RF MONOLITHICS INC /DE/ - 10-K Annual Report

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. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

The aggregate market value of RF Monolithics, Inc. Common Stock held by nonaffiliates based on the last reported sale price on the NASDAQ Stock Market composite tape on October 31, 2002, was $15,985,922. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock of the Company have been excluded because such persons may be deemed to be affiliates.

RF Monolithics, Inc. (RFM or the Company) was organized in 1979 as a Texas corporation and converted to a Delaware corporation in 1994. RFM designs, develops, manufactures and markets a broad range of radio frequency (RF) component and module products in two categories: low-power products which include low-power components and Virtual Wire^® Short-range Radio products; and communications products, which include frequency control modules and filters. The Company’s products are based on surface acoustic wave (SAW) technology and are manufactured as discrete devices to perform specific functions and as integrated modules to meet system performance requirements.

The Company focuses its product development in the frequency range of 50 megahertz (MHz) to 2.4 gigahertz (GHz). The Company markets its line of more than 500 resonators, filters, clocks, oscillators, transmitters and receivers to distributors, electronic manufacturing service companies (EMSs) and original equipment manufacturers (OEMs) world-wide. RFM’s customers include Delphi Automotive Systems, Flextronics International, Insight Electronics, Motorola, Nokia Telecommunications, Schrader Electronics, Solectron Corporation, and TRW Automotive Electronics.

The Company believes that a significant market opportunity for more widespread adoption of SAW technology is emerging. As electronic applications increase in data speed and frequency, there will be an increasing demand for improved performance and functionality, greater precision, reduced size, lower power consumption and greater reliability.

The Company believes that its SAW-based products, coupled with its RF design and manufacturing expertise, offer electronics manufacturers certain fundamental advantages over alternative technologies. As electronic applications ranging from automotive remote keyless entry (RKE) to digital cellular phones to computers migrate to higher operating frequencies with tighter tolerances and more stringent performance specifications, demand for RF modules and SAW discrete components is expected to increase.

The Company’s SAW-technology-based discrete components, modules and RF systems combine a complex mix of software-controlled design rules, wafer fabrication, hybrid assembly and packaging processes to meet stringent customer and governmental compliance requirements. The unique features of SAW technology provide flexible solutions to systems designers defining tomorrow’s emerging applications across multiple market segments.

The Company focuses on specific market opportunities where the Company believes that its SAW technology solutions coupled with its RF design expertise address current and emerging market and application requirements. The Company’s products are incorporated into application designs in five primary markets: the automotive, distribution, industrial, consumer and telecommunications market.

The automotive industry utilizes SAW-based components in transmitter and receiver designs for RKE applications. Emerging applications utilizing transmitter and receiver functions include the tire pressure monitoring and immobilized theft-deterrent systems. The automotive industry continues to develop new and improved safety features. The recent Tread Act that phases in tire pressure monitoring through 2006 in the USA presents an opportunity in the RF type direct method of monitoring. The Company believes

that SAW devices are relatively stable and resistant to shock, vibration and moisture, thus providing the characteristics required for this application. Satellite Radio is another significant application because digital modulation used in satellite radio systems is spectrally more efficient than traditional analog AM or FM. Current proposed digital standards, within the same bandwidth, are achieving near CD quality audio. Automotive electronic applications continue to grow with the unending drive toward smaller size, reduced cost and improved system performance as evidenced by some of the emerging multiplexing design schemes. The Company’s Low-power Components, Virtual Wire^® Short-range Radio products and Filters meet these market requirements. This market currently is characterized by tightening margins due to commodity pricing by competitors.

Several of the Company’s products, particularly in the low-power product group, have widespread potential uses and standardized characteristics that make them ideal for sales through distribution. In addition, the Company’s distributors have the technical expertise and experienced personnel required to help potential customers design their products that utilize RFM’s products. Distributors also provide service to customers with special requirements for delivery and lead-time. Distribution contracts govern sales to distributors and substantially limit the amounts that distributors may return to the Company for stock rotation. The Company’s largest distributors are Insight Electronics Inc. in North and South America and Acal Electronics and Equipements Scientifiques companies in Europe.

The industrial market includes applications such as security systems, RF ID tags, meter reading and bar code reading devices, medical systems and custom data link equipment. The Company believes that the meter reading application has the potential for significant growth. As the deregulation of utility companies gains momentum, the need to access data remotely becomes critical to utility providers. The need to transfer more and more data with low power consumption is ideally suited for the Company’s Virtual Wire^® Short-range Radio products. Industrial security is another application with large growth potential. The Company’s Low-power Components, Virtual Wire^® Short-range Radio products and Filters are used in industrial applications.

The consumer market is currently a relatively small market for the Company’s products. However, the Company believes that there is significant growth potential in the areas of home security, internet appliances, garage doors, cable TV and sports applications. Both low-power components and Virtual Wire^® Short-range Radio products may be designed into consumer applications.

The Company believes that a number of dynamics within the wireless communications market are opening new applications for SAW technology. The deployment of digital cellular telephone standards, such as European Global System for Mobile Communications (GSM), Code Division Multiple Access (CDMA), Global Positioning Systems (GPS), Enhanced Digital Global Evolution (EDGE), Wideband Code Division Multiple Access (WCDMA) and Wireless Local Area Network (WLAN) has been initiated worldwide. All the foregoing entail digital modulation, which requires SAW filters that minimize distortion and conform to international cellular telephone standards. Other markets such as wireless Internet access and broadband multimedia will continue to use SAW based filter products. The Company believes as broadband wireless communication systems demand more performance to support Internet requirements, bandwidth becomes the key element that allows information to flow efficiently. This creates a requirement to minimize systems

noise present in broadband wireless communication and provide clean timing to maximize throughput around the system’s backbone. Analog communications, test instrumentation, computer timing and military applications also create markets for SAW based frequency control products where timing integrity and elimination of system noise in circuits are critical. The Company has introduced a surface mount version of its optical timing products based upon its patented technology that the Company believes is well suited for the Dense Wave Division Multiplex (“DWDM”) internet application.

The Company’s SAW filters are designed to operate at a frequency range of 50 MHz to 2.4 GHz . The Company faces a threat of direct conversion technology or other alternatives that do not operate in the frequency range suitable for SAW filters. Such alternative technologies may negatively affect the Company’s ability to penetrate new filter applications.

Resonators. The Company’s resonators are used in low-power wireless transmitter and receiver applications, including automotive remote keyless entry systems, tire pressure monitoring systems, wireless security systems, remote meter reading and related products. The Company offers SAW resonators in volume, and they are supplied in both three-lead metal packages (TO-39) and various surface mount (SMT) packages. The market for low-power resonators is intensely competitive and has experienced price erosion, rapid technological change and product obsolescence.

Coupled-Resonator Filters. Coupled-resonator filters are well suited for certain frequency stabilization applications, such as the frequency control clock modules, and as input filters for the hybrid receiver modules and output filters for the hybrid transmitter modules manufactured by the Company. The Company provides coupled-resonator filters in both three-lead metal packages (TO-39) and various SMT packages.

The Company’s second-generation hybrid transmitter (TX), receiver (RX) and transceiver (TR) modules are the primary products included in Virtual Wire^® Short-range Radio products. The Company’s TR module, based on its patented Amplifier Sequenced Hybrid (ASH) technology, offers two-way data communication in a single small module, with performance identical to the separate TX and RX (hybrid receiver) modules, at a lower total cost.

These products feature small size, very low-power consumption, and excellent RF performance, and provide the system designer flexibility and fast time-to-market for emerging applications. The breadth of frequency ranges cover both North American and international frequency bands for low-power data transmission. The receiver’s ASH architecture provides exceptional performance with extremely low harmonic radiation and exceptional resistance to electromagnetic interference, facilitating international standards certification of our customer’s products.

The Virtual Wire^® Short-range Radio product offerings also include complete transceiver design and development kits that provide the system designer with minimal RF experience the ability to easily incorporate wireless, two-way data transfer into emerging applications. The markets for Virtual Wire^® Short-range Radio products include remote bar code data entry, remote meter reading, point of sale terminals, medical monitor systems, home automation, consumer sports, data link equipment and wireless thermostats. The Company believes that markets for wireless products will continue to expand and that ASH technology has all the characteristics required to become an industry standard for short-range wireless applications.

The Company’s frequency control modules consist of frequency source products for both analog and digital applications. These products provide added value to the SAW components manufactured by the Company. Each module incorporates one or more discrete SAW devices with standard and custom integrated circuits and related passive components. The Company manufactures clocks and oscillators that use its resonators and coupled-resonator filters to eliminate tuning coils for signal filtering and stabilization. Specialized SAW devices are incorporated in voltage-controlled sources to allow frequency variability along with very low phase noise for both analog and digital applications.

High-frequency clocks. The Company’s high-frequency clock modules are used in high bandwidth high performance computer systems. The Company’s “Diff Sine” clocks allow the network to realize improved performance by providing a highly stable frequency source which results in very low timing variations from one cycle to the next (commonly referred to as “jitter”) and good symmetry across each cycle.

Oscillators. The Company produces commercial and military fixed-frequency and voltage-controlled SAW oscillators. These products are supplied in SMT or leaded metal packages and used in applications such as microwave radios, identification friend or foe (IFF) transponders for commercial and military avionics and precision instrumentation.

The Company was the pioneer in several SAW technologies and has the design capability for major SAW filter structures including the following: 1) High Loss Bi-directional Filter; 2) Medium Loss Single Phase Uni-directional Transducer (SPUDT) Filter; and 3) Low Loss Coupled Resonator Filter, including in-line (or longitudinally) coupled resonator filter and proximity (or transversally, or wave-guide) coupled resonator filter. These products are primarily intended for various telecommunications applications, particularly cellular telephone base stations.

In response to the demand from manufacturers of wireless communications products, the Company has focused on intermediate frequency (IF) SAW filters based on new SAW structures that provide the best performance, such as slanted (also called fan shaped or tapered) SPUDT filters and resonant SPUDT (called RSPUDT) filters. The Company, through its relationships with offshore manufacturers, can also offer a variety of RF filters.

The manufacturing of the Company’s products is a highly complex and precise process that is sensitive to a wide variety of factors, including the level of contaminants in the manufacturing environment, impurities in the materials used and the performance of manufacturing personnel and production equipment. Each of the devices the Company manufactures is subject to contamination until it is enclosed or sealed within its final package, and all operations, prior to enclosure, are performed in controlled clean-room environments. In the past, the Company has experienced, from time to time, product shipment delays and lower-than-expected production yields. The Company has experienced, and may in the future experience, a delay in transferring products from engineering to volume manufacturing status. Problems with the manufacturing process could result in shipment delays or loss of production yields that will materially and adversely increase the cost of manufacturing. Some of the Company’s manufacturing operations are in Dallas, Texas and the Company has contractual relationships with two manufacturers in the Philippines (Automated Technology (Phil.) Inc. and Cirtek Electronics Corporation), one manufacturer in Taiwan (Tai-Saw Technology Co., Ltd) and one manufacturer in Japan (Morioka Seiko Instruments, Inc., a division of Seiko Instruments, Inc.). The Company has back-up capability but is still susceptible to damage occurring to any facility, whether by act of nature, major economic or political change, or otherwise, that could have a material adverse effect on the Company’s manufacturing operations and its ability to ship products to its customers.

The Company’s customers demand an increasing level of quality. Despite the fact that the Company as well as its partners in the Philippines and Taiwan have achieved QS 9000 and ISO 9001 certification, the Company could fail to achieve and maintain needed improvements and quality levels in its operations. If these standards are not achieved and maintained, the Company’s operating results could be materially and adversely affected. The Company has experienced sudden increases in demand which have put pressure on its manufacturing facilities to increase capacity in order to meet this demand. In addition, new products sometimes require different manufacturing processes than those which the Company currently possesses or to which it has access. The Company has devoted the bulk of its capital expenditures to increase capacity and improve its manufacturing processes and has been aggressive in securing increased manufacturing capacity through offshore manufacturing alliances. The Company may not be able to continue to increase its manufacturing capacity and improve its manufacturing processes in a timely manner to take advantage of increased market demand.

The Company’s transition to offshore assembly has created additional complexities in logistics. The Company is reviewing its inventory policies to mitigate the impact of a short-term interruption. However, a long-term interruption in delivery services would have a material adverse effect on Company operations. The Company plans to develop the capability to ship directly to its customers from offshore locations to reduce its lead times. There is no assurance, however, that these efforts will be successful.

Fabrication of deposited and patterned wafers takes place in a clean-room environment. Thin aluminum films are precisely deposited onto three-inch and four-inch diameter quartz substrates that are subsequently etched with very small (micron and submicron) patterned structures. Each patterned device is called a die, and there may be from 40 to 3,000 die on a single three-inch or four-inch wafer. All wafer fabrication currently takes place at the Company’s Dallas location. The Company has secured additional sources of supply in offshore locations to act as a backup or provide new capability for new products.

As noted above, the Company has manufacturing arrangements with Automated Technology (Phil) Inc., Cirtek Electronics Corporation, Morioka Seiko Instruments, Inc. and Tai-Saw Technology Co., Ltd.. All organizations have hermetic packaging capability, which is essential to the manufacture of SAW devices. All possess understanding of the unique aspects of SAW component assembly and test. Assembly and test of all the Company’s products except clocks and oscillators occurs at one or more of these locations.

While the Company uses standard components whenever possible, certain of the components used in the SAW devices and modules are made to the Company’s specifications by specialized manufacturers. For example, the Company purchases several RF integrated circuits and ceramic arrays from Maxim Integrated Products or Kyocera America Inc. The Company has experienced delays and quality control problems with certain of its single-source suppliers in the past. Although the Company is attempting to obtain second-source suppliers, the Company believes it will continue to be somewhat dependent upon single-source suppliers for the foreseeable future. As part of its agreement with its offshore manufacturers, the responsibility for securing certain raw materials is being transferred to them. This change will enhance the Company’s cash flow, as it will not be required to purchase and have on hand those raw materials to support production.

The Company distributes its products in the United States through manufacturers’ representatives managed by the Company’s area sales management team (internal sales force.) Additionally, the Company has authorized one major North American distributor to stock and sell all the Company’s products. International sales are handled through manufacturers’ representatives, manufacturers’ representatives acting as distributors and direct sales management. Despite these sales efforts, the Company may not be able to increase or maintain demand for its products.

The Company’s international sales are currently denominated in U.S. currency. Recently, the Company’s European customers have expressed an interest in buying products at prices denominated in Euros. The Company has set up a limited capability to comply. An increase in the value of the U.S. dollar relative to foreign currencies could make the Company’s products more expensive and, therefore, potentially less competitive in those markets. Additional risks inherent in the Company’s international business activities generally include unexpected changes in regulatory requirements, tariffs and other trade barriers,

In 2002, one customer accounted for 11% of sales compared to a high of 11% for one customer in 2001. The top five customers accounted for 34% and 32% of total sales in 2002 and 2001, respectively. Sales to distributors accounted for 23% and 22% of total sales in 2002 and 2001, respectively. Sales to major customers have fluctuated in the past and may continue to fluctuate in the future. The Company believes the diversity of its product offerings and customer base is a strategic strength that enables it to better withstand changes in demand from individual customers.

The Company enters into select, custom product development programs. These development programs can last from six months to 18 months. The scope of these programs include initial engineering of the RF function under development through assisting in the interface of the RF and digital hardware. The Company is engaged in an increasing number of these programs. The Company cannot predict when or if a particular customer’s program will be designed and reach volume production status. In addition, the Company’s products are subject to a wide variety of regulations. Customers may require their products to be certified with various regulatory agencies and the Company offers them various types of assistance in obtaining certification. The Company’s customers may not obtain required certifications in a timely manner or at all. Delays in obtaining certification could result in significant losses of potential Company sales.

The markets for the Company’s products are intensely competitive and are characterized by price erosion, rapid technological change and product obsolescence. In most of the markets for the Company’s products, the Company competes with very large, vertically integrated, international companies, including AVX, EPCOS Electronic Parts and Components, Murata Manufacturing Co., and Triquint Semiconductor Inc. that have substantially greater financial, technical, sales, marketing, distribution and other resources, and broader product lines, than the Company. The Company’s competitors who have greater financial resources or broader product lines may be able to engage in sustained price reductions in the Company’s primary markets to gain market share. The Company also expects increased competition from existing competitors as well as competition from a number of companies that currently use SAW expertise largely for internal requirements. In addition, the Company experiences increased competition from companies that offer alternative solutions such as phase locked loop technology, which combines a semiconductor with a traditional crystal. The Company believes competitors may duplicate the Company’s products, which would cause additional pressure on selling prices and which could adversely affect market share.

The Company believes that its ability to compete in its target markets depends on factors both within and outside the Company’s control, including timing and success of new product introductions by the Company and its competitors, the availability of manufacturing capability, the Company’s ability to support decreases in selling price through reduction in cost of sales, the pace at which the Company’s customers incorporate the Company’s products into their end user products and general economic conditions.

The Company’s research and development efforts are primarily aimed at creating new, proprietary, innovative SAW device structures and SAW-based hybrid modules that uniquely address market needs. An example is the work currently being conducted to develop a third generation of VWO products. These developments also include process improvements in wafer fabrication involving better line width and metal thickness control as well as improvements in device packaging.

The Company employs a number of individuals in engineering, and product and process development, including design engineers and scientists. These individuals are responsible for new products and new processes from inception to the commencement of volume manufacturing. The Company believes that the efforts of this group help to ensure that the Company’s products provide an optimum system solution for the customer and are manufacturable at a competitive cost.

From time to time, the Company has entered into agreements with customers to develop specific SAW devices for inclusion in the customer’s end product. In addition, the Company has participated in government sponsored research and development programs. Pursuant to such agreements, the nonrecurring engineering (NRE) cost associated with such development work, which is treated by the Company as cost of technology development sales, is generally reimbursed by the customer. Total technology development (or NRE) sales during fiscal years 2002 and 2001 were $723,000 and $759,000, respectively. Costs related to these sales were included in the Company’s cost of sales during these years. The Company considers the development of new products essential to maintaining and increasing sales.

The Company relies on a combination of patents, copyrights and nondisclosure agreements in order to establish and protect its proprietary rights. The Company holds 35 patents that it has received for various inventions that include both the SAW devices that are in the circuit and the RF circuit itself. An additional three patents are pending. The Company’s policy is to file patent applications to protect technology, inventions and improvements that are important to its business.

The Company believes that its patents will provide competitive advantages. Reliance upon proprietary or patented technology is subject to a number of risks, however. Patents may not be issued from any of the Company’s pending applications. In addition, claims that are allowed from existing or pending patents may not be sufficiently broad to protect the Company’s technology. While the Company intends to protect its intellectual property rights vigorously, patents held by the Company may be challenged, invalidated or circumvented.

The Company also seeks to protect its trade secrets and proprietary technology, in part, through confidentiality agreements with employees, consultants and other parties. These agreements could be breached and the Company may not have adequate remedies for any breach. Further, the Company’s trade secrets could otherwise become known to or independently developed by others. In addition, the laws of some foreign countries do not protect the Company’s proprietary rights to the same extent as the laws of the United States.

The electronics industry is characterized by uncertainty and conflicting intellectual property claims. The Company has in the past and may in the future become aware of the intellectual property rights of others that it may be infringing. The Company may be notified that it is infringing on other patents and/or other intellectual property rights of third parties. In the event of such alleged infringement, a license to the technology in question may not be available on commercially reasonable terms, if at all. In addition, litigation could occur and the outcome of such litigation might be adverse to the Company. The failure to obtain necessary licenses or other rights, the occurrence of litigation arising out of such claims or an adverse outcome from such litigation could have a material adverse effect on the Company’s business. In any event, patent litigation is expensive, and the Company’s results of operations could be materially adversely affected by such litigation, regardless of its outcome.

The Company is subject to a variety of federal, state and local laws, rules and regulations related to the use, storage, emission, treatment, disposal, transportation and exposure of others to certain toxic, volatile and other hazardous chemicals used in the Company’s manufacturing process. The failure to comply with present or future regulations could result in fines being imposed on the Company, suspension of production or a cessation of operations. Such regulations could also require the Company to acquire costly equipment, to make changes to its manufacturing process, or to incur substantial other expenses to comply with environmental regulations. Any past or future failure by the Company to control the use of, or to restrict adequately the discharge of, hazardous substances could subject the Company to future liabilities and could have a material adverse effect on the Company’s business, operating results and financial condition.

As of August 31, 2002, the Company had a total of 215 employees. With the exception of one employee located in each of the sales locations in Georgia, Minnesota and California and two supporting sales consultants in Europe, all of the employees of the Company are based at the Company’s headquarters in the metropolitan area of Dallas, Texas. The Company’s future success depends to a significant degree upon the continued service of its key technical and senior management personnel and its continuing ability to attract and retain highly qualified technical and managerial personnel. Competition for such personnel can be intense. The Company may not be able to retain or continue to attract key managerial and technical employees. Failure to retain or continue to attract key managerial and technical employees could have a material adverse effect on the Company’s business results and operations. None of the Company’s employees are represented by a labor union. The Company has not experienced any work stoppages and considers its relations with its employees to be good. The Company anticipates that offshore production will result in significant additional manufacturing capacity, which will mitigate the impact of labor shortages.

The Company’s quarterly and annual results have been and will continue to be affected by a wide variety of factors that have had in the past and in the future could have a material adverse effect on the Company’s business and results of operations during any particular period. These factors include the level of orders that are received and can be shipped in a quarter, the rescheduling or cancellation of orders by its customers, competitive pressures on selling prices, changes in product or customer mix, availability and cost of raw materials, availability of labor resources, the ability of the Company to manufacture a sufficient volume of products in a cost-effective manner, fluctuations in manufacturing yield, availability of wafer fabrication and assembly manufacturing capacity, loss of any strategic relationship, the ability to introduce new products and technologies on a timely and cost-effective basis, new product introductions by the Company’s competitors, market acceptance of products of both the Company and its customers, supply constraints for other components incorporated into its customers’ products, foreign currency fluctuations, delays in customer orders or payments or interruptions in operations and the level of expenditures for research and development, sales, and general and administrative functions.

Historically, the electronics industry has experienced sudden and unexpected economic downturns. The Company’s results of operations are subject to such downturns. In addition, the Company’s operating expenses are largely fixed and difficult to change quickly should sales not meet the Company’s expectations, thus magnifying the adverse effect of any such revenue shortfall. The Company believes that period-to-period comparisons of its financial results should not be relied upon as an indication of future performance.

The Company’s backlog at August 31, 2002 was approximately $13.9 million as compared to $17.1 million as of August 31, 2001. The Company includes in its backlog all purchase orders scheduled for delivery within the subsequent 12 months. The Company believes the reduction in backlog is a reflection of a general reduction of economic activity and a reluctance of customers to commit to purchase products when they have limited ability to project their own requirements. The Company’s backlog, although useful for scheduling production, does not represent actual sales and should not be used as a measure of future sales. All orders in backlog are subject to cancellation prior to 30 days before shipment without penalty at the option of the customer and to changes in delivery schedules.

The Company’s principal administrative, sales, marketing, research and development, and manufacturing facilities are located in the metropolitan area of Dallas, Texas, in two adjacent buildings totaling approximately 93,000 square feet. One building, totaling approximately 63,000 square feet, is leased through July 2003. The second building, totaling approximately 30,000 square feet, is also leased through July 2003. The Company believes that its existing facilities are adequate for its current requirements and that the current properties are suitable and productive for the currently intended purposes. Due to its offshore manufacturing initiative, the Company does not expect to require significant additions to its assembly facilities or equipment. In anticipation of the Dallas facility leases expiring in July 2003, the Company is currently in negotiations and is seeking to reduce its future costs and space commitments to align them with its restructured operations. The Company believes the outcome of these negotiations will be favorable. In the unlikely event that negotiations are unsuccessful, the Company could incur substantial transition costs.

The Company’s Common Stock (symbol RFMI) is quoted on the NASDAQ Stock Market (NASDAQ). The following table sets forth the high and low sales prices of the Company Common Stock for each quarter of fiscal 2002 and 2001 as furnished by NASDAQ. These prices reflect prices between dealers, without retail markups, markdowns or commissions, and may not necessarily represent actual transactions.

The number of record holders of the Company’s Common Stock as of October 31, 2002 was approximately 200 (which number does not include the number of stockholders whose shares are held of record by a brokerage house or clearing agency, but rather includes such brokerage house or clearing agency as one record holder. The last sales price for RFM’s Common Stock, as reported by NASDAQ on October 31, 2002, was $3.04.

	Year Ended August 31,
	2002			2001			2000			1999			1998
	(In thousands, except gross profit margin & earnings per share amounts)
Statement of Operations Data:
Sales	$	43,254		$	51,771		$	47,256		$	51,297		$	55,172
Cost of sales		32,636			45,597			43,250			35,950			33,549

Gross profit		10,618			6,174			4,006			15,347			21,623
Gross profit margin %		24.5	%		11.9	%		8.5	%		29.9	%		39.2	%
Research and development		3,133			3,852			4,700			5,697			5,081
Sales and marketing		4,777			5,748			6,047			5,415			5,646
General and administrative		2,835			3,184			3,546			3,092			2,889
Restructuring and impairment		229			1,399			—			—			—
Litigation		—			—			301			—			641

Total operating expenses		10,974			14,183			14,594			14,204			14,257

Income (loss) from operations		(356	)		(8,009	)		(10,588	)		1,143			7,366
Other income (expense), net		(1,067	)		(1,559	)		(634	)		(145	)		14

Income (loss) before income taxes		(1,423	)		(9,568	)		(11,222	)		998			7,380
Income tax (benefit) expense		(981	)		3,673			(3,614	)		269			2,620

Delaware		75-1638027
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification)

4347 Sigma Road, Dallas, Texas		75244
(Address of principal executive offices)		(Zip Code)

		Page

	PART I

Item 1.	Business	2

Item 2.	Properties	11

Item 3.	Legal Proceedings	11

Item 4.	Submission of Matters to a Vote of Security Holders	11

	PART II

Item 5.	Market for Registrant’s Common Stock and Related Stockholder Matters	12

Item 6.	Selected Financial Data	13

Item 7.	Management’s Discussion and Analysis of Financial Condition And Results of Operations	14

Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	27

Item 8.	Financial Statements and Supplementary Data	27

Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	27

	PART III

Item 10.	Directors and Executive Officers of the Registrant	27

Item 11.	Executive Compensation	27

Item 12.	Security Ownership of Certain Beneficial Owners and Management	27

Item 13.	Certain Relationships and Related Transactions	27

Item 14.	Controls and Procedures	28

	PART IV

Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	28

	Price Range
	2002		2001
	High	Low	High	Low
Quarter Ended
November 30	3.0900	2.0000	8.6250	4.3130
February 28	3.8500	2.2400	6.7500	2.6250
May 31	4.6000	3.2000	5.5000	2.3130
August 31	4.5000	3.5000	4.7400	3.0800

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents