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, 2008 filed with the Securities and Exchange Commission.

General

RF Monolithics, Inc., or RFM, was organized in 1979 as a Texas corporation and converted to a Delaware corporation in 1994. We design, develop, manufacture and market solutions-driven and technology-enabled wireless connectivity products for a broad range of wireless applications - from individual standard and custom components to modules for comprehensive industrial wireless sensor networks and machine-to-machine, or M2M, technology. We have two lines of business-Wireless Solutions and Wireless Components.

Our Wireless Solutions business includes Virtual Wire® Short-range Radios, Radio Frequency Integrated Circuits, or RFIC's, and wireless module products. The products are various types of radios and the networks that manage and use these radios. Our goal is to provide customers with a wide variety of alternative products for their wireless network applications. Our product offerings include miniature radios that are very short range and ultra low-power. We also market standard and custom OEM radio modules as well as packaged radio and network gateway products that have longer range and increased data rates.

Our Wireless Components business includes filters, frequency control modules and low-power components. Our goal is to provide simple, cost effective solutions that fit our customers' specialty applications.

Executive Summary

The market place profiles in which our two business groups operate are materially distinct from one another. The Wireless Components business is characterized by a very competitive environment that has declining average selling prices and frequent product innovation. This market includes several large competitors who have superior financial and other resources. We have competed successfully for over 25 years by cultivating close customer relationships with a diverse group of customers who offer varied applications and serve diverse markets and geographic locations. In contrast, our Wireless Solutions business is characterized as a developing market with only a generalized definition of products, services, markets and applications. Competition is not well defined and typically consists of much smaller competitors, many of whom are similar in size and resources to us, or even smaller.

Our strengths benefiting us in both markets include: (a) our ability to identify and capitalize on trends in a rapidly growing wireless marketplace; (b) our capability to develop products that have superior technical characteristics;
(c) our expertise to assist our customers in incorporating our products into their applications; and (d) our demonstrated ability to deliver high quality cost-effective products made by our contract manufacturers in volume with short lead times. Our manufacturing capabilities are greatly enhanced by our relationships with several domestic and offshore contractors.

Our Wireless Components business, which historically was our core business, has declined in sales due to decreased average selling prices in several intensely competitive markets and due to our loss of market share to competing technologies. In addition, the Wireless Component business will likely be negatively impacted by recent economic difficulties, especially for the automotive market. As a result, we have focused our product and market development efforts on products for our Wireless Solutions business, which we feel offers a technical edge and generates a greater gross margin.

A key factor in our combined sales performance is successfully developing and selling new products in volumes adequate to offset the decline in prices and unit sales volumes of our older products. A key factor in our combined gross margin performance is reducing our costs (through innovation, assisting our contractors in achieving lower costs of manufacture, and increased volume) and improving our product mix towards higher margin products to offset expected declines in average selling prices. The Cirronet acquisition was a key part of our strategy to grow sales with new products that have higher margin potential.

With only three exceptions, we generated positive operating cash flows in the nine most recent quarters, including our current quarter and our last two fiscal years since our acquisitions to expand our Wireless Solutions business. See the section below entitled Liquidity for discussion of cash flows for the current period. Our ability to maintain positive cash flows is dependent on our success in restructuring our expense levels in relation to sales. See the next section below entitled First Quarter Business Conditions & Our Response for discussion of our restructuring program. In any case, the amount of positive cash flow may decrease or occasionally turn negative due to fluctuating revenues, declining margins, escalating operating

costs, the need for increased working capital to support increased sales, or increased spending to support growth programs. We feel we currently have the financial resources necessary to execute our business plans.

First Quarter Business Conditions and Our Response

Although the worsening economic situation had limited effect on us in our first quarter, it appears that many of our markets, particularly the automotive sector, are being severely impacted. Historically the automotive market has represented 25% to 30% of our quarterly sales. This quarter our percentage of sales from automotive markets fell to 22% of sales. Significantly lower car sales, recently announced automobile production rates and our own recent order trends indicate that that our sales to automotive markets will be materially adversely affected for at least the next few quarters. While we believe some of our markets, including medical and industrial, may weather the recession better, it is clear that there is weakness in many of our markets, especially the automotive market. This will result in a material decline in sales in our second fiscal quarter. Economic conditions in several markets are becoming even more difficult to predict, so we cannot say how much that decline might be.

In response to the expected sales declines and economic uncertainties, we are taking aggressive actions to align expense levels with anticipated lower sales levels. As we continue to restructure the Company, we are committed to the following actions:

a. Continue to actively manage our inventory levels, achieving a significant decrease in inventory in our first quarter.

b. Reducing our workforce by approximately 37% and implementing a 10% across-the-board salary reduction.

c. Suspending our 401(k) match and we have suspended cash compensation in the form of quarterly retainers and meeting fees for our outside directors.

d. In addition to personnel related reductions, we are taking other cost reduction measures which will further adjust our business structure with anticipated lower sales.

We believe these actions should result in a net reduction in recurring operating expenses of approximately $1 million next quarter and reduce our breakeven sales point for profitability by up to 30% from our first quarter. Due to some continuing noncash expenses, our cash flow breakeven sales point will be approximately 5% below that. Related to these actions, we expect that associated restructuring expense for severance and other nonrecurring costs in our second fiscal quarter will be approximately $600,000.

Our near term objective with these actions is to generate a positive operating cash flow during this period of economic downturn. We have generated positive operating cash flow of over $0.9 million for both our current first quarter and our previous fourth quarter. It is our objective to continue to generate positive cash flow and reduce our bank debt in our immediate future, although this cannot be assured due to the economic uncertainties we face.

Impact of Prior Cost Reduction Efforts

We have taken several major steps towards reducing expense levels over the past two fiscal years. In fiscal year 2007, we converted our manufacturing operations (primarily for our Wireless Components Group) to a fabless business model, which reduced annual costs by approximately $5 million and is the major reason we had an improvement in gross margins for fiscal year 2008. In fiscal year 2008, we announced both a consolidation of our organization including centralizing many of our back-office functions and a plan to reduce our space costs by consolidating activities into the Company-owned Dallas facility. Together, these

two measures were expected to save approximately $1.4 million annually. Finally, we announced in our previous fourth quarter cost savings measures that include the discontinuation of our software and services business which were expected to result in $2.8 million annual cost savings and an impairment in our intangible assets that would reduce amortization of acquisition related intangible assets by $0.95 million annually.

The total annual effect of these cost reduction efforts listed above is approximately $9 million on an annual basis. Most of these savings were in effect for our first quarter of fiscal year 2008. We estimate we realized approximately $2.2 million in savings in our first quarter, allowing us to have nearly the same net income as we did in the prior year, despite a $4.4 million reduction in sales.

Since we retain a profitable core business, we believe we have the ability to match expense levels with expected revenue. We will continue to take the actions required to restructure our business to return to overall profitability and to produce significant positive operating cash flow when economic conditions permit. While our cost reductions have resulted in a much lower cost business model, current economic conditions make forecasting future profitability very difficult.

Critical Accounting Policies

We prepare our financial statements in conformity with accounting principles generally accepted in the United States. As such, we are required to make certain estimates 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 fully understand and evaluate our reported financial results in our Annual Report filed with the Securities and Exchange Commission on November 24, 2008 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, 2008 (current quarter and current year-to-date period) of the fiscal year ending August 31, 2009, in comparison to the three months ended November 30, 2007 of the fiscal year ended August 31, 2008 (comparable quarter of the prior year and prior year-to-date period).

• Certain comparisons with the three months ended August 31, 2008 (previous quarter) are provided where we believe it is useful to the understanding of trends.

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

The following table illustrates operating results for the four quarters of fiscal 2008 and the first quarter of fiscal 2009 (in thousands, except percentage data). These figures will be used when discussing trends in the following section. The reported amounts for fiscal 2008 have been adjusted from previous quarterly reports because of classification of discontinued operations.

                                                            Fiscal 2008                           Fiscal 2009
                                                           Quarter Ended                          Qtr. Ended
                                        Nov. 30       Feb. 29        May 31        Aug. 31          Nov. 30
Sales by product area:
Wireless Solutions Group:
Virtual Wire® Radio products            $  3,642      $  3,773      $  3,061      $   2,799      $       2,937
Cirronet modules                           3,330         2,754         2,457          3,154              2,766

Subtotal                                   6,972         6,527         5,518          5,953              5,703
Wireless Components Group:
Filters                                    5,880         3,895         4,830          4,141              3,939
Frequency control modules                    651           506           951            796                574
Low-power components                       2,264         2,803         1,480          1,494              1,151

Subtotal                                   8,795         7,204         7,261          6,431              5,664

Total Sales                               15,767        13,731        12,779         12,384             11,367
Cost of sales                              9,868         8,279         8,136          7,816              7,150

Gross profit                               5,899         5,452         4,643          4,568              4,217
% of sales-Wireless Solutions               52.2 %        50.7 %        47.9 %         49.6 %             49.6 %
% of sales-Wireless Components              25.7 %        29.7 %        27.5 %         25.1 %             24.5 %
% of sales-Total                            37.4 %        39.7 %        36.3 %         36.9 %             37.1 %
Operating expenses:
Research and development                   1,789         1,842         1,803          1,667              1,266
Sales and marketing                        2,196         2,185         2,092          1,930              1,814
General and administrative                 1,183         1,066           984          1,068              1,011
Restructuring and impairment                  99           (44 )         265         16,192                (67 )

Total                                      5,267         5,049         5,144         20,857              4,024

Income from operations                       632           403          (501 )      (16,289 )              193
Other expense, net                           (65 )        (169 )        (160 )         (174 )             (173 )

Income (loss) before income taxes            567           234          (661 )      (16,463 )               20
Income tax expense (benefit)                   8             5            25           (163 )                5

Income (loss)-continuing operations          559           229          (686 )      (16,300 )               15
Loss-discontinued operations                (446 )        (331 )        (733 )       (3,181 )              (61 )

Net Income (loss)                       $    113      $   (102 )    $ (1,419 )    $ (19,481 )    $         (46 )

The following table sets forth, for the three months ended November 30, 2008 and 2007, (a) the percentage relationship of certain items from our statements of operations to total sales and (b) the percentage change in dollar amount of these items between the current period and the comparable period of the prior year. The reported amounts for fiscal 2008 have been adjusted from previous quarterly reports because of classification of discontinued operations.

                                            Percentage of Total Sales             Percentage Change From
                                                                                      Quarter Ended
                                                  Quarter Ended                    November 30, 2007 to
                                                  November 30,                        Quarter Ended
                                           2008                   2007              November 30, 2008
Sales                                          100 %                  100 %                          (28 )%
Cost of sales                                   63                     63                            (28 )

Gross profit                                    37                     37                            (29 )

Research and development                        11                     11                            (29 )
Sales and marketing                             16                     14                            (17 )
General and administrative                       9                      7                            (15 )
Restructuring                                   (1 )                    1                           (168 )

Total operating expenses                        35                     33                            (24 )

Income from operations                           2                      4                            (70 )
Other expense, net                              (2 )                   -                             166

Income (loss) before income taxes               -                       4                            (97 )
Income tax (benefit) expense                    -                      -                             (38 )

Net income-continuing operations                -                       4                            (97 )
Net loss-discontinued operations                (1 )                   (3 )                           86

Net income (loss)                               (1 )%                   1 %                         (141 )%

Sales

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

Total sales decreased 28% in the current quarter compared to the comparable quarter of the prior year and 8% from the previous quarter. The primary reason for the decrease in both periods was a decrease in the number of units sold, both for Wireless Solutions and Wireless Components products. It appears that the markets served by our Wireless Component products are feeling the most intense economic pressures, while the markets served by our Wireless Solutions products are experiencing somewhat less economic impact.

Wireless Components products sales decreased 36% from the prior year and 12% from the previous quarter. The decrease for Wireless Components products primarily related to economic conditions in some of the markets in which these products are used, particularly for low-power component and filter products for automotive applications like satellite radio, tire pressure monitoring and remote keyless entry. A year ago, the automotive, consumer and telecom markets, which have shown significant volatility in recent years, were at peak levels. Sales to these three markets decreased by approximately $2.9 million in the current quarter, compared to the comparable quarter of the prior year. Our Wireless Component products primarily serve these three markets. The decrease in sales for Wireless Components products was both in the number of units sold and in average selling prices. The decrease in the number of units sold was 19% for filters and 44% for low-power components, while the decrease in average unit selling prices was 17% for filters and 9%

for low-power components in comparison to the comparable quarter of the prior year. The 12% decrease from the previous quarter was primarily related to the same economic effects on automotive market. For further information, see the sections below entitled Filters, Low-power Components and Frequency Control Modules.

Wireless Solutions products sales decreased 18% from the prior year and 4% from the previous quarter. A year ago, sales to most Wireless Solutions markets were at very high levels, as OEM customer and contract manufacturer customer production levels were at peak levels. Our primary customers for these products are OEM customers and contract manufacturers and distributors. These customers order product based upon their own production schedules or the production schedules requested by their customers, which have historically shown considerable volatility. This year, many of those OEM customers and contract manufacturers had production levels more consistent with recent quarters. Partially offsetting this trend was an increase in average selling prices in the current year compared to the comparable quarter of the prior year, due to a change in product mix towards higher-priced medical products. In comparison to the previous quarter, sales for Virtual Wire® Short-range Radio products increased 5%, while sales for Cirronet products decreased 12%. Both of these changes were primarily due to changes in the number of units sold, corresponding to changes in customer production schedules. For further information on these products see the sections below entitled Cirronet Products and Virtual Wire® Products.

We believe some of our markets, including the medical and industrial markets, may be less affected by the economic downturns than other markets, such as the automotive market. Our Wireless Solutions products primarily serve both of these markets. While we have seen some slowing of Wireless Solutions sales, this segment of our business is not experiencing the same magnitude of pressure as our Wireless Components sales. Therefore, we expect the decline in sales related to the recession to be much less for Wireless Solutions products than Wireless Components products.

Our strategy has been to grow our Wireless Solutions business to offset an expected decline in the Wireless Components business. We have focused our product and market development efforts on products with higher technical content, which allows them to be sold with higher gross margins. Total company sales will only expand if the anticipated growth in Wireless Solutions sales exceeds the anticipated decline in sales for our Wireless Components business.

We compete in very price competitive markets (such as the automotive and satellite radio markets) in which customers require decreased prices over time to retain their business, particularly for products in the Wireless Components group. In addition, our customers expect economies of scale to result in lower pricing as new products ramp up in volume. As a result, two of our product lines (filters and low-power components) experienced a decline in average selling prices in the range of 9% to 17% in the current quarter, compared to the comparable quarter of the prior year. A portion of the decrease in filter average selling prices was due to a relatively greater reduction in the number of units sold of products in larger package sizes, which are more costly and command higher prices. Virtual Wire ® Short-range Radio products actually experienced an increase in average selling prices due to an increased portion of business from higher-priced medical applications. The other two product lines (Cirronet modules and frequency control modules) also experienced significant decreases in average selling price due to a shift in product mix within the product line, rather than lower selling prices. We expect the trend towards lower average selling prices will continue.

We have achieved significant market position in most of the markets on which we focus. However, we believe that price competition from much larger and better financed competitors represents a significant risk in maintaining our sales levels and gross margins, particularly in the automotive and consumer markets. A decline in average selling prices adversely impacts gross margin, as well as sales. Therefore, offsetting this impact is an important part of our strategic plan. For a discussion of strategies for sustaining gross profit, see the section below entitled Gross Profit.

Our sales success is highly dependent on the following factors: (1) our success in achieving increases in sales for Wireless Solutions products which have a higher technical content (2) achieving technological advances in our product design and manufacturing capabilities; (3) our ability to sell our products in a competitive marketplace that can be influenced by outside factors, such as economic and regulatory conditions; (4) competition from alternative technologies or from competitors duplicating our technologies; and (5) the impact of competitive pricing. These and other factors may adversely affect our ability to grow or even maintain our sales levels.

We have expended material resources in developing new products. However, the timing of any sales resulting from new products is dependent upon the customers' product introduction cycles. Sales to OEM customers are particularly dependent on the customers' success in their market development programs. For instance, in the past year, we have seen a slow down in customer adoption of our newer products in the M2M market due to delays in customer programs. It is difficult for us to predict when, or if, new products will have a significant impact on our sales.

We have experienced sudden increases in demand in the past, which have strained our manufacturing facilities and those of our offshore contractors to increase capacity to meet this demand. In addition, new products sometimes require manufacturing processes different than those to which we currently have access. We may not be able to increase the manufacturing capacity of our assembly contractors 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.

Near-Term Impact of Economic Recession

Although the worsening economic situation in our first quarter had a limited effect on us, it appears that many of our markets, particularly the automotive sector, are being severely impacted. Historically the automotive market has represented 25% to 30% of our quarterly sales. This quarter our percentage of sales from automotive markets fell to 22% of sales. Significantly lower car sales, recently announced automobile production rates and our own recent order trends indicate that that our sales to automotive markets will be materially adversely affected for at least the next few quarters. While we believe some of our markets, including medical and industrial, may weather the recession better, it is clear that there is weakness in many of our markets, especially the automotive market. This will result in a material decline in sales in our second fiscal quarter. Economic conditions in several markets are becoming even more difficult to predict, so we cannot say how much that decline might be.

Product Line Sales Trends:

Wireless Solutions Group:

Cirronet module products

. . .