |   |                | $
|Term note                |  |                  | 300   |   |                |  
|Real estate mortgage     |  |                  | 971   |   |                |  
|Debt issuance costs      |  |                  | (34   | ) |                |  
|                         |  |                  |       |   |                |  
|Total                    |  |                  | 2,221 |   |                |  
|                         |  |                 
|Less: Current maturity   |  |                  | 1,355 |   |                |  
|                         |  |                  |       |   |                |  
|Long-term debt           |  | $                | 866   |   |                | $
|                         |  |                  |       |   |                |  



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 $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 November 30, 2003).



At November 30, 2003, our revolving credit facility had an additional $6,697,000 available under its borrowing base. An additional $5,819,000 may become available if our borrowing base were to increase sufficiently to
support the increased borrowing. We eliminated the Export/Import (Ex/Im) facility within this agreement effective December 31, 2003. This will have the effect of lowering our interest expense and lowering the amount available by
approximately $1,300,000. Our revolving line of credit is classified as short-term due to a lockbox arrangement with the bank, which requires the use of cash receipts to repay the amounts outstanding.



Our term note requires monthly principal payments of $50,000 plus interest. It also requires
additional principal payments equal to the appraised value of any equipment either being sold or moved to support our offshore manufacturing initiative. The bank requires this provision because the equipment serves as collateral.



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.



Our banking agreement will expire in December 2005. In connection with our banking
agreement, we 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 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 is being amortized over the remaining period of our banking agreement.



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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 November 30, 2003. 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 have a term
of three years and will expire in December 2003.



In November 2003, 109,998 of
such warrants were exercised in a cashless transaction. 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, subsequent to the current quarter, the remainder of such warrants (423,334) were exercised in a cashless transaction. 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 the first quarter ended November 30, 2003:



|                    |  | OptionsGranted |  | Recipients  |  | ExercisePrice |      | Stock Option Type |               | Plan
|------------------- |  | -------------- |  | ----------- |  | ------------- | ---- | ----------------- | ------------- | ----
|First Quarter       |  | 58,000         |  | Employees   |  | $             | 7.37 |                   | Non-qualified |     
|                   |  | 29,000         |  | Employees   |  | $             | 5.46 |                   | Incentive     |     
|                   |  | 90,000         |  | Officers    |  | $             | 7.64 |                   | Incentive     |     
|                   |  | 2,000          |  | Consultants |  | $             | 7.37 |                   | Incentive     |     
|                    |  |                |  |             |  |               |      |                   |               |     
|Total First Quarter |  | 179,000        |  |             |  |               |      |                   |               |     



In the first quarter, 7,961 stock
options were cancelled due to employee terminations and option period expirations.



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,



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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):



|                                                                                                                                                            |  | Three Months EndedNovember 30, |     
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ----
|                                                                                                                                                            |  | 2003                           |     
|Net Income, as reported                                                                                                                                     |  | $                              | 401 
|                                                                                                                                                            |  |                               
|Add: Stock option based compensation expense included in reported net income, net of related tax effects.                                                   |  |                                | 17  
|                                                                                                                                                            |  |                               
|Deduct: Total stock option based compensation expense, including ESPP, determined under fair value based method for all awards,
net of related tax effects. |  |                                | (290
|                                                                                                                                                            |  |                                |     
|Pro forma net income (loss)                                                                                                                                 |  | $                              | 128 
|                                                                                                                                                            |  |                                |     
|EARNINGS (LOSS) PER SHARE                                                                                                                                   |  |                                |     
|Basic - as reported                                                                                                                                         |  | $                              | 0.06
|                                                                                                                                                            |  |                                |     
|Basic - pro forma                                                                                                                                           |  | $                              | 0.02
|                                                                                                                                                            |  |                                |     
|Diluted - as reported                                                                                                                                       |  | $                              | 0.05
|                                                                                                                                                            |  |                                |     
|Diluted - pro forma                                                                                                                                         |  | $                              | 0.02
|                                                                                                                                                            |  |                                |     



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 ended as indicated
(in thousands, except percentage data):



|                               |  | Quarter Ended    |       
|------------------------------ |  | ---------------- | ------
|                               |  | November 30,2003 |       
|                               |  | Amounts          |       
|Product sales:                 |  |                  |       
|                               |  |                  |       
|Low-power Product Group:       |  |                  |       
|Low-power components           |  | $                | 4,778 
|Virtual WireRradio products    |  |                  | 2,949 
|                               |  |                  |       
|Subtotal                       |  |                  | 7,727 
|Communications Products Group: |  |                  |       
|Frequency control modules      |  |                  | 680   
|Filters                        |  |                  | 2,529 
|                               |  |                  |       
|Subtotal                       |  |                  | 3,209 
|                               |  |                  |       
|Total product sales            |  |                  | 10,936
|Technology development sales   |  |                  | 203   
|                               |  |                  |       
|Total sales                    |  | $                | 11,139
|                               |  |                  |       



International sales were approximately
60% or $6,639 during the current quarter and 48% or $5,075 during the comparable quarter of the prior year. We consider all product sales with a delivery destination outside of North America to be international sales.



7. INCOME TAXES



During the quarter ended November 30, 2003 and 2002, we realized book income of $406,000 and $60,000, respectively. 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.



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.



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.



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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 filed November 20, 2003 on Form 10-K. Those policies continue to be our most critical accounting policies for the period covered by this filing.



Results of Operations



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



| |  | The three months ended November 30, 2003 (current quarter and current year-to-date period) of the fiscal year ending August 31, 2004, in comparison to the three months ended
November 30, 2002 (comparable quarter of the prior year and prior year-to-date period).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Certain comparisons with the three months ended August 31, 2003 (previous quarter), are provided where we believe it is useful to the understanding of trends.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | There are some forward-looking statements that refer to our subsequent quarter ending February 29, 2004 (next quarter or second quarter).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



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 sets forth, for the three months ended November 30, 2003 and 2002, (a) the percentage
relationship of certain items from our statements of operations to sales and (b) the percentage change in dollar amount of these items between the current period and the comparable period of the prior year:



|                           |  | Percentage ofTotal SalesQuarter EndedNovember 30, |   |  | Percentage Change From Quarter Ended November 30, 2002to Quarter EndedNovember
30, 2003 |  
|-------------------------- |  | ------------------------------------------------- | - |  | --------------------------------------------------------------------------------------- | -
|                           |  | 2003                                              |   |  | 2002                                                                                    |  
|Sales                      |  | 100                                               | % |  | 100                                                                                     | %
|Cost of sales              |  | 70                                                |   |  | 73                                                                                      |  
|                           |  |                                                   |   |  |                                                                                         |  
|Gross profit               |  | 30                                                |   |  | 27                                                                                      |  
|                           |  |                                                   |   |  |                                                                                         |  
|Research and development   |  | 8                                                 |   |  | 7                                                                                       |  
|Sales and marketing        |  | 11                                                |   |  | 12                                                                                      |  
|General and administrative |  | 6                                                 |   |  | 6                                                                                       |  
|                           |  |                                                   |   |  |                                                                                         |  
|Total operating expenses   |  | 25                                                |   |  | 25                                                                                      |  
|                           |  |                                                   |   |  |                                                                                         |  
|Income from operations     |  | 5                                                 |   |  | 2                                                                                       |  
|Other expense, net         |  | (1                                                | ) |  | (1                                                                                      | )
|                           |  |                                                   |   |  |                                                                                         |  
|Income before income taxes |  | 4                                                 |   |  | 1                                                                                       |  
|Income tax expense         |  |                                                  |   |  |                                                                                        |  
|                           |  |                                                   |   |  |                                                                                         |  
|Net income                 |  | 4                                                 | % |  | 1                                                                                       | %
|                           |  |                                                   |   |  |                                                                                         |  



Sales



Overall Sales Trends for Current Quarter Compared to the Prior Year and Previous Quarter



Total sales increased 5% in the current quarter compared
to the comparable quarter of the prior year and were approximately the same as the previous quarter. The increase was primarily due to an increase in the number of units shipped of several of our product lines, particularly for our higher
value-added product lines. The increase in number of units sold resulted from some economic recovery in our markets, as well as our success in introducing new products, including products sold in automated meter reading (AMR), satellite radio and
optical timing markets. This overall increase in the number of units sold offset the impact of large decreases in average selling prices due to competitive conditions in each of our product lines. We compete in very price competitive markets in
which customers require decreased prices over time to maintain their business. In addition, we understand that as new products ramp up in volume our customers expect economy of scale to result in lower pricing. For a discussion of
strategies for sustaining gross profit, see Gross Profit below.



While overall sales were the same as the previous quarter, this did break a seven-year trend in which, for various reasons, first quarter sales decreased from the previous fourth quarter. In addition, the product mix
changed significantly. As explained below, increases in the number of units sold of our higher value-added product lines offset the negative impact of a decrease in the number of units sold of low-power components and a moderate decrease in average
selling prices that occurred for most of our product lines. The increase in number of units sold for higher value-added products resulted from as our success in introducing new products such as those sold in AMR, satellite radio and optical
applications.



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Our sales success is highly dependent on the following factors: (1) achieving technological advances in
our product design and manufacturing capabilities; (2) our ability to sell our products in a competitive marketplace that can be influenced by outside factors, such as economic and regulatory conditions; (3) competition from alternative technologies
or from competitors duplicating our technologies; and (4) the impact of competitive pricing. These and other factors may adversely affect our ability to grow or even maintain our sales levels.



We have experienced sudden increases in demand in the past, which have put
pressure on our manufacturing facilities and those of our offshore contractors to increase capacity to meet this demand. In addition, new products sometimes require different manufacturing processes than we currently possess. We may not be able to
increase our manufacturing capacity, the manufacturing capacity of our assembly contractors, or improve our manufacturing processes in a timely manner so as to take advantage of increased market demand. Failure to do this could result in a material
loss of potential sales. However, we believe that having multiple approved offshore assemblers provides some level of backup for contingencies.



We receive only limited visibility from our customers in the form of order backlog, due to uncertainties in sales to their customers. As a result, we rely
heavily on business that is booked and shipped within the same quarter. This makes forecasting sales very difficult. Due to various seasonal factors, our second quarter sales typically decline from our first quarter and are the lowest of the fiscal
year. However, order trends and backlog levels for the mentioned markets, as well as the tire pressure monitoring (TPM) market, lead us to believe that sales for the next quarter may be 5% to 7% more than the prior years second quarter.



Product Line Sales Trends



Sales of Low-power Components declined 27% from the comparable quarter of
the prior year and 21% from the previous quarter. The decrease from the prior year was primarily due to a 21% decrease in average selling prices for these products. The primary market for these products is the automotive market for keyless entry and
tire pressure monitoring applications. The automotive market is very price competitive and we have had to reduce average selling prices significantly to maintain our market position. Sales of Low-power Components also declined due to a 7% decrease
in the number of units sold, primarily older style TO-39 products that an AMR customer no longer buys, since they have converted their application to utilize our Virtual Wire® Short-range Radio products.



The reduction in Sales of Low-power Components from the previous quarter primarily resulted from a 17% reduction in number of units sold, primarily to
non-automotive customers and particularly to customers in consumer and industrial markets. We have seen that sales to customers in consumer markets fluctuate due to changes in the timing of their promotions. Automotive Low-power Components sales did
not change much, as keyless entry and TPM applications continued strong. We believe the Tread Act, which mandates a growing number of new vehicles in the United States to have some form of tire pressure monitoring, will help increase market demand.
Our products support the direct conversion method of tire pressure monitoring. We understand that the National Highway Traffic Safety Administration will soon issue regulations that may impact the pace and extent of the use of the direct conversion
method of tire pressure monitoring. Sales of Low-power Components have been significantly influenced in the past by changing production schedules for automotive customers and we expect this to continue.



The decline in average selling prices of Low-power Components did moderate to
some extent in that the average decrease was only 4% in the quarter. We expect that the trend of lower average selling prices for Low-power Components to continue. As a result of lower average selling prices and a trend toward lower TO-39 product
sales, we think sales of Low-power Components are unlikely to increase significantly and may even decline.



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Virtual Wire® Short-range Radio products sales in the current quarter increased 41% in comparison to the comparable quarter of the prior year and 24% from
the previous quarter. Both sales increases were primarily due to increases in the number of units sold due to greater market acceptance of relatively new products, particularly for industrial AMR applications. We did experience a 9% decrease in
average selling prices from the previous quarter, as an increasing number of customers reached levels for which they received reduced prices. We have devoted significant resources to developing and marketing new Virtual Wire® Short-range Radio products. We believe these products
offer potential for significant growth in sales in numerous new applications, particularly for applications that require small size and low power consumption. However, there is no assurance that the relatively new demand for these products will
continue to increase, or even be maintained at the current levels.



Sales of filter products increased 76% from the comparable quarter of the prior year and 33% from the previous quarter. Both sales increases were primarily due to increases in the number of units sold due to greater market acceptance of
these relatively new products, particularly for satellite radio applications. Early in December (subsequent to the current quarter) we shipped our second millionth filter for the satellite radio application. During the quarter, we announced that we
were selected to provide filters for a receiver for a second satellite radio service provider. Partially offsetting the impact of an increase in number of units sold was a decrease in average selling prices, primarily because new products are
generally in smaller packages that command lower prices. We also saw some recovery in sales for telecommunications, including GSM and CDMA base station applications. We have devoted significant resources to developing and supporting the growth of
our filter products and believe that acceptance of these products will grow in future periods. However, the product development and introduction cycle for new products involves many uncertainties, so it is difficult to predict whether or not our
focus on filter products will continue to result in increased sales.



Sales of frequency control products increased 75% from the comparable quarter of the prior year and 20% from the previous quarter. The increase in sales in both cases was due to an increased number of units sold, particularly for high-end
computer and optical timing applications. We believe our new line of optical timing oscillators may provide a significant sales opportunity, but the still-depressed economic conditions in the markets they serve make it uncertain as to when or if
that will occur.



Other Sales Trends



The following table provides additional data concerning our sales:



|                                           |  | Percentage of Sales |  
|------------------------------------------ |  | ------------------- | -
|                                           |  | CurrentQuarter      |  
|Sales to top five customers                |  | 36                  | %
|Distribution sales                         |  | 21                  | %
|Number of customers with 10% or more sales |  | None                |  
|Sales to 10% or more customer              |  | N/A                 |  
|International sales                        |  | 60                  | %



Only one customer,
Insight Electronics, a North American Distributor, accounted for more than 10% of sales in any of these periods, which was the comparable quarter of the prior year. A decrease in sales to that customer in the current quarter contributed to the
decrease in sales from the top five customers, distributors and North America in comparison to the comparable quarter of the prior year. In the current quarter, we added Richardson Electronics as a distributor to strengthen our sales network.



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One of our strategies is to seek diversification in our customers, markets, products and geographic
areas. We have been able to increase diversification significantly. However, due to the very competitive nature of the markets in which we compete, we may not always be able to achieve such diversification.



We consider all product sales with a delivery destination outside North
America to be international sales. These sales are denominated primarily in U.S. currency, although some European customers require that we sell in Euros. We have not entered into any hedging activities to mitigate the exchange risk associated with
sales in foreign currency. We intend to continue our focus on international sales. We anticipate that international sales will continue to represent a significant portion of our business. However, international sales are subject to fluctuations as a
result of local economic conditions and competition. Therefore, we cannot predict whether we will be able to continue to derive similar levels of our business from international sales.



Gross Profit



The current quarter gross margin of 29.7% increased from 27.1% in the comparable quarter of the prior year and 28.3% in the previous quarter. The
increases resulted from two factors: (a) a more favorable product mix, shifting to higher value-added products and (b) the ongoing impact of cost reductions, primarily the result of a consolidation of our Dallas facilities. During the current
quarter, 55% of total sales were from our higher value-added product lines, compared to only 37% for the comparable quarter of the prior year and 44% for the previous quarter. Our higher value-added products, such as Virtual Wire® Short-range Radio products, frequency control modules
and custom filters, have a greater long-term potential for gross margins than the very price-sensitive Low-power Component products. Increasing the ratio of the higher value-added products tends to increase our gross margin. Our new product
development efforts, such as modules that incorporate our SAW technology, are focused on higher value-added products. During our prior fiscal year we consolidated our pilot line production facility with our wafer fabrication facility, which resulted
in approximately $200,000 in savings in our previous fourth quarter. These savings continued in the current quarter and are expected to continue indefinitely.



The increase in gross margin was achieved despite the continuing negative impact of declining average selling prices as a result of competitive
conditions in the markets we serve. Each of our product lines experienced a decrease in average selling prices of at least 9% on a year-over-year basis. During the current quarter, this did moderate to some extent. The decline in average selling
prices did not occur in all product lines and the decline in average selling prices for the very price competitive Low-power Components was only 4%. We expect the trend of lower prices to continue, however. Therefore our ongoing efforts to reduce
manufacturing costs are an important factor in maintaining gross margins where they are. Based upon the booking trends and backlog we see, we believe the favorable product mix we had in the current quarter will continue, so we expect our gross
margins will remain in the high 20% range in our next quarter. It should be pointed out, however, that there is uncertainty as to whether our cost reduction efforts will be sufficient to offset the impact of lower average selling prices in any
specific future period.



Research and Development Expense



Research and development expenses were $854,000 in the current quarter,
compared to $788,000 in the comparable quarter of the prior year and $872,000 in the previous quarter. The 8% increase from the comparable quarter of the prior year was primarily due to additional personnel being devoted to the development of new
products and new processes to manufacture them. We believe that the continued development of our technology and new products is essential to our success and are committed to continue to devote significant resources to research and development. We
expect that research and development expenses may increase or stay approximately the same in absolute dollars over the next several quarters.



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Sales and Marketing Expense



Current quarter sales and marketing expenses were $1,269,000, compared to $1,220,000 in the comparable quarter of the prior
year and virtually the same as the previous quarter. This 4% increase from the comparable quarter of the prior year was primarily due to increased sales commissions as a result of additional sales, as well as additional personnel to assist customers
design our products into their applications. We expect to incur comparable or slightly increased sales and marketing expenses in absolute dollars over the next several quarters, with the exception of sales commission expenses that will fluctuate in
line with sales levels.



General and Administrative Expense



General and administrative expenses were $713,000 for the current
quarter, compared to $665,000 for the comparable quarter of the prior year and $661,000 in the previous quarter. This 7% increase over the comparable period was primarily due to increased cost of compliance with new financial reporting and corporate
governance requirements, as well as increased costs for executive compensation programs and other administrative expenses. We expect to incur comparable or slightly increased general and administrative expenses in absolute dollars over the next
several quarters.



Total Operating Expenses



As intended, we continued our program to control operating expenses. Despite
making several strategic investments to support future growth in sales, total operating expenses remained at 25% of sales for the current quarter, the same as the comparable quarter of the prior year and the previous quarter. We do not expect
operating expenses to change materially as a percentage of sales over the next several quarters. We intend to make relatively small strategic product and market development investments intended to help increase sales. In addition, we expect sales
commission expense to fluctuate in line with sales.



Other Income
(Expense)



Total other expenses were $64,000 in the
current quarter, compared to $143,000 for the comparable quarter of the prior year and $78,000 for the previous quarter. The decrease in total other expenses primarily results from decreased interest expenses as a result of decreased borrowings. In
the current quarter, we paid down $1.9 million in bank debt. Total outstanding bank debt was $2.2 million as of November 30, 2003. Our current plan is to pay down our revolving credit facility and term note in the current fiscal year. Accordingly,
we expect interest expense to continue to decrease.



Income Tax Expense



In the current quarter we recorded a small provision for
state income tax and expect to record relatively small state income tax provisions in future periods. We continue to maintain a full valuation allowance on our deferred tax assets due to prior period losses, as well as the general economic
environment. 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 forward begins to expire August 31, 2023.



Net Income



Net income was $401,000, or $0.05 per diluted share, in the current quarter, compared to $54,000, or $0.01 per diluted share, for the comparable quarter
of the prior year and $250,000 or $0.03 per diluted share for the previous quarter. The improvement in income before income taxes results from an improvement in



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gross margin and a reduction of other expenses such as interest expense. The number of diluted shares outstanding increased in the current quarter due to an
increase in stock price that put more stock options in the money.



Financial Condition



Financing Arrangements



On February 3, 2003, our banking agreement was amended and restated. As
of May 31, 2003, the banking agreement was further amended to adjust loan covenants to allow the inventory write off and asset impairment charge recorded in the third quarter of fiscal 2003. The bank agreement and its status at the end of the
current quarter are described in Note 4 to our Condensed Financial Statements included in this report.



The banking agreement contains financial covenants, some of which become increasingly restrictive over time. We were in compliance with all covenants as
of November 30, 2003. Although we believe that we will be able to continue compliance with the covenants, there is no assurance that this will occur. Should there be a covenant violation and we are unable to negotiate a waiver or amendment, the
maturity of our debt could be accelerated. In that case, other sources of cash would be needed to support our operations. The banking agreement will expire in December 2005.



Liquidity



The major source of liquidity at November 30, 2003, consisted of $155,000 of cash and $6.7 million available under the banking agreement. Net cash
provided by operating activities was $1.9 million for the current year-to-date period as compared to $1.2 million for the comparable period of the prior year. Non-cash items included in net income such as depreciation was $0.8 million in the current
year-to-date period, compared to $1.1 million in the prior year. Depreciation and amortization declined from $1,042,000 in the prior year to $743,000 in the current year as a result of assets reaching the end of their lives and the various fixed
asset write downs we have reported in prior periods.



The
increase in operating cash flow from the prior year was primarily due to an increase in cash flow provided by working capital of $730,000, an increase of $632,000 from the comparable quarter of the prior year. The decrease in working capital in the
current year was primarily due to a temporary increase in accounts payable of $601,000, which we expect to be reversed in the next quarter. In the current year, trade receivables increased $320,000 in line with the pattern of sales, while inventory
decreased $152,000. Collections of our receivables on a days sales outstanding measurement remained in the mid 50-day range in the current year.



We expect to maintain a positive cash flow from operations for fiscal 2004, as we did in the last two fiscal years. We have classified all of our bank
debt, except for the long-term portion of the mortgage, as current on our balance sheet due to a lockbox arrangement with the bank, which requires the use of cash receipts to pay the amounts outstanding. We believe continued positive cash flow, as
well as access to our credit facilities, will be sufficient to maintain normal operations for the next twelve months. However, we cannot guarantee this will be achieved.



Cash used in investing activities was $242,000 for the current year-to-date period, as compared to $35,000 for the prior
year-to-date period. The increase was primarily because we used $271,000 to pay for capital expenditures in the current quarter, compared to $106,000 in the comparable period of the prior year. We had cash provided from investing activities
resulting from the proceeds of sales of fixed assets in both years. We will continue our efforts to sell fixed assets that were idled in recent years. We expect to acquire up to $1.5 million of capital equipment by the end of fiscal 2004, primarily
related to the development of new products and new manufacturing processes. Due to our offshore manufacturing initiative, we do not expect to need significant additions to our assembly facilities or equipment in the next year.



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Net cash utilized in financing activities was $1.7 million in the current year-to-date period and $1.4
million in the prior year-to-date period. In the current year, $1.9 million was used to pay down bank debt, compared to approximately $1.4 million in the comparable quarter of the prior year. Under our banking agreement, all receipts on trade
receivables are applied to the loans that are outstanding and we borrow funds to support our activities according to our borrowing base. As a result, repayments on debt and borrowings are large relative to sales. We received $135,000 in proceeds
from sales of stock related to exercise of stock options in the current year.



As of November 30, 2003, we had approximately $6.7 million available in cash under our banking arrangement based upon the borrowing base at that time. In addition, approximately $5.8 million may become available under
the Revolving Credit facility if our borrowing base were to increase sufficiently to support the increased borrowing. Subsequent to the current quarter, our borrowing base has decreased approximately $1.3 million as a result of the elimination of
the Ex/Im feature of our Banking Agreement on December 31, 2003. We are not able to say when or if an increase in our future borrowing base will happen because of our inability to see sales levels very far into the future due to limited lead times
on orders placed with us by our customers.



While we reported
positive operating cash flows for the last ten quarters, a reduction in sales or gross margins could occur due to economic or other factors. We believe that cash generated from operations, our cash balances and the amounts available under our credit
facility will be sufficient to meet our cash requirements for the next twelve months. If for any reason these sources of funds are not sufficient to meet our requirements, we may be required to raise additional funds. We cannot guarantee that we
would be able to obtain additional financing or, if available, that it would be available to us on acceptable terms. Should that happen, there could be a significant adverse impact on our operations.



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Stock Options



(a) Stock Option Program Description



Our stock option program is a broad-based, long-term retention program that is intended to attract and retain talented personnel and align stockholder and
employee interests. We currently have four plans (1999 Plan, 1997 Plan, 1986 Plan and Director Plan) under which we grant stock options to employees, directors and consultants. The options generally vest at a rate of one forty-eighth each month
beginning the first day of the month following the date of grant. The exercise price of each option equals the market price of our stock on the date of grant and each option generally expires ten years after the date of grant. The 1986 Plan expired
for future grants according to its terms in November 2002. The Director Plan will expire as well in April 2004. In the near future we plan to grant most options and restricted stock to employees and directors from our 1997 Plan.



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 123 and are valued using the Black-Scholes model. Compensation expense of those options is recognized over the vesting life of the options, which is aligned with the consulting service life.



We also use the 1997 Plan to grant restricted stock. The
grants are considered issued stock when granted and certificates are presented to the grantee as vesting occurs. We record unearned compensation, valued using the Black-Scholes model based on the share price on the date of grant, and expense that
compensation over the vesting period.



(b) Distribution and Dilutive Effect
of Options



Employee and Executive Option Grants



The following table summarizes the options granted to (a)
our employees and (b) our chief executive officer and other four most highly compensated executive officers at August 31, 2003, whose total annual salary and bonus exceeded $100,000 during the fiscal year ended August 31, 2003. This and other
information is reported in our most recent Proxy Statement filed with the Securities and Exchange Commission. The individuals in category (b) above are referred to in the table below as our Named Executive Officers.



|                                                                                       |  | YTD 1st QtrFY2004 |   |  | FY2003 |   |  | FY2002 |  
|-------------------------------------------------------------------------------------- |  | ----------------- | - |  | ------ | - |  | ------ | -
|Net grants during the period as % of outstanding shares                                |  | 2.5               | % |  | 4.7    | % |  | 3.9    | %
|Grants to Named Executive Officers during the period as % of total options granted.    |  | 33.5              | % |  | 26.6   | % |  | 14.6   | %
|Grants to Named Executive Officers during the period as % of outstanding shares.       |  | 0.8               | % |  | 1.3    | % |  | 0.6    | %
|Cumulative options held by Named Executive Officers as % of total options outstanding. |  | 26.5              | % |  | 26.4   | % |  | 26.0   | %





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(c) General Option Information



Summary of Option Activity



The following is a summary of stock option activity for the fiscal year ended August 31, 2003 and the three months ended November 30, 2003:



|           |  |                            |  |                                 |   |  | Options Outstanding
|---------- |  | -------------------------- |  | ------------------------------- | - |  | -------------------
|           |  |                            |  | Shares Available forOptions (#) |   |  | Number ofShares (#)
|Balance at |  | August 31, 2002            |  | 356,275                         |   |  | 1,782,800          
|           |  | Grants                     |  | (338,500                        | ) |  | 338,500            
|           |  | Exercises                  |  |                                |   |  | (64,492            
|           |  | Cancellations              |  | 24,183                          |   |  | (24,183            
|           |  | Additional shares reserved |  | 600,000                         |   |  |                   
|           |  |                            |  |                                 |   |  |                    
|Balance at |  | August 31, 2003            |  | 641,958                         |   |  | 2,032,625          
|           |  | Grants                     |  | (179,000                        | ) |  | 179,000            
|           |  | Exercises                  |  |                                |   |  | (41,754            
|           |  | Cancellations              |  | 7,961                           |   |  | (7,961             
|           |  |                            |  |                                 |   |  |                    
|Balance at |  | November 30, 2003          |  | 470,919                         |   |  | 2,161,910          



In-the-Money and
Out-of-the-Money Option Information



The following table
compares the number of shares subject to option grants with exercise prices below the closing price of our common stock at November 30, 2003 (referred to as In-the-Money) with the number of shares subject to option grants with exercise
prices equal to or greater than the closing price of our common stock at November 30, 2003 (referred to as Out-of-the-Money). The closing price of our common stock at November 30, 2003 was $8.84 per share.



|                          |  | Exercisable |  | Unexercisable              |       | Total     
|------------------------- |  | ----------- |  | -------------------------- | ----- | ----------
|As of End of Quarter      |  | Shares (#)  |  | Wtd. Avg.ExercisePrice ($) |       | Shares (#)
|In-the-Money              |  | 975,413     |  | $                          | 5.43  |           
|Out-of-the-Money          |  | 392,241     |  | $                          | 11.52 |           
|                          |  |             |  |                            |       |           
|Total Options Outstanding |  | 1,367,654   |  | $                          | 7.18  |           
|                          |  |             |  |                            |       |           



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(d) Executive Options



Options Granted to Named Executive Officers



The following table sets forth a summary of the stock options granted to our Named Executive Officers during the first quarter ended November 30, 2003.
Named Executive Officers are those executive officers described in the table above under the heading Employee and Executive Option Grants. The following table does not contemplate status of granted options relative to our current stock
price.



|                |  | Individual Grants                                 |  |                                                          |    | 
|--------------- |  | ------------------------------------------------- |  | -------------------------------------------------------- | -- | 
|                |  | Number ofSecuritiesUnderlyingOptions PerGrant (#) |  | Percent ofTotalOptionsGranted toEmployeesYear toDate (%) |    | 
|                |  |                                                   |  |                                                          | 5% | 
|David M. Kirk   |  | 20,000                                            |  | 11.17                                                    | %  | 
|Darrell L. Ash  |  | 10,000                                            |  | 5.59                                                     | %  | 
|David Crawford  |  | 10,000                                            |  | 5.59                                                     | %  | 
|Robert J. Kansy |  | 10,000                                            |  | 5.59                                                     | %  | 
|Jon Prokop      |  | 10,000                                            |  | 5.59                                                     | %  | 



The percentage of
total options granted to employees is based on an aggregate of 179,000 options granted to our employees, consultants and directors during the year to date period ended November 30, 2003, including the Named Executive Officers. The exercise price per
share of each option is equal to the fair market value of the common stock on the date of grant.



The potential realizable value is calculated based on the term of the option at its time of grant (ten years). It is calculated by assuming that the stock
price on the date of grant appreciates at the indicated annual rate compounded annually for the entire term of the option, and that the option is exercised and sold on the last day of its term for the appreciated stock price. No gain to the optionee
is possible unless the stock price increases over the option term, which will benefit the stockholder.



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Options Exercises and Remaining Holdings of Named Executive Officers



The following table sets forth information concerning stock options exercised
during the first quarter ended November 30, 2003 and the number of shares of our common stock subject to both exercisable and unexercisable stock options as of November 30, 2003 for each of our Named Executive Officers as described in the table
above under the heading Employee Executive Option Grants. The value of unexercised in-the-money options is based on the fair market value of our common stock as of November 30, 2003, of $8.84 per share, minus the exercise price,
multiplied by the number of shares underlying the option.



|Name            |  | SharesAcquired onExercise (#) |             | ValueRealized ($) |               | Number of SecuritiesUnderlying UnexercisedOptions at End of Quarter (#) |             | Values of Unexercised In-the-Money Options at End ofQuarter ($)
|--------------- |  | ----------------------------- | ----------- | ----------------- | ------------- | ----------------------------------------------------------------------- | ----------- | ---------------------------------------------------------------
|                |  |                               | Exercisable |                   | Unexercisable |                                                                         | Exercisable |                                                                
|David M. Kirk   |  | 19,925                        |             | $                 | 89,981        |                                                                         | 157,925     |                                                                
|Darrell L. Ash  |  | 0                             |             |                   | 0             |                                                                         | 50,052      |                                                                
|David Crawford  |  | 3,000                         |             | $                 | 10,950        |                                                                         | 62,927      |                                                                
|Robert J. Kansy |  | 0                             |             |                   | 0             |                                                                         | 67,850      |                                                                
|Jon Prokop      |  | 0                             |             |                   | 0             |                                                                         | 54,079      |                                                                



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(e) Equity Compensation Plan Information



The following table summarizes our equity compensation plans as of the first quarter ended November 30, 2003 of fiscal year
2004:



|                                                            |  | (a)                                                                  |  | (b)                                                 |      | (c)                                                                                                                                   
|----------------------------------------------------------- |  | -------------------------------------------------------------------- |  | --------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------------------------------------------------
|Plan category                                               |  | Number ofsecurities to be issued upon exercise ofoutstanding options |  | Weighted-averageexercise price ofoutstandingoptions |      | Number of securitiesremaining available forfuture issuance underequity compensation plans(excluding securitiesreflected in
column (a))
|Equity compensation plans approved by security holders      |  | 1,419,485                                                            |  | $                                                   | 6.88 |                                                                                                                                       
|Equity compensation plans not approved by security holders* |  | 742,425                                                              |  | $                                                   | 4.70 |                                                                                                                                       
|                                                            |  |                                                                      |  |                                                     |      |                                                                                                                                       
|Total                                                       |  | 2,161,910                                                            |  | $                                                   | 6.13 |                                                                                                                                       
|                                                            |  |                                                                      |  |                                                     |      |                                                                                                                                       

---

|* | Our 1999 Equity Incentive Plan provides for non-statutory stock options, bonuses or restricted stock and has not been approved by the stockholders. Neither the chief executive
officer nor any of the other four highest compensated officers are eligible to participate. Other officers are only eligible to receive awards that are an inducement essential to such individual entering into an employment agreement with us or any
of our affiliates.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Forward-looking Statements



Except for the historical information, this report contains numerous
forward-looking statements that involve risks and uncertainties. Our actual results could and will differ materially from the statements and assumptions discussed in this report. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed below, as well as in the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations in this report.



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. We believe that these statements are based on reasonable assumptions and our expectations at the time. However, these statements involve uncertainties
and are completely qualified by reference to several important factors. These factors include, but are not limited to the following items that are listed below. Any and all of these factors could cause our actual results to differ materially from
the forward looking statements that we made:



| | 1. | The impact of competitive products and pricing. We do business in extremely competitive markets that are noted for fierce competition and generally declining average selling prices.
Most of our significant competitors are much larger and better financed than we are. These competitors could execute sales strategies that could take a considerable amount of our business very quickly. This could have a material adverse impact on
both our sales results and gross margins.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 2. | The timely development, acceptance and pricing of new products. We have a large amount of continuing sales of older products that tend to decline in popularity over time. Only by
developing new products can we replace sales for declining products and partially offset the impact of lower average selling prices.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | The impact of competing technologies including the obsolescence of existing products. Our business has a considerable amount of technological risk. We are vulnerable to competitors
that have much greater resources than we do that are trying to develop products that are technologically superior to ours. If customers believe those products are superior to ours, they may shift their demand to them.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | The ability to obtain production material and labor and capacity to meet product demand. Shortages could occur that make us unable to take advantage of a sudden increase or even
stable level of demand.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | The potential transition to higher value-added products. Our historical base business is declining. Only by successfully developing and introducing value added products to our
customers can we offset this impact.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | The timely implementation of improved manufacturing processes and transition to offshore manufacturing. We need to constantly reduce our costs to offset the impacts of a reduction
in our average selling prices. We need to do this through continuous cost reduction in both our facilities and those of our contractors.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | General economic conditions as they affect our customers and manufacturing contractors. Our customers and contractors do business in markets that are vulnerable to changes in
economic conditions. Adverse economic conditions can adversely impact the demand and/or the ability to supply our products.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8. | The availability to obtain required financing on favorable terms. If we have unanticipated difficulties, our banking relationships and other means of financing could be jeopardized.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 9. | General industry trends. Markets or customer preferences could move away from our products.
| | -- | -------------------------------------------------------------------------------------------



| | 10. | Acts of war or terrorism as they affect us, our customers or our contract manufacturers.
| | --- | ----------------------------------------------------------------------------------------



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, nor will we necessarily make statements in advance to reflect the occurrence of unanticipated events. New factors
emerge from time to time and it is not possible for us to predict all such factors. We cannot assess the impact of each new or old factor on our business. We also cannot determine the extent to which a factor or combination of factors might cause
future results to differ materially from those contained in any forward-looking statement.



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



We are exposed to market risk primarily due to fluctuations in interest rates. As of November 30, 2003, with all other variables held constant, a
hypothetical one percentage point increase in interest rates would result in an increase in interest expense of approximately $22,000 on an annual basis due to the variable rate borrowings currently in place.



A significant portion of our products have a manufacturing process in foreign
jurisdictions and is sold in foreign jurisdictions. We manage our exposure to currency exchange fluctuations by denominating most transactions in U.S. dollars. However, we may make a minor portion of our sales payable in Euros. We consider the
amount of our foreign currency exchange rate risk to be immaterial as of November 30, 2003.



ITEM 4. CONTROLS AND PROCEDURES



We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective, in all material
respects, to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported in a timely manner. There have been no changes in our internal control over financial reporting during the
quarter ended November 30, 2003, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



PART II. OTHER INFORMATION



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|(a) | Exhibits. We hereby incorporate by reference all exhibits filed in connection with Form 10-K for the year ended August 31, 2003.
|--- | --------------------------------------------------------------------------------------------------------------------------------



|(b) | Exhibits included:
|--- | ------------------



|Exhibit |  | Description                                                                                                                                             
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|10.91   |  | Second Amendment to Amended and Restated Credit and Security Agreement between Registrant and Wells Fargo Business Credit, Inc. dated November 26, 2003.
|10.92   |  | Second Amendment to Amended and Restated Credit and Security Agreement between Registrant and Wells Fargo Bank Minnesota, N.A. dated November 26, 2003. 
|31.1    |  | Certificate Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 for CEO.                                                                              
|31.2    |  | Certificate Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 for CFO.                                                                              
|32.1    |  | Certificate Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 for CEO.                                                                              
|32.2    |  | Certificate Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 for CFO.                                                                              



|(c) | We filed a report on Form 8-K on October 14, 2003, reporting under Item 12 our press release, dated October 14, 2003, regarding our fourth quarter fiscal year 2003 results of
operations and financial condition.
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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 14, 2004 |  | By:                 
|                        |  |                     
|                        |  |                     
|                        |  |                     
|                        |  | By:                 
|                        |  |                     
|                        |  |                     



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INDEX TO EXHIBITS



|Exhibit |  | Description                                                                                                                                                 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.91   |  | Second Amendment to Amended and Restated Credit and Security Agreement between Registrant and Wells Fargo Business Credit, Inc. dated November 26, 2003. (1)
|10.92   |  | Second Amendment to Amended and Restated Credit and Security Agreement between Registrant and Wells Fargo Bank Minnesota, N.A. dated November 26, 2003. (1) 
|31.1    |  | Certificate Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 for CEO. (1)                                                                              
|31.2    |  | Certificate Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 for CFO. (1)                                                                              
|32.1    |  | Certificate Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 for CEO. (1)                                                                              
|32.2    |  | Certificate Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 for CFO. (1)                                                                              

---

|(1) | Filed as an exhibit to this Form 10-Q.
|--- | --------------------------------------