##### Table of Contents

##### Index to Financial Statements





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-K







|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

- OR -



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the Fiscal Year Ended August 31, 2011

Commission File No. 0-24414





RF
Monolithics, Inc.

(Exact name of Registrant as specified in its charter)







|                                                               |  |                                 
|-------------------------------------------------------------- |  | --------------------------------
|Delaware                                                       |  | 75-1638027                      
|(State or other jurisdiction of
incorporation or 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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:







|                                    |  |                                       
|----------------------------------- |  | --------------------------------------
|COMMON STOCK PAR VALUE .001         |  |                                       
|and PREFERRED SHARE PURCHASE RIGHTS |  | The Nasdaq Capital Market             
|(Title of each class)               |  | (Name of Exchange on which registered)

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE





Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities
Act).    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of 15(d) of the
Act.    Yes   ̈    No  x

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).   ̈

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.   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                |  |                           |  |  
|----------------------- |  | ---------------------------------------------- |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                              |  | Accelerated filer         |  |  ̈
|                        |  |                                                | 
|Non-accelerated filer   |  |  ̈  (Do not check if smaller reporting company) |  | Smaller reporting company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule
12b-2).    Yes   ̈    No  x

The aggregate market value of our Common Stock held by non-affiliates based on the last reported sale price on the NASDAQ Stock Market
composite tape on February 28, 2011 (the last business day of the registrants most recently completed second fiscal quarter), was $15,646,329. Shares of Common Stock held by each officer and director and by each person who owns 5% or more
of our outstanding Common Stock have been excluded because such persons may be deemed to be affiliates.

Common Stock par
value $0.001 outstanding at October 31, 2011: 10,978,308 shares.





DOCUMENTS
INCORPORATED BY REFERENCE

Portions of the definitive proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, which will be filed with the Commission for our next annual meeting of stockholders within 120 days after the end of the fiscal year to which this report relates, are incorporated by reference into Part III of
this report where indicated.









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##### Index to Financial Statements

RF MONOLITHICS, INC.

FORM 10-K

YEAR ENDED AUGUST 31, 2011

TABLE OF CONTENTS



|         |  |                                                                                                              |  |      |    | 
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|         |  |                                                                                                              |  | Page |   
|         |  | PART I                                                                                                       |  |      |    | 
|         |  |                                                                                                             
|Item 1.  |  | Business                                                                                                     |  |      | 2  | 
|         |  |                                                                                                             
|Item 1A. |  | Risk Factors                                                                                                 |  |      | 14 | 
|         |  |                                                                                                             
|Item 1B. |  | Unresolved Staff Comments                                                                                    |  |      | 22 | 
|         |  |                                                                                                             
|Item 2.  |  | Properties                                                                                                   |  |      | 22 | 
|         |  |                                                                                                             
|Item 3.  |  | Legal Proceedings                                                                                            |  |      | 23 | 
|         |  |                                                                                                             
|Item 4.  |  | [Removed and Reserved]                                                                                       |  |      | 23 | 
|         |  |                                                                                                             
|         |  | PART II                                                                                                      |  |      |    | 
|         |  |                                                                                                             
|Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  |      | 23 | 
|         |  |                                                                                                             
|Item 6.  |  | Selected Financial Data                                                                                      |  |      | 24 | 
|         |  |                                                                                                             
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  |      | 24 | 
|         |  |                                                                                                             
|Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  |      | 49 | 
|         |  |                                                                                                             
|Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  |      | 49 | 
|         |  |                                                                                                             
|Item 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         |  |      | 49 | 
|         |  |                                                                                                             
|Item 9A. |  | Controls and Procedures                                                                                      |  |      | 49 | 
|         |  |                                                                                                             
|Item 9B. |  | Other Information                                                                                            |  |      | 51 | 
|         |  |                                                                                                             
|         |  | PART III                                                                                                     |  |      |    | 
|         |  |                                                                                                             
|Item 10. |  | Directors, Executive Officers and Corporate Governance                                                       |  |      | 51 | 
|         |  |                                                                                                             
|Item 11. |  | Executive Compensation                                                                                       |  |      | 51 | 
|         |  |                                                                                                             
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  |      | 51 | 
|         |  |                                                                                                             
|Item 13. |  | Certain Relationships and Related Transactions, and Director Independence                                    |  |      | 52 | 
|         |  |                                                                                                             
|Item 14. |  | Principal Accounting Fees and Services                                                                       |  |      | 52 | 
|         |  |                                                                                                             
|         |  | PART IV                                                                                                      |  |      |    | 
|         |  |                                                                                                             
|Item 15. |  | Exhibits, Financial Statement Schedules                                                                      |  |      | 52 | 



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##### Index to Financial Statements

PART I.



|ITEM 1. | BUSINESS
|------- | --------

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 business segments - Wireless Solutions and Wireless
Components. Financial information about our segments is set forth in Note 11 to Notes to Consolidated Financial Statements.

Our Wireless Solutions segment includes surface acoustic wave, or SAW-based and radio frequency integrated circuit, or RFIC, short-range
radios; radio frequency, or RF, module products; and stand alone radio systems. The products are various types of radios as well as 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 RF radio modules as well as stand alone radio systems that are
packaged radio and network gateway products that possess the capacity for longer range and increased data transmission rates.

Our Wireless Components, or RF 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.

We focus our component and
radio product development in the frequency range of 50 megahertz, or MHz, to 5.8 gigahertz, or GHz. We market our line of more than 500 radios, radio modules, resonators, filters, clocks and oscillators to distributors, electronic manufacturing
service companies and original equipment manufacturers, or OEMs, world-wide. Our customers include Avnet Inc.; Boston Scientific; CoachComm LLC.; Delphi Corporation; Escatec Switzerland AG; FAAC Electronics, Limited; Flextronics International;
General Electric, Inc; Holy Stone Enterprises and Trimble AB*.





|* | Certain names or marks mentioned herein may be claimed as the property of others.
|- | ---------------------------------------------------------------------------------

Advantages of Our Solutions

Our breadth of product lines allows us to offer design engineers component level technology for their own radio design, or module level finished radios. Our knowledge of various low-power radio
technologies, microprocessors, link and communication protocols, antennas, and certification requirements enable us to meet specific customer requirements in the evolving electronics marketplace. We have multiple offerings of radio systems, radio
frequency, or RF, designs, protocols, gateway technology, sensor modems and product packaging. In particular, we have expertise in products utilizing leading industry technologies including Zigbee, 802.11, Bluetooth®, Wi-Fi and Wireless HART ®.

The core technology we utilize for our
Wireless Components business is SAW technology. We believe that our SAW-based products, coupled with our RF design and manufacturing expertise, offer potential customers certain fundamental advantages over alternative technologies, including very
low power consumption, small size and precise operation.

Our product offerings can be tailored to combine a case specific mix
of application assistance, design technology, wafer fabrication capability, hybrid assembly and packaging processes at primarily offshore locations to meet stringent customer performance requirements. The unique features of RFM solutions provide
flexible solutions to system designers defining leading and emerging applications in various market segments.



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Markets and Applications

We focus on specific market opportunities where our Wireless Solutions and Wireless Components technologies address application
requirements. Our products are primarily incorporated into application designs in five markets  industrial, medical, automotive, consumer, and telecommunications. The industrial and medical markets are our primary markets for the Wireless
Solutions segment, while the automotive, consumer and telecommunications markets are our primary markets for the Wireless Components segment.

Industrial

This market accounted for approximately 35%
of total sales for fiscal 2011 and is our largest market. The industrial market includes applications such as automated meter reading, or AMR; medical; oil and gas monitoring applications; process control; security systems; sports and entertainment
wireless communication systems; surveying and other GPS systems and custom data link equipment. For years, we have been a leader in providing energy-efficient Virtual Wire® Short-range Radio products for the AMR market and RF modules for a variety of industrial applications. We believe that the industrial market, which is one of our
primary target markets, has substantial growth potential and is not as price driven as some of the other markets we serve due to the technical specialization of these products. Our Wireless Solutions segment is committed to developing a leading
position in the application of wireless sensor networks. This market is subject to fluctuations in demand resulting from changes in production schedules at several large OEM and contract manufacturing customers. As a result, sales tend to fluctuate
in line with changes in the production schedules of our customers.

Our strategy emphasizes tailored solutions over specific
technologies. We believe that the diversity of applications and application requirements and the markets early and emerging status create uncertainty as to which, if any, of the technologies will become industry standards. Accordingly, we seek
to offer the market a broad range of device networking technologies combined with the expertise to apply them to specific applications. As the market matures and some technologies become standards, we can adjust our product offerings to match the
markets needs. We have entered into contracts for custom networks and complex systems with several customers. We also sell RF components into this market, primarily for security applications.

Medical

This market accounted for approximately 14% of total sales for fiscal 2011. Emerging standards such as Medical Implant Communications Systems, or MICS, and Wireless Medical Telemetry Systems, or WMTS,
have created opportunities for wireless applications in the medical marketplace. These standards are for wireless communication devices located outside the body as well as implanted within. Our Virtual Wire® Short-range Radio and RF radio module products are well suited for these applications. Low power consumption and
high reliability are critical for device-implanted applications such as insulin pumps, pacemakers and defibrillators. RF module products are used in medical telemetry applications, including real-time wireless EKG monitors, where high transmission
reliability and data rate are essential. The medical market is another primary target for us given our expertise, the value proposition our products provide, causing the market to place less emphasis on pricing, such as in more commoditized markets.
Our products possess manageable liability risk, as they are only used in data communications roles and not in life-critical functions. This market is subject to fluctuations in demand resulting from changes in production schedules at several large
OEM and contract manufacturing customers. As a result, sales tend to fluctuate in line with changes in the production schedules of our customers. We also sell RF components to this market, primarily for medical monitoring applications.



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Automotive

This market accounted for approximately 33% of total sales for fiscal 2011 and was our second largest market. The automotive industry utilizes SAW-based components in transmitter and receiver designs for
remote keyless entry, tire pressure monitoring and satellite radio applications. We provide filters for satellite radios utilized to provide content from Sirius XM Radio Inc. (NASDAQ:SIRI), or Sirius. Sirius reports it has more than 21 million
subscribers, an increase of more than 1 million since 2010. The number of installed satellite radios significantly exceeds the number of subscribers, primarily since approximately 50% of automobiles built in North America now have factory
installed satellite radios under trial subscriptions which purchasing customers may opt not to renew. From a technological standpoint, the digital modulation used in satellite radio systems provides a very wide selection of entertainment choices and
is more efficient than traditional analog AM or FM and achieves near CD quality audio. We are working with service providers around the world to provide new generations of products and to support satellite radio systems in development outside of
North America.

Automotive electronic applications continue to grow with the ongoing objective toward
smaller size, reduced cost and improved system performance. Our low-power components, Virtual Wire® Short-range
Radio products, filters and a new line of crystal based products meet many of the automotive markets requirements. This market is characterized by fierce competition due to commodity pricing by competitors, as well as wide fluctuations in
demand, reflecting changes in automotive production schedules of North American automotive manufacturers. As a result, sales tend to fluctuate in line with changes in the production schedules of our customers.

Consumer

This market accounted for approximately 9% of total sales for fiscal 2011. The consumer market for our products includes aftermarket satellite radio products, for which demand has slowed due to current
economic conditions. We believe growth potential exists for other consumer products using our technology, such as electronic gaming, electronic toys, home security, internet appliances, sports, garage doors, cable TV and a wide variety of other
wireless applications. Low-power components, Virtual Wire® Short-range Radio products, Wireless Solutions radio
modules and filters may be designed for these and many other consumer applications. This is another market characterized by fierce price competition and the risk of significant fluctuations in sales related to economic conditions.

Other (Includes Telecommunications)

In prior years, we had set the telecommunications market separately in our reports. However, this market has declined to only 5% of total sales for fiscal 2011, so we decided to combine it into the
Other category. The Other category includes sales to government and military applications, as well as those distribution sales that we could not classify into one of the other categories. Total sales in the Other category
were 9% of total sales in fiscal 2011. The Other category consists primarily of applications for our filter and frequency control module product lines to telecommunications and other very specialized markets. Some versions of these products are
military grade products for which sales can be very volatile because they are based upon specific programs, rather than ongoing production schedules. RFMs focus for the telecommunications market historically has been to provide intermediate
filters for the base station infrastructures and frequency control modules to high end computer and internet access applications. In recent quarters we have introduced a number of crystal based products, such as temperature controlled crystal
oscillators, or TCXO, to serve these and other markets. We do not know if these new products will have a significant impact on sales to these markets.



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Our Wireless Solutions Segment

RF Module Products

Our RF module products are primarily embedded module applications that are targeted for an embedded module market that could become quite large. RF modules have relatively longer range and higher data
rates in comparison to our Virtual Wire® Short-range Radio products. These products include wireless sensor node
modules, as well as gateway and network bridge products used to connect different network types (e.g., wired and wireless) to one another. In addition to a variety of radio products, we use several communication protocol systems to manage
point-to-point, point-to-multipoint and mesh wireless sensor networks.

We believe a key to penetrating this market will be
the ability to provide a wide variety of products, protocols and firmware to deliver the optimum solution for each customers application. With our RF module products, we believe we offer one of the broadest ranges of radios, modules and
protocols in the industry. A focus of our sales force is to provide customer application assistance to our customers to help them design in our products quickly to reduce time-to-market.

Our largest investment in research and development in recent years has been to develop new RF module products, including FCC certified
standard products and custom products for specific customers. In the past year, we have introduced several new RF module products, including lower-priced RF modules to capture business at lower price points. These products include a Zigbee Pro
module, a low cost 900 MHZ DNT frequency hopping module for wireless sensor applications and a low cost 2.4 GHz DNT frequency hopping module for sensing, telemetry and control applications. We have also developed products designed for sophisticated
M2M systems, including a battery operated Wi-Fi sensor modem, an M2M wireless sensor network platform for air conditioning, heating, and refrigeration applications and Peel and Stick Modular Sensor Modems and Gateways which are platform
products for Wireless sensor networks. We intend to continue to invest strategically in research and development for these products and to bring new products to market.

Sales for these products are targeted primarily for industrial and medical markets and products, which include several major OEM or contract manufacturing customers. Production schedules for these
customers tend to fluctuate widely, based on end customer demand and supply chain conditions. As a result, sales tend to fluctuate in line with changes in the production schedules of our customers.

Our sales force, along with a dedicated M2M business development person, is now working with customers to design these products into
their applications. While we see great potential for our RF module products, it is difficult for us to predict the timing, or magnitude of acceptance, of these products.

Short-range Radio Products

Our proprietary hybrid
transmitter, receiver and transceiver modules are the primary products included in Virtual Wire® Short-range
Radio products. Our transceiver module, based on our patented Amplifier Sequenced Hybrid, or ASH, technology, offers two-way data communication in a single small module, with performance identical to separate transmitter and receiver modules, and at
a lower total cost. The Virtual Wire® product includes a custom RFIC. Virtual Wire® products feature small size, very low power consumption, and excellent RF performance, and provide the system
designer flexibility and rapid time-to-market for emerging applications. The ASH receivers architecture provides exceptional performance with extremely low harmonic radiation and exceptional resistance to electromagnetic interference, which
have resulted in some of our customers products receiving international standards certification. Virtual
Wire® products include complete transceiver design and development kits that allow relatively inexperienced RF
system designers the ability to incorporate wireless data transfer into their designs. We also provide software protocols for key applications.



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##### Index to Financial Statements

In fiscal 2011, we added to our line of integrated short-range radio
products with our WLS series of Wi-Fi® and Wi-Fi® and Bluetooth® combination
modules. Three products were included in the initial product launch. This new product line combines high performance radio technology with standards based communications protocols for easy access to the internet. In fiscal 2011, we sold our first
production quantities of these products.

For customers that wish to incorporate a radio into their module, we have our line
of RFIC products, including receivers, transmitters and transceivers. Sales for our 868 to 960 MHz TRC103 and the 300 to 510 MHz TRC105 RFIC products for automotive, security, industrial and medical applications increased significantly in fiscal
2011.

Sales for these products are targeted primarily for industrial and medical markets, which we believe offer an excellent
opportunity for growth. The applications for Short-range Radio products include medical device-implanted applications such as insulin pumps, pacemakers and defibrillators, AMR, point of sale terminals, medical monitoring systems, home automation,
consumer sports, data link equipment, homeland security and wireless thermostats.

Our customers include several major OEM or
contract manufacturing customers. Production schedules for these customers tend to fluctuate widely, depending on end customer demand and supply chain conditions. As a result, sales tend to fluctuate in line with changes in the production schedules
of our customers.

For several years, we have devoted considerable resources to developing and marketing Short-range Radio
products. We believe these products offer potential for considerable growth in sales in numerous wireless applications, particularly for applications that require very small size and extremely low power consumption. We intend to continue to
collaborate with our customers to develop new applications. We are not certain as to the timing, or magnitude of acceptance, of these products.

Our Wireless Components Segment

Filters

We pioneered the development of several SAW technologies related to the implementation of high performance band-pass filters having low
insertion loss. Our filter products are well-suited to, and primarily intended for, satellite radio, or SDAR, Global Positioning Systems, or GPS, various telecommunications base stations and repeaters such as GSM, EDGE, CDMA/CDMA2000, WCDMA,
TD-SCDMA, and WiMax, as well as ISM band applications. We have focused on intermediate frequency SAW filters based on new SAW structures that provide high-level performance. However, we also offer a variety of RF filters and duplexers.

Our SAW filters are designed to operate at frequency ranges of 40 MHz to over 2.6 GHz. We face a threat of direct conversion technology
and other competing alternatives that do not operate in the frequency range suitable for SAW filters. The wide adoption of such alternative technologies could negatively affect our ability to penetrate new filter applications.

We provide filters for satellite radios utilized to provide content from Sirius. Our sales of filter products into both the new and
aftermarket satellite radio market continue to be heavily dependent on the success of satellite radio content providers, primarily Sirius, to sell subscriptions for their service. Subscription rates in recent years have fluctuated greatly. As a
result, predicting future unit sales for these products is very difficult. Recently, there has been a continued reduction in the growth rate of new subscriptions for service as competing technologies take more market share. However, more than
offsetting this factor has been an increasing number of models of new automobiles that include factory installed satellite radios. The shift in U.S. automotive sales toward domestic brands has had a favorable impact on our sales as well.



6



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##### Index to Financial Statements

Filter products are primarily sold to our automotive, consumer and telecommunications
markets. Competitive conditions in these markets have been particularly intense, so we have experienced an ongoing trend toward lower average selling prices for comparable products. Competitive conditions for these products have forced us to provide
lower prices to maintain our market share.

This market is also characterized by fluctuating production schedules for several
major customers resulting from volatile economic conditions and varying supply chain inventory levels, particularly the supply chain for North American automotive production. As a result, sales tend to fluctuate in line with changes in the
production schedules of our customers.

Frequency Control Products

Our frequency control modules consist of frequency source products for both analog and digital applications. These products provide added
value to the SAW components we manufacture. Specialized SAW devices are incorporated in voltage-controlled sources to allow frequency variability along with very low phase noise. High-frequency clock modules are used in high-performance computer
systems, storage and optical networking. Our Diff Sine clocks allow network applications to realize improved performance by providing very low timing variations from one cycle to the next (commonly referred to as jitter).
Some of these are designed for very high reliability avionics applications.

In addition to SAW-based frequency control
products, we have introduced a variety of crystal-based products. These products are small, high performance devices used in a wide range of digital applications such as remote keyless entry (RKE), GPS and other Global Navigation
Satellite Systems, or GNSS, automated meter reading, wireless communication and defense systems. Our crystal-based products include multiple series of surface mount devices such as crystal resonators, crystal oscillators, crystal filters,
temperature compensated crystal oscillators, and voltage controlled temperature compensated crystal oscillators. Our recent products include some that are targeted for emerging M2M Telematics applications.

Most of our frequency control products are sold into telecommunications markets. This market is subject to wide sales fluctuations due to
varying economic conditions and production rates at several major contract manufacturers. Future sales of these products will be highly dependent upon economic conditions in the markets these products serve. Some frequency control products are
high-end, military grade products that are included in our Other market category and are dependent on specific programs, rather than ongoing production schedules.

Many of our frequency control module products are very mature and sales for them have been declining for several years, as customers convert their applications to alternative technologies. We are unable
to predict with certainty if the introduction of new crystal-based products will positively affect the trend of lower sales for frequency control modules.

Low-power Components

Our resonators are used in low-power wireless
transmitter and receiver applications, including automotive remote keyless entry, or RKE, and tire pressure monitoring systems, wireless security systems and consumer applications. Our coupled-resonator filters are well suited for radio frequency
filter applications, such as the receiver portion of RKE systems, as well as for input and output filters utilized in other products manufactured by us.

The primary markets for these products are the automotive and consumer markets, which are characterized by very competitive conditions and declining average unit selling prices, a trend we expect to
continue, as competitive market conditions require future price reductions. Markets for low-power components are also characterized by widely fluctuating demand due to changing economic conditions. The volume of units sold is closely related to
changes in production volumes of our major customers, including automotive customers, which we expect will continue. More recently, we have been working with customers to design RF components into the medical market, primarily for medical monitoring
applications.



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##### Index to Financial Statements

Due to the maturity of many of these products, unit sales and related dollar values for
this product line have declined in recent years. Conversion to other technologies such as multiple function integrated circuits and phased lock loop radios has adversely affected sales. In addition, some customers have switched to very low-priced
competitors. We attempt to offset this long-term trend of reduced sales by offering existing products in smaller packages.

We
expect that the trend of lower sales for low-power components will continue and may even accelerate, due to continued reduction in average selling prices and continued conversion of customers away from older products to alternative technologies. It
is possible that newer products for medical monitoring applications could offset this expected decline in sales to some extent, but we do not know how much.

Manufacturing

Strategy

Our strategy is to rely on a fabless business model, in which we rely on outside contractors to manufacture our products. Our years of
favorable experience with outsourced manufacturing suggest that we should be able to continue to satisfy our manufacturing requirements via outsourcing. We believe our processes for managing these contractors, including managing the logistics
associated therewith, are adequate to satisfy our customers supply requirements. We have agreements with these contractors that require a lengthy notice period before they can terminate the agreement, which is designed to protect us during any
transition in manufacturing capability to new contractors. Should any of these agreements terminate without an effective transition to an adequate replacement, our operations could be materially interrupted.

Our offshore manufacturing arrangements possess certain logistical complexities, which we address with third party logistics centers in
San Francisco, Alabama and Hong Kong to assist with warehousing and customer shipments. We believe that we offer competitive lead times to our customers.

Current Contract Manufacturers

To support our SAW-based products, we
continue to have contractual relationships for manufacturing with Tai-Saw Technology Co., Ltd. (TST) (located in Taiwan and China), Automated Technology (Phil.) Inc. (ATEC) (located in the Philippines) and Morioka Seiko
Instruments Inc. (MSI) (a subsidiary of Seiko Instruments, Inc. located in Japan). Each of these organizations offers a variety of packaging capabilities, including hermetic packaging, which is essential to the manufacture of SAW
devices. Each also possesses an understanding of the unique aspects of SAW component assembly and testing. Our Philippines, Taiwan and China based Wireless Component manufacturing contractors are certified to the TS16949 international automotive
quality standard. We are currently negotiating renewal agreements with TST and MSI and believe this will result in a continued source of supply for at least the next two years.

To support our RF module products, we primarily use two contract manufacturers. These two are Spectral Response, located in Duluth,
Georgia, and Gigatek, located in Taiwan. These contractors are ISO 9001 certified. The manufacturing processes for our RF module products, while demanding, are less critical than the processes used for our SAW-based products. The key manufacturing
process involves a printed circuit assembly using surface mount technology and equipment. Industry-accepted design and assembly techniques are used to minimize manufacturing risks. Quality control testing is enhanced because we supply test sets,
procedures and Company-developed software to our contract manufacturers to enable them to test the products prior to delivery.



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##### Index to Financial Statements

We maintain a small in-house assembly or test operations in our Dallas, Texas and Duluth,
Georgia locations for low volume, quick-turn orders, product upgrades and repairs requested by customers, and to support new product development. These facilities are ISO 9001 certified.

Manufacturing Risks

The manufacturing processes of our products are highly complex. Because of the precision required, they are sensitive to a wide variety of factors. This is especially true for our SAW-based products. For
these products, manufacturing success depends upon the quality of the incoming raw materials (including SAW devices), the consistency of processes used, the condition of the equipment, the performance of manufacturing personnel and a low level of
contaminants in the manufacturing environment. Our SAW-based products are subject to contamination until they are sealed in a package, so all operations are performed in controlled clean-room environments prior to enclosure.

Occasionally, the contract manufacturers in our supply chain experience difficulties in manufacturing products, resulting in delayed
deliveries to customers and increased yield loss, which increase our costs and may result in temporarily reduced sales. This is especially true for high reliability products that have very tight tolerances and for new products that are being readied
for mass production. Our contract manufacturers experienced such difficulties in our third and fourth quarters of fiscal 2011. Certain acts of God or events of a political nature could also temporarily delay product shipment. One of our
contract manufacturers temporarily was forced to cease manufacturing operations by the earthquake in Japan, for instance.

We
occasionally have experienced unanticipated increases in demand, which challenged the capabilities of our contract manufacturers. Outsourced capacity currently exists to meet any reasonably anticipated short-term spike in orders, but unanticipated
demand beyond those designed over fill capacities could result in some lost sales. We will continue to attempt to secure increased manufacturing capacity through offshore manufacturing alliances.

We rely on our contract manufacturers to stock most of our necessary raw materials and wafer materials. The longer order fulfillment
pipeline to our offshore contractors has resulted in the need to increase finished goods inventories in some cases to assure that we are able to meet the lead times required by our customers. In spite of our efforts, we may occasionally experience
temporary shipping delays. Additionally, we maintain inventory at various international and domestic locations to address these and other risks.

Interruptions in our deliveries to our customers or increased costs due to yield loss or other factors could have a material adverse impact on our sales and/or our gross margins.

Source of Components

While we use standard components whenever possible, some components used in the SAW-based products and short range radios are made to our specifications by specialized manufacturers. Certain other
components used in our RF module products are single sourced. For example, we are largely single sourced on RF integrated circuits from Maxim Integrated Products, Texas Instruments and other suppliers, and ceramic arrays from Kyocera America, Inc.
Changes in the supply base for quartz have occurred which may reduce our potential sources of supply. In addition, we have occasionally encountered increases in lead time from several of these suppliers due to increased demand from other markets.
Longer lead times could lead to delays in shipping products to our customers, which could materially adversely affect our business. In addition, we have experienced delays and quality control problems with certain of our single-source suppliers in
the past. We attempt to obtain second-source suppliers when commercially practicable, but it is often not economically feasible to do so, causing us to remain dependent upon single-source suppliers for these products for the foreseeable future. An
interruption of that supply could have a material adverse impact on our financial performance.



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Quality

Our customers demand an ever-increasing level of quality in our products. We, as well as all of our major contract manufacturers, have achieved ISO 9001 certification. Our Philippines, Taiwan and
China-based wireless component manufacturing contractors are certified to the TS16949 international automotive quality standard. We have completed our transition to a fabless business model. We now rely on our manufacturing contractors, whom we
monitor, for their quality certifications. We expend considerable effort to continually improve the efficiency and effectiveness of our contractor based operations, while continuing to ensure that the features and benefits of our products meet or
exceed customer expectations for performance and reliability.

Sales and Marketing

We primarily distribute our products in the United States through manufacturers representatives and distributors managed by our area
sales management team (internal sales force). International sales are handled on a non-exclusive basis through manufacturers representatives, manufacturers representatives acting as distributors and via direct sales.

We have four global distributors  Future Electronics, Digi-Key, Mouser Electronics and Avnet/Memec. In fiscal 2011, we initiated
the distribution agreement with Future Electronics and expanded the agreement with Avnet Inc. Holy Stone Enterprises is a major Asian distributor for RFM.

In fiscal 2011 we expanded our marketing support for our M2M initiative by adding a business development position and by setting up a new micro site, www.RFM2M.com. These initiatives expand our outreach
to potential customers by assisting them through the entire product development process.

Sales by geographic areas were:



|                             |  |       |        |  |       |   |        |       |  |   |        | 
|---------------------------- |  | ----- | ------ |  | ----- | - | ------ | ----- |  | - | ------ | 
|                             |  | 2011  |        |  | 2010  |   |        | 2009  | 
|                             |  | Sales |        |  | Sales |   |        | Sales | 
|International sales:         |  |       |        |  |       |   |        |       |  |   |        | 
|Europe                       |  | $     | 6,873  |  |       | $ | 5,097  |       |  | $ | 4,249  | 
|Asia (primarily Taiwan)      |  |       | 12,756 |  |       |   | 14,553 |       |  |   | 11,168 | 
|Other                        |  |       | 991    |  |       |   | 716    |       |  |   | 602    | 
|                             |  |       |        |  |       |   |        |       |  |   |        | 
|Total international sales    |  |       | 20,620 |  |       |   | 20,366 |       |  |   | 16,019 | 
|U.S. and other North America |  |       | 11,855 |  |       |   | 13,254 |       |  |   | 15,965 | 
|                             |  |       |        |  |       |   |        |       |  |   |        | 
|Total sales                  |  | $     | 32,475 |  |       | $ | 33,620 |       |  | $ | 31,984 | 
|                             |  |       |        |  |       |   |        |       |  |   |        | 

Competition

Wireless Solutions

The markets for our short range radio products are very
competitive and are characterized by price erosion, rapid technological change and product obsolescence. With these products, we compete with very large, vertically integrated, international companies, including Texas Instruments, Analog Devices,
Infineon and Maxim along with a larger community of niche suppliers including Nordic, Melexis, and Micrel. Our competitors often have greater financial, technical, sales, marketing, distribution and other resources, broader product lines, and may
also be able to engage in sustained price reductions in our markets to gain market share.



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The wireless sensor network market and the market for radio modules used therein is much
less mature and is therefore highly fragmented among a large number of competitors, very few of which possess our revenue size. The relatively early stage market for wireless sensor networks is experiencing rapid technological change and presently
lacks the degree of price erosion experienced in our component business. Some of the more noteworthy competitors include Laird Technologies and Digi International. Relative to the competitors addressing this market, we believe RFM is a leader in
terms of its breadth of product offerings.

We believe the pricing pressure for major portions of our Wireless Solutions
segment, while still significant, is far less intense than the pricing pressure we experience for our Wireless Components segment.

Wireless Components

The markets for our Wireless Components products are
mature, intensely competitive, and characterized by price erosion, rapid technological change and product obsolescence. In most of the markets for our wireless components products, we compete with very large, vertically integrated, international
companies, including AVX, EPCOS/TDK Electronic Parts and Components, Murata Manufacturing Co., and Triquint Semiconductor Inc. These competitors have substantially greater financial, technical, sales, marketing, distribution and other resources, as
well as broader product lines, than we do. As a result, these competitors may be able to engage in sustained price reductions in our markets to gain market share.

We expect intensified competition, both from existing competitors, and potentially from a number of companies that currently use SAW expertise largely for internal requirements. We are currently
experiencing increased competition from companies that offer alternative solutions such as multi-purpose integrated circuits and phase locked loop technology, which combines a semiconductor with a traditional crystal. Additionally, competitors may
copy or closely follow the design and features of our products, which would cause additional pressure on selling prices and which could adversely affect our market share.

General Competitive Factors

We believe that our ability to compete in our
target markets depends on factors both within and beyond our control. These factors include: (a) the timing and success of new product introductions by us and our competitors; (b) our ability to support decreases in selling prices through
reductions in manufacturing costs; (c) the pace at which our customers incorporate our products into their end products; (d) the rate of adoption of the products sold by our customers, and (e) other factors described in Item 1A
 Risk Factors.

Research and Development

Our research and development efforts are primarily aimed at creating new RF modules and short range radios, as well as proprietary and
innovative SAW device structures that uniquely address market needs. These efforts focus more on the Wireless Solutions business and include the development of proprietary software in the form of embedded firmware used to control
wireless communications modules and user interface programs used for wireless networks, designed for diagnostic or system management purposes.

While we cultivate internal expertise in software development, we sometimes license software from commercial developers to reduce costs, to decrease time-to-market, or to achieve both of these objectives.
This is particularly true for the special embedded programs that define the protocols used to organize wireless networks. We have initiated software development agreements with external sources to provide network protocol firmware for
our wireless modules as well as software that interfaces with standard-based protocols. Similarly, we may license radio technology developed by RF integrated circuit providers in order to accelerate product development schedules and expand the
technical capabilities of our products. To this end, we periodically negotiate for product licensing agreements, including with several RF integrated circuit suppliers.



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We employ a number of highly qualified individuals in engineering and
product and process development, including scientists, design engineers and technicians. Our Duluth, Georgia location has a complete embedded module team of both hardware and firmware engineers. Our Dallas, Texas-based radio development team has
developed patented technology that has been the core of our Virtual Wire® Short-range Radio product offerings.
World-class filter design capabilities are provided by the design team also located in Dallas, Texas. This team collaborates with our Asian manufacturing contractors to convert state-of-the-art component designs into highly manufacturable product
configurations.

Our research and development teams are responsible for new products and new processes from inception to
assisting our contract manufacturers to achieve volume manufacturing. We believe that the efforts of these individuals help to ensure that our products provide an optimum solution for the customer, while maintaining the quality and cost
effectiveness standards we need to remain competitive.

From time-to-time, we have entered into agreements with customers to
deliver custom-designed components for their end products. In addition, we have participated in government-sponsored research and development programs. We record revenues derived from engineering design services as technology development sales, and
the associated costs are included in cost of sales. These revenues represent less than 1% of our reported sales.

We consider
the development of new products essential to maintaining and increasing sales. Research and Development as an operating expense was $3.3 million for fiscal 2011 and $3.2 million for fiscal 2010.

In the past year, we have supplemented our internal development efforts with a collaboration agreement with Murata Manufacturing Company
Ltd. (Murata), which is listed in the Tokyo stock exchange under the symbol 6981.JP. In fiscal 2011, we have gained access to Murata technology with agreements to launch several products based upon Murata technology. The companies are
considering other ways to collaborate under other potential sales, marketing and product development agreements. We consider this relationship very important to us in growing our business.

Proprietary Rights

Many standard and proprietary Wireless Solutions network protocols and related implementation software programs exist, each with unique strengths and features. For our modules, we use both internally
developed and licensed protocols and implementation software. The wide range of participants in module software and protocol development struggle to avoid competing claims of intellectual property exclusivity, creating a risk that one or more major
software suppliers may assert intellectual property claims against us that could affect the sales of our modules or other products.

We rely on a combination of patents, copyrights and non-disclosure agreements to establish and protect our proprietary rights. We have received 51 patents for various inventions that include SAW devices,
innovative RF circuits that employ SAW devices and, most recently, wireless system applications and network protocols. We have applied for four additional patents. Our policy is to file patent applications and monitor for violations thereof, to
protect technology, inventions and improvements that are important to our business.

We believe that our patents provide us
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 pending applications. In addition, claims that are allowed from existing or pending patents
may not be sufficiently broad to protect our technology. While we intend to protect our intellectual property rights vigorously, patents may be challenged, invalidated or circumvented, including circumvention by violation.



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We also seek to protect our trade secrets and proprietary technology belonging to us or our
licensors through confidentiality agreements with employees, consultants and other parties. However, these agreements could be breached and we may not have, or be able to secure, adequate remedies. Further, our trade secrets could otherwise become
known to, or independently developed by, others. In addition, the laws of some foreign countries do not protect 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 that represent a risk to us. Others
may allege that our products infringe their patents and/or intellectual property rights, even if we are not, in fact, infringing. In the event of such alleged infringement, we may be unable to secure a license to the technology in question on
commercially reasonable terms. Litigation could ensue and the outcome of such litigation might be adverse to us. The cost of defending ourselves from such litigation could have a material adverse effect on our business, regardless of its outcome.

In the ordinary course of our business, we enter into product rebranding agreements and licenses with third parties under
which we sell rebranded products. Because only a small percentage (less than 5%) of our revenues is generated by rebranded products and we have notice of termination and final purchase rights, we do not believe we are dependent on these
relationships.

Regulations

We are subject to a variety of international, federal, state and local laws and regulations related to the use and presence of certain materials and substances in our products. We make a concerted attempt
to abide by these laws and regulations as demonstrated by our compliance with the European Unions, or EUs, Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment, or RoHS, Waste Electrical and
Electronic Equipment, or WEEE, regulation and Regulation, Evaluation, Authorization and Restriction of Chemicals, or REACH. The failure to comply with present or future regulations could result in fines, suspension of production or a cessation of
operations. Such regulations could also require us to acquire costly equipment, to make changes to our designs, or to incur other substantial expenses to comply with environmental regulations. Any past or future failure by us to control the use of
hazardous substances in our products could subject us to future liabilities. Any of these situations could have a material adverse effect on our business, operating results and financial condition. We mitigate our risk in this area by continuing to
design products using materials and substances that are not hazardous or not likely to be deemed to be hazardous.

The
Dodd-Frank Wall Street Reform and Consumer Protection Act regulate banks and other firms, including RFM. We are currently awaiting rulemaking under that act, including disclosure requirements with regard to conflict minerals from the
Democratic Republic of Congo and adjoining countries and other matters. It is unclear whether we will be affected materially.

Personnel

As of August 31, 2011, we had a total of 65 employees (including 64 full time employees) and 8 contract workers. Most of our personnel work at our headquarters in Dallas, Texas or our facility in
Duluth, Georgia. We have one person at each of our U.S. sales offices, which are located in Georgia, Maryland and Oregon. We have two sales support individuals in both Europe and Asia. This years census is similar to our prior years
census of 72 people (full time employees and contract workers).

Our future success depends to a significant degree upon the
continued service of our key technical and senior management personnel and our continuing ability to attract and retain highly qualified technical and managerial personnel. Competition for such qualified individuals can be intense. We may not be
able to retain or continue to attract key managerial and technical personnel. Failure to retain or continue to attract key managerial and technical personnel could have a material adverse effect on our business, operating results and financial
condition. During the recent recession, we were forced to reduce salaries and other employee benefits. While we have since restored most of those benefits, we are uncertain whether or not we will be able to continue to compete for employees in the
current economic environment.



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##### Index to Financial Statements

None of our employees are represented by a labor union. We have not experienced any work
stoppages and we consider our relations with our employees to be good. The availability of offshore production tends to mitigate the impact of skilled labor shortages in our domestic locations.

Potential Fluctuations in Results of Operations and Order Trends

Our quarterly and annual results have been and will continue to be affected by a wide variety of factors that could have a material
adverse effect on our sales and results of operations. These factors include, but are not limited to: (a) the level of orders that are received and that can be shipped in a quarterly period; (b) the rescheduling or cancellation of orders
by our customers; (c) competitive pressures on selling prices; (d) changes in product and/or customer mix; (e) the loss of a strategic manufacturing, distribution, marketing, technological, financial, or customer relationship;
(f) the ability to introduce market-accepted new products on a timely and cost-effective basis; (g) new product introductions by our competitors; (h) market acceptance of both our products (when we sell an end product) and our
customers products (when our products are components of our customers end products); and (i) other factors described in Item 1A - Risk Factors.

Historically, the electronics industry has occasionally experienced sudden and unexpected economic downturns. Our results of operations are subject to such downturns. In addition, our operating expenses
are largely fixed and difficult to reduce in the short run should sales not meet our expectations. This magnifies the adverse effect of any such sales shortfall. Period-to-period comparisons of our historical financial results should not be relied
upon as a predictor of future performance.

Backlog

Our backlog believed to be firm at August 31, 2011 was $7.7 million, as compared to $8.4 million at August 31, 2010. The current
year-end backlog reflects continued sluggish economic conditions.

Our backlog includes all purchase orders scheduled for
delivery within the subsequent 12 months. Many customers still require us to respond in increasingly shorter lead times when their demand materializes. Our backlog, although useful for scheduling production, should not be used as a measure of future
sales. All orders in backlog are subject to cancellation or change in delivery schedule, and such cancellation or change of delivery is without penalty provided the customer provides us notice more than 30 days before shipment.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

The
following risk factors should be considered in evaluating RFM and its business. Any of the following risks, as well as other risks and uncertainties, could have a material adverse effect on our business and financial results and cause the value of
our securities to decline. The risks below are not the only ones facing RFM. Additional risks not currently known to us or that we currently believe to be less material also may impair our business.

Sales Risks

The current worldwide general economic downturn could significantly impact demand for our products.

The current global economic downturn and financial credit crisis continues to adversely effect business conditions, although some
recovery has occurred. The recession in the U.S. and key foreign markets has substantially affected our sales, profitability and financial condition. The downturn has reduced economic activity in most of the markets in which we operate. It cannot be
predicted when, or to what extent economic recovery might occur or even if the current level of recovery will continue. Actions taken by numerous governments throughout the world, including aggressive monetary and fiscal stimulus actions by the U.S.
government, may or may not be effective in addressing the economic problems that are the underlying causes of the recession.



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The decline of demand for our products due to economic conditions or other factors in our specific
targeted markets could have a material adverse effect on our business.

We may experience substantial period-to-period
fluctuations in operating results due to factors affecting the automotive, consumer, government, industrial, medical and telecommunications businesses. From time to time, each of these businesses has experienced downturns, often in connection with,
or in anticipation of, declines in general economic conditions, including inventory corrections that occur in specific supply chains. During fiscal 2011, sales decreased substantially to customers in automotive, consumer and telecommunications
markets, increased in our other market (mostly government) and did not change materially in the industrial and medical markets. While we believe the economy has improved somewhat, we still appear to be in a period of reduced demand due
to a decline in the economic conditions even in those markets that have shown partial recovery. A decline or significant shortfall in growth or a technology shift in any one of these markets could have a material adverse impact on the demand for our
products and, therefore, a material adverse effect on our business, financial condition and results of operations. There can be no assurance that our net sales and results of operations will not be materially and adversely affected in the future due
to changes in demand from individual customers or cyclical changes in the markets utilizing our products. Our products are produced throughout the world, causing us to be subject to a variety of regional economic conditions, which are outside our
control.

The strength of our competitors may impact our ability to maintain and grow sales and/or gross margins, which could decrease
sales and/or selling prices.

We do business in markets that are intensely competitive, manifesting generally
declining average unit selling prices. We compete with companies that offer or are in the process of developing similar types of products and services to ours. Most of our significant competitors are much larger and better financed than we are.
These competitors could execute sales strategies and tactics that could materially diminish our sales, causing a material adverse impact on not only our overall sales but also our gross margins. There can be no assurance that our products will be
competitive with existing or future products, or that we will be able to establish or maintain a profitable cost structure and sales price environment for our products.

We expect to face competition from existing competitors and new and emerging companies that may enter our current or future markets with similar or alternative products, which may be less costly, provide
additional features, or both. We also face a competitive threat from current and prospective customers that evaluate purchasing our products versus the merits of manufacturing products internally. Competition may arise due to the development of
cooperative relationships among our current and potential competitors or third parties to increase the ability of their products to address the needs of our prospective customers. Accordingly, it is possible that new competitors or alliances among
competitors will emerge and rapidly acquire significant market share.

We expect our competitors will continue to improve the
performance of their current products, reduce their prices and introduce new products that may offer greater performance and improved pricing, any of which could cause a decline in sales or loss of market acceptance of our products. In addition, our
competitors may develop enhancements to their existing products or future generations of competitive products that may render our technology or products obsolete or uncompetitive.

The cyclical nature of the electronics industry could have a material adverse effect on our business.

Our industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life cycles and wide
fluctuations in product supply and demand. The industry has experienced significant downturns, sometimes connected with, or in anticipation of, maturing product life cycles or declines in general economic conditions. These downturns have been
characterized by diminished product demand, production overcapacity, high inventory levels, inventory obsolescence and accelerated erosion of average unit selling prices. We believe we are still in such a period of depressed general economic
conditions. Any future downturns could have a material adverse effect on our business, financial condition and results of operations. Furthermore, any upturn in these industries could result in increased demand for, and possible shortages of,
components we provide. We have seen some of these shortages in fiscal 2011. Such shortages could have a material adverse effect on our business, financial condition and results of operations.



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##### Index to Financial Statements

Our inability to collect outstanding receivables and our dependence upon major customers could have a
material adverse effect on our business.

We grant credit to customers in a variety of commercial industries. Credit
is extended based on an evaluation of the customers financial condition and collateral is not required. Our inability to collect receivables from a large customer could have a material adverse effect on our business, financial condition and
results of operations. In the fourth quarter of fiscal 2011, we increased our trade receivable reserve by recognizing $80,000 bad debt expense as a result of non-payment by one of our customers that has promised to pay us in installments. We do
maintain credit insurance that mitigates our risk to some extent. However, not all customers are insurable and we may not be able to insure insurable customers fully. In addition, our credit insurance carries a $200,000 deductible and a 10%
coinsurance factor.

Only one customer accounted for more than 10% of sales (at 22% of total sales) in our current year. Our
strategy is to seek diversification in our sales to mitigate the risk of concentration. We believe we have achieved a significant level of diversification in our customers, markets, products and geographic areas. However, due to the very competitive
nature of the markets we serve, we may fail to achieve such diversification consistently.

We rely on a limited number of OEMs as
customers and the loss of one or more of them could have a material adverse effect on our business.

To date, a
substantial portion of our product sales has been to OEMs. The product and marketing decisions made by OEMs significantly affect the rate at which our products are used. We believe that some OEMs in certain industries receive a large portion of
their revenues from sales of existing products to their current customer base, which we believe has moderated the rate at which they incorporate new products or technologies into their offerings. Furthermore, OEMs that manufacture and promote
products and technologies that compete, or may compete, with us may be particularly reluctant to employ our products and technologies to any significant extent, if at all. We may not be able to maintain or improve the current rate at which our
products are accepted by OEMs and others, which could decrease our sales.

Our dependence on sales to international customers and the
use of contract manufacturers located overseas exposes us to additional risks.

We consider all product sales with a
delivery destination outside North America to be an international sale. International sales are denominated primarily in U.S. dollars, 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 and 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 or regional 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.



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##### Index to Financial Statements

Our contract manufacturers are located overseas and manufacture the vast majority of our
products. Our purchases from them are denominated in either U.S. dollars or local currency and in some instances we have agreed to share the effects of exchange rate fluctuations.

International sales and purchases may also be subject to certain risks, including changes in regulatory requirements, tariffs and other
barriers, timing and availability of export licenses, political and economic instability, difficulties in accounts receivable collections, natural disasters, difficulties in staffing and managing foreign subsidiary and branch operations,
difficulties in managing distributors, difficulties in obtaining governmental approvals, foreign currency exchange fluctuations, the burden of complying with a wide variety of complex foreign laws and treaties, potentially adverse tax consequences
and uncertainties relative to regional, political and economic circumstances. Moreover, and as a result of the ability to manage changes in currency exchange rates and other factors, our competitors may have the ability to manufacture competitive
products at a cost lower than ours.

Product returns and order cancellations could increase our inventory and reduce our sales.

To the extent we have products manufactured in anticipation of future demand that does not materialize, or in the
event a customer cancels an outstanding order after it has been placed in production, we could experience an unanticipated increase in our inventory. In addition, while we may not be contractually obligated to accept returned products, and have
typically not done so in the past, we may determine that it is in our best interest to accept returns in order to maintain good relations with our customers. Product returns would increase our inventory and reduce our sales. We have had to
write-down inventory in the past for reasons such as obsolescence, excess quantities and declines in market value below our costs.

We have few long-term volume commitments from our customers that are not subject to cancellation by the customer. Sales of our products are made through individual purchase orders and, in certain cases,
are made under master agreements governing the terms and conditions of the relationships. Customers may change, cancel or delay orders with limited or no penalties. We have experienced cancellations of orders and fluctuations in order levels from
period-to-period and we expect to continue to experience similar cancellations and fluctuations in the future that could result in material adverse fluctuations in our revenues.

Strategic Risks

Our success depends on new product introductions, product transitioning and customer acceptance.

We have a large amount of continuing sales of older products that tend to decline in popularity and average unit selling price over time.
Only by developing new products can we replace sales of declining products and partially offset the impact of lower average unit selling prices. Our future success depends on our ability to develop new products to keep up with technological advances
and to meet customer needs. Any failure by us to anticipate or respond adequately to technological developments and customer requirements, or any significant delays in product development, could have a material adverse effect on our business,
financial condition and results of operations. Additionally, we could incur additional operating costs with the introduction of new products.

There can be no assurance that we will be successful in our planned product development or marketing efforts, or that we will have adequate financial or technical resources for our planned product
development and promotion. In fiscal 2011 we have slightly increased those resources to support our Wireless Solutions strategy. There is no assurance that those increased expenditures will result in increased sales. The introduction of future new
products will require the expenditure of an unknown amount of funds for research and development, tooling, software development including licensing, manufacturing processes and inventory, as well as sales and marketing efforts. In order to
successfully develop products, we will need to successfully anticipate market needs and may need to overcome rapid technological change and competition. In order to achieve high volume production, we need to outsource production to third parties or
enter into licensing arrangements and successfully manage sub-contractors overseas as well as third party logistics providers. There can be no assurance that our products and services will achieve or maintain market acceptance, result in increased
sales, or be profitable.



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##### Index to Financial Statements

Our industry is subject to rapid technological change, and we must make substantial investments in
new products and technologies to compete successfully.

Our industry is characterized by rapid technological change
and is highly competitive with respect to timely product innovation. Our products are subject to obsolescence or price erosion because competitors are continuously introducing technologies with the same or similar capability as our technology. We
are vulnerable to competitors that have greater resources to develop products that might prove to be technologically superior to ours. If customers perceive that competing products are superior to ours, they may shift their purchases to them. If we
were to have significant inventory balances of products that are no longer selling in historically normal quantities, we could encounter additional costs for slow moving or obsolete inventory.

Our success depends on our management of growth, diversification and transition to value added products.

Successful expansion or diversification of our operations will depend on our ability to obtain new customers, to attract and retain
skilled management and other personnel, to secure and successfully manage adequate sources of supply on commercially reasonable terms and to successfully manage new product introductions. To manage growth or diversification effectively, we will have
to continue to implement and improve our operational, financial and management information systems, procedures and controls. As we expand or diversify, we may from time-to-time experience constraints that will adversely affect our ability to satisfy
customer demand in a timely fashion. In the current year we have scaled back those resources in response to the recession. Failure to manage growth or diversification effectively despite this decrease in resources could adversely affect our
business, financial condition and results of operations.

The transition to greater reliance on Wireless Solutions products
involves new technologies and markets that are not similar to our other businesses, requiring us to learn and master new markets, competitors, and products to be successful. Our historical base business, predominantly centered in our Wireless
Components segment, is generally declining. Only by successfully developing and introducing value added products and services to our customers can we offset this impact.

Business Risks

Variability of our gross profit margins could have a material
adverse effect on our business.

Gross margins of the Wireless Solutions segment, including short range radios and RF
modules, are materially higher than those of our Wireless Components segment. Changes in product mix between these segments or even within them could have a positive or negative impact on overall margins due to changes in product mix. This in fact
occurred at various times in the current year. In addition, we face the continuing negative impact of declining average unit selling price as a result of competitive conditions in the markets we serve. We expect the trend of lower prices to
continue. Therefore, our ongoing efforts to reduce manufacturing costs are an important factor in maintaining gross margins. A lower volume of units sold and produced has a negative impact on margins because relatively material fixed manufacturing
costs (including salaries for support staff and depreciation) are spread over fewer units. Additionally, start-up or ramp-up costs for relatively new products entering the volume manufacturing process reduce our profitability as the factory
encounters yield or other issues during the ramp-up period. Occasionally contractors in our supply chain encounter inconsistencies in their manufacturing output that delay delivery of products to our customers and result in additional costs to
resolve the issue. This was a significant issue in fiscal 2011. We continue to incur significant costs with regards to obsolete and slow moving inventory as a result of changes in market preferences and other factors. Any of these factors could
suddenly become a significant problem, resulting in a sudden negative impact on our gross margins.



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We expect that our net sales and gross margin may vary significantly based on these and
other factors, including the mix of products sold, the channels through which our products are sold, changes in product selling prices and component costs, the level of purchasing efficiencies achieved and pricing by competitors.

Our average unit sales prices for products as they mature have historically declined, which we anticipate will continue and which can
erode our gross profit margins. If we fail to achieve similar reductions in our cost of sales, any reduction in our gross profit margins resulting from reductions in average selling prices will likely have a material adverse effect on our business,
financial condition and results of operation. There can be no assurance that we will be able to increase unit sales volumes, introduce and sell new products or reduce our cost per unit in sufficient amounts to increase or even maintain acceptable
gross margins.

Our stock price fluctuates as a result of the conduct of our business and stock market fluctuations.

Existing stockholders may suffer with each adverse change in the market price of our common stock. The future market price of our common
stock may be affected by a variety of factors. Most obviously, the price of our shares may suffer adversely if our future operating results are below the expectations of investors. The stock market in general and the market for shares of technology
companies in particular, experience extreme price fluctuations. The price volatility of our common stock is exacerbated because of the relatively low volume of trading in our common stock. A significant price movement can be caused by the trading of
a relatively small number of shares.

We may lose our listing status on NASDAQ.

Since August 31, 2011, our stock price has generally traded at less than $1.00 per share. The NASDAQ Capital Market, on which our
common stock is listed, has requirements for continued listing. One of those requirements is a minimum $1 closing bid price requirement. We have received a deficiency letter from NASDAQ regarding our stocks failure to meet the minimum $1
closing bid price requirement. By NASDAQ rule, we have until April 18, 2012 to regain compliance with the bid price requirement. The deficiency letter has no present effect on the listing of our common stock, which continues to trade on the
NASDAQ Capital Market under the symbol RFMI. We are assessing alternatives to resolve the deficiency should its closing share bid price remain below $1.00 in the near term.

We are dependent on our key personnel, whose continued service is not guaranteed.

Our performance depends substantially on the performance of our executive officers and key employees. Our future success will depend on our ability to attract, integrate, motivate and retain qualified
technical, sales, operations and managerial personnel. Competition for qualified personnel in our business is intense, and we may not be able to continue to attract and retain qualified executive officers and key personnel necessary for our business
to succeed. If we lose the services of any of our key personnel and are not able to secure replacements in a timely manner, our business could be disrupted, which could contribute to other key personnel leaving, causing us to potentially incur
increased operating expenses in identifying and compensating their replacements.



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Operational Risks

Our reliance on limited contract manufacturers and our fabless business model could have a material adverse effect on our business.

For several years we have relied upon contract manufacturers to assemble the bulk of our products. We adopted a fabless
business model for virtually all of our products. This increased our reliance on outside contract manufacturers to the point that we rely almost exclusively on their ability to manufacture products for our customers.

By using contract manufacturers, our ability to directly control the planning for inventories is reduced since we do not have control
over their operations. If we are unable to accurately forecast demand for our contract manufacturers or if our contract manufacturers, following our guidance, are unable to respond promptly and timely to changes in customer demand, we may be unable
to respond adequately to possible sudden increases in demand. Such a failure could result in lost sales, or late deliveries, which would negatively affect customer service and could ultimately result in lost sales. For each product, we normally have
only one contract manufacturing source, so alternative sources of supply generally do not exist. To partially offset this risk, we do stock certain finished goods inventory items at our various logistics centers; however, this practice increases our
costs and requires substantial working capital to support.

In the case of customer order cancellations or decreases in
demand, this may give rise to the Company being liable for excess or obsolete inventory or cancellation charges resulting from contractual purchase commitments that we have with our contract manufacturers. We regularly provide rolling forecasts of
our requirements to our contract manufacturers for planning purposes, pursuant to our agreements, a portion of which is binding upon us. Additionally, we are committed to accept delivery on the forecasted terms for a portion of the rolling forecast.
Cancellations of orders or changes to the forecasts provided to any of our contract manufacturers may result in cancellation costs payable by us. If we or our contract manufacturers are unable to utilize such excess inventory in a timely manner, and
are unable to sell excess components or products due to their customized nature, our operating results and liquidity would be negatively impacted.

A majority of our SAW-related products are manufactured overseas in Taiwan, the Philippines and Japan. We are currently negotiating renewal agreements with TST and MSI which we believe will result in a
continued source of supply for at least the next two years. We believe the new agreements being negotiated will expose us to foreign exchange fluctuations with regard to the Japanese yen and Taiwan dollar. We are still assessing the magnitude of the
risk involved and have not entered into any hedging activities to mitigate the exchange risk associated with purchases in a foreign currency. Movements in currency exchange between the U.S. dollar and the Japanese yen or Taiwan dollar could have a
material effect on our costs.

A disruption of the manufacturing operations, resulting from sustained process abnormalities,
human error, governmental intervention or natural disasters such as earthquakes, fires or floods could cause us to cease or limit our manufacturing contractors operations and, consequently, could harm our business, financial condition and
results of operations. We saw minimal disruption in manufacturing and shipping into and out of Japan due to the earthquake and tsunami in March 2011. However, other production issues did significantly impact our results of operations in our third
and fourth quarters.

We have substantial experience with our current contract manufacturers and believe those relationships
are satisfactory. However, the contract manufacturing agreements are currently being negotiated. If they are not renewed on acceptable terms, we could experience increased costs or a material interruption in our operations and, therefore, sales to
customers, resulting in a material adverse effect on our business, financial condition and results of operations.

Parts shortages,
over-supplies and our dependence on raw material suppliers could have a material adverse effect on our business.

The
electronics and components industry is characterized by periodic shortages or over-supplies of parts. These fluctuations have in the past, and may in the future, negatively affect our operations. Our ability to supply our customers changing
demands is complicated by our recent longer lead times from raw material suppliers. We are working with our customers and suppliers on addressing this, but near-term sales could be less than current demand due to our inability to supply these widely
fluctuating requirements within the lead time requested by customers. Moreover, production issues within the portion of our supply chain that provides raw materials could adversely affect deliveries, as we have seen in fiscal 2011. In response, our
supply chain has increased its safety stock of key raw materials and we are not aware that this has resulted in any significant loss of long-term sales potential.



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##### Index to Financial Statements

We are dependent on a limited number of suppliers and contractors for packages,
semiconductor devices and SAW devices used in our products, and we have long-term supply contracts with only some of them. Some of our most important components are supplied to us on a sole source basis, due to the economics involved in qualifying
and maintaining multiple sources.

Due to the cyclical nature of these industries and competitive conditions, we, or our
contract manufacturers, may experience difficulties in meeting our supply requirements in the future. Any inability to obtain adequate deliveries of parts, either due to our loss of a supplier or due to industry-wide shortages, could delay shipments
of our products, increase our cost of goods sold or have a material adverse effect on our business, financial condition and results of operations. Some of the risk may be offset by inventory held by us or our contract manufacturers. In some cases,
we are responsible for stocking raw materials, but most of it is held by our contract manufacturers.

Delays in our manufacturing
processes could reduce our sales.

We continually endeavor to reduce our costs, which involves working with our
contractors in their facilities, to offset the impact of a reduction in our average selling prices. These manufacturing processes are complex and involve procedures that are difficult to maintain if not carried out properly, which could result in
incremental cost increases. A sudden deterioration in yields could result in increased costs and in shipping delays, for instance. We experienced this in fiscal 2011. We continue to assist our contractors in cost reductions to the fullest extent
possible, but the primary responsibility for cost management resides with our contract manufacturers. If our contract manufacturers cannot reduce the cost of our products sufficiently, we could suffer serious erosion of our gross profit margins.

Interruptions in our business due to terrorism and the uncertainty of war could have a material adverse effect on our operations.

The consequences of any terrorist attacks, or any armed conflicts that may result, are unpredictable, and we may not
be able to foresee events that could have an adverse effect on our markets or business. These include, without limitation, the possibility that our insurance companies are unable to pay claims or that insurance may become unavailable or
unaffordable.

Legal Risks

Impact of Healthcare Legislation on our Cost Structure

Our health
benefit plan is a self-funded program in which we fund the payment of claims ourselves, subject to certain reinsurance limits per covered person and for the covered group in its entirety. On a historical basis, we have realized savings by utilizing
this cost structure. Our risk under our self-insured program is mitigated by reinsurance that covers individual claims over $75,000 and annual aggregate claims beyond an attachment point determined by the number of employees each month.

We have been informed by our healthcare benefit advisors that one effect of the recent healthcare legislation relating to the elimination
of lifetime benefit limits of insurers will be to make reinsurance much more costly in our next fiscal year. In future years, there is great uncertainty what the regulations governing medical plans will be. It is possible that our self-funded
program and its related reinsurance protection may be either no longer available to us or only available to us on a cost prohibitive basis. If we were forced to convert to a fully insured program, our costs would likely be much higher, perhaps by a
material amount. Whether or not we will be able to absorb increased costs or required to pass some of those costs on to our employees is unknown. Given the uncertainty incident to the changing law in this area, it is not certain when or if we will
be forced to convert to a fully insured health benefit program or what the associated costs would be.



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Our business could be adversely affected if we fail to protect our intellectual property rights.

Our ability to compete effectively is dependent in part on our proprietary know-how, technology and patent rights. We
have applied for additional patents. There can be no assurance that our patent applications will be approved, that any issued patents will afford our products any competitive advantage or that any of our products will not be challenged or
circumvented by third parties. Moreover, patents issued to others may adversely affect the sales, development or commercialization of our present or future products.

We could be involved in claims and litigation over intellectual property rights, which may adversely affect our ability to manufacture and sell our products. The electronics industry is characterized by
vigorous protection and pursuit of intellectual property rights. We believe that it may be necessary to initiate litigation against one or more third parties to preserve our intellectual property rights. In addition, we have received, and may
continue to receive in the future, notices that claim we have infringed upon, misappropriated or misused other parties proprietary rights, which claims could result in litigation. Such litigation would likely result in significant expense to
us and divert the efforts of our technical and management personnel. In the event of an adverse outcome in such litigation, we could be required to: pay substantial damages; cease the manufacture, use and sale of certain products; expend significant
resources to develop non-infringing technology; discontinue the use of certain processes, or obtain licenses to use the infringed technology. Such a license may not be available on commercially reasonable terms, if at all. Our failure to obtain a
license on commercially reasonable terms could cause us to incur substantial costs and suspend manufacturing products using such technology. If we obtain a license, we would likely be required to make royalty payments for sales under the license.
Such payments would increase our costs of revenues and reduce our gross profit.

In addition, any litigation, whether as
plaintiff or as defendant, would likely result in significant expense to us and divert the efforts of our technical and management personnel, whether or not such litigation is ultimately determined in our favor. The results of any litigation are
inherently uncertain.

Governmental regulation may adversely affect our business.

Many of our products and the industries in which they are used are subject to U.S. and foreign regulation. Governmental regulatory action
could greatly reduce the market for our products.

Defects or errors in our products and services could harm our relations with
customers and expose us to liability.

In the course of our business, we may be subject to claims for product
liability which could harm our relations with customers and for which our insurance coverage may have an exclusion or be inadequate.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



|ITEM 2. | PROPERTIES
|------- | ----------

Much of our
administrative, sales, marketing and research and development activities are located in our Dallas, Texas facility, which is owned by us but serves as collateral for a mortgage loan. This 31,000 square foot facility, including the surrounding
parking lots, is situated on 2.1 acres. Most of the activities related to our Cirronet subsidiary are located in a 19,000 square foot facility located in Duluth, Georgia. This facility is leased through February 2015.



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##### Index to Financial Statements

We believe that our existing facilities are adequate for our current requirements and that
the current properties are suitable and productive for their currently intended purposes. Due to our fabless business model, we do not expect to require significant manufacturing facilities or equipment in the foreseeable future.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

We are
involved in routine litigation from time to time that is incidental to the conduct of our business. Such litigation is not expected to have a material adverse effect on our business, financial condition or results of operations.



|ITEM 4. | [REMOVED AND RESERVED]
|------- | ----------------------

PART II.



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------

Our common stock (symbol RFMI) is quoted on the NASDAQ Capital Market. The following table sets forth the high and low sales prices of our
common stock during each quarter of fiscal 2011 and 2010 as furnished by NASDAQ. These prices reflect prices between dealers, without retail markups, markdowns or commissions, and may not necessarily represent actual transactions.



|              |  |             |      |  |      |   |      |      |  |   |      |  |  |   |      | 
|------------- |  | ----------- | ---- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|              |  | Price Range |     
|              |  | 2011        |      |  | 2010 |  
|Quarter Ended |  | High        |      |  | Low  |   |      | High |  |   | Low  | 
|November 30   |  | $           | 1.34 |  |      | $ | 1.10 |      |  | $ | 1.08 |  |  | $ | 0.68 | 
|February 28   |  |             | 2.20 |  |      |   | 1.20 |      |  |   | 1.45 |  |  |   | 0.84 | 
|May 31        |  |             | 1.66 |  |      |   | 1.14 |      |  |   | 1.45 |  |  |   | 1.01 | 
|August 31     |  |             | 1.47 |  |      |   | 0.90 |      |  |   | 1.37 |  |  |   | 1.11 | 

We have not paid dividends on our common stock during the past two most recent fiscal years and have a
policy of not paying cash dividends. We presently intend to continue this policy in order to retain earnings for use in our business. The number of record holders of our common stock as of October 31, 2011 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 our common stock, as
reported by NASDAQ on October 31, 2011 was $1.00.

We have not repurchased any of our outstanding equity securities
during the two-year period ending August 31, 2011 and we have cancelled the shares that had been purchased in prior years.



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##### Index to Financial Statements

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

Selected unaudited quarterly statements of operations information follows (in thousands):



|                               |  |                          |       |   |                          |   |       |        |  |   |         |   |  |         |       |   |         |   |       |        |  |   |         |   |  |   |       |   |  |   |       |  
|------------------------------ |  | ------------------------ | ----- | - | ------------------------ | - | ----- | ------ |  | - | ------- | - |  | ------- | ----- | - | ------- | - | ----- | ------ |  | - | ------- | - |  | - | ----- | - |  | - | ----- | -
|                               |  | Fiscal 2010Quarter
Ended |       |   | Fiscal 2011Quarter
Ended |  
|                               |  | Nov. 30                  |       |   | Feb. 28                  |   |       | May 31 |  |   | Aug. 31 |   |  | Nov. 30 |       |   | Feb. 28 |   |       | May 31 |  |   | Aug. 31 |  
|Sales by segment:              |  |                          |       |   |                          |   |       |        |  |   |         |   |  |         |       |   |         |   |       |        |  |   |         |   |  |   |       |   |  |   |       |  
|Wireless Solutions Segment     |  | $                        | 4,049 |   |                          | $ | 4,034 |        |  | $ | 4,377   |   |  | $       | 4,005 |   |         | $ | 3,965 |        |  | $ | 3,677   |   |  | $ | 4,043 |   |  | $ | 3,984 |  
|Wireless Components Segment    |  |                          | 4,404 |   |                          |   | 3,853 |        |  |   | 4,344   |   |  |         | 4,554 |   |         |   | 4,547 |        |  |   | 3,910   |   |  |   | 4,246 |   |  |   | 4,103 |  
|                               |  |                          |       |   |                          |   |       |        |  |   |         |   |  |         |       |   |         |   |       |        |  |   |         |   |  |   |       |   |  |   |       |  
|Total Sales                    |  |                          | 8,453 |   |                          |   | 7,887 |        |  |   | 8,721   |   |  |         | 8,559 |   |         |   | 8,512 |        |  |   | 7,587   |   |  |   | 8,289 |   |  |   | 8,087 |  
|Sales %-Wireless Solutions     |  |                          | 48    | % |                          |   | 51    | %      |  |   | 50      | % |  |         | 47    | % |         |   | 47    | %      |  |   | 48      | % |  |   | 49    | % |  |   | 49    | %
|Sales %-Wireless Components    |  |                          | 52    | % |                          |   | 49    | %      |  |   | 50      | % |  |         | 53    | % |         |   | 53    | %      |  |   | 52      | % |  |   | 51    | % |  |   | 51    | %
|                               |  |                          |       |   |                          |   |       |       
|Cost of sales                  |  |                          | 5,701 |   |                          |   | 5,143 |        |  |   | 5,777   |   |  |         | 5,729 |   |         |   | 5,503 |        |  |   | 4,858   |   |  |   | 5,559 |   |  |   | 5,558 |  
|                               |  |                          |       |   |                          |   |       |        |  |   |         |   |  |         |       |   |         |   |       |        |  |   |         |   |  |   |       |   |  |   |       |  
|Gross profit                   |  |                          | 2,752 |   |                          |   | 2,744 |        |  |   | 2,944   |   |  |         | 2,830 |   |         |   | 3,009 |        |  |   | 2,729   |   |  |   | 2,730 |   |  |   | 2,529 |  
|% of sales-Wireless Solutions  |  |                          | 41.2  | % |                          |   | 41.3  | %      |  |   | 41.7    | % |  |         | 34.1  | % |         |   | 39.9  | %      |  |   | 40.4    | % |  |   | 39.0  | % |  |   | 37.6  | %
|% of sales-Wireless Components |  |                          | 24.6  | % |                          |   | 28.0  | %      |  |   | 25.8    | % |  |         | 32.1  | % |         |   | 31.4  | %      |  |   | 31.8    | % |  |   | 27.2  | % |  |   | 25.2  | %
|% of sales-Total               |  |                          | 32.6  | % |                          |   | 34.8  | %      |  |   | 33.8    | % |  |         | 33.1  | % |         |   | 35.4  | %      |  |   | 36.0    | % |  |   | 32.9  | % |  |   | 31.3  | %
|                               |  |                          |       |   |                          |   |       |       
|Operating expenses:            |  |                          |       |   |                          |   |       |        |  |   |         |   |  |         |       |   |         |   |       |        |  |   |         |   |  |   |       |   |  |   |       |  
|Research and development       |  |                          | 758   |   |                          |   | 769   |        |  |   | 808     |   |  |         | 906   |   |         |   | 898   |        |  |   | 758     |   |  |   | 828   |   |  |   | 792   |  
|Sales and marketing            |  |                          | 1,171 |   |                          |   | 1,092 |        |  |   | 1,217   |   |  |         | 1,340 |   |         |   | 1,189 |        |  |   | 1,248   |   |  |   | 1,222 |   |  |   | 1,130 |  
|General and administrative     |  |                          | 621   |   |                          |   | 589   |        |  |   | 589     |   |  |         | 490   |   |         |   | 694   |        |  |   | 597     |   |  |   | 566   |   |  |   | 623   |  
|                               |  |                          |       |   |                          |   |       |        |  |   |         |   |  |         |       |   |         |   |       |        |  |   |         |   |  |   |       |   |  |   |       |  
|Total                          |  |                          | 2,550 |   |                          |   | 2,450 |        |  |   | 2,614   |   |  |         | 2,736 |   |         |   | 2,781 |        |  |   | 2,603   |   |  |   | 2,616 |   |  |   | 2,545 |  
|                               |  |                          |       |   |                          |   |       |        |  |   |         |   |  |         |       |   |         |   |       |        |  |   |         |   |  |   |       |   |  |   |       |  
|Income from operations         |  |                          | 202   |   |                          |   | 294   |        |  |   | 330     |   |  |         | 94    |   |         |   | 228   |        |  |   | 126     |   |  |   | 114   |   |  |   | (16   | )
|Other income (expense), net    |  |                          | (299  | ) |                          |   | (115  | )      |  |   | (106    | ) |  |         | (86   | ) |         |   | (59   | )      |  |   | (45     | ) |  |   | (43   | ) |  |   | (61   | )
|                               |  |                          |       |   |                          |   |       |        |  |   |         |   |  |         |       |   |         |   |       |        |  |   |         |   |  |   |       |   |  |   |       |  
|Income before income taxes     |  |                          | (97   | ) |                          |   | 179   |        |  |   | 224     |   |  |         | 8     |   |         |   | 169   |        |  |   | 81      |   |  |   | 71    |   |  |   | (77   | )
|Income tax expense (benefit)   |  |                          | 5     |   |                          |   | 5     |        |  |   | 5       |   |  |         | (13   | ) |         |   | 9     |        |  |   | 4       |   |  |   | (1    | ) |  |   | 4     |  
|                               |  |                          |       |   |                          |   |       |        |  |   |         |   |  |         |       |   |         |   |       |        |  |   |         |   |  |   |       |   |  |   |       |  
|Net Income (loss)              |  | $                        | (102  | ) |                          | $ | 174   |        |  | $ | 219     |   |  | $       | 21    |   |         | $ | 160   |        |  | $ | 77      |   |  | $ | 72    |   |  | $ | (81   | )
|                               |  |                          |       |   |                          |   |       |        |  |   |         |   |  |         |       |   |         |   |       |        |  |   |         |   |  |   |       |   |  |   |       |  



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Executive Summary

The market profiles in which our two segments operate are materially distinct from one another. The Wireless Components segment is characterized by a very competitive environment that has declining
average unit 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 30 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 segment is characterized as a



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##### Index to Financial Statements

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, although some larger competitors do exist.

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; (d) our sales channels to gain access to customers and (e) our ability to have high quality cost-effective products manufactured in volume with
acceptable lead times. Our manufacturing capabilities consist mostly of our relationships with several domestic and offshore contractors. To enhance our sales channels, we recently announced a new agreement with a global distributor, Future
Electronics, and the expansion of an existing agreement with Avnet Inc.

We have focused our product and market development
efforts on products for our Wireless Solutions segment, which we feel offers a technical edge and normally generates a greater gross margin. Our Wireless Components segment, which historically was our core business, has generally declined in sales
due to decreased average unit selling prices in several intensely competitive markets and due to our loss of market share to competing technologies.

A key factor in our sales performance is our degree of success in developing and selling new products in volumes adequate to offset the decline in unit selling prices and volumes of our older products.
Two key factors in our gross margin performance are expected to be reducing our costs (through innovation, assisting our contractors to identify lower manufacturing costs, and increased volume) and improving our product mix towards higher margin
products to offset expected declines in average selling prices and volumes.

Generally we have had positive operating cash
flows in recent periods, including our three most recent fiscal years. See the section below entitled Liquidity for discussion of cash flows for the current year. Our ability to maintain positive cash flows is dependent on our
success in controlling our expenses in relation to our sales. See the next section below entitled Impact of Economic Conditions and Our Response for discussion of our cost control program. In any case, the amount of positive cash
flow may decrease or occasionally turn negative due to the need for increased working capital, fluctuating revenues, declining margins, escalating operating costs, or increased spending to support growth programs. We feel we currently have the
financial resources necessary to execute our business plans.

Impact of Economic Conditions and Our Response

The world-wide economic recession had a material impact on our sales and operations in recent fiscal years. Sales for
the past three years still remain significantly below fiscal 2008 levels. The initial impact of the recession on RFM was significant losses for two quarters in fiscal 2009 (the second and third quarters) and the year. We reacted with a series of
cost savings measures and we have had generally improved results since then. These cost savings measures included reductions in head count and in salaries and various benefit programs. The salary reductions were restored in stages during fiscal
2010.

We believe that our operating results for the last two fiscal years demonstrate that we have taken appropriate actions
to control expenses in our business. We reported net income for six of the last eight quarters. Only our decision to obtain a new lender prevented us from reporting net income for the first quarter of fiscal 2010 (see the section below entitled
Financing Arrangementsfor further discussion of our banking arrangements). In our fourth quarter of fiscal 2011, we would have reported essentially a breakeven quarter, except for our increased allowance for trade receivables,
which is relatively unusual for us (see the section below entitled General and Administrative Expenses). We feel this confirms that our business model can be profitable even at a relatively low level of sales.



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##### Index to Financial Statements

Demand within the electronics industry fluctuates widely over short periods. These
fluctuations are a key factor that influences our sales performance. We believe our markets are in a period of relatively stable overall demand, although they have not yet returned to prior levels.

Because our core business is now generating operating income at much lower sales levels than prior periods, we have demonstrated the
ability to match expense levels with expected revenue. While our cost reductions have resulted in a much lower cost business model, current economic conditions make forecasting future profitability very difficult, and there can be no assurance that
we will achieve profitability in the future.

Critical Accounting Policies and Estimates

Revenue/Sales are recognized for the most part when we ship the product to the customer. The exception
is any consignment programs for customers. We recognize sales from consigned products when the customer pulls the product for use from the consigned inventory. Currently, there are only a few consignment programs in place, which are not significant
to our total sales.

In all cases, we recognize product sales at the point at which legal title passes to the customer. Our
standard terms and conditions are FOB our factory (including our contract manufacturers). We permit the return of defective products and accept limited amounts of product returns in other instances on a case-by-case basis. Accordingly, we provide
allowances for the estimated amounts of these returns based on historical experience when we recognize revenue. A small portion of our revenue is derived from engineering design services performed for customers.

Trade Receivablesconsist primarily of amounts due from customers for products shipped to them. We perform credit
evaluations of our customers and adjust credit limits based upon payment history and the customers current creditworthiness. We continuously monitor collections and payments from customers and maintain an allowance for doubtful accounts based
upon historical experience and specific customer information. If events occur that cause the collectibility of outstanding trade receivables to become unlikely, we record an increase to our allowance for doubtful accounts. When all collection
attempts (including a collection agency) have proven unsuccessful, the customers account is written off to the allowance for doubtful accounts. We maintain credit insurance on major customer balances and have a relatively diversified customer
base.

Any customer advance payments are accounted for as deferred revenue until the related product is shipped to the
customer.

Inventories are valued at the lower of: (i) the actual cost to purchase or manufacture the
inventory (on a first-in, first-out basis) or (ii) the current estimated market value of the inventory. We use a standard cost system to estimate the actual costs of inventory and regularly review actual costs and the estimated market value of
inventory to standard costs. Significant changes to our purchasing or manufacturing costs (either an increase or a decrease) could cause material changes to the valuation of our inventory when we adjust standard costs to reflect the change. While we
have outsourced most of our manufacturing, we still have some remaining overhead costs that we include in inventory. Overhead costs are included in inventory via a material overhead rate.

We estimate the market value of inventory based upon existing and forecasted demand for end products for the next twelve months and
estimated amounts of inventory that would be consumed. We reduce the valuation of inventory items that are in excess supply compared to demand, items that have had limited usage over time, items that may no longer be usable due to product
obsolescence and items that we decide to discontinue selling. We have a product rationalization process that involves key management personnel to identify and evaluate products and related inventory that fall into one or more of these categories.



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##### Index to Financial Statements

In recent years, we have written off significant amounts of inventory. In the current year,
we provided $698,000 in inventory loss provisions. In the prior fiscal year, we provided a total of $967,000 in inventory loss provisions. In fiscal 2009, we provided a total of $720,000 in inventory loss provisions.

If the facts and circumstances require it, we may have to write down inventory again in future periods. The electronics industry is
characterized by rapid technological change, frequent new product development and rapid product obsolescence that could make such write-downs necessary. Also, estimates of future product demand may prove to be inaccurate, in which case the valuation
adjustments for obsolete and slow moving inventory may be understated or overstated. If we change our estimate of future demand, we may have to increase or decrease our inventory valuation reserves for excess inventory, with a corresponding impact
on cost of sales. We continually review our inventory valuations for all of these factors. However, significant changes in manufacturing costs, unanticipated changes in product demand or technological developments could have a significant impact on
the value of inventory and reported operating results.

Results of Operations

In this 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 fiscal year ended August 31, 2011, referred to as current year or fiscal 2011, is compared to our fiscal year ended August 31, 2010,
referred to as prior year or fiscal 2010. Fiscal 2010 is compared to our fiscal year ended August 31, 2009, referred to as fiscal 2009.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The three months ended August 31, 2011, referred to as current quarter or fourth quarter, is compared to the three months ended August 31,
2010, referred to as comparable quarter of the prior year or prior year quarter, and the three months ended May 31, 2011, referred to as the previous quarter or third quarter.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table displays, for the years ended August 31, (a) the percentage relationship of certain items from our
statements of operations to total sales and (b) the percentage change in these items from year to year. As you can see, there is a great deal of similarity between fiscal 2010 and 2011.



|                            |  |                     |     |   |                      |  |     |              |  |  |     |   
|--------------------------- |  | ------------------- | --- | - | -------------------- |  | --- | ------------ |  |  | --- | --
|                            |  | Percentage of Sales |     |   | Year-to-Year %Change | 
|                            |  | 2011                |     |   | 2010                 |  |     | 2010 to 2011 | 
|Sales                       |  |                     | 100 | % |                      |  | 100 | %            |  |  | (3  | )%
|Cost of sales               |  |                     | 66  |   |                      |  | 66  |              |  |  | (4  | ) 
|                            |  |                     |     |   |                      |  |     |              |  |  |     |   
|Gross profit                |  |                     | 34  |   |                      |  | 34  |              |  |  | (2  | ) 
|Research and development    |  |                     | 10  |   |                      |  | 10  |              |  |  | 1   |   
|Sales and marketing         |  |                     | 15  |   |                      |  | 14  |              |  |  | (1  | ) 
|General and administrative  |  |                     | 8   |   |                      |  | 7   |              |  |  | 8   |   
|                            |  |                     |     |   |                      |  |     |              |  |  |     |   
|Total operating expenses    |  |                     | 33  |   |                      |  | 31  |              |  |  | 2   |   
|                            |  |                     |     |   |                      |  |     |              |  |  |     |   
|Income from operations      |  |                     | 1   |   |                      |  | 3   |              |  |  | (51 | ) 
|Other income (expense), net |  |                     |    |   |                      |  | (2  | )            |  |  | (66 | ) 
|                            |  |                     |     |   |                      |  |     |              |  |  |     |   
|Income before income tax    |  |                     | 1   |   |                      |  | 1   |              |  |  | (22 | ) 
|Income tax expense          |  |                     |    |   |                      |  |    |              |  |  | 700 |   
|                            |  |                     |     |   |                      |  |     |              |  |  |     |   
|Net income                  |  |                     | 1   | % |                      |  | 1   | %            |  |  | (27 | )%
|                            |  |                     |     |   |                      |  |     |              |  |  |     |   



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##### Index to Financial Statements

Sales

Sales by Segment

The following table displays, in thousands of dollars, sales for our segments and the percentage relationship of those segments to total sales for the periods indicated. These figures will be used when
discussing trends in the following paragraphs.



|                            |  |        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  
|--------------------------- |  | ------ | ------ |  | --------- |  | --- | ------ |  | - | --------- |  |  | ------ | --- | - | --------- | - | ------ |  |  |  | --- | -
|                            |  | 2011   |        |  | 2010      |  |     | 2009   | 
|                            |  | Amount |        |  | %of Total |  |     | Amount |  |   | %of Total |  |  | Amount |     |   | %of Total |  
|Segment sales:              |  |        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  
|Wireless Solutions segment  |  | $      | 15,669 |  |           |  | 48  | %      |  | $ | 16,465    |  |  |        | 49  | % |           | $ | 17,962 |  |  |  | 56  | %
|Wireless Components segment |  |        | 16,806 |  |           |  | 52  |        |  |   | 17,155    |  |  |        | 51  |   |           |   | 14,022 |  |  |  | 44  |  
|                            |  |        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  
|Total sales                 |  | $      | 32,475 |  |           |  | 100 | %      |  | $ | 33,620    |  |  |        | 100 | % |           | $ | 31,984 |  |  |  | 100 | %
|                            |  |        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  



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##### Index to Financial Statements

Sales by Market Application

The following table compares market sales, in thousands of dollars, and the percentage relationship of those markets to total sales for
the periods indicated. These figures will be used when discussing trends in the following paragraphs.



|              |  |        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  
|------------- |  | ------ | ------ |  | --------- |  | --- | ------ |  | - | --------- |  |  | ------ | --- | - | --------- | - | ------ |  |  |  | --- | -
|              |  | 2011   |        |  | 2010      |  |     | 2009   | 
|              |  | Amount |        |  | %of Total |  |     | Amount |  |   | %of Total |  |  | Amount |     |   | %of Total |  
|Market sales: |  |        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  
|Industrial    |  | $      | 11,219 |  |           |  | 35  | %      |  | $ | 11,119    |  |  |        | 33  | % |           | $ | 10,067 |  |  |  | 32  | %
|Medical       |  |        | 4,444  |  |           |  | 14  |        |  |   | 4,457     |  |  |        | 13  |   |           |   | 6,129  |  |  |  | 19  |  
|Automotive    |  |        | 10,816 |  |           |  | 33  |        |  |   | 11,522    |  |  |        | 34  |   |           |   | 6,530  |  |  |  | 20  |  
|Consumer      |  |        | 2,899  |  |           |  | 9   |        |  |   | 3,666     |  |  |        | 11  |   |           |   | 3,223  |  |  |  | 10  |  
|Other         |  |        | 3,097  |  |           |  | 9   |        |  |   | 2,856     |  |  |        | 9   |   |           |   | 6,035  |  |  |  | 19  |  
|              |  |        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  
|Total sales   |  | $      | 32,475 |  |           |  | 100 | %      |  | $ | 33,620    |  |  |        | 100 | % |           | $ | 31,984 |  |  |  | 100 | %
|              |  |        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  

Products sold to the industrial and medical markets are primarily Wireless Solutions segment products and
products sold to the automotive, consumer, telecommunications and other markets are primarily Wireless Components segment products.

Overall Sales Trends in Fiscal 2011 Compared to Fiscal 2010

Summary

Our total sales of $32.5 million decreased 3% in fiscal 2011 compared to $33.6 million in fiscal 2010. Wireless
Components sales of $16.8 million decreased 2% from the prior year and Wireless Solutions sales of $15.7 million decreased 5% from the prior year. The negative factors included the impact of production issues that impacted the third and fourth
quarters, the decline in sales of some mature products, economic conditions in specific markets and the ongoing effect of declining average selling prices in competitive markets. The positive factors that partially offset the negative items were
some success in introducing new products, the effect of changes in product mix within our segments that resulted in an increase in average selling prices and a specific HI-REL filter program. In addition to these factors, we continue to see
fluctuations in sales due to changing production schedules, both up and down, for major customers, which can materially affect sales levels in any given period.

Overall economic conditions were flat to somewhat down in the markets we serve, as indicated in the section below entitled Markets. One impact of these economic conditions is that there have
been some program delays that pushed out new programs for which we have design wins. It is not clear when these programs will begin to have a significant impact on our sales, if ever. Economic conditions in the electronics industry have historically
experienced extreme fluctuations in demand within short time periods, so that is a key factor that influences our sales performance. We believe the markets that we serve have not yet returned to prior levels before the recession.

Markets

As seen in the schedule above entitled Sales by Market Application, we have five major markets that we serve. The
industrial and medical markets are the primary targets for our Wireless Solutions segment. Sales to these two markets were nearly the same in comparison to the prior year. One trend that occurred within these markets is that sales for relatively
higher-priced RF module products increased with improved economic conditions and some penetration for new products, while sales for relatively lower-priced

short-range radio products decreased due to the effect of customer inventory reduction programs and production issues that occurred.

The automotive, consumer and other markets are the primary targets for our Wireless Components segment. Sales to the automotive market
decreased 6%, primarily because a program for a short-range radio product has been ended. Sales to the consumer market decreased 21%, as economic conditions and continuing decreases for mature products impacted several programs, particularly for
low-power component products. Sales to Other markets increased 8%, as an increase in sales for a HI-REL filter program had a greater effect than an overall reduction in sales to telecommunications customers for mature products.



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##### Index to Financial Statements

Segments

Strategy

As seen in the schedule above entitled Sales by
Segment, we have two segments, the Wireless Solutions segment and the Wireless Components segment. We have experienced a long-term trend of lower sales for Wireless Components segment products, including for some of our mature products,
both due to a trend towards lower average selling prices and continued conversion of customers to alternative technologies. Our strategy has been to grow our Wireless Solutions segment to offset an expected long-term decline in the Wireless
Components segment.

In recent years, we have invested considerable resources in product and marketing
development to support our strategic plan for the Wireless Solutions segment. In the past year, we have launched six major product launches, including: (1) our WLS series of Wi-Fi and Wi-Fi and Bluetooth® combination modules; (2) a ZigBee Pro module; (3) a battery operated Wi-Fi sensor modem; (4) a low
cost 900 MHZ DNT frequency hopping module for wireless sensor applications; (5) a low cost 2.4 GHz DNT frequency hopping module for sensing, telemetry and control applications; and (6) Peel and Stick modular sensor modems and
gateways, which are platform products for wireless sensor networks. Each of these is a broad product offering to large markets such as medical and industrial monitoring and smart home applications. A key part of our Wireless Solutions strategy is
focused on a potential multi-billion dollar market for the sensor modem portion of the M2M market and a wide variety of short-range radios that are very energy efficient. We are not certain when, if ever, new products developed for this market will
have a significant additive effect on future sales.

An important consideration in our decision to expand resources in the
Wireless Solutions segment was the increased potential gross margin these products offer due to their higher technical content. Our total sales on a company-wide basis will likely expand only if the anticipated growth in Wireless Solutions sales
exceeds the anticipated decline in sales for our Wireless Components products.

Wireless Solutions Segment

Wireless Solutions segment sales of $15.7 million decreased 5% from $16.5 million in the prior
year. The primary reason for the decrease in sales was a 23% decrease in the number of units sold. The reduction in units sold was for our short-range radio products, primarily the Virtual Wire® product, which declined due to customer inventory reduction programs that were completed during the current year, the end of an automotive program and production
issues that occurred, which are described in the following paragraph.

In the Manufacturingsection of this report, we explain the complex manufacturing process involved in making our products. This is particularly true for our Virtual Wire® products, since they involve both the fabrication of SAW components and the assembly of the hybrid module. From time to time our contract manufacturers experience
production issues, which occurred in the third and fourth quarters. In the third quarter, we experienced delays in shipments, which negatively affected our sales. While shipments for Virtual Wire® products returned to normal levels in the fourth quarter, we were unable to make up the shortfall in shipments from the previous quarter. Had we been able to ship all
available backlog in the fourth quarter, our overall quarterly sales would have neared previous year levels. To address these production issues, we have added new personnel with specific expertise in fabrication and assembly manufacturing and we
will continue to deploy various resources to improve our supply chain and support our offshore manufacturers, as required. As part of our continuous improvement process we are looking at all aspects of the supply chain for improved performance,
lower costs and additional capacity in fiscal 2012.



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##### Index to Financial Statements

Offsetting most of the impact of the reduction in units sold of Virtual
Wire® products was an increase in average selling prices of 22%. The reason for the increase in average selling
prices was the reduction in the number of units sold of the relatively low-priced short-range radio products and increase in the number of units sold of relatively high-priced RF Module products. The increase in RF Module sales was due to recoveries
in economic conditions and some penetration of new products in the industrial and medical markets for these products, particularly for higher priced custom versions of those products. Partially offsetting the overall increase in average selling
prices for the Wireless Solutions segment was a 3% decrease in average selling prices for the short-range radio product line, as the units that experienced inventory reductions were primarily the relatively higher priced versions of these products
and there was some increase in sales of relatively lower priced RFIC products.

Wireless Solutions products continue to be
affected by changes to production schedules for several major customers and in medical, industrial, automotive and consumer applications. These major customers are OEM customers and contract manufacturers and distributors. These customers have
historically shown considerable volatility that we expect to continue.

The greater relative decrease in Wireless Solutions
segment sales in comparison to the smaller decrease in Wireless Components segment sales in the current quarter resulted in the Wireless Solutions segment decreasing as a percentage of total sales from 49% in the prior year to 48% in the current
year. This was an unfavorable product mix shift from a gross margin standpoint.

Wireless Components Segment

Wireless Components sales of $16.8 million decreased 2% from $17.2 million in the prior year. The overall sales
decrease was primarily due to a 7% decrease in average selling prices as a result of continued competitive conditions, as well as changes in product mix within this segment. The same factors caused sales of the largest of the product lines within
this segment, filters, to experience a 13% increase in the number of units sold, but also a 13% reduction in average selling prices. The increase in filter units sold was primarily due to an increase in sales of relatively low-priced satellite radio
filters in line with increased automotive production. The decrease in average selling prices was due to both the ongoing effects of severe price competition in automotive markets and the effect of selling fewer units of relatively higher-priced
telecommunication filters as those markets declined due to economic conditions and decreases in sales of mature products. Sales of HI-REL filters in our first two quarters both contributed significantly to sales and partially offset the overall
decrease in average selling prices. The frequency control product line also experienced an increase in the number of units sold, but it was accompanied by a lower average selling price due to a product mix shift. Within this product line, the number
of units sold of much lower-priced crystal products, mostly for the automotive market, increased 73%, so a sizable increase in sales for crystals contributed to the lower average selling prices for the segment as a whole. RFM introduced a line of
crystal-based products over a year ago and these are now gaining acceptance in the marketplace. Low-power components sales decreased 12% due to a similar decrease in the number of units sold, mostly for mature products, including some for consumer
markets.

The automotive, consumer and telecom markets all have shown significant volatility in recent years, as end customers
change their production schedules for those markets. This includes sales for our primary application for the automotive and consumer markets, satellite radio. We provide filters for satellite radios that provide content from Sirius XM Radio, Inc.
(NASDAQGS: SIRI), which has announced that its customer base increased to 21 million subscriptions. Earlier this year we announced that we had shipped over 100 million filters for this application. The supply chain for North American
automotive production has been subject to volatile changes in production levels and inventory corrections in recent years, resulting in both quarterly increases and decreases. We expect the volatility of sales to automotive, consumer and telecom
markets to continue.



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##### Index to Financial Statements

Sales Risk Factors

We continue to experience the effect of changes in production schedules at major customers which for many of our products are OEMs,
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.

Our ability to grow or even maintain our sales levels is highly dependent on various factors, including: (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.

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

Many of our products involve very complex manufacturing processes and from time to
time our supply chain partners experience problems with them. In fiscal 2011, we experienced delays in shipments for some Wireless Solutions products, which was a significant reason sales decreased from prior year levels. This delay occurred for
Virtual Wire® products. We have taken proactive measures and will continue to deploy resources to improve our
supply chain and support our offshore manufacturers as required. We have made significant progress in resolving the production issues and we returned to normal production levels in our fourth quarter.

We have experienced sudden increases in demand in the past, which have strained the manufacturing capabilities of our offshore
contractors and their raw material suppliers. We have seen lead times lengthen for key raw materials such as packages and integrated circuits. In addition, new products sometimes require manufacturing processes different than those to which we
currently have access. Our assembly contractors may not be able to procure sufficient raw materials, or 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. We believe we are currently in a period of increased raw material lead times that may negatively affect our near term sales prospects. We have mitigated this risk
somewhat by increasing inventory on a selective basis.

Decline in Average Selling Prices

We compete in very price-competitive markets (particularly those for the Wireless Components segment, such as the
automotive and satellite radio markets), in which customers require decreased prices over time to retain their business. In addition, our customers expect economies of scale to result in lower pricing as new products ramp up in volume. As a result,
our Wireless Components segment experienced a decline in average selling prices of 7% in fiscal 2011 compared to fiscal 2010. The Virtual Wire® product line also experienced a 3% decline in average selling prices on a year-to-date basis. A portion of the decrease in average selling prices was a product mix
shift within the filter and frequency control product lines, including a large increase in crystal-based products. The impact of reductions in average selling price due to this product mix effect tend to be at least partially offset by differences
in material costs, as the higher-priced products come in larger, more expensive packages. However, a portion of the decrease in average selling prices also was due to competitive conditions within those markets. To participate in new programs or
even continue with old ones, we had to lower selling prices for specific products.



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##### Index to Financial Statements

In contrast, in the Wireless Solutions segment experienced an increase in average selling
prices of 22%. The increase in average selling prices was due to product mix shifts within this segment, rather than an increase in prices for similar products. Normally an increase in average selling price also results in an increase in material
costs, as they involve higher-cost products. The price pressures for the Wireless Solutions segment are normally not as great as they are for the Wireless Components segment. However, over the long term, we would expect there to be a trend toward
lower average selling prices for Wireless Solutions products because we are introducing products that are targeted at lower price points and higher sales volumes, including recently announced RF module products, as well as a series of RFIC products.
However, changes in product mix reflecting relatively more sales of higher-priced products such as medical products may from time to time offset any negative impact on average selling prices for other products.

We have achieved significant market position in 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, consumer and other markets. A decline in average selling prices adversely affects gross margin,
as well as sales. We expect the general trend of lower average selling prices for comparable products will continue to have an adverse effect on future sales and margins. Therefore, offsetting this downward pressure is an important part of our
strategic plan. For a discussion of strategies for sustaining our gross profit, see the section below entitled Gross Profit.

Overall Sales Trends in Fiscal 2010 Compared to Fiscal 2009

Summary

Our total sales of $33.6 million increased 5% in fiscal 2010 compared to $32.0 million in fiscal 2009. The increase in
sales was largely related to a partial recovery in economic conditions in several markets that we serve. The most significant increase was for sales to the automotive market, which increased 76% over the very depressed sales of the prior year. North
American automotive production schedules were much increased from the prior year. There were also increases of 12% for sales to industrial markets and 14% to consumer markets. Both of these increases were related to improved economic conditions in
those markets. On the other hand, economic conditions in the telecommunications market did not improve and we experienced some loss of market share, for which our sales decreased 49%. Sales to the telecommunications market are now reported in our
Other category. Sales to medical markets also declined by 28% in comparison to the prior year. We believe that was largely a result of lower production schedules for major customers, resulting from an effort to reduce inventory in that
supply chain. Sales to other markets, which are much smaller for us, decreased 60%, primarily as a result of the end of a particular military-grade product program. The primary reason for the changes in sales to each of these markets was a
corresponding change in the number of units sold, mostly due to changes in economic conditions in the markets we serve.

Segments

The sales increase from the prior year was primarily due to a 22% increase in sales of our Wireless Components segment to $17.2 million in comparison to $14.0 million in the prior year. Two of the major
markets for these products are the automotive and consumer markets which are very sensitive to economic conditions. Therefore this segment benefited from the recovery in the automotive and consumer markets as noted above. A primary application for
both markets is satellite radio filters, which experienced a very large increase in number of units shipped. Two of our largest customers this year were automotive customers. This resulted in an overall 58% increase in the number of units sold for
this segment, including the impact of a ramp up of new filter programs. This was partially offset by a decrease in sales to telecommunications markets, as we experienced some loss of market share due to price competition in a price sensitive market.

In contrast, sales for the Wireless Solutions segment decreased from $18.0 million in the prior year to $16.5 million. Two of
the major markets for these products are the industrial and medical markets. As noted above, sales decreased in medical markets as a result of lower production schedules for major customers, we believe resulting from an effort to reduce inventory in
that supply chain.



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##### Index to Financial Statements

The decrease in Wireless Solutions sales was despite an overall increase in the number of
units sold of 10%. The net reduction in sales was primarily due to a 17% decrease in average selling prices resulting from a lower number of higher-priced medical units being sold and a higher number of all other units being sold. This decrease in
average selling prices was also the primary reason for the overall decrease in gross margins for Wireless Solutions products for the year.

Within our Wireless Solutions segment, the recovery of sales for RF module products appears to be lagging the recovery of sales for our Wireless Components products. Sales of RF module products declined
later in fiscal 2009 and only later in the current fiscal year have they experienced a partial recovery. This appears to be due to the delayed impact of the economic downturn for these products, particularly for industrial surveying and telemetry
products, which have been adversely affected by a low level of construction activity. A year ago, these products were less significantly impacted by economic conditions.

The increase in sales for the Wireless Components segment and decrease in sales for the Wireless Solutions segment resulted in the Wireless Solutions segment decreasing as percentage of total sales from
56% in fiscal 2009 to 49% in fiscal 2010. We believe this was due to an unfavorable product mix shift from a gross margin standpoint.

Other Sales Trends

The following table provides additional data concerning
our sales:



|                                           |  |                     |     |   |      |  |     |      |  |  |     |  
|------------------------------------------ |  | ------------------- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                                           |  | Percentage of Sales |    
|                                           |  | 2011                |     |   | 2010 |  |     | 2009 | 
|Sales for top five customers               |  |                     | 47  | % |      |  | 47  | %    |  |  | 39  | %
|Distribution sales                         |  |                     | 39  | % |      |  | 39  | %    |  |  | 27  | %
|Number of customers with 10% or more sales |  |                     | One |   |      |  | One |      |  |  | One |  
|Sales for 10% or more customer             |  |                     | 22  | % |      |  | 18  | %    |  |  | 11  | %
|International sales                        |  |                     | 64  | % |      |  | 61  | %    |  |  | 50  | %

The fiscal 2011 results as seen in this table are very similar to fiscal 2010 results. The small increase
in international sales in comparison to the prior year was partially the result of a major customer shifting its delivery point from North America to an international location.

Our strategy is to seek diversification in our sales. We believe we have achieved a significant level of diversification in our
customers, markets, products and geographic areas. 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. International sales are
denominated primarily in U.S. currency, although some European customers require that we price their product orders 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, and 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.



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##### Index to Financial Statements

Gross Profit

Overall Gross Profit Trends in Fiscal 2011 Compared to Fiscal 2010

Summary

The current year gross profit was $11.0 million, which was 2% less than the prior years $11.3 million, due to a 3% decrease in sales partially offset by a 40 basis point increase in gross margin as
a percentage of sales. Our Gross profit margin increased to 33.9% in the current fiscal year compared to the prior fiscal years 33.5%. The increase in gross margin primarily was due to improved product mix within our Wireless Components
segment and a reduction in overhead cost of sales.

Because we have outsourced our manufacturing, our primarily element of
cost of sales is materials expense. However, we still have some remaining overhead cost of sales in the amount of $3.6 million that consists primarily of relatively fixed costs relative to sales. This includes the salaries and benefits of our staff
that manages and supports our supply chain, depreciation on the shared cost of capital equipment and the expense related to slow moving or obsolete inventory. This expense was approximately $250,000 less than the previous year, primarily as a result
of $269,000 in lower expenses related to slow moving inventory. This was despite incremental costs related to the production issues that occurred in our third and fourth quarters. As a result, overhead costs as a percentage of sales decreased by
0.4%.

Segments

Gross margin trends were different for our two business segments. Gross margins for our Wireless Components segment increased from 27.7% in fiscal 2010 to 28.9% in fiscal 2011. The shift in product mix
towards higher-margin frequency control modules and HI-REL filters that occurred in our first and second quarter was the primary reason for this increase. Periodically we secure relatively higher-margin contracts like the HI-REL filter program, but
that was a discrete program of limited duration. The increase in Wireless Components segment gross margin occurred notwithstanding various changes in product mix and competitive forces that resulted in a reduction in average selling prices for this
segment of 7%. Each of the volume product lines within this segment were able to hold or improve gross margins by reducing per unit manufacturing costs. The product mix impact and our cost reduction efforts allowed us to reduce per unit
manufacturing costs for this segment by 9%, including the effect of lower overhead cost of sales.

Gross
margins for our Wireless Solutions segment, on the other hand, decreased in comparison to the prior year  from 39.6% in fiscal 2011 to 39.2% in fiscal 2010. In this case, average selling prices decreased 17% for this segment, while per unit
manufacturing costs only decreased 14%, not quite enough to offset the selling price decrease. The primary reason for the decrease in Wireless Solutions gross margin was due to a decrease in gross margin for our Virtual Wire® product line. This was a result of a 3% lower average selling price resulting from lower sales of higher-priced
medical versions of these products and the incremental costs related to production issues. In addition, for this product line there was an increase in the relatively fixed overhead costs per unit due to the reduction in sales for the Virtual Wire® products discussed in the sales section entitled Wireless Solutions Segment. Gross margins for
the RF module portion of this segment actually increased slightly, due to increased sales of relatively higher priced custom products that resulted in a 24% increase in average selling prices.

Overall Gross Profit Trends in Fiscal 2010 Compared to Fiscal 2009

Gross profit margin decreased to 33.5% in fiscal 2010 compared to the fiscal 2009 gross margin of 36.3%. This 2.8% reduction in gross
margin was primarily due to the impact of changes in product mix, both between our two segments and within each of them. The overall shift in product mix towards automotive and consumer markets and away from medical and telecommunications markets
had an unfavorable impact on gross margins.



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Historically our Wireless Solutions segment has higher gross margins than our Wireless
Components products due to their higher technical content and more favorable competitive situation. Therefore, a shift in sales to Wireless Solutions products has a positive effect on margins, and a shift in sales to Wireless Components products has
a negative effect on margins. Gross margins in fiscal 2010 were adversely impacted by the shift in sales from our Wireless Solutions segment to only 49% of total sales from 56% in fiscal 2009.

Gross margin trends were similar for our two business segments. Gross margins for our Wireless Components segment decreased from 29.7% in
fiscal 2009 to 27.7% in fiscal 2010. Various changes in product mix and competitive forces resulted in a reduction in average selling prices for this segment of 22%. The product mix impact and our cost reduction efforts allowed us to reduce per unit
manufacturing costs by 20%, but this was not quite enough to offset the reduction in average selling prices. These net impacts were primarily due to significant changes in product mix within this segment as well as competitive conditions. Included
was the ramp up of new filter programs. To participate in the new programs, we needed to lower selling prices for specific products. This had the effect of lowering average selling prices that was not entirely offset by lower costs. Another product
mix shift involved a very profitable military grade frequency control module order that occurred in fiscal 2009 but did not recur this year.

Gross margins for our Wireless Solutions segment also decreased in comparison to the prior year  from 41.5% in fiscal 2009 to 39.6% in fiscal 2010. In this case, average selling prices decreased 17%
for this segment, while per unit manufacturing costs only decreased 14%. The cost reduction was not quite enough to offset the selling price decrease. The primary reason for the decrease in average selling prices was a product mix shift within our
Virtual Wire® Short-range Radio product line in which we sold a lower number of relatively higher-priced medical
units and a higher number of all relatively lower-priced other units. Sales to the medical market normally have a higher gross margin potential, due to their higher technical content, so a reduction in those sales had a negative impact on gross
margins. In addition, we incurred some additional manufacturing costs resulting from the ramp up in production of relatively new Wireless Solutions products. Partially offsetting the product mix shift was an increase in sales of custom RF modules to
the industrial market related to partial recovery in economic conditions. Custom RF module sales have relatively high gross margins.

A positive factor for gross margins was the impact our additional sales volume had on spreading overhead costs. Overhead costs for both fiscal 2010 and 2009 were approximately $4 million. Overhead costs
benefited from our ongoing cost reduction efforts. However, inventory reserve provisions increased $247,000, including additional manufacturing costs resulting from the ramp up in production of relatively new products. As a result, overall overhead
costs were similar to the prior year. However, sales increased by 5% from last year. As a result, overhead costs as a percentage of sales decreased by 0.8%. Both of our segments benefited from reduced overhead as a percentage of sales.

Factors Influencing Gross Margins

Our gross margins continue to be influenced by several factors, both favorable and unfavorable, in any given period. Several normally favorable factors that influence gross margins also represent
our long-term efforts to improve gross margins. These are as follows:



| | (1) | Shift in product mix between segments - One element in our strategy to offset selling price increases and increase gross margin is to focus our product and
market development efforts on products that have higher potential gross margins because of their higher technical content and more favorable competitive situation. For us, that primarily relates to Wireless Solutions segment products. In the current
year, gross margins for the Wireless Solutions segment were 39.2%, while the gross margins for the Wireless Components segment were 28.9%.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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However, our strategy does not always result in a favorable shift in product mix. We also
try to take advantage of opportunities to grow our Wireless Components sales if extensive additional supporting resources are not required. Therefore, a shift in sales to Wireless Solutions products normally has a positive effect on margins, and a
shift in sales to Wireless Components products normally has a negative effect on margins. In any given period, however, there are a number of reasons why a particular segments sales increase or decrease and the result may not mirror our long
term strategy to grow Wireless Solutions segment sales. Changes in product mix between our segments in fact had a negative effect on gross margins in this year in comparison to the prior year, since Wireless Solutions sales decreased from 49% of
total sales to 48%. We cannot assure you that our strategy to focus on Wireless Solutions products to increase margins will be achieved in future periods and we expect this volatility in gross margins related to product mix shifts between our
segments will continue.



| | (2) | Shift in product mix within our segments- There are several product lines within each segment and many products within each product line. Given our wide variety
of products, customers and applications, there are a wide variety of gross margin outcomes in any given period. We believe we experience higher gross margins when we custom design for a specific customer than when we are selling a standard product
in a commodity situation. We have historically seen volatility in our gross margins within each segment that significantly affect gross margins. In the current year, for instance, product mix shifts within the Wireless Components segment, including
a HI-REL filter program contributed significantly towards increased gross margins. We target situations in which the technical aspects of our products command higher gross margins. However, our strategy is also to rapidly increase sales, which may
result in an effort to increase sales for standard products in relation to custom products. This could result in an overall decrease in gross margins within a segment. We expect that this volatility in product mix both between our segments and
within them will continue to cause gross margins to fluctuate, sometimes very significantly.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Success in achieving ongoing cost reduction - In addition to our long-term effort to improve gross margins through improved product mix and increased sales
volume, our key strategy for dealing with decreased average selling prices is to reduce our per unit manufacturing costs. We devote considerable resources to obtaining purchasing savings and in working with our suppliers and outside contractors to
improve yields, increase productivity and to improve processes that result in lower costs. Historically we have been able to achieve per unit cost reductions on a year-over-year basis. In the current year, this was achieved for most of our volume
product lines compared to the prior year, including the impact of lower overhead costs per unit. It is possible that while per unit cost savings are achieved, they may not be sufficient to offset the decline in average selling prices. We intend to
continue our efforts to reduce manufacturing costs in future periods, although there is no assurance that this can be done.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Volume Impact on Overhead Cost - If sales increase, this factor results in lowering cost as a percentage of sales, due to relatively high fixed overhead costs
(approximately $3.7 million in fiscal 2011) being spread over a larger amount of sales and production. As stated above, overhead cost of sales decreased by 0.4% of sales in the current year. This compares to the decrease we achieved in the prior
year of 0.8%, which were positive factors for our gross margins. Our plan is to increase sales volumes to achieve this result in future periods; however, there can be no assurance that we can do this. In fact, if sales volumes were to decrease in
future periods, our average unit costs would rise, becoming an unfavorable factor. This in fact occurred in the fourth quarter of the current year, when overhead cost of sales increased more than 1% of sales in comparison to the comparable quarter
of the prior year. We think the effects of sales volume will continue to have a very significant impact on future gross margins.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Normallyunfavorable factors which influence gross margins, some of which are
outside of our control, include, but are not limited to, the following:



| | (1) | Decrease in average selling prices - As discussed in the section entitled Sales, we normally experience a reduction in average selling
prices in both of our segments and in virtually all of our product lines. The average selling price for our Wireless Components segment decreased 7% from the prior year and the average selling price for our Virtual Wire® product line decreased 3% from the prior year, although a portion these decreases was also due to shifts in product
mix. A shift in product mix within a product line can cause a shift in average selling price that is at least partially offset by corresponding changes in related costs per unit. However, lower average selling prices are generally a negative factor
for gross margins and we expect the trend towards lower average selling prices will continue.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The impact of non-cash charges for inventory reserves - Our business involves a high degree of technical change and our marketplace is very dynamic in that
programs for specific customers come and go. New products go into production before final specifications are determined. Sometimes we need to order inventory before we have received an order from a customer in order to meet lead time expectations.
All of these situations may result in excess or obsolete inventory. We review our inventory in detail each quarter and establish reserves to cover anticipated losses from these situations. Provisions for inventory reserves were $698,000 in fiscal
2011, $967,000 in fiscal 2010 and $720,000 in fiscal 2009. We expect that we will continue to require significant inventory reserve provisions in future periods.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Production issues and new product ramp up costs - As indicated in the sales section entitled Wireless Solutions Sales, we sometimes encounter
production issues within our supply chain that result in delayed shipments and increased cost. We estimate that specific production issues have cost us well more than $100,000 in the third and fourth quarters of the current fiscal year. In addition,
we continue to introduce new products into our contract manufacturers processes, and, therefore, we may be subject to unanticipated new product production costs that negatively affect our gross margins. This, in fact, occurred in fiscal 2010
as costs were incurred both in yield loss in production and as part of the inventory reserve provisions mentioned in the preceding paragraph. Given our strategy to introduce new products into the marketplace and our experience with older products,
we expect expenses such as these will continue in future periods.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Operating Expenses

Research and Development Expense

Research and development expense was approximately $3.3 million, $3.2 million and $4.0 million in fiscal 2011, 2010 and 2009, respectively. Research and development expense primarily consists of salaries
and benefits and related outside service costs for our team that develop new products. Fiscal 2011 expense increased only 1% from the prior year. The significant decrease from fiscal 2009 primarily resulted from (1) our cost reduction efforts
as described in the section entitled Impact of Economic Conditions and Our Responseand (2) decreased amortization expense for acquired intangible assets.

Research and development expenses were 10% of sales for fiscal 2011 and fiscal 2010, compared to 12% of sales in fiscal 2009. We believe
that we have retained the core engineering capabilities we need to continue to develop products and service our customers, and that the continued development of our technology and new products is essential to our growth and success. We believe we
have sufficient resources to support our growth strategy for the Wireless Solutions segment and adequate support to maintain our Wireless Components segment. Currently our focus is on developing new short range radio products, RF modules and
crystal-based products for a variety of applications.



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Going forward, in the near term we expect to incur similar research and development
expenses from the levels we incurred in our current year.

Sales and Marketing Expense

Sales and marketing expense was $4.8 million, $4.8 million and $5.1 million in fiscal 2011, 2010 and 2009, respectively. Sales and
marketing expense primarily consists of salaries and benefits for the personnel in our sales and marketing team that work with customers, travel and other costs to promote our products and sales commission expenses for our sales representative firms
that sell our products, which fluctuate in line with sales. Fiscal 2011 expense increased less than 1% from the prior year.

Sales and marketing expense was 15% of sales in fiscal 2011, compared to 14% of sales in fiscal 2010 and 16% of sales in fiscal 2009.
Since fiscal 2011 expense did not change much in comparison to the prior year, the difference in expense as a percentage of sales was primarily due to a small decrease in sales. We continue to improve our sales channels by adding or changing sales
representative firms and distributors, and we expanded our distribution network with two global distributors in fiscal 2011. We intend to pursue increased sales aggressively in future periods, particularly for Wireless Solutions products. We believe
that the greater technical content of the Wireless Solutions segment and our growth strategy require the current level of sales and marketing expense as a percentage of sales, at least for the foreseeable future.

Going forward, in the near term we expect to incur slightly increased sales and marketing expense from the levels we incurred in the
current year, except for sales commission expense which will fluctuate in line with sales levels.

General and
Administrative Expense

General and administrative expense was $2.5 million, $2.3 million and $3.3 million in fiscal
2011, 2010 and 2009, respectively. General and administrative expense primarily consists of salaries and benefits for our team in managing our corporate administrative functions, including our public reporting requirements and related professional
expenses. In fiscal 2011, these expenses increased $0.2 million, or 8%, primarily resulting from an increase in legal expense associated with a successful arbitration that occurred in our first quarter and an $80,000 expense to increase our
allowance for trade receivables that occurred in our fourth quarter. The significant decrease from fiscal 2009 levels primarily resulted from reductions in headcount and other expenses related to our cost reduction efforts. See the section entitled
Impact of Economic Conditions and Our Responsefor further information.

General and administrative expense
was 8% of sales in the current year, compared to 7% of sales in fiscal 2010 and 10% of sales in fiscal 2009. The increase in general and administrative expense as a percent of sales in fiscal 2011 results from an increase in expense as described
above and a 3% decrease in sales. We have significant remaining fixed costs related to managing the business and fulfilling our obligations as a public company.

Going forward, in the near term we expect to incur slightly increased general and administrative expense from the levels we incurred in the current year.

Restructuring and Fixed Asset Impairment Expense

Over the past few years, we have undertaken a series of initiatives to reduce cost. We have outsourced our Dallas, Texas manufacturing facilities, consolidated our back office support functions and
otherwise reacted to challenging economic conditions. This has resulted in approximately $13 million in annual savings. To achieve these savings, we have incurred expenses for employee severance, facility clean up, and obtaining consulting advice on
organizational structure. We also had some fixed asset impairments.



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There was no restructuring expense for the current year or the prior year, compared to
$444,000 in fiscal 2009. Restructuring and impairment expense is summarized in Note 15 to our consolidated financial statements.

Impairment Expense  Intangibles

We are required to perform
annual testing of goodwill and indefinite-lived intangible assets for impairment. First, there is a preliminary test to determine if there is an indication of impairment. We test goodwill annually by comparing the estimated fair value of our
reporting unit (Cirronet) with recorded goodwill to its carrying value. If there is, further tests are performed in each year in which a fair market value assessment was made for both our goodwill and our other intangible assets and compared to our
balance sheet net book values for these assets. The book values on the balance sheet had originally been established using appropriate methods under a similar process performed at the time of the Cirronet acquisition. Those values were partially
dependent on various factors, including a forecast of future sales and cash flows of products to be sold to M2M markets. The current fair value assessment is also based upon many of those same factors, including a current forecast of sales and cash
flows for the various products related to the intangible assets.

The result of this testing was no intangible asset
impairment expense in the current year or prior year, compared to $1.6 million in fiscal 2009. Restructuring and impairment expense is summarized in Note 15 to our consolidated financial statements.

In fiscal 2009, we noted a very significant economic downturn, as detailed in the section above entitled Impact of Economic
Conditions and Our Response.In particular, we noted significant impact on sales for European surveying and telemetry applications, which normally are some of the largest applications for Cirronet products. The impact of the economic
downturn on construction related activity has had negative impact on these applications. The resulting impairment expense was $1.6 million.

As a result of these impairments, amortization expense for fiscal 2010 and beyond has been eliminated. There remains only $925,000 in goodwill and an indefinite-lived intangible asset related to the
Cirronet acquisition on our balance sheet as of August 31, 2011 which remains subject to an annual impairment test. We continue to believe the Cirronet RF module products represent a key building block for our Wireless Solutions strategy.

Total Operating Expenses

Operating expenses were $10.5 million in the current year, compared to $10.4 million in fiscal 2010 and $14.4 million for fiscal 2009. The small $0.1 million increase in the current year compared to the
prior year primarily relates to an increase in general and administrative expense as explained above. The $4.0 million decrease in fiscal 2010 compared to fiscal 2009 primarily resulted from $2.0 million in cost reduction efforts as explained in the
section entitled Impact of Economic Conditions and Our Responseand $2.0 million in restructuring and fixed asset impairment expense and impairment expense of goodwill and other intangible assets as explained in the sections
immediately above this that did not recur in fiscal 2010. We do not expect these unusual expenses to recur.

Operating
expenses were 33% of sales in fiscal 2011, compared to 31% of sales in fiscal 2010, and 45% in fiscal 2009. The increase in operating expenses as a percentage of sales in fiscal 2011 compared to fiscal 2010 results from a 2% increase in expense and
a 3% reduction in sales.

Over the last two years, we have successfully implemented our strategy to control our expenses
relative to sales closely to return to profitability. We have recently adjusted our strategy to allow for small investments to support a growth strategy. In addition, we have restored the salary reductions we initiated as part of our cost reduction
program. As a result, in the near term we expect to incur operating expense similar to or slightly increased from the levels we incurred in our current year, while sales commission expense will continue to fluctuate with sales and product mix.



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##### Index to Financial Statements

Other Income (Expense)

Other expense was $208,000 this year, compared to $606,000 in fiscal 2010 and $647,000 in fiscal 2009. The primary expense for all three
years was interest expense, which decreased throughout these periods as we paid down outstanding bank debt. In addition, interest rates decreased starting in fiscal 2010 because of a new agreement with a new primary lender. Other expense for fiscal
2010 included a first quarter early termination fees of $160,000 and other costs related to our decision to terminate our existing senior lending agreement with our former lender.

Going forward, in the near term we expect to incur similar or slightly decreased non-operating expense from the levels we incurred in our
current year.

Income Tax Expense (Benefit)

In recent years, we recorded small provisions for state income tax or, in some cases, adjustments to alternative minimum federal and state
income tax accruals. Income tax expense was $16,000 in fiscal 2011, $2,000 in fiscal 2010 and income tax benefits of $99,000 in fiscal 2009.

Fiscal 2009 income tax expense was unusual in that we had deferred tax benefits resulting from the intangible asset impairments that did not recur in fiscal 2010 or fiscal 2011. In fiscal 2007 we recorded
a net $421,000 deferred tax liability related to our acquisition of Cirronet, with the difference being adjusted to goodwill, rather than profit and loss. In fiscal 2009, we recorded a deferred tax benefit related to the impairment of intangible
assets. The deferred tax benefit amounts were $13,000 in fiscal 2010 and $111,000 in fiscal 2009. This reduced the net deferred tax liability to $125,000 at the end of fiscal 2011 and 2010.

Since fiscal 2001, we have fully reserved, in a non-cash charge, all deferred tax assets that had been recorded. We continue to maintain
a full valuation allowance on our deferred tax assets due to our historical losses and a limited history of taxable income.

We retain the tax benefits that have been reserved and we will realize the benefits in future periods to the extent we are profitable. As
of the end of the current year, we have income tax carryforwards and other potential tax benefits available to reduce future federal taxable income by approximately $24.4 million as explained in Note 13 to our consolidated financial statements. The
net operating loss (NOL) carryforwards begin to expire on August 31, 2020.

Going forward, we expect to
record relatively small income tax provisions until the recovery of deferred tax assets is more likely than not.

Earnings (Loss) per Share

Net income for the current year was $228,000, compared to $312,000 in fiscal 2010 and a net loss of $3.5 million in fiscal 2009. Our basic and diluted earnings per share were $0.02 in fiscal 2011,
compared to $0.03 for fiscal 2010 and a loss of $0.35 for fiscal 2009.

The current year and the prior year did not have any
material unusual charges, while fiscal 2009 was materially affected by unusual charges. The $3.5 million loss for fiscal 2009 includes $2.1 million for four unusual charges, including $1.6 million for impairment expense for goodwill and other
intangibles assets, $0.4 million for restructuring expense and $0.2 million loss from discontinuing operations, offset by a deferred tax effect credit of $0.1 million. See the sections above entitled Restructuring and Fixed Asset
Impairment Expense andImpairment Expense  Goodwill and Intangiblesfor additional information on these unusual charges.



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##### Index to Financial Statements

In many respects fiscal, 2011 was very similar to fiscal 2010, with slightly reduced sales,
slightly improved gross margins and slightly increased operating expenses. We feel two consecutive years of net income confirms our business model can be profitable at a relatively low level of sales. We also believe that this business model could
generate increased profitability at higher sales levels.

Outside of unusual charges, net income in fiscal 2010 increased
approximately $1.7 million in comparison to fiscal 2009. This was primarily a result of a $2.0 million decrease in operating expenses as a result of our cost reduction program. This was partially offset by a $0.4 million reduction in gross profit.

Fourth Quarter of Fiscal 2011

Unaudited quarterly financial data is presented in Item 6 - Selected Financial Data.

Sales Summary

Sales for the fourth quarter of fiscal
2011 of $8.1 million decreased 6% from $8.6 million in the comparable quarter of the prior year and 2% from $8.3 million in the previous quarter. The sales decreases were primarily due a decrease in average selling prices in both cases, resulting
from both continued competitive pressures and changes in product mix both within and between our business segments. The number of units sold increased in comparison to both periods. Sales were negatively affected by slow economic conditions in
several markets and by production issues in our Virtual Wire® product line. In our previous quarter, we
mentioned the production issues that negatively affected third quarter sales. While shipments for Virtual Wire®
products returned to normal levels in the fourth quarter, we were unable to make up the shortfall in shipments from the previous quarter. Had we been able to ship all available backlog, sales would have neared previous year levels. We are devoting
significant resources to solving these issues and expect to see additional operational improvements in our first quarter.

Segment Sales

Sales for our Wireless Components segment decreased 10% in comparison to the prior year, which accounts for most of the overall decrease in sales. Wireless Components segment sales also decreased 3% from
the previous quarter. These products primarily are sold to the automotive, consumer and other (which includes telecommunications) markets. Most of the sales decreases in both periods related to mature products such as low-power components and
frequency control modules that have been losing market share for some time. This was reflected in a lower number of units sold for these product lines. This was the primary reason why overall sales to the consumer market decreased 43%, and sales to
the other market, which includes telecommunications, decreased 31%, from the comparable quarter of the prior year. For the same reason sales to the consumer market decreased 18% from the previous quarter. There was an increase in the number of units
sold in comparison to the prior year for satellite radio filters in comparison to both periods, as sales to automotive markets increased 13% in both periods. However, the increase in number of units sold for filter products was offset by decreases
in average selling prices due to lower sales of higher-priced mature products, resulting in very little change in overall filter sales. The result was that average selling prices for the Wireless Component segment decreased 12% in comparison to the
prior year and 2% in comparison to the previous quarter, accounting for most of the decreases in sales for this segment.

Sales for our Wireless Solutions segment, on the other hand, were nearly the same as the comparable quarter of the prior year, and decreased 2% from the previous quarter. In comparison to the prior year,
a 2% decrease in the number of units sold was offset by a 2% increase in average prices for this segment. These products primarily are sold to the industrial and medical markets. The biggest changes in comparison to the prior year were a 15%
decrease in sales to the industrial market as a result of slower economic conditions for RF modules that was offset by a 98% increase in sales to the medical market for both RF modules and Virtual
Wire® products as those markets recovered from very low levels of fiscal 2010.



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In comparison to the previous quarter, there was another large shift
within the Wireless Solutions segment that resulted in largely similar sales. For the fourth quarter, the number of units shipped increased 45%, as production returned to normal levels for relatively lower-priced Virtual Wire® products. However, this was offset by a 32% reduction in average selling price. This sizable reduction in average
selling price resulted from changes in product mix. Economic conditions resulted in a significant reduction in number of units sold and sales value for relatively higher-priced RF module products and in addition, the remaining production issues that
have been mentioned before resulted in lower sales of relatively higher-priced medical versions of Virtual Wire®
products. As a result, in comparison to the previous quarter, overall sales to the industrial market decreased 2% and sales to the medical market decreased 32%. The lower average selling prices contributed to the reduction in gross margins for
Wireless Solutions segment in fourth quarter.

Gross Profit

Gross Profit Summary

Fourth quarter fiscal 2011 gross profit of $2.5 million was down $0.3 million from last years fourth quarter and $0.2 million from the prior quarter. These deceases were both the result of decreased
sales and decreased gross margins. Gross profit margin was 31.3% for the current quarter, compared to 33.1% for the comparable quarter of the prior year and 32.9% for the previous quarter. The biggest factor in comparison to the comparable quarter
of the prior year was an increase in overhead cost of sales and an increase in overhead as a percentage of sales. The production issues resulted in additional costs which were largely responsible for the increase in overhead cost of sales in the
current quarter of approximately $50,000 in comparison to the prior year. Together with the decreases in sales, overhead as a percentage of sales increased 1.2% of sales in comparison to the prior year.

The decrease in gross margins in comparison to the previous quarter was primarily due to reduced gross margins for both of our segments
of 1% to 2% of sales. Both of our segments experienced lower average selling prices due to changes in product mix, which were not offset by corresponding reductions in cost per unit.

Segment Gross Margin

Gross margin for our Wireless Components segment of 25.2% in the current quarter decreased from 32.1% in the comparable quarter of the prior year and 27.2% in the previous quarter. This segment
experienced an increase in overhead costs as a percentage of sales resulting from lower sales volume, as well as an unfavorable product mix shift from relatively more profitable consumer and telecommunications products to less profitable automotive
products as outlined in the fourth quarter sales section. This was reflected in a decrease in average selling price of 12% in comparison to the prior year and 2% from the third quarter.

Gross margins for our Wireless Solutions segment of 37.6% increased from 34.1% in the comparable quarter of the prior year, but decreased
from the 39.0% in the previous quarter. In comparison to the prior year, the product mix shift involving greater sales to the medical market as reflected in a 2% increase in average selling prices was the primary reason for the increases in gross
margin. In addition, we incurred some additional manufacturing costs related to the introduction of relatively new products in last years fourth quarter. In comparison to the previous quarter, the significant shift in product mix that resulted
in a 32% reduction in average selling price involving a decrease in sales to the medical market was the primary reason for the decrease in gross margin.



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Operating Expenses

Operating expenses for the fourth quarter were $2.5 million, compared to $2.7 million for the comparable quarter of the prior year and
$2.6 million for the previous quarter. The decreases from prior periods were primarily due to lower sales commissions in line with lower sales, including lower incentive payments. General and administrative expenses increased in comparison to both
periods because of a net increase of $70,000 to our reserve for doubtful receivables because of a single customer. Receivables collection exposure is unusual for us and we do not see any general collection issues with our customer base. In addition,
general and administrative expenses were at a very low level in last years fourth quarter, largely due to lower costs for professional fees, including the reversal of prior quarters audit fee accrual because we believed that we would
become subject for the first time to the requirement to have our internal control over financial reporting audited by outside auditors pursuant to the Sarbanes-Oxley Act of 2002, or SOX. However, this requirement was permanently deferred.

Net Income (Loss)

We had a net loss of $81,000 in the fourth quarter, compared to net income of $21,000 in the comparable quarter of the prior year and net income of $72,000 in the third quarter. Gross profit was almost
$301,000 lower in the current quarter compared to the prior year due to lower sales and lower gross margins. This was partially offset by operating expenses that were $191,000 lower in the fourth quarter. Despite the economic conditions in several
markets and our production issues, we would have had nearly a breakeven quarter had it not been for the unusual increase in the allowance for trade receivables. In comparison to the previous quarter, gross margins were $201,000 lower due to lower
sales and gross margins, but this was partially offset by operating expenses that were $71,000 lower in the fourth quarter.

Financial Condition

Financing Arrangements

In the first quarter of our prior fiscal year, we
entered into a new $5 million senior secured credit facility with ViewPoint Bank, with whom we already had an existing mortgage relationship. The proceeds from that facility were used to repay and terminate our credit facility with our previous line
of credit lender.

While we incurred $160,000 in termination fees and other costs in the first quarter of the prior year
related to this change, we believe there are numerous advantages to the new agreement. First, it allowed us to end our forbearance status with our previous lender. Next, the new financial covenants and other restrictions have provided us increased
flexibility to manage our operations. Third, loan costs and banking fees are much lower under the new banking agreement, a primary reason why non-operating expenses have decreased approximately $50,000 or more per quarter. Lastly, we believe this
new facility has allowed us to concentrate on the long-term growth of our business.

The ViewPoint facility is a revolving
line of credit that has been renewed on terms similar to those of the initial facility for two years until November 30, 2012. Due to the renewal beyond one year, our revolving line of credit liability is classified as a long-term liability on
our balance sheet. We are currently in negotiations to extend this facility to November 30, 2013. Availability under the facility is based on eighty percent of eligible accounts receivable and fifty percent of eligible finished goods inventory,
subject to a $1 million maximum on eligible finished goods inventory. The interest rate under the facility is the higher of the Wall Street Journal Prime Rate plus 2% or the floor rate of 7%. The interest rate on current borrowings is 7%.

Under the renewed agreement, we have quarterly financial covenants that consist of: i) a current ratio of at least 1.0; and
ii) a minimum net worth of $5.5 million. We should be able to meet our covenants, but there is no assurance that this will happen. Should there be a violation of one or more of the financial covenants and we are unable to negotiate a waiver or
amendment, the maturity of our debt could be accelerated.



44



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##### Table of Contents

##### Index to Financial Statements

At August 31, 2011, we maintained access to our revolving line of credit facility,
which had a loan balance of $1.7 million. Additional loan advances of approximately $3.3 million were available based upon year end asset values. The terms of our revolving line of credit facility and its status at the end of the current quarter are
described in Note 6 to our consolidated financial statements included in this report.

Adjusted EBITDA

The following table sets forth, for the three and twelve months ended August 31, 2011 and 2010, the calculation for Adjusted EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization (including stock compensation)) that is referred to in this report (in thousands):



|                   |  |                              |     |   |                               |   |     |      |  |   |       |  |  |   |       | 
|------------------ |  | ---------------------------- | --- | - | ----------------------------- | - | --- | ---- |  | - | ----- |  |  | - | ----- | 
|                   |  | Three MonthsEnded August 31, |     |   | Twelve MonthsEnded August 31, |  
|                   |  | 2011                         |     |   | 2010                          |   |     | 2011 |  |   | 2010  | 
|Net income (loss)  |  | $                            | (81 | ) |                               | $ | 21  |      |  | $ | 228   |  |  | $ | 312   | 
|Add back:          |  |                              |     |   |                               |   |     |      |  |   |       |  |  |   |       | 
|Interest expense   |  |                              | 56  |   |                               |   | 90  |      |  |   | 253   |  |  |   | 558   | 
|Taxes              |  |                              | 4   |   |                               |   | (13 | )    |  |   | 16    |  |  |   | 2     | 
|Depreciation       |  |                              | 125 |   |                               |   | 173 |      |  |   | 595   |  |  |   | 737   | 
|Amortization:      |  |                              |     |   |                               |   |     |      |  |   |       |  |  |   |       | 
|Patents            |  |                              | 42  |   |                               |   | 53  |      |  |   | 183   |  |  |   | 223   | 
|Stock compensation |  |                              | 71  |   |                               |   | 89  |      |  |   | 336   |  |  |   | 415   | 
|                   |  |                              |     |   |                               |   |     |      |  |   |       |  |  |   |       | 
|Total amortization |  |                              | 113 |   |                               |   | 142 |      |  |   | 519   |  |  |   | 638   | 
|                   |  |                              |     |   |                               |   |     |      |  |   |       |  |  |   |       | 
|Adjusted EBITDA    |  | $                            | 217 |   |                               | $ | 413 |      |  | $ | 1,611 |  |  | $ | 2,247 | 
|                   |  |                              |     |   |                               |   |     |      |  |   |       |  |  |   |       | 

Adjusted EBITDA is an important liquidity measurement used by financial institutions to measure a
companys capability to fund operations. Adjusted EBITDA is also used by our management to measure our performance in achieving necessary cost reductions. The decrease in adjusted EBITDA largely resulted from decreased net income and increased
operating expenses associated with our growth programs.



45



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##### Index to Financial Statements

We believe we have established a cost structure that is capable of generating significant
positive Adjusted EBITDA at current sales levels. This in fact occurred for past two fiscal years in which we generated $1.6 million and $2.2 million, respectively. We believe maintaining a cost structure that is designed to generate positive
Adjusted EBITDA at sales levels below what we expect is our primary method of assuring near-term liquidity.

Liquidity

Summary

Liquidity at August 31, 2011 consisted primarily of $0.7 million of cash and our revolving line of credit facility which had a loan availability of $3.3 million determined in accordance with our
borrowing base, which consists of eligible accounts receivable and inventory.

Our primary long-range strategy for providing
liquidity is to manage our costs in relation to our projected sales levels (see section above entitled Impact of Economic Conditions and Our Response) and to generate positive Adjusted EBITDA as shown in the table above. We
believe our current cost structure is capable of generating positive Adjusted EBITDA absent further material changes in revenue or expenses. In addition, because we have an outsourced supply chain and have retained significant resources to seek
additional sales, we believe we are capable of significantly increasing sales without incurring significant additional fixed expenses.

Operating Cash Flow Elements

Net cash provided from our operating
activities in the current year was $0.5 million, compared to $1.2 million in fiscal 2010 and $4.2 million in fiscal 2009. We have experienced a trend of positive operating cash flow for many years. We accelerated this in fiscal 2009 as we
aggressively reduced working capital to generate liquidity in response to the recession. In that year, we reduced working capital by $3.7 million as receivables decreased in line with lower sales and we aggressively reduced inventory. While we had
success in doing this in periods of declining sales, this is not likely to be a significant future source of funds, since we do not expect any significant decreases in sales. In fact, in recent periods we have increased sales requiring additional
working capital. In fiscal 2011 and 2010, the situation was much different as we benefited from an increase in sales, reduced costs and much improved profitability, but we were required to increase working capital to support increased sales.

We consider there to be two key elements to operating cash flow  (1) net income adjusted for non-cash items and
(2) working capital changes. To review operating cash flow, we will treat these separately.

Net income adjusted
for non-cash items

In the long run, our primary source of cash is net income adjusted for non-cash items such as
depreciation and amortization. See table below for details of net income adjusted for non-cash items. Due to increased sales and lower costs, our net income adjusted for non-cash items is a positive $2.1 million in fiscal 2011, compared to $2.7
million in fiscal 2010 and only $0.6 million in fiscal 2009. This improvement over fiscal 2009 resulted from expense reductions in our business model to generate increased net income and positive Adjusted EBITDA at current sales levels, as discussed
in the section above entitled Impact of Economic Conditions and Our Response). The decrease in net income adjusted for non-cash income in fiscal 2011 compared to fiscal 2010 is largely a result of our increased investment in
activities intended to generate sales growth.



46



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##### Index to Financial Statements

The following table displays, for the years ended August 31, the calculation of net
income adjusted for non-cash items (in thousands):



|                                                                |  |      |       |   |      |   |       |      |  |   |        |  
|--------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                                                |  | 2011 |       |   | 2010 |   |       | 2009 | 
|Net income (loss) from continuing operations                    |  | $    | 228   |   |      | $ | 312   |      |  | $ | (3,295 | )
|Net loss from discontinued operations                           |  |      |      |   |      |   |      |      |  |   | (157   | )
|Non-cash items included in net income (loss):                   |  |      |       |   |      |   |       |      |  |   |        |  
|Depreciation and amortization                                   |  |      | 778   |   |      |   | 960   |      |  |   | 1,251  |  
|Amortization of intangible assets                               |  |      |      |   |      |   |      |      |  |   | 121    |  
|Goodwill and intangible impairment - continuing operations      |  |      |      |   |      |   |      |      |  |   | 1,583  |  
|Deferrred income tax                                            |  |      |      |   |      |   |      |      |  |   | (111   | )
|Charge for inventory obsolesence and fixed asset impairment     |  |      | 698   |   |      |   | 967   |      |  |   | 720    |  
|Provision for trade receivable allowance - net                  |  |      | 100   |   |      |   | 26    |      |  |   | (28    | )
|Stock-based compensation                                        |  |      | 336   |   |      |   | 415   |      |  |   | 444    |  
|Loss (gain) on disposal of property and equipment               |  |      | (1    | ) |      |   | 38    |      |  |   | (65    | )
|Noncash items included in net loss from discontinued operations |  |      |      |   |      |   |      |      |  |   | 92     |  
|                                                                |  |      |       |   |      |   |       |      |  |   |        |  
|Net income (loss) adjusted for non-cash items                   |  | $    | 2,139 |   |      | $ | 2,718 |      |  | $ | 555    |  
|                                                                |  |      |       |   |      |   |       |      |  |   |        |  

Thus we believe we have generated a substantial amount of operating cash flow through net income adjusted
for non-cash transactions in fiscal 2011 and 2010.

Working Capital Changes

The trends for working capital changes as they appear on our statement of cash flows show an opposite trend to net income adjusted for
non-cash transactions. In fiscal 2011 and fiscal 2010, we utilized $1.6 million and $1.5 million, respectively for increased working capital. In fiscal 2009, we generated $3.7 million from liquidating working capital. In fiscal 2009 we were able to
liquidate working capital because there was a very rapid decrease in sales that resulted in lower receivables, and we decreased inventory in line with that, although we also had to pay down our accounts payable. In fiscal 2011 and fiscal 2010 the
situation was generally the opposite, sales generally increased and we needed to support that with increased receivables and inventory.

Accounts receivable increased $0.5 million in fiscal 2010, in line with increased sales. Accounts receivable increased $0.4 million in fiscal 2011, despite slightly decreased sales. In the current year,
much of this increase resulted from the pattern of sales within the quarter, in which much of the quarters sales were shipped in the last two months, which resulted in an increase in ending receivables. In addition, in the current year we
experienced one sizable account that was slow paying, for which we increased our allowance for trade receivables by $70,000. This was very unusual for us, as our days-sales-outstanding (our primary receivables metric) remains in the mid-fifties,
which is where it has been for some time and we have no other significantly slow-paying accounts. We maintain credit insurance on most of our receivables.

The largest use of cash to finance an increase in working capital in the current year was an increase in inventory, for which $1.3 million of cash was utilized, compared to $1.0 million in the prior year.
There are three reasons for the increased inventory in the current year. First we have launched several new products in recent years and we are stocking some additional finished goods inventory to support anticipated sales for these products.
Second, we have experienced longer lead times from our contract manufacturers and raw materials suppliers, so we have had to increase inventory to maintain customer service levels. It is our practice to keep our inventories at the minimum levels
consistent with providing excellent customer service. Third, the production issues encountered by our Virtual
Wire® product line resulted in our consuming less raw materials than we had planned. We plan to work down the
inventory levels that are higher than we desire for the long term, but we may continue to increase inventory in moderate amounts to support new products and meet specific customer service requirements.



47



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##### Index to Financial Statements

Net Operating Cash Flow

Net Operating Cash Flow can be attributed to the aforementioned elements as follows:



|                                                      |  |        |       |   |        |    |       |        |  |   |       | 
|----------------------------------------------------- |  | ------ | ----- | - | ------ | -- | ----- | ------ |  | - | ----- | 
|Fiscal Year                                           |  | FY2011 |       |   | FY2010 |    |       | FY2009 | 
|Net Income adjusted for non-cash items (in thousands) |  | $      | 2,139 |   |        | $  | 2,718 |        |  | $ | 555   | 
|New Working Capital Requirements (in thousands)       |  | ($     | 1,641 | ) |        | ($ | 1,547 | )      |  | $ | 3,690 | 
|Net Operating Cash Flow (in thousands)                |  | $      | 498   |   |        | $  | 1,171 |        |  | $ | 4,245 | 

In all three years we generated positive operating cash flow, but the pattern as to how this was
accomplished is very different in fiscal 2011 and fiscal 2010 compared to fiscal 2009.

In the current quarter, operating cash
flow was a positive $0.8 million, consisting of $0.4 million in net income adjusted for non-cash items and $0.4 million generated from reduced working capital requirements. Included in working capital items was a $0.6 million increase in accounts
payable. This unusual occurrence was primarily due to the timing effect of the year ending on the day before our scheduled payment cycle. We expect accounts payable to return to normal levels in future periods. We remain current to normal terms with
our suppliers.

A major factor in whether or not operating cash flow is positive or negative in a given period is the effect
of working capital items, which is normally a favorable factor when sales are decreasing as we liquidate working capital, while this is a negative factor when sales are increasing as we need to support growing sales with increased working capital.
Going forward, we would expect to return to a generally positive operating cash flow during periods when working capital requirements are approximately neutral or better. However, operating cash flow may be negative in periods when sales are
increasing significantly.

Other Cash Flow Items

Cash used in investing activities was $0.1 million in the current year, compared to $0.2 million for the prior year and zero for fiscal
2009. The primary investment was for capital spending. Capital spending under our fabless business model has remained low and we expect to acquire only up to $0.7 million of capital equipment in fiscal 2012. We do expect capital spending to increase
somewhat, as we improve our supply chain to address the production issues we faced in fiscal 2011.

Net cash used in financing
activities was $0.4 million in the current year compared to $1.0 million in the prior year and $4.9 million in fiscal 2009. In all three years, the primary use of cash was to pay down bank debt and acquisition-related liabilities. In fiscal 2011, we
paid down a net $0.5 million of these liabilities, compared to $1.6 million in fiscal 2010 and $4.9 million in fiscal 2009. We generated $0.1 million in proceeds from the sale of common stock in fiscal 2011, compared to $0.7 million in fiscal 2010.

While we reported positive operating cash flows in recent years, a reduction in sales or gross margins or changes in working
capital could occur due to economic or other factors. We believe that cash generated from operations, our cash balances and the amounts available under our banking agreement will be sufficient to meet our cash requirements for fiscal 2012. 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. Should that happen, there could be a material
adverse impact on our business, financial condition and results of operations.



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##### Index to Financial Statements

Forward-Looking Statements

Except for the historical information, this report contains numerous forward-looking statements that involve risks and uncertainties.
These statements are made pursuant to the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. Statements of our plans, objectives, expectations and intentions involve risks and uncertainties. Statements
containing terms such as anticipate, believe, could, estimate, expect, may, plan, should, or similar terms are considered to contain uncertainty and are
forward-looking statements.We believe that these statements are based on reasonable assumptions and our expectations at the time. Our actual results may differ materially from the statements and assumptions discussed in this report.
However, these statements involve uncertainties and are completely qualified by reference to several important factors. Factors that could cause or contribute to such differences include, but are not limited to: those discussed in the sections
entitled Business, Risk Factors, Legal Proceedings, Selected Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations in this report.

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.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA

The information required by this item is included in Appendix A attached hereto and incorporated by reference.



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on managements evaluation (with the participation of our Chief Executive Officer, or CEO, and Chief Financial Officer, or
CFO), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures, or Disclosure Controls (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended, or the Exchange Act), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.



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##### Index to Financial Statements

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, does not expect that our Disclosure Controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system,
no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or
that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls
can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Managements Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a  15(f) of the Securities and Exchange Act of 1934. Our
internal control over financial reporting system is designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of our financial reporting and the preparation of published financial statements in
accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal controls over financial reporting as of August 31, 2011, utilizing the
framework established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management believes that as of August 31, 2011, our internal
controls over financial reporting are effective.

Our internal control over financial reporting includes policies and
procedures that pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, transactions and dispositions of assets and provide reasonable assurances that: (1) transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles generally accepted in the United States; (2) receipts and expenditures are being made only in accordance with authorizations of management and our Board of Directors;
and (3) unauthorized acquisitions, use, or disposition of assets that could have a material affect on our financial statements are prevented or timely detected.



50



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##### Index to Financial Statements

This annual report does not include an attestation report of our registered public
accounting firm regarding internal controls over financial reporting. Managements report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit
us to provide only managements report in this annual report.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None.

PART III.



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

We have adopted standards of business ethics and code of ethics that apply to our directors, officers and employees. The code of ethics is publicly available on our website at
http://www.rfm.com/corp/ethicspolicy.pdf. If we make any substantive amendments to this code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our directors or executive officers, we will disclose
the nature of such amendment or waiver on that website and in a report on Form 8-K.

The remaining information required by
this item is found under the sections entitled (a) Proposal No. 1 - Election of Directors, (b) Executive Officers, (c) Section 16(a) Beneficial Reporting Compliance and (d) The Board of
Directors in the definitive proxy statement to be filed with the Commission for our next annual meeting of stockholders.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The information required by this item is found under the sections entitled (a) Compensation Discussion and Analysis,
(b) Summary Compensation Table,(c)Equity-Based Compensationand (d)Potential Payments Upon Termination or a Change of Controlin the definitive proxy statement to be filed with the Commission for our next
annual meeting of stockholders.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The information required by this item is found in Item 5 of this Report and under the sections entitled (a) Equity-Based
Compensationand (b) Security Ownership of Certain Beneficial Owners and Management in the definitive proxy statement to be filed with the Commission for our next annual meeting of stockholders.



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##### Index to Financial Statements

|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

The information required by this item is found under the section entitled The Board of Directorsin the definitive proxy statement to be filed with the Commission for our next annual meeting of
stockholders.



|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES
|-------- | --------------------------------------

The information required by this item is found under the section entitled Proposal No. 3 - Ratification of Independent Registered Public Accounting Firm Selection in the definitive proxy
statement to be filed with the Commission for our next annual meeting of stockholders.

PART IV.



|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|-------- | ---------------------------------------



|       |  |                                                                                                                                                                                                                                                                                        
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) 1. |  | Financial Statements. Financial statements are attached as Appendix A to this report. The index to the financial statements is found on page F-1 of Appendix
A.                                                                                                                        
|       | 
|(a) 2. |  | Financial Statement Schedules. All schedules are omitted since the required information is not present or is not present in amounts sufficient to require a submission of the
schedules, or because the information required is included in the financial statements and notes thereto.
|       | 
|(a) 3. |  | Exhibits. See Exhibit Index in part (b) below.                                                                                                                                                                                                                                         
|       | 
|(b)    |  | Exhibit Index                                                                                                                                                                                                                                                                          



|         |  |                                |  |            |  |                                                                                                                                                                                     
|-------- |  | ------------------------------ |  | ---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |  | Previously Filed*              |  | As Exhibit |  | Description                                                                                                                                                                         
|         |  |                                | 
|2.1      |  | Form 8-K (filed
8/28/06)       |  | 2.1        |  | Agreement and Plan of Merger dated as of August 24, 2006 by and among the Registrant, CI Acquisition, Inc., Cirronet Inc. and certain other parties thereto                         
|         |  |                                | 
|2.2      |  | Form 8-K (filed
8/28/06)       |  | 2.2        |  | Agreement and Plan of Merger dated as of August 24, 2006 by and among the Registrant, Aleier Inc., Caver-Morehead Systems, Inc. and the shareholders of Caver-Morehead Systems,
Inc.
|         |  |                                | 
|2.3      |  | Form 8-K (filed
8/28/06)       |  | 10.1       |  | Form of Voting and Option Agreement dated as of August 24, 2006 between the Registrant and certain shareholders of Cirronet Inc.                                                    
|         |  |                                | 
|3.1      |  | Form 10-K
(Year ended 8/31/94) |  | 3.1        |  | Restated Certificate of Incorporation                                                                                                                                               
|         |  |                                | 
|3.2      |  | Form 10-K (Year ended
8/31/94) |  | 3.2        |  | Bylaws                                                                                                                                                                              
|         |  |                                | 
|4.1      |  |                                |  |            |  | Reference is made to Exhibits 3.1 and 3.2                                                                                                                                           



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##### Index to Financial Statements

|         |  |                                                          |  |            |  |                                                                                                                                                
|-------- |  | -------------------------------------------------------- |  | ---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |  | Previously Filed*                                        |  | As Exhibit |  | Description                                                                                                                                    
|         |  |                                                          | 
|4.2      |  | Form 8-K
(filed 12/29/94)                                |  | 4.3        |  | Rights Agreement dated as of 12/20/94                                                                                                          
|         |  |                                                          | 
|4.3      |  | Form 8-K (filed
8/19/96)                                 |  | 4.4        |  | First Amendment to Rights Agreement dated 8/14/96                                                                                              
|         |  |                                                          | 
|4.4      |  | Form 10-Q
(Quarter ended 11/30/00) (filed
1/16/01)       |  | 4.5        |  | Second Amendment to Rights Agreement dated 12/11/00                                                                                            
|         |  |                                                          | 
|4.5      |  | Form 8-A/A (Amendment No.
2) (filed 12/17/04)            |  | 4.6        |  | Third Amendment to Rights Agreement between Registrant and Equiserve Trust Company, National Association, successor to Fleet National          
|         |  |                                                          | 
|4.6      |  | Form 10-K (Year ended
8/31/05) (filed 11/17/05)          |  | 4.9        |  | Specimen Stock Certificate                                                                                                                     
|         |  |                                                          | 
|4.7      |  | Form 8-K (filed
11/12/09)                                |  | 4.1        |  | Fourth Amendment to Rights Agreement between Registrant and Computershare Trust Company, N.A. (formerly known as EquiServe Trust Company, N.A.)
|         |  |                                                          | 
|10.1     |  | Form 10-Q (2001) (Quarter
ended 5/31/01) (filed 7/13/01) |  | 10.51      |  | Manufacturing Agreement between Registrant and Automated Technology (Phil.) Inc. Electronics Corporation dated 2/22/01                         
|         |  |                                                          | 
|10.2     |  | Form 10-K (Year ended
8/31/01) (filed 11/29/01)          |  | 10.59      |  | Amendment 1 to Manufacturing Agreement between Registrant and Automated Technology (Phil.) Inc. Electronics Corporation dated 7/19/01          
|         |  |                                                          | 
|10.3     |  | Form 10-K (Year ended
8/31/02) (filed 11/21/02)          |  | 10.72      |  | Product Agreement between Registrant and Tai-Saw Technology Co., LTD dated 9/1/002                                                             
|         |  |                                                          | 
|10.4     |  | Form 10-K (Year ended
8/31/04) (filed 11/18/04)          |  | 10.96      |  | Amended and Restated Manufacturing and Technical Support Agreement between Registrant and Morioka Seiko Instruments, Inc. dated 6/11/04        
|         |  |                                                          | 
|10.5     |  | Form 8-K (filed
10/27/05)                                |  | 10.99      |  | Omnibus Cash Incentive Plan of 2005                                                                                                            
|         |  |                                                          | 
|10.6     |  | Form 8-K (filed
10/27/05)                                |  | 10.100     |  | Management Incentive Plan of 2005                                                                                                              
|         |  |                                                          | 
|10.7     |  | Form 10-K (filed
11/17/05)                               |  | 10.22      |  | Form of 1997 Equity Incentive Plan Notice of Grant of Stock Options and Grant Agreement                                                        



53



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##### Index to Financial Statements

|         |  |                                                   |  |            |  |                                                                                                      
|-------- |  | ------------------------------------------------- |  | ---------- |  | -----------------------------------------------------------------------------------------------------
|Exhibits |  | Previously Filed*                                 |  | As Exhibit |  | Description                                                                                          
|         |  |                                                   | 
|10.8     |  | Form 10-K
(filed 11/17/05)                        |  | 10.23      |  | 1999 Equity Incentive Plan, as amended                                                               
|         |  |                                                   | 
|10.9     |  | Form 8-K (filed
11/22/05                          |  | 10.26      |  | Executive Sales Incentive Plan of 2005                                                               
|         |  |                                                   | 
|10.10    |  | Form 8-K (filed
12/19/05                          |  | 10.27      |  | Form of 1997 Equity Incentive Plan Restricted Stock Unit Award                                       
|         |  |                                                   | 
|10.11    |  | Form 8-K (filed
1/23/06)                          |  | 99.1       |  | Employee Stock Purchase Plan as Amended                                                              
|         |  |                                                   | 
|10.12    |  | Form 8-K (filed
1/23/06)                          |  | 99.2       |  | 1997 Equity Incentive Plan as Amended                                                                
|         |  |                                                   | 
|10.13    |  | Form 10-K (filed
11/20/06)                        |  | 10.33      |  | Form of Lock-Up Agreement for the stock of Registrant and Executive Shareholders of Cirronet Inc.    
|         |  |                                                   | 
|10.14    |  | Form 10-K (filed
11/20/06)                        |  | 10.34      |  | Form of Lock-Up Agreement for the stock of Registrant and Non-executive Shareholders of Cirronet Inc.
|         |  |                                                   | 
|10.15    |  | Form 8-K (filed
1/22/07)                          |  | 99.1       |  | 2006 Equity Incentive Plan                                                                           
|         |  |                                                   | 
|10.16    |  | Form 10-Q
(Quarter ended 5/31/07) (filed
7/13/07) |  | 10.4       |  | Omnibus Incentive Plan of 2007                                                                       
|         |  |                                                   | 
|10.17    |  | Form 10-Q (Quarter ended
5/31/07) (filed 7/13/07) |  | 10.5       |  | Management Incentive Plan of 2007                                                                    
|         |  |                                                   | 
|10.18    |  | Form 10-K (filed
11/29/07)                        |  | 10.30      |  | Manufacturing Agreement between Registrant and Tai-Saw Technology Co., LTD dated August 31, 2007     
|         |  |                                                   | 
|10.19    |  | Form 10-K (filed
11/24/08)                        |  | 10.29      |  | Form of Indemnity Agreement entered into by the Registrant and each of its officers and directors    
|         |  |                                                   | 
|10.20    |  | Form 10-K (filed
11/24/08)                        |  | 10.31      |  | Form of Amended and Restated Change in Control Agreement for certain officers.                       
|         |  |                                                   | 
|10.21    |  | Form 10-Q (Quarter ended
2/28/09) (filed 4/14/09) |  | 10.34      |  | Non-Employee Director Stock Purchase Plan.                                                           



54



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##### Index to Financial Statements

|         |  |                                                    |  |            |  |                                                                                                                                                                    
|-------- |  | -------------------------------------------------- |  | ---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |  | Previously Filed*                                  |  | As Exhibit |  | Description                                                                                                                                                        
|         |  |                                                    | 
|10.22    |  | Form 10-Q (Quarter ended
2/28/09) (filed 4/14/09)  |  | 10.35      |  | Long Range Incentive Plan of 2009.                                                                                                                                 
|         |  |                                                    | 
|10.23    |  | Form 10-Q (Quarter ended
2/28/09) (filed 4/14/09)  |  | 10.36      |  | Form of 2006 Equity Incentive Plan Restricted Stock Unit Award Letter.                                                                                             
|         |  |                                                    | 
|10.24    |  | Form 10-Q (Quarter ended
5/31/09) (filed 7/15/09)  |  | 10.38      |  | Commercial Loan Agreement (Commercial  Single Advance) between Registrant and Viewpoint Bank dated April 13, 2009.                                                
|         |  |                                                    | 
|10.25    |  | Form 10-Q (Quarter ended
5/31/09) (filed 7/15/09)  |  | 10.39      |  | Promissory Note (Commercial  Single Advance) made by Registrant payable to Viewpoint Bank dated April 13, 2009.                                                   
|         |  |                                                    | 
|10.26    |  | Form 10-Q
(Quarter ended 11/30/09) (filed
1/13/10) |  | 10.40      |  | Commercial Loan and Security Agreement (Revolving Draw Loan) between Registrant and Viewpoint Bank dated November 30, 2009.                                        
|         |  |                                                    | 
|10.27    |  | Form 10-Q (Quarter ended
11/30/09) (filed 1/13/10) |  | 10.41      |  | Promissory Note (Commercial - Revolving Draw) agreement made by Registrant payable to Viewpoint Bank dated November 30, 2009.                                      
|         |  |                                                    | 
|10.28    |  | Form 10-Q (Quarter ended
2/28/10) (filed 4/13/10)  |  | 10.42      |  | Manufacturing Agreement between Registrant and Tai-Saw Technology Co., LTD dated February 15, 2010.                                                                
|         |  |                                                    | 
|10.29    |  | Form 10-K (filed
11/22/10)                         |  | 10.35      |  | Modification Agreement dated August 6, 2010 to Promissory Note (Commercial-Revolving Draw) between Registrant and Viewpoint Bank dated November 30, 2009.          
|         |  |                                                    | 
|10.30    |  | Form 8-K (filed
8/24/10)                           |  | 99.1       |  | Stock Purchase Agreement between Registrant and Murata Electronics North America, Inc. dated August 23, 2010.                                                      
|         |  |                                                    | 
|10.31    |  | Form 10-Q (Quarter ended
11/30/10) (filed 1/14/11) |  | 10.37      |  | Second amendment dated September 30, 2010 to Lease Agreement between Registrant and Duke Secured Financing 2006, LLC dated May 31, 2005.                           
|         |  |                                                    | 
|10.32    |  | Form 10-Q (Quarter ended
11/30/10) (filed 1/14/11) |  | 10.38      |  | Second Modification Agreement dated November 30, 2010 to Promissory Note (Commercial-Revolving Draw) between Registrant and Viewpoint Bank dated November 30, 2009.
|         |  |                                                    | 
|10.33    |  |                                                    |  |            |  | Form of 1999 Equity Incentive Plan Notice of Grant of Stock Options and Grant Agreement.                                                                           



55



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##### Index to Financial Statements

|         |  |                   |  |            |  |                                                                                         
|-------- |  | ----------------- |  | ---------- |  | ----------------------------------------------------------------------------------------
|Exhibits |  | Previously Filed* |  | As Exhibit |  | Description                                                                             
|         |  |                   | 
|10.34    |  |                   |  |            |  | Form of 2006 Equity Incentive Plan Notice of Grant of Stock Options and Grant Agreement.
|         |  |                   | 
|23.1     |  |                   |  |            |  | Consent of McGladrey & Pullen LLP, Independent Registered Public Accounting Firm        
|         |  |                   | 
|24.1     |  |                   |  |            |  | Power of Attorney**                                                                     
|         |  |                   | 
|31.1     |  |                   |  |            |  | Certification Pursuant to Section 302 of Sarbanes - Oxley Act of 2002 for CEO           
|         |  |                   | 
|31.2     |  |                   |  |            |  | Certification Pursuant to Section 302 of Sarbanes - Oxley Act of 2002 for CFO           
|         |  |                   | 
|32.1     |  |                   |  |            |  | Certification Pursuant to Section 906 of Sarbanes - Oxley Act of 2002 for CEO           
|         |  |                   | 
|32.2     |  |                   |  |            |  | Certification Pursuant to Section 906 of Sarbanes - Oxley Act of 2002 for CFO           



|* | Incorporated herein by reference.
|- | ---------------------------------

|** | Filed on the signature page of this Annual Report on Form 10-K.
|-- | ---------------------------------------------------------------



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##### Index to Financial Statements

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, RF Monolithics, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized on the 21st day of November, 2011.



|                     |  |                                      
|-------------------- |  | -------------------------------------
|RF MONOLITHICS, INC.
|                     | 
|By:                  |  | /s/    FARLIN A.
HALSEY              
|                     |  | Farlin A. Halsey                     
|                     |  | President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Morton PLLC and Farlin A. Halsey, respectively, his attorneys-in-fact for him in any and all
capacities, to sign any amendments to this report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that the said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of RF Monolithics, Inc. and in the capacities indicated on the 21st day of November, 2011.



|                           |  |  |  |                           
|-------------------------- |  |  |  | --------------------------
|/s/    FARLIN A.
HALSEY    |  |  |  | /s/    WILLIAM L.
EVERSOLE
|Farlin A. Halsey           |  |  |  | William L. Eversole       
|CEO, President & Director  |  |  |  | Chairman                  
|                           |  | 
|/s/    HARLEY E BARNES
III |  |  |  | /s/    RICK L.
HERRMAN    
|Harley E Barnes III        |  |  |  | Rick L. Herrman           
|CFO                        |  |  |  | Director                  
|                           |  | 
|                           |  |  |  | /s/    JONATHAN W.
LADD   
|                           |  |  |  | Jonathan W. Ladd          
|                           |  |  |  | Director                  





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##### Index to Financial Statements

APPENDIX A

FINANCIAL STATEMENTS



---

##### Table of Contents

##### Index to Financial Statements

RF MONOLITHICS, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS -

ITEM 8 OF FORM 10-K



|                                                                                                    |  |      |     | 
|--------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                    |  | Page |    
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                             |  |      | F-2 | 
|                                                                                                    | 
|CONSOLIDATED FINANCIAL STATEMENTS AND NOTES:                                                        |  |      |     | 
|                                                                                                    | 
|Consolidated Balance Sheets as of August 31, 2011 and 2010                                          |  |      | F-3 | 
|                                                                                                    | 
|Consolidated Statements of Operations for the Years Ended August 31, 2011, 2010 and
2009            |  |      | F-4 | 
|                                                                                                    | 
|Consolidated Statements of Stockholders Equity for the Years Ended August 
31, 2011, 2010 and 2009 |  |      | F-5 | 
|                                                                                                    | 
|Consolidated Statements of Cash Flows for the Years Ended August 31, 2011, 2010 and
2009            |  |      | F-6 | 
|                                                                                                    | 
|Notes to Consolidated Financial Statements                                                          |  |      | F-7 | 



F-1



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##### Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of RF Monolithics, Inc.:

We have audited the accompanying consolidated balance sheets of RF Monolithics, Inc. and Subsidiaries as of August 31, 2011 and 2010, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three years in the period ended August 31, 2011. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of RF Monolithics, Inc. and Subsidiaries as of August 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2011, in conformity with U.S.
generally accepted accounting principles.

/s/ MCGLADREY & PULLEN, LLP

Dallas, Texas

November 21, 2011



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##### Index to Financial Statements

RF MONOLITHICS, INC.

CONSOLIDATED BALANCE SHEETS

AUGUST 31, 2011 AND 2010

(In Thousands, except par value)



|                                                                                                                        |  |      |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                        |  | 2011 |         |   | 2010 |  
|ASSETS                                                                                                                  |  |      |         |   |      |   |         |  
|CURRENT ASSETS:                                                                                                         |  |      |         |   |      |   |         |  
|Cash                                                                                                                    |  | $    | 700     |   |      | $ | 631     |  
|Trade receivables - net                                                                                                 |  |      | 5,526   |   |      |   | 5,269   |  
|Inventories - net                                                                                                       |  |      | 5,594   |   |      |   | 5,011   |  
|Prepaid expenses and other                                                                                              |  |      | 326     |   |      |   | 322     |  
|                                                                                                                        |  |      |         |   |      |   |         |  
|Total current assets                                                                                                    |  |      | 12,146  |   |      |   | 11,233  |  
|                                                                                                                        |  |     
|PROPERTY AND EQUIPMENT - Net                                                                                            |  |      | 1,138   |   |      |   | 1,671   |  
|GOODWILL                                                                                                                |  |      | 556     |   |      |   | 556     |  
|INTANGIBLES - Net                                                                                                       |  |      | 369     |   |      |   | 369     |  
|OTHER ASSETS - Net                                                                                                      |  |      | 205     |   |      |   | 381     |  
|                                                                                                                        |  |      |         |   |      |   |         |  
|TOTAL                                                                                                                   |  | $    | 14,414  |   |      | $ | 14,210  |  
|                                                                                                                        |  |      |         |   |      |   |         |  
|                                                                                                                        |  |     
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                    |  |      |         |   |      |   |         |  
|CURRENT LIABILITIES:                                                                                                    |  |      |         |   |      |   |         |  
|Current portion of long term debt                                                                                       |  | $    | 60      |   |      | $ | 60      |  
|Capital lease obligations - current portion                                                                             |  |      | 16      |   |      |   | 20      |  
|Accounts payable - trade                                                                                                |  |      | 2,852   |   |      |   | 2,508   |  
|Accrued expenses and other current liabilities                                                                          |  |      | 1,043   |   |      |   | 1,386   |  
|                                                                                                                        |  |      |         |   |      |   |         |  
|Total current liabilities                                                                                               |  |      | 3,971   |   |      |   | 3,974   |  
|                                                                                                                        |  |     
|LONG-TERM DEBT - Less current portion:                                                                                  |  |      |         |   |      |   |         |  
|Long term debt                                                                                                          |  |      | 2,400   |   |      |   | 2,860   |  
|Capital lease obligations                                                                                               |  |      | 19      |   |      |   | 35      |  
|                                                                                                                        |  |      |         |   |      |   |         |  
|Total long-term debt                                                                                                    |  |      | 2,419   |   |      |   | 2,895   |  
|                                                                                                                        |  |     
|DEFERRED TAX LIABILITIES - Net                                                                                          |  |      | 125     |   |      |   | 125     |  
|                                                                                                                        |  |      |         |   |      |   |         |  
|Total liabilities                                                                                                       |  |      | 6,515   |   |      |   | 6,994   |  
|                                                                                                                        |  |      |         |   |      |   |         |  
|                                                                                                                        |  |     
|STOCKHOLDERS EQUITY:                                                                                                   |  |      |         |   |      |   |         |  
|Common stock: $.001 par value, 20,000 shares authorized; 10,939 and 10,726 shares issued in 2011 and 2010,
respectively |  |      | 11      |   |      |   | 11      |  
|Additional paid-in capital                                                                                              |  |      | 51,963  |   |      |   | 51,649  |  
|Common stock warrants                                                                                                   |  |      |        |   |      |   | 86      |  
|Treasury stock at cost, 0 and 36 common shares                                                                          |  |      |        |   |      |   | (227    | )
|Accumulated deficit                                                                                                     |  |      | (44,075 | ) |      |   | (44,303 | )
|                                                                                                                        |  |      |         |   |      |   |         |  
|Total stockholders equity                                                                                              |  |      | 7,899   |   |      |   | 7,216   |  
|                                                                                                                        |  |      |         |   |      |   |         |  
|TOTAL                                                                                                                   |  | $    | 14,414  |   |      | $ | 14,210  |  
|                                                                                                                        |  |      |         |   |      |   |         |  

See notes to consolidated financial statements.



F-3



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##### Index to Financial Statements

RF MONOLITHICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED AUGUST 31, 2011, 2010, AND 2009

(In Thousands, except
per-share amounts)



|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                            |  | 2011 |        |   | 2010 |   |        | 2009 | 
|SALES                                       |  | $    | 32,475 |   |      | $ | 33,620 |      |  | $ | 31,984 |  
|COST OF SALES                               |  |      | 21,478 |   |      |   | 22,350 |      |  |   | 20,362 |  
|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|GROSS PROFIT                                |  |      | 10,997 |   |      |   | 11,270 |      |  |   | 11,622 |  
|                                            |  |      |       
|OPERATING EXPENSES:                         |  |      |        |   |      |   |        |      |  |   |        |  
|Research and development                    |  |      | 3,276  |   |      |   | 3,241  |      |  |   | 3,961  |  
|Sales and marketing                         |  |      | 4,789  |   |      |   | 4,820  |      |  |   | 5,116  |  
|General and administrative                  |  |      | 2,480  |   |      |   | 2,289  |      |  |   | 3,265  |  
|Restructuring and fixed asset impairment    |  |      |       |   |      |   |       |      |  |   | 444    |  
|Impairment - intangibles                    |  |      |       |   |      |   |       |      |  |   | 1,583  |  
|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|Total                                       |  |      | 10,545 |   |      |   | 10,350 |      |  |   | 14,369 |  
|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|                                            |  |      |       
|INCOME (LOSS) FROM OPERATIONS               |  |      | 452    |   |      |   | 920    |      |  |   | (2,747 | )
|OTHER INCOME (EXPENSE):                     |  |      |        |   |      |   |        |      |  |   |        |  
|Interest income                             |  |      |       |   |      |   |       |      |  |   | 1      |  
|Interest expense                            |  |      | (253   | ) |      |   | (558   | )    |  |   | (625   | )
|Other                                       |  |      | 45     |   |      |   | (48    | )    |  |   | (23    | )
|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|Total                                       |  |      | (208   | ) |      |   | (606   | )    |  |   | (647   | )
|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|                                            |  |      |       
|INCOME (LOSS) BEFORE INCOME TAXES           |  |      | 244    |   |      |   | 314    |      |  |   | (3,394 | )
|Income tax expense (benefit)                |  |      | 16     |   |      |   | 2      |      |  |   | (99    | )
|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|INCOME (LOSS) FROM CONTINUING OPERATIONS    |  |      | 228    |   |      |   | 312    |      |  |   | (3,295 | )
|LOSS FROM DISCONTINUED OPERATIONS           |  |      |       |   |      |   |       |      |  |   | (157   | )
|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|NET INCOME (LOSS)                           |  | $    | 228    |   |      | $ | 312    |      |  | $ | (3,452 | )
|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|                                            |  |      |       
|EARNINGS (LOSS) PER SHARE:                  |  |      |        |   |      |   |        |      |  |   |        |  
|Basic from continuing operations            |  | $    | 0.02   |   |      | $ | 0.03   |      |  | $ | (0.33  | )
|Basic from discontinued operations          |  |      | 0.00   |   |      |   | 0.00   |      |  |   | (0.02  | )
|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|Basic                                       |  | $    | 0.02   |   |      | $ | 0.03   |      |  | $ | (0.35  | )
|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|                                            |  |      |       
|Diluted from continuing operations          |  | $    | 0.02   |   |      | $ | 0.03   |      |  | $ | (0.33  | )
|Diluted from discontinued operations        |  |      | 0.00   |   |      |   | 0.00   |      |  |   | (0.02  | )
|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|Diluted                                     |  | $    | 0.02   |   |      | $ | 0.03   |      |  | $ | (0.35  | )
|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|                                            |  |      |       
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |  |      |        |   |      |   |        |      |  |   |        |  
|Basic                                       |  |      | 10,846 |   |      |   | 10,172 |      |  |   | 9,934  |  
|                                            |  |      |        |   |      |   |        |      |  |   |        |  
|Diluted                                     |  |      | 11,323 |   |      |   | 10,465 |      |  |   | 9,934  |  
|                                            |  |      |        |   |      |   |        |      |  |   |        |  

See notes to consolidated financial statements.



F-4



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##### Index to Financial Statements

RF MONOLITHICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

YEARS ENDED AUGUST 31, 2011, 2010, AND 2009

(In Thousands)



|                                     |  |              |        |   |        |                 |    |                           |               |   |        |                    |  |  |     |   |       |   |     |   |  |   |      |   |  |   |         |   |  |   |        |  
|------------------------------------ |  | ------------ | ------ | - | ------ | --------------- | -- | ------------------------- | ------------- | - | ------ | ------------------ |  |  | --- | - | ----- | - | --- | - |  | - | ---- | - |  | - | ------- | - |  | - | ------ | -
|                                     |  |              |        |   |        |                 |    | AdditionalPaid-in
Capital |               |   |        |                    |  |  |     |   |       |   |     |   |  |   |      |  
|                                     |  | Common Stock |        |   |        | Stock Warrrants |    |                           | TreasuryStock |   |        | AccumulatedDeficit |  |  |     |  
|                                     |  | Shares       |        |   | Amount |                 |    |                           | Shares        |   |        | Amount             |  |  |     |   | Total |  
|BALANCE, SEPTEMBER 1, 2008           |  |              | 9,812  |   |        | $               | 10 |                           |               | $ | 50,050 |                    |  |  | 30  |   |       | $ | 86  |   |  | $ | (227 | ) |  | $ | (41,163 | ) |  | $ | 8,756  |  
|                                     |  |              |        |   |        |                 |    |                          
|Common stock issuances:              |  |              |        |   |        |                 |    |                           |               |   |        |                    |  |  |     |   |       |   |     |   |  |   |      |   |  |   |         |   |  |   |        |  
|Purchased stock                      |  |              | 36     |   |        |                 |   |                           |               |   | 22     |                    |  |  |    |   |       |   |    |   |  |   |     |   |  |   |        |   |  |   | 22     |  
|Restricted stock units issued        |  |              | 102    |   |        |                 |   |                           |               |   | (13    | )                  |  |  |    |   |       |   |    |   |  |   |     |   |  |   |        |   |  |   | (13    | )
|Employee Stock Purchase Plan         |  |              | 68     |   |        |                 |   |                           |               |   | 29     |                    |  |  |    |   |       |   |    |   |  |   |     |   |  |   |        |   |  |   | 29     |  
|Amortization of stock compensation   |  |              |       |   |        |                 |   |                           |               |   | 443    |                    |  |  |    |   |       |   |    |   |  |   |     |   |  |   |        |   |  |   | 443    |  
|Net loss                             |  |              |       |   |        |                 |   |                           |               |   |       |                    |  |  |    |   |       |   |    |   |  |   |     |   |  |   | (3,452  | ) |  |   | (3,452 | )
|                                     |  |              |        |   |        |                 |    |                           |               |   |        |                    |  |  |     |   |       |   |     |   |  |   |      |   |  |   |         |   |  |   |        |  
|BALANCE, AUGUST 31, 2009             |  |              | 10,018 |   |        |                 | 10 |                           |               |   | 50,531 |                    |  |  | 30  |   |       |   | 86  |   |  |   | (227 | ) |  |   | (44,615 | ) |  |   | 5,785  |  
|                                     |  |              |        |   |        |                 |    |                          
|Common stock issuances:              |  |              |        |   |        |                 |    |                           |               |   |        |                    |  |  |     |   |       |   |     |   |  |   |      |   |  |   |         |   |  |   |        |  
|Purchased stock                      |  |              | 535    |   |        |                 | 1  |                           |               |   | 699    |                    |  |  |    |   |       |   |    |   |  |   |     |   |  |   |        |   |  |   | 700    |  
|Restricted stock units issued        |  |              | 148    |   |        |                 |   |                           |               |   | (21    | )                  |  |  |    |   |       |   |    |   |  |   |     |   |  |   |        |   |  |   | (21    | )
|Employee Stock Purchase Plan         |  |              | 25     |   |        |                 |   |                           |               |   | 25     |                    |  |  |    |   |       |   |    |   |  |   |     |   |  |   |        |   |  |   | 25     |  
|Amortization of stock compensation   |  |              |       |   |        |                 |   |                           |               |   | 415    |                    |  |  |    |   |       |   |    |   |  |   |     |   |  |   |        |   |  |   | 415    |  
|Net income                           |  |              |       |   |        |                 |   |                           |               |   |       |                    |  |  |    |   |       |   |    |   |  |   |     |   |  |   | 312     |   |  |   | 312    |  
|                                     |  |              |        |   |        |                 |    |                           |               |   |        |                    |  |  |     |   |       |   |     |   |  |   |      |   |  |   |         |   |  |   |        |  
|BALANCE, AUGUST 31, 2010             |  |              | 10,726 |   |        |                 | 11 |                           |               |   | 51,649 |                    |  |  | 30  |   |       |   | 86  |   |  |   | (227 | ) |  |   | (44,303 | ) |  |   | 7,216  |  
|                                     |  |              |        |   |        |                 |    |                          
|Retired and cancelled treasury stock |  |              | (36    | ) |        |                 |   |                           |               |   | (227   | )                  |  |  |    |   |       |   |    |   |  |   | 227  |   |  |   |        |   |  |   |       |  
|Expired stock warrants               |  |              |       |   |        |                 |   |                           |               |   | 86     |                    |  |  | (30 | ) |       |   | (86 | ) |  |   |     |   |  |   |        |   |  |   |       |  
|Common stock issuances:              |  |              |        |   |        |                 |    |                           |               |   |        |                    |  |  |     |   |       |   |     |   |  |   |      |   |  |   |         |   |  |   |        |  
|Restricted stock units issued        |  |              | 116    |   |        |                 |   |                           |               |   | (52    | )                  |  |  |    |   |       |   |    |   |  |   |     |   |  |   |        |   |  |   | (52    | )
|Stock options exercised              |  |              | 102    |   |        |                 |   |                           |               |   | 137    |                    |  |  |    |   |       |   |    |   |  |   |     |   |  |   |        |   |  |   | 137    |  
|Employee Stock Purchase Plan         |  |              | 31     |   |        |                 |   |                           |               |   | 34     |                    |  |  |    |   |       |   |    |   |  |   |     |   |  |   |        |   |  |   | 34     |  
|Amortization of stock compensation   |  |              |       |   |        |                 |   |                           |               |   | 336    |                    |  |  |    |   |       |   |    |   |  |   |     |   |  |   |        |   |  |   | 336    |  
|Net income                           |  |              |       |   |        |                 |   |                           |               |   |       |                    |  |  |    |   |       |   |    |   |  |   |     |   |  |   | 228     |   |  |   | 228    |  
|                                     |  |              |        |   |        |                 |    |                           |               |   |        |                    |  |  |     |   |       |   |     |   |  |   |      |   |  |   |         |   |  |   |        |  
|BALANCE, AUGUST 31, 2011             |  |              | 10,939 |   |        | $               | 11 |                           |               | $ | 51,963 |                    |  |  |    |   |       | $ |    |   |  | $ |     |   |  | $ | (44,075 | ) |  | $ | 7,899  |  
|                                     |  |              |        |   |        |                 |    |                           |               |   |        |                    |  |  |     |   |       |   |     |   |  |   |      |   |  |   |         |   |  |   |        |  

See notes to consolidated financial statements.



F-5



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##### Table of Contents

##### Index to Financial Statements

RF MONOLITHICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED AUGUST 31, 2011, 2010, AND 2009

(In Thousands)



|                                                                |  |      |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                |  | 2011 |        |   | 2010 |   |        | 2009 | 
|OPERATING ACTIVITIES:                                           |  |      |        |   |      |   |        |      |  |   |        |  
|Net income (loss) from continuing operations                    |  | $    | 228    |   |      | $ | 312    |      |  | $ | (3,295 | )
|Net loss from discontinued operations                           |  |      |       |   |      |   |       |      |  |   | (157   | )
|                                                                |  |      |       
|Noncash items included in net income (loss):                    |  |      |        |   |      |   |        |      |  |   |        |  
|Depreciation and amortization                                   |  |      | 778    |   |      |   | 960    |      |  |   | 1,251  |  
|Amortization of intangible assets                               |  |      |       |   |      |   |       |      |  |   | 121    |  
|Goodwill and intangible impairment                              |  |      |       |   |      |   |       |      |  |   | 1,583  |  
|Deferrred income tax                                            |  |      |       |   |      |   |       |      |  |   | (111   | )
|Charge for inventory obsolesence                                |  |      | 698    |   |      |   | 967    |      |  |   | 720    |  
|Provision for trade receivable allowance                        |  |      | 100    |   |      |   | 26     |      |  |   | (28    | )
|Stock-based compensation                                        |  |      | 336    |   |      |   | 415    |      |  |   | 444    |  
|Loss (gain) on disposal of property and equipment               |  |      | (1     | ) |      |   | 38     |      |  |   | (65    | )
|Noncash items included in net loss from discontinued operations |  |      |       |   |      |   |       |      |  |   | 92     |  
|                                                                |  |      |       
|Changes in operating assets and liabilities:                    |  |      |        |   |      |   |        |      |  |   |        |  
|Trade receivables                                               |  |      | (357   | ) |      |   | (547   | )    |  |   | 3,808  |  
|Inventories                                                     |  |      | (1,281 | ) |      |   | (963   | )    |  |   | 3,804  |  
|Prepaid expenses and other                                      |  |      | (4     | ) |      |   | (7     | )    |  |   | (46    | )
|Accounts payable - trade                                        |  |      | 344    |   |      |   | 339    |      |  |   | (3,276 | )
|Accrued expenses and other liabilities                          |  |      | (343   | ) |      |   | (369   | )    |  |   | (600   | )
|                                                                |  |      |        |   |      |   |        |      |  |   |        |  
|Net cash provided by operating activities                       |  |      | 498    |   |      |   | 1,171  |      |  |   | 4,245  |  
|                                                                |  |      |        |   |      |   |        |      |  |   |        |  
|                                                                |  |      |       
|INVESTING ACTIVITIES:                                           |  |      |        |   |      |   |        |      |  |   |        |  
|Acquisition of property and equipment                           |  |      | (67    | ) |      |   | (241   | )    |  |   | (98    | )
|Proceeds from disposition of property and equipment             |  |      | 6      |   |      |   | 18     |      |  |   | 102    |  
|Change in other assets                                          |  |      | (7     | ) |      |   | 41     |      |  |   | (4     | )
|                                                                |  |      |        |   |      |   |        |      |  |   |        |  
|Net cash used in investing activities                           |  |      | (68    | ) |      |   | (182   | )    |  |   |       |  
|                                                                |  |      |        |   |      |   |        |      |  |   |        |  
|                                                                |  |      |       
|FINANCING ACTIVITIES:                                           |  |      |        |   |      |   |        |      |  |   |        |  
|Net repayments on bank revolver note                            |  |      | (400   | ) |      |   | (1,546 | )    |  |   | (4,117 | )
|Repayments of notes payable                                     |  |      |       |   |      |   |       |      |  |   | (1,667 | )
|Borrowings on mortgage note                                     |  |      |       |   |      |   |       |      |  |   | 900    |  
|Repayments of mortgage note                                     |  |      | (60    | ) |      |   | (60    | )    |  |   | (20    | )
|Repayments of capital lease and other                           |  |      | (20    | ) |      |   | (41    | )    |  |   | (48    | )
|Proceeds from common stock issued - net of tax payments         |  |      | 119    |   |      |   | 704    |      |  |   | 38     |  
|                                                                |  |      |        |   |      |   |        |      |  |   |        |  
|Net cash used in financing activities                           |  |      | (361   | ) |      |   | (943   | )    |  |   | (4,914 | )
|                                                                |  |      |        |   |      |   |        |      |  |   |        |  
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                |  |      | 69     |   |      |   | 46     |      |  |   | (669   | )
|                                                                |  |      |       
|CASH AND CASH EQUIVALENTS:                                      |  |      |        |   |      |   |        |      |  |   |        |  
|Beginning of year                                               |  |      | 631    |   |      |   | 585    |      |  |   | 1,254  |  
|                                                                |  |      |        |   |      |   |        |      |  |   |        |  
|End of year                                                     |  | $    | 700    |   |      | $ | 631    |      |  | $ | 585    |  
|                                                                |  |      |        |   |      |   |        |      |  |   |        |  
|                                                                |  |      |       
|SUPPLEMENTAL INFORMATION:                                       |  |      |        |   |      |   |        |      |  |   |        |  
|Interest paid                                                   |  | $    | 201    |   |      | $ | 325    |      |  | $ | 460    |  
|Income taxes paid                                               |  | $    | 12     |   |      | $ | 16     |      |  | $ | 24     |  
|Cost of fully depreciated assets disposed of                    |  | $    | 80     |   |      | $ | 7,088  |      |  | $ | 4,837  |  

See notes to consolidated financial statements.



F-6



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##### Table of Contents

##### Index to Financial Statements

RF MONOLITHICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED AUGUST 31, 2011, 2010 AND 2009

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Statement Preparationis in conformity with accounting principles generally accepted in the United States. The
consolidated financial statements include the accounts of the parent company and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. 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 business segmentsWireless Solutions and Wireless Components.

Estimates and
Assumptionsthat we believe are reasonable based upon the information available are made as required. 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 have listed below our most significant accounting policies and estimates which we think help in fully understanding and evaluating our reported financial results. Please keep
the following policies and estimates in mind when reading the accompanying financial statements and related footnotes.

Revenueis recognized for the most part when we ship the product to the customer. The exception is any consignment programs for customers. We recognize sales from consigned products when the customer pulls the product for use from the consigned
inventory.

In all cases, we recognize product sales at the point at which legal title passes to the customer. Our standard terms and
conditions are FOB our factory (including our contract manufacturers). We permit the return of defective products and accept limited amounts of product returns in other instances on a case-by-case basis. Accordingly, we provide allowances for the
estimated amounts of these returns based on historical experience when we recognize revenue. A small portion of our revenue is derived from engineering design services performed for customers.

Trade Receivablesconsist primarily of amounts due from customers for product shipped to them. We perform credit evaluations of our
customers and adjust credit limits based upon payment history and the customers current creditworthiness. We continuously monitor collections and payments from customers and maintain an allowance for doubtful accounts based upon historical
experience and specific customer information. If events occur that cause the collectibility of outstanding trade receivables to become unlikely, we record an increase to our allowance for doubtful accounts. When all collection attempts (including a
collection agency) have proven unsuccessful, the customers account is written off to the allowance for doubtful accounts. We maintain credit insurance on major customer balances and have a relatively diversified customer base.

Any customer advance payments are accounted for as deferred revenue until the related product is shipped to the customer.

Inventoriesare valued at the lower of: (i) the actual cost to purchase or manufacture the inventory (on a first-in, first-out basis)
or (ii) the current estimated market value of the inventory. We use a standard cost system to estimate the actual costs of inventory and regularly review actual costs and the estimated market value of inventory to standard costs.

We estimate the market value of inventory based upon existing and forecasted demand for end products for the next twelve months and estimated amounts of
inventory that would be consumed. We reduce the valuation of inventory items that are in excess supply compared to demand, items that have had limited usage over time, items that may no longer be usable due to product obsolescence and items that we
decide to discontinue selling. We have a product rationalization process that involves key management personnel to identify and evaluate products and related inventory that fall into one or more of these categories.



F-7



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##### Table of Contents

##### Index to Financial Statements

In recent years, we have written off significant amounts of inventory. In the current year, we provided
$698,000 in inventory loss provisions. In the prior fiscal year, we provided a total of $967,000 in inventory loss provisions. In fiscal year 2009, we provided a total of $720,000 in inventory loss provisions.

If the facts and circumstances require it, we may have to write down inventory again in future periods. The electronics industry is characterized by
rapid technological change, frequent new product development and rapid product obsolescence that could make such write-downs necessary. Also, estimates of future product demand may prove to be inaccurate, in which case the valuation adjustments for
obsolete and slow moving inventory may be understated or overstated. If we change our estimate of future demand, we may have to increase or decrease our inventory valuation reserves for excess inventory, with a corresponding impact on cost of sales.

We provide a reserve for product warranty claims, but historically our warranty cost and related reserve has been insignificant and not
material.

Property and Equipmentare stated at cost less accumulated depreciation. Depreciation is provided using the
straight-line method over the following estimated useful lives:



|                                |  |                                       
|------------------------------- |  | --------------------------------------
|Description                     |  | Life (Years)                          
|Machinery & equipment           |  | 5 to 7                                
|Tooling                         |  | 3                                     
|Furniture & fixtures            |  | 5                                     
|Leasehold improvements          |  | Lesser of useful life or life of lease
|Computer software and equipment |  | 3 to 5                                
|Land improvements               |  | 5                                     
|Building                        |  | 10                                    
|Building improvements           |  | 3 to 5                                

Goodwill and Other Intangible Assetswith indefinite lives are accounted for in accordance with Accounting
Standards Codification, or ASC, topic 350 Intangibles - Goodwill and Other. We assess the impairment of acquisition goodwill and indefinite lived intangibles on an annual basis or whenever events or changes in circumstances indicate that
the fair value is less than its carrying value. Factors that we consider important which could trigger an impairment review include a reduction in our market capitalization in relation to our net worth, poor economic performance relative to
historical or projected future operating results, significant negative industry, economic or company specific trends, and changes in the manner of our use of the assets or the plans for our business.

Topic 350 requires a two-step goodwill impairment test whereby the first step, used to identify potential impairment, compares the fair value of a
reporting unit with its carrying amount including goodwill. The fair value of each reporting unit is estimated using a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which
is dependent on internal forecasts, estimation of the long-term rate of growth for our business, the useful life over which cash flows will occur, and determination of our weighted cost of capital. If the fair value of a reporting unit is below its
carrying amount, goodwill of the reporting unit is considered impaired and the second test is performed. The second step of the impairment test is performed when required and compares the implied fair value of the reporting unit goodwill with the
carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment is recognized in an amount equal to that excess. Goodwill and trademark have indefinite lives and
thus are not subject to amortization, but are subject to impairment testing and adjustment. Testing at the end of fiscal 2011 resulted in no impairment and thus no adjustments were recorded. All of our recorded Goodwill for the periods presented in
this report relate to our Wireless Solutions segment.



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##### Table of Contents

##### Index to Financial Statements

Impairment of Long-lived Assets is evaluated in accordance with ASC topic 360 Property,
Plant and Equipment, which requires an entity to review long-lived tangible and amortizable intangible assets for impairment and recognize a loss if expected future undiscounted cash flows are less than the carrying amount of the assets. Such
losses are measured as the difference between the carrying value and the estimated fair value of the assets. The estimated fair value of our amortizable intangible assets that were set up from acquisitions is determined annually based on expected
discounted future cash flows to assess any impairment. Conditions that would necessitate an impairment assessment include material adverse changes in operations, significant adverse differences in actual results in comparison with initial valuation
forecasts prepared at the time of acquisition, a decision to abandon acquired products, services or technologies, or other significant adverse changes that would indicate the carrying amount of the recorded asset might not be recoverable.

Other Assets include patent and product certification with governmental agency costs that are amortized over the estimated
useful lives of the patents and certifications, which are generally five and three years, respectively. Costs for patent applications denied are written off in the period in which the denial is received.

Financial Instruments that potentially subject us to an interest and credit risk consist of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and debt instruments, the carrying value of which are a reasonable estimate of their fair values due to their short maturities or variable interest rates.

Accrued Medical Benefits -We largely self-insure the payment of medical benefits to our employees. Consequently, we regularly estimate the value of unpaid benefits based upon historical
trends and use that information to record our liability for benefits that have been incurred but not yet paid. We have stop loss insurance protection to cover the costs of medical claims over certain deductible amounts for any given plan year for an
individual claimant or in the aggregate for all of our covered employees.

Research and Development Costsare expensed as
incurred. These costs do not include nonrecurring engineering costs related to contract technology development sales, which are included in cost of sales.

Income Taxes - Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit
carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Due to historical losses and a limited history of taxable income, we
maintain a significant valuation allowance on our deferred tax assets. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment. Reported net deferred tax liabilities of $125,000
are the result of our acquisition of Cirronet in fiscal 2007 and subsequent impairment of trademarks in fiscal 2008 and fiscal 2009.

When tax
returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would
be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained
upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are
measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of any benefits associated with tax positions taken that exceeds the amount measured
as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

There were no interest or penalties during the current year on the federal or state tax level.



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##### Table of Contents

##### Index to Financial Statements

Earnings per Shareis computed by dividing our net earnings (loss) by the weighted average
number of outstanding common shares during the period. Our diluted earnings per share is computed by dividing our net earnings (loss) by the weighted average number of outstanding common and potentially dilutive shares. Potentially dilutive shares
are derived from outstanding stock options and warrants that have an exercise price less than the weighted average market price of our common stock. All RSUs were considered dilutive. Any options and warrants with an exercise price greater than the
weighted average market price of our common stock are considered antidilutive and are excluded from the computation of diluted earnings per share. In a period of net loss, all outstanding options and warrants are considered antidilutive. The number
of common stock options and warrants considered antidilutive and thus excluded from the diluted earnings or loss per share computation at August 31, 2011, 2010 and 2009 was 428,667 and 1,008,665 and 1,305,204, respectively.

Stock-Based Compensation - In compliance with ASC topic 718 Compensation  Stock Compensation, we recorded
stock-based compensation expense in fiscal years 2011, 2010 and 2009 related to options and restricted stock units, or RSUs, for employees and directors and for our Employee Stock Purchase Plan, or ESPP. The fair value of stock options granted and
favorable pricing of our stock offered under the ESPP is determined using the Black-Scholes model. The fair value of any RSUs granted is based on the market value of our shares included in the RSU on the date of grant. Compensation expense for
options and RSUs granted is recognized over the vesting life of the grants.

2. TRADE RECEIVABLES

Trade receivables consist of the following (in thousands):



|                                |  |      |       |   |      |   |       |  
|------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                |  | 2011 |       |   | 2010 |  
|Receivables                     |  | $    | 5,838 |   |      | $ | 5,307 |  
|Other receivables               |  |      | 53    |   |      |   | 240   |  
|Allowance for trade receivables |  |      | (365  | ) |      |   | (278  | )
|                                |  |      |       |   |      |   |       |  
|Total                           |  | $    | 5,526 |   |      | $ | 5,269 |  
|                                |  |      |       |   |      |   |       |  

Allowance activity is as follows (in thousands):



|                                |  |      |     |   |      |   |     |  
|------------------------------- |  | ---- | --- | - | ---- | - | --- | -
|                                |  | 2011 |     |   | 2010 |  
|Beginning balance               |  | $    | 278 |   |      | $ | 275 |  
|Provision for trade receivables |  |      | 100 |   |      |   | 26  |  
|Write-offs - net                |  |      | (13 | ) |      |   | (23 | )
|                                |  |      |     |   |      |   |     |  
|Ending balance                  |  | $    | 365 |   |      | $ | 278 |  
|                                |  |      |     |   |      |   |     |  



F-10



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##### Table of Contents

##### Index to Financial Statements

3. INVENTORIES

Inventories consist of the following (in thousands):



|                        |  |      |        |   |      |   |        |  
|----------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                        |  | 2011 |        |   | 2010 |  
|Raw materials           |  | $    | 3,537  |   |      | $ | 2,458  |  
|Work in process         |  |      | 64     |   |      |   | 287    |  
|Finished goods          |  |      | 4,581  |   |      |   | 4,420  |  
|                        |  |      |        |   |      |   |        |  
|Total gross inventories |  |      | 8,182  |   |      |   | 7,165  |  
|Less inventory reserves |  |      | (2,588 | ) |      |   | (2,154 | )
|                        |  |      |        |   |      |   |        |  
|Total inventories - net |  | $    | 5,594  |   |      | $ | 5,011  |  
|                        |  |      |        |   |      |   |        |  

Reserve activity is as follows (in thousands):



|                                  |  |      |       |   |      |   |        |  
|--------------------------------- |  | ---- | ----- | - | ---- | - | ------ | -
|                                  |  | 2011 |       |   | 2010 |  
|Beginning balance                 |  | $    | 2,154 |   |      | $ | 2,598  |  
|Disposals                         |  |      | (264  | ) |      |   | (1,411 | )
|Provision for inventory disposals |  |      | 698   |   |      |   | 967    |  
|                                  |  |      |       |   |      |   |        |  
|Ending balance                    |  | $    | 2,588 |   |      | $ | 2,154  |  
|                                  |  |      |       |   |      |   |        |  

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):



|                              |  |      |        |   |      |   |        |  
|----------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                              |  | 2011 |        |   | 2010 |  
|Land and improvements         |  | $    | 426    |   |      | $ | 426    |  
|Building and improvements     |  |      | 1,998  |   |      |   | 1,998  |  
|Machinery and equipment       |  |      | 4,962  |   |      |   | 4,989  |  
|Construction in progress      |  |      | 3      |   |      |   | 3      |  
|Leasehold improvements        |  |      | 30     |   |      |   | 30     |  
|Computer software             |  |      | 1,783  |   |      |   | 1,779  |  
|Office furniture              |  |      | 329    |   |      |   | 329    |  
|                              |  |      |        |   |      |   |        |  
|Total                         |  |      | 9,531  |   |      |   | 9,554  |  
|Less accumulated depreciation |  |      | (8,393 | ) |      |   | (7,883 | )
|                              |  |      |        |   |      |   |        |  
|Property and equipment - net  |  | $    | 1,138  |   |      | $ | 1,671  |  
|                              |  |      |        |   |      |   |        |  

Construction in progress includes computer equipment not yet placed in service.

Depreciation expense was $595 for fiscal year 2011 and $737 for fiscal year 2010.



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##### Table of Contents

##### Index to Financial Statements

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following (in thousands):



|                                                                     |  |      |       |  |      |   |       | 
|-------------------------------------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                                                                     |  | 2011 |       |  | 2010 |  
|Accrued payroll and compensation, including accrued medical benefits |  | $    | 651   |  |      | $ | 624   | 
|Customer advances                                                    |  |      |      |  |      |   | 289   | 
|Other accrued expenses                                               |  |      | 392   |  |      |   | 473   | 
|                                                                     |  |      |       |  |      |   |       | 
|Total                                                                |  | $    | 1,043 |  |      | $ | 1,386 | 
|                                                                     |  |      |       |  |      |   |       | 

6. CREDIT FACILITIES

Our bank debt at August 31 consisted of the following (in thousands):



|                              |  |      |       |  |      |   |       | 
|----------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                              |  | 2011 |       |  | 2010 |  
|Bank revolving line-of-credit |  | $    | 1,700 |  |      | $ | 2,100 | 
|Mortgage note                 |  |      | 760   |  |      |   | 820   | 
|                              |  |      |       |  |      |   |       | 
|Total                         |  |      | 2,460 |  |      |   | 2,920 | 
|Less: Current portion         |  |      | 60    |  |      |   | 60    | 
|                              |  |      |       |  |      |   |       | 
|Long-term portion             |  | $    | 2,400 |  |      | $ | 2,860 | 
|                              |  |      |       |  |      |   |       | 

Effective November 30, 2010, our $5 million senior secured credit facility (revolving line-of-credit) agreement with
ViewPoint Bank was renewed. Advances under the renewed senior credit facility are based on eighty percent of eligible accounts receivable and fifty percent of eligible finished goods inventory, not more than $1 million of which may be finished goods
inventory. At August 31, 2011, our revolving line-of-credit facility had unused availability of $3.3 million determined in accordance with our borrowing base. This senior credit facility has a term of two years and includes quarterly financial
covenants that consist of: i) a current ratio of at least 1.0 and ii) a minimum net worth of $5.5 million and certain other non-financial covenants. Substantially all our assets secure payment.

The interest rate on line-of-credit borrowings under our senior credit facility is the higher of the Wall Street Journal Prime Rate plus 2% or the floor
rate of 7%. The interest rate on borrowings was at 7% on August 31, 2011.

In April 2009, we entered into a commercial loan agreement
with ViewPoint secured by our headquarters facility in Dallas, Texas. The loan was originally for $900,000 and calls for monthly payments of $5,000 plus accrued interest. The interest rate for the commercial loan is the higher of the Wall Street
Journal Prime Rate plus 1% or the floor rate of 6.5%. The interest rate on this borrowing was 6.5% on August 31, 2011. The commercial loan agreement provides for 59 monthly payments of $5,000 each with the 60th payment being the balance of the
debt.



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##### Table of Contents

##### Index to Financial Statements

Scheduled installment payments and expected repayments are as follows (in thousands):



|                                    |  |   |       | 
|----------------------------------- |  | - | ----- | 
|Fiscal year ending August 31:       |  |   |       | 
|2012                                |  | $ | 60    | 
|2013                                |  |   | 1,760 | 
|2014                                |  |   | 640   | 
|                                    |  |   |       | 
|Total payments on credit facilities |  | $ | 2,460 | 
|                                    |  |   |       | 

7. LEASES AND CONTINGENCIES

Leases - We have entered into non-cancelable capital and operating lease agreements for some of our facilities and
certain equipment. Rent expense under the operating leases in fiscal years 2011, 2010, and 2009 was $232,000, $261,000, and $278,000, respectively. Our Duluth, Georgia facility is leased through February 2015. Minimum future rental commitments under
the capital and operating leases at August 31, 2011 are as follows (in thousands):



|                                  |  |                         |     |   |                 |   |     | 
|--------------------------------- |  | ----------------------- | --- | - | --------------- | - | --- | 
|                                  |  | CapitalLeaseObligations |     |   | OperatingLeases |  
|Fiscal year ending August 31:     |  |                         |     |   |                 |   |     | 
|2012                              |  | $                       | 21  |   |                 | $ | 177 | 
|2013                              |  |                         | 16  |   |                 |   | 186 | 
|2014                              |  |                         |    |   |                 |   | 177 | 
|2015                              |  |                         |    |   |                 |   | 89  | 
|                                  |  |                         |     |   |                 |   |     | 
|Total minimum payments            |  |                         | 37  |   |                 | $ | 629 | 
|                                  |  |                         |     |   |                 |   |     | 
|Less amount representing interest |  |                         | (2  | ) |                 |   |     | 
|                                  |  |                         |     |   |                 |   |     | 
|Total                             |  |                         | 35  |   |                 |   |     | 
|Less current portion              |  |                         | (16 | ) |                 |   |     | 
|                                  |  |                         |     |   |                 |   |     | 
|Long-term portion                 |  | $                       | 19  |   |                 |   |     | 
|                                  |  |                         |     |   |                 |   |     | 

Purchase commitments We have contractual relationships with several manufacturers to
produce our products. The agreements with these manufacturers call for us to make certain purchase commitments and we have entered into long-term supply agreements with some of them. The total amount of the purchase commitments as of August 31,
2011 was approximately $4.9 million, $3.8 million and $0.7 million for fiscal years 2012, 2013 and 2014, respectively.

LitigationWe are involved in routine litigation from time to time incidental to the conduct of our business. Such litigation is not expected to have a material effect on our financial position, results of operations or cash flows.

8. CAPITAL STOCK

Preferred Stock - Preferred stock of 5,000,000 shares with $.001 par value is authorized; none was issued or outstanding
at August 31, 2011 and 2010. Rights, preferences and other terms of the preferred stock will be determined by the Board of Directors at the time of issuance.

Warrants - As of August 31, 2011, there were no outstanding warrants. Previous warrants to purchase 30,000 shares of our common stock at an exercise price of $5.00 per share expired in
December 2010.



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##### Table of Contents

##### Index to Financial Statements

Stockholder Rights Plan - In December 1994, we adopted a stockholder rights plan. In
connection with the adoption of such plan, we reserved 250,000 shares of our Series A Junior Participating Preferred Stock. At the same time, we declared a dividend of one preferred share purchase right, or Right, for each outstanding share of our
common stock. The dividend of 4,965,847 Rights was issued to the stockholders of record on January 16, 1995. Each Right entitles the registered holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred
Stock at a price of $10.00 per one one-hundredth of a Preferred Share, subject to adjustment. The Rights become exercisable on the earlier of (a) the tenth day after the public announcement of acquisition by a person or group of persons, not
including an exempt person as defined by the stockholder rights plan, of 15% or more of our common shares outstanding or (b) the tenth business day after the date of first public announcement of the intention of a person or group of persons to
commence a tender or exchange offer to acquire 15% or more of our common shares outstanding. When issued, the Preferred Shares have dividend and voting rights that are defined in the rights plan. We can redeem the Rights at a redemption price of
$.01 per Right in accordance with the rights plan. The Board of Directors has approved the extension of the rights plan until December 20, 2014.

9. STOCK-BASED COMPENSATION PLANS

In compliance with ASC topic 718 Stock Compensation, we recorded stock-based compensation expense for the years ended
August 31, 2011, 2010 and 2009 related to options for employees and directors and our Employee Stock Purchase Plan, or ESPP. The fair value of stock options granted and favorable pricing of our stock offered under the ESPP is determined using
the Black-Scholes model.

Our stock compensation program includes the granting of both stock options and restricted stock units, or RSUs. The
fair value of any stock option grant is derived from a Black-Scholes model on the date of the grant. The value is recognized as compensation expense over the vesting period. The fair value of any RSU grant is based on the market value of our shares
included in the RSU on the date of grant and is recognized as compensation expense over the vesting period.

The following table illustrates
the stock compensation expense recognized in our fiscal years 2011, 2010 and 2009. Compensation expense recognized in thousands was:



|                                          |  |                        |     |  |      |   |     |      |  |   |     | 
|----------------------------------------- |  | ---------------------- | --- |  | ---- | - | --- | ---- |  | - | --- | 
|                                          |  | Years Ended August 31, |    
|                                          |  | 2011                   |     |  | 2010 |   |     | 2009 | 
|Stock Compensation Expense:               |  |                        |     |  |      |   |     |      |  |   |     | 
|Stock options for employees and directors |  | $                      |    |  |      | $ | 1   |      |  | $ | 35  | 
|Employee Stock Purchase Plan              |  |                        | 6   |  |      |   | 4   |      |  |   | 9   | 
|Restricted Stock Units                    |  |                        | 330 |  |      |   | 410 |      |  |   | 399 | 
|                                          |  |                        |     |  |      |   |     |      |  |   |     | 
|Totals                                    |  | $                      | 336 |  |      | $ | 415 |      |  | $ | 443 | 
|                                          |  |                        |     |  |      |   |     |      |  |   |     | 

Our stock compensation 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 (2006 Plan, 2003 Plan, 1999 Plan, and 1997 Plan) under which we may grant or have granted stock options and/or RSUs to employees, directors and
consultants. The 2006 Plan was approved by stockholders at our annual meeting on January 17, 2007, and replaces our 1997 Plan for future grants of options and RSUs. We assumed stock options (the Assumed Cirronet Options) granted by
Cirronet Inc., which we acquired in September 2006. These options (referred to as the 2003 Plan) were assumed as fully vested. Granted options generally vest over four years. When stock options are exercised, new common stock is issued. The exercise
price of each option generally equals the market price of our stock on the date of grant (or the next succeeding business day) and each option generally expires five to ten years after the date of grant. The RSUs generally vest at a rate of
one-fourth at each anniversary of the grant date. The vested shares are issued to the grantee at each vesting date.

As of August 31,
2011, we had an aggregate of 2.5 million shares authorized for issuance under our two active equity plans. The equity plans provide for the issuance of common shares pursuant to stock option exercises, issuance of restricted stock grants and
restricted stock units. As of August 31, 2011, there were an aggregate of 1.4 million grants outstanding under all the plans mentioned below and approximately 650,000 shares available for grant under the two active plans. Under the equity
plans, stock options, restricted stock grants and restricted stock units can be issued to employees, non-employee directors and consultants.



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##### Table of Contents

##### Index to Financial Statements

The following table illustrates the stock compensation expense not yet recognized based upon outstanding
options and RSUs at August 31, 2011 (in thousands):



|                             |  |              |     |  |      |   |     |       |  |   |     | 
|---------------------------- |  | ------------ | --- |  | ---- | - | --- | ----- |  | - | --- | 
|Fiscal year ended August 31, |  | StockOptions |     |  | RSUs |   |     | Total | 
|2012                         |  | $            | 37  |  |      | $ | 217 |       |  | $ | 254 | 
|2013                         |  |              | 38  |  |      |   | 85  |       |  |   | 123 | 
|2014                         |  |              | 37  |  |      |   | 63  |       |  |   | 100 | 
|2015                         |  |              | 38  |  |      |   | 14  |       |  |   | 52  | 
|Beyond                       |  |              |    |  |      |   |    |       |  |   |    | 
|                             |  |              |     |  |      |   |     |       |  |   |     | 
|Totals                       |  | $            | 150 |  |      | $ | 379 |       |  | $ | 529 | 
|                             |  |              |     |  |      |   |     |       |  |   |     | 

Stock Options  There were 273,252 stock option grants in fiscal year 2011 and no stock option grants
in fiscal years 2010 or 2009. The stock options granted in fiscal year 2011 were granted in the last month of the year; expense amortization of these options starts the first month of fiscal year 2012. The grant date fair value of the fiscal year
2011 grants was $0.55 per share. This was arrived at by using a Black-Scholes model with the following assumptions: 4.6 years expected life, .94% risk-free rate and 99.67% volatility. Options to purchase 447,610 shares of stock were cancelled in the
current year due to employee terminations and option period expirations.

The summary of stock option activity for fiscal year 2011 follows:



|                                       |  |                  |          |   |                               |   |      |                                                  |  |  |                                |  |  |   |     | 
|-------------------------------------- |  | ---------------- | -------- | - | ----------------------------- | - | ---- | ------------------------------------------------ |  |  | ------------------------------ |  |  | - | --- | 
|                                       |  | Fiscal year 2011 |         
|                                       |  | Shares           |          |   | Weighted-AverageExercisePrice |   |      | Weighted-AverageRemainingContractualTerm (years) |  |  | AggregateIntrinsicValue ($000) | 
|Outstanding at September 1, 2010       |  |                  | 978,665  |   |                               | $ | 3.61 |                                                  |  |  |                                |  |  |   |     | 
|Granted                                |  |                  | 273,252  |   |                               | $ | 1.04 |                                                  |  |  |                                |  |  |   |     | 
|Exercised                              |  |                  | (102,388 | ) |                               | $ | 1.34 |                                                  |  |  |                                |  |  |   |     | 
|Expired/forfeited                      |  |                  | (447,610 | ) |                               | $ | 3.79 |                                                  |  |  |                                |  |  |   |     | 
|                                       |  |                  |          |   |                               |   |      |                                                  |  |  |                                |  |  |   |     | 
|Outstanding at August 31, 2011         |  |                  | 701,919  |   |                               | $ | 2.82 |                                                  |  |  | 3.1                            |  |  | $ | 0.0 | 
|                                       |  |                  |          |   |                               |   |      |                                                  |  |  |                                |  |  |   |     | 
|Exercisable at August 31, 2011         |  |                  | 428,667  |   |                               | $ | 3.96 |                                                  |  |  | 1.8                            |  |  | $ | 0.0 | 
|                                       |  |                  |          |   |                               |   |      |                                                  |  |  |                                |  |  |   |     | 
|Expected to vest after August 31, 2011 |  |                  | 273,252  |   |                               | $ | 1.04 |                                                  |  |  | 5.1                            |  |  | $ | 0.0 | 
|                                       |  |                  |          |   |                               |   |      |                                                  |  |  |                                |  |  |   |     | 

Cash received from options exercised in fiscal year 2011 was $137,200. The aggregate intrinsic value in the table above
is calculated using the market price on August 31, 2011 of $1.00. The total intrinsic value of options exercised during fiscal year 2011 was $52,387. No options were exercised in fiscal years 2010 or 2009. Intrinsic values of nonqualified or
disqualifying ISO options exercised will result in a deduction for tax purposes.

We have certain tax benefits that will be recorded as a
credit to additional paid-in capital when realized based upon the with-and-without method. We have net operating loss carryforwards that are sufficient to offset taxable income. Under the with-and-without method, an additional tax
benefit will be realized when the excess share-based compensation deduction provides us with incremental benefit by reducing the current years taxes payable.



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##### Table of Contents

##### Index to Financial Statements

The following table summarizes information about stock options outstanding at August 31, 2011 for all
four plans:



|                         |  |                                    |         |  |                                          |  |            |                               |  |   |                                     |  |  |                               |         |  |  |   |      | 
|------------------------ |  | ---------------------------------- | ------- |  | ---------------------------------------- |  | ---------- | ----------------------------- |  | - | ----------------------------------- |  |  | ----------------------------- | ------- |  |  | - | ---- | 
|                         |  | Options Outstanding                |         |  | Options Exercisable                      | 
|Range of Exercise Prices |  | NumberOutstandingat August 31,2011 |         |  | Weighted-AverageRemainingContractualLife |  |            | Weighted-AverageExercisePrice |  |   | NumberExercisableat 
August 31,2011 |  |  | Weighted-AverageExercisePrice |        
|$ 1.04 to $ 1.04         |  |                                    | 273,252 |  |                                          |  | 5.17 years |                               |  | $ | 1.04                                |  |  |                               | 0       |  |  |   |      | 
|$ 1.34 to $ 1.42         |  |                                    | 75,398  |  |                                          |  | 1.30 years |                               |  | $ | 1.36                                |  |  |                               | 75,398  |  |  | $ | 1.36 | 
|$ 1.88 to $ 2.90         |  |                                    | 102,092 |  |                                          |  | 1.39 years |                               |  | $ | 2.25                                |  |  |                               | 102,092 |  |  | $ | 2.25 | 
|$ 3.13 to $ 3.23         |  |                                    | 67,509  |  |                                          |  | 1.58 years |                               |  | $ | 3.18                                |  |  |                               | 67,509  |  |  | $ | 3.18 | 
|$ 4.15 to $ 5.46         |  |                                    | 48,120  |  |                                          |  | 1.27 years |                               |  | $ | 4.72                                |  |  |                               | 48,120  |  |  | $ | 4.72 | 
|$ 6.19 to $ 7.64         |  |                                    | 135,548 |  |                                          |  | 2.70 years |                               |  | $ | 6.82                                |  |  |                               | 135,548 |  |  | $ | 6.82 | 
|                         |  |                                    |         |  |                                          |  |            |                               |  |   |                                     |  |  |                               |         |  |  |   |      | 
|Totals                   |  |                                    | 701,919 |  |                                          |  |            |                               |  |   |                                     |  |  |                               | 428,667 |  |  |   |      | 
|                         |  |                                    |         |  |                                          |  |            |                               |  |   |                                     |  |  |                               |         |  |  |   |      | 

Restricted Stock Units - We grant RSUs under our 2006 and 1999 Equity Incentive Plans. Each RSU represents
the right to receive a share of common stock and typically is subject to vesting requirements. Stock is issued to the grantee at each vesting date. The fair value of RSUs on the date of vesting in fiscal year 2011, 2010 and 2009 was approximately
$213,000, $184,000 and $64,000, respectively. When the stock is issued at vesting, the employee may elect to have fewer shares issued, with the amount of the reduction used to cover the minimum income and social security tax withholding requirements
under IRS rules. The reduction in shares issued to employees to cover these taxes were 35,661 shares in fiscal 2011, 17,387 shares in fiscal 2010 and 24,546 shares in fiscal 2009. The fair value of any RSUs granted is the market price of the common
stock on the date of grant and is recognized as compensation expense over the vesting period. As of August 31, 2011, there was a total of approximately $379,000 of unrecognized compensation cost related to unvested RSUs. The total cost is
expected to be recognized over a weighted-average period of 1.7 years.

The following table sets forth the status of our RSU compensation
activity for fiscal years 2009, 2010 and 2011:



|                             |  |        |          |   |                                        |   |      | 
|---------------------------- |  | ------ | -------- | - | -------------------------------------- | - | ---- | 
|Nonvested Shares             |  | Shares |          |   | Weighted-Average Grant-Date Fair Value |  
|Nonvested at August 31, 2008 |  |        | 335,300  |   |                                        | $ | 3.73 | 
|Granted                      |  |        | 628,000  |   |                                        | $ | 0.61 | 
|Vested and issued            |  |        | (126,325 | ) |                                        | $ | 3.47 | 
|Forfeited or expired         |  |        | (66,450  | ) |                                        | $ | 3.14 | 
|                             |  |        |          |   |                                        |   |      | 
|Nonvested at August 31, 2009 |  |        | 770,525  |   |                                        | $ | 1.28 | 
|Granted                      |  |        | 170,000  |   |                                        | $ | 1.11 | 
|Vested and issued            |  |        | (165,025 | ) |                                        | $ | 2.14 | 
|Forfeited or expired         |  |        | (24,250  | ) |                                        | $ | 1.22 | 
|                             |  |        |          |   |                                        |   |      | 
|Nonvested at August 31, 2010 |  |        | 751,250  |   |                                        | $ | 1.05 | 
|Granted                      |  |        | 245,537  |   |                                        | $ | 1.41 | 
|Vested and issued            |  |        | (151,658 | ) |                                        | $ | 1.94 | 
|Forfeited or expired         |  |        | (168,126 | ) |                                        | $ | 1.00 | 
|                             |  |        |          |   |                                        |   |      | 
|Nonvested at August 31, 2011 |  |        | 677,003  |   |                                        | $ | 1.00 | 
|                             |  |        |          |   |                                        |   |      | 



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##### Table of Contents

##### Index to Financial Statements

Employee Stock Purchase PlanIn 1994, we adopted an employee stock purchase plan, or
Purchase Plan. In connection with the adoption of the Purchase Plan, we have reserved a total of 1,025,000 shares of our common stock. Under the terms of the Purchase Plan, rights to purchase common stock may be granted to eligible employees at the
discretion of the board of directors, subject to certain restrictions. The Purchase Plan enables our eligible employees, through payroll withholding, to purchase shares of common stock at 85% of the fair market value of the common stock at the
purchase date. Purchases are made on a calendar quarter schedule. At August 31, 2011, there are 56,428 shares reserved for future purchase rights under this plan. A summary of the activity for the employee stock purchase plan is as follows.
Over the last several years, there has been a reduction in proceeds from employee purchases partially as a result of a reduced number of employees.



|                            |  |        |        |  |          |   |        | 
|--------------------------- |  | ------ | ------ |  | -------- | - | ------ | 
|                            |  |        |        |  | Purchase |  
|                            |  | Shares |        |  | Proceeds |  
|Purchases for fiscal years: |  |        |        |  |          |   |        | 
|2009                        |  |        | 67,797 |  |          | $ | 28,976 | 
|2010                        |  |        | 25,398 |  |          |   | 24,506 | 
|2011                        |  |        | 30,678 |  |          |   | 33,672 | 

10. INTERNATIONAL SALES AND PRODUCT LINE SALES

International sales in foreign markets by fiscal year are as follows (dollar amounts in thousands):



|                        |  |       |        |  |            |  |      |       |  |   |            |  |  |       |      |   |            |   |        |  |  |  |      |  
|----------------------- |  | ----- | ------ |  | ---------- |  | ---- | ----- |  | - | ---------- |  |  | ----- | ---- | - | ---------- | - | ------ |  |  |  | ---- | -
|                        |  | 2011  |        |  | 2010       |  |      | 2009  | 
|                        |  |       |        |  | As a       |  |      |       |  |   | As a       |  |  |       |      |   | As a       |  
|                        |  |       |        |  | Percentage |  |      |       |  |   | Percentage |  |  |       |      |   | Percentage |  
|                        |  |       |        |  | of Total   |  |      |       |  |   | of Total   |  |  |       |      |   | of Total   |  
|                        |  | Sales |        |  | Revenue    |  |      | Sales |  |   | Revenue    |  |  | Sales |      |   | Revenue    |  
|International sales:    |  |       |        |  |            |  |      |       |  |   |            |  |  |       |      |   |            |   |        |  |  |  |      |  
|Europe                  |  | $     | 6,873  |  |            |  | 21.2 | %     |  | $ | 5,097      |  |  |       | 15.2 | % |            | $ | 4,249  |  |  |  | 13.3 | %
|Asia (primarily Taiwan) |  |       | 12,756 |  |            |  | 39.3 | %     |  |   | 14,553     |  |  |       | 43.3 | % |            |   | 11,168 |  |  |  | 34.9 | %
|Other                   |  |       | 991    |  |            |  | 3.0  | %     |  |   | 716        |  |  |       | 2.1  | % |            |   | 602    |  |  |  | 1.9  | %
|                        |  |       |        |  |            |  |      |       |  |   |            |  |  |       |      |   |            |   |        |  |  |  |      |  
|Total                   |  | $     | 20,620 |  |            |  | 63.5 | %     |  | $ | 20,366     |  |  |       | 60.6 | % |            | $ | 16,019 |  |  |  | 50.1 | %
|                        |  |       |        |  |            |  |      |       |  |   |            |  |  |       |      |   |            |   |        |  |  |  |      |  

There are no long-lived assets separately identified with international sales.



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##### Table of Contents

##### Index to Financial Statements

Total sales are shown below by product line (dollar amounts in thousands):



|                             |  |                        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  
|---------------------------- |  | ---------------------- | ------ |  | --------- |  | --- | ------ |  | - | --------- |  |  | ------ | --- | - | --------- | - | ------ |  |  |  | --- | -
|                             |  | Years Ended August 31, |       
|                             |  | 2011                   |        |  | 2010      |  |     | 2009   | 
|                             |  | Amount                 |        |  | %of Total |  |     | Amount |  |   | %of Total |  |  | Amount |     |   | %of Total |  
|Product Sales:               |  |                        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  
|Wireless Solutions Segment:  |  |                        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  
|Radio products               |  | $                      | 15,669 |  |           |  | 49  | %      |  | $ | 16,465    |  |  |        | 49  | % |           | $ | 17,962 |  |  |  | 56  | %
|Wireless Components Segment: |  |                        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  
|Filters                      |  |                        | 11,221 |  |           |  | 34  |        |  |   | 11,393    |  |  |        | 34  |   |           |   | 8,674  |  |  |  | 27  |  
|Frequency control modules    |  |                        | 1,624  |  |           |  | 4   |        |  |   | 1,246     |  |  |        | 4   |   |           |   | 1,820  |  |  |  | 6   |  
|Low-power components         |  |                        | 3,961  |  |           |  | 13  |        |  |   | 4,516     |  |  |        | 13  |   |           |   | 3,528  |  |  |  | 11  |  
|                             |  |                        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  
|Subtotal                     |  |                        | 16,806 |  |           |  | 51  |        |  |   | 17,155    |  |  |        | 51  |   |           |   | 14,022 |  |  |  | 44  |  
|                             |  |                        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  
|Total sales                  |  | $                      | 32,475 |  |           |  | 100 | %      |  | $ | 33,620    |  |  |        | 100 | % |           | $ | 31,984 |  |  |  | 100 | %
|                             |  |                        |        |  |           |  |     |        |  |   |           |  |  |        |     |   |           |   |        |  |  |  |     |  

11. SEGMENT INFORMATION

Our reporting segments consist of the Wireless Solutions segment and the Wireless Components segment. In fiscal 2007, we made an
acquisition that significantly increased our Wireless Solutions Segment. Our strategy is to focus our product and market development efforts and resources on the Wireless Solutions segment, which we believe gives us greater potential for both
increased sales and gross margin.

We believe that our two reportable segments are the Wireless Solutions products and the Wireless Components
products. Prior to fiscal year 2007, we operated as a single segment. We consider the products within the Wireless Solutions segment similar in that they primarily consist of wireless radios targeted on the medical and industrial markets. We
consider the products within the Wireless Components segment similar in that they primarily consist of simple wireless connectivity components targeted on the automotive, consumer and telecommunication markets. We use segment information when
producing our general-purpose financial statements.

Our senior management reviews discrete gross margin information on these two segments and
has made decisions on allocation of resources based on this information and our strategy. Most of our management functions that relate to operating expenses are managed on a consolidated basis. Because of the way we manage the business, we do not
have discrete segment information for operating expenses and many balance sheet accounts. The information we are presenting below represents the information we have readily available to us.

As a result of the shared services reported separately, the segment information may not be indicative of the financial position or results of operations that would have been achieved had these segments
operated as unaffiliated entities. There were no intersegment sales.



F-18



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##### Table of Contents

##### Index to Financial Statements

Information concerning the operations in these reportable segments is as follows (dollar amounts in
thousands):



|                                                   |  |                               |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------- |  | ----------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                   |  | Fiscal Years Ended August 31, |       
|                                                   |  | 2011                          |        |   | 2010 |   |        | 2009 | 
|Net Sales:                                         |  |                               |        |   |      |   |        |      |  |   |        |  
|Wireless Solutions Segment                         |  | $                             | 15,669 |   |      | $ | 16,465 |      |  | $ | 17,962 |  
|Wireless Components Segment                        |  |                               | 16,806 |   |      |   | 17,155 |      |  |   | 14,022 |  
|                                                   |  |                               |        |   |      |   |        |      |  |   |        |  
|Total                                              |  | $                             | 32,475 |   |      | $ | 33,620 |      |  | $ | 31,984 |  
|Gross Profit:                                      |  |                               |        |   |      |   |        |      |  |   |        |  
|Wireless Solutions Segment                         |  | $                             | 6,142  |   |      | $ | 6,523  |      |  | $ | 7,451  |  
|Wireless Components Segment                        |  |                               | 4,855  |   |      |   | 4,747  |      |  |   | 4,171  |  
|                                                   |  |                               |        |   |      |   |        |      |  |   |        |  
|Total                                              |  | $                             | 10,997 |   |      | $ | 11,270 |      |  | $ | 11,622 |  
|Operating Expenses (Wireless Solutions Segment):   |  |                               |        |   |      |   |        |      |  |   |        |  
|Impairment - goodwill and intangibles              |  |                               |       |   |      |   |       |      |  |   | 1,583  |  
|Amortization of intangibles                        |  |                               |       |   |      |   |       |      |  |   | 121    |  
|Operating Expenses (unallocable to segments):      |  |                               |        |   |      |   |        |      |  |   |        |  
|Research and development                           |  |                               | 3,276  |   |      |   | 3,241  |      |  |   | 3,895  |  
|Sales and marketing                                |  |                               | 4,789  |   |      |   | 4,820  |      |  |   | 5,061  |  
|General and administrative                         |  |                               | 2,480  |   |      |   | 2,289  |      |  |   | 3,265  |  
|Restructuring and impairment                       |  |                               |       |   |      |   |       |      |  |   | 444    |  
|                                                   |  |                               |        |   |      |   |        |      |  |   |        |  
|Operating Profit (Loss) from Continuing Operations |  | $                             | 452    |   |      | $ | 920    |      |  | $ | (2,747 | )
|                                                   |  |                               |        |   |      |   |        |      |  |   |        |  
|Gross Profit Percent to Sales:                     |  |                               |        |   |      |   |        |      |  |   |        |  
|Wireless Solutions Segment                         |  |                               | 39     | % |      |   | 40     | %    |  |   | 41     | %
|Wireless Components Segment                        |  |                               | 29     | % |      |   | 28     | %    |  |   | 30     | %
|Total                                              |  |                               | 34     | % |      |   | 34     | %    |  |   | 36     | %
|Segment assets:                                    |  |                               |        |   |      |   |        |      |  |   |        |  
|Wireless Solutions Segment                         |  | $                             | 7,306  |   |      | $ | 6,481  |      |  | $ | 6,582  |  
|Wireless Components Segment                        |  |                               | 4,750  |   |      |   | 4,747  |      |  |   | 4,160  |  
|Corporate and unallocated                          |  |                               | 2,358  |   |      |   | 2,982  |      |  |   | 3,714  |  
|                                                   |  |                               |        |   |      |   |        |      |  |   |        |  
|Total                                              |  | $                             | 14,414 |   |      | $ | 14,210 |      |  | $ | 14,456 |  
|                                                   |  |                               |        |   |      |   |        |      |  |   |        |  



F-19



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##### Table of Contents

##### Index to Financial Statements

12. CONCENTRATION RISKS

Major Customers

One customer represented 10% or more of either the total trade receivable balance at August 31, 2011 or the total sales for fiscal year 2011. This major customer represented 33.0% of the accounts
receivable balance and 21.6% of total sales. Sales to this customer are recorded in our Wireless Components segment.

One customer represented
10% or more of either the total trade receivable balance at August 31, 2010 or the total sales for fiscal 2010. This major customer represented 21.7% of the accounts receivable balance and 18.1% of total sales. Sales to this customer are
recorded in our Wireless Components segment.

Major Vendors

Two vendors represented 10% or more of either total trade payables at August 31, 2011 or total cost of sales for fiscal 2011. Both are manufacturing
contractors. The largest vendor represented 40.0% of the trade payable balance and 48.2% of total cost of sales. The second vendor represented 24.3% of the trade payable balance and 16.4% of total cost of sales.

Three vendors represented 10% or more of either total trade payables at August 31, 2010 or total cost of sales for fiscal 2010. All are
manufacturing contractors. The largest vendor represented 38.1% of the trade payable balance and 49.2% of total cost of sales. The second vendor represented 18.9% of the trade payable balance and 10.2% of total cost of sales. The third vendor
represented 9.2% of the trade payable balance and 10.5% of total cost of sales.

13. INCOME TAXES

The income tax expense (benefit) from continuing operations is shown below (in thousands):



|                   |  |      |    |  |      |   |   |      |  |   |      |  
|------------------ |  | ---- | -- |  | ---- | - | - | ---- |  | - | ---- | -
|                   |  | 2011 |    |  | 2010 |   |   | 2009 | 
|Current - federal  |  | $    |   |  |      | $ |  |      |  | $ |     |  
|Current - state    |  |      | 16 |  |      |   | 2 |      |  |   | 12   |  
|                   |  |      |    |  |      |   |   |      |  |   |      |  
|                   |  |      | 16 |  |      |   | 2 |      |  |   | 12   |  
|Deferred - federal |  |      |   |  |      |   |  |      |  |   | (111 | )
|                   |  |      |    |  |      |   |   |      |  |   |      |  
|Total              |  | $    | 16 |  |      | $ | 2 |      |  | $ | (99  | )
|                   |  |      |    |  |      |   |   |      |  |   |      |  

A reconciliation between income taxes computed at the federal statutory rate and income tax expense (benefit) from
continuing operations is shown below (in thousands):



|                                                                                    |  |      |     |   |      |   |      |      |  |   |        |  
|----------------------------------------------------------------------------------- |  | ---- | --- | - | ---- | - | ---- | ---- |  | - | ------ | -
|                                                                                    |  | 2011 |     |   | 2010 |   |      | 2009 | 
|Income tax expense (benefit) computed at federal statutory rate                     |  | $    | 83  |   |      | $ | 107  |      |  | $ | (1,158 | )
|State income tax expense, net of federal benefit                                    |  |      | 10  |   |      |   | 2    |      |  |   | 12     |  
|Expenses not deductible for tax purposes                                            |  |      | 8   |   |      |   | 6    |      |  |   | 9      |  
|Increase (decrease) in valuation allowance affecting the provision for income taxes |  |      | (20 | ) |      |   | (126 | )    |  |   | 640    |  
|Changes in tax credits and other tax attributes                                     |  |      |    |   |      |   | 13   |      |  |   | 577    |  
|Other                                                                               |  |      | (65 | ) |      |   |     |      |  |   | (179   | )
|                                                                                    |  |      |     |   |      |   |      |      |  |   |        |  
|Total income tax expense (benefit)                                                  |  | $    | 16  |   |      | $ | 2    |      |  | $ | (99    | )
|                                                                                    |  |      |     |   |      |   |      |      |  |   |        |  



F-20



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##### Table of Contents

##### Index to Financial Statements

The tax effects of significant items comprising our net deferred income taxes from continuing operations as
of August 31, 2011 and 2010 are as follows (in thousands):



|                                      |  |      |         |   |      |   |         |  
|------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                      |  | 2011 |         |   | 2010 |  
|Net operating losses                  |  | $    | 8,309   |   |      | $ | 8,456   |  
|Accrued expense                       |  |      | 1,545   |   |      |   | 2,423   |  
|Inventories                           |  |      | 46      |   |      |   | 51      |  
|Tax credit carryforwards              |  |      | 89      |   |      |   | 90      |  
|Intangibles                           |  |      | 817     |   |      |   | 177     |  
|Property and equipment                |  |      | 479     |   |      |   | 102     |  
|                                      |  |      |         |   |      |   |         |  
|Total deferred tax assets             |  |      | 11,285  |   |      |   | 11,299  |  
|                                      |  |      |         |   |      |   |         |  
|Prepaid expenses and other            |  |      | (107    | ) |      |   | (101    | )
|Intangibles                           |  |      | (125    | ) |      |   | (125    | )
|                                      |  |      |         |   |      |   |         |  
|Total deferred income tax liabilities |  |      | (232    | ) |      |   | (226    | )
|                                      |  |      |         |   |      |   |         |  
|Net deferred tax assets               |  |      | 11,053  |   |      |   | 11,073  |  
|Less valuation allowance              |  |      | (11,178 | ) |      |   | (11,198 | )
|                                      |  |      |         |   |      |   |         |  
|Net deferred tax liability            |  | $    | (125    | ) |      | $ | (125    | )
|                                      |  |      |         |   |      |   |         |  

As of August 31, 2011, we have income tax carryforwards of $24,437,063 and $88,696 related to net operating losses
and tax credits, respectively, available to reduce future federal and state income tax liabilities. The net operating loss carryforwards begin to expire August 31, 2020. To the extent net operating loss carryforwards related to non-qualified
stock option deductions are realized, they will have the resulting benefits of approximately $2 million credited to stockholders equity.

We record valuation allowances to reflect the estimated amount of deferred tax assets that may not be realized.

In compliance with ASC topic 740 Accounting for Uncertainty in Income Taxes, we have analyzed filing positions in all of the federal and
state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.

We are not subject
to U.S. federal income tax examinations for periods ending before August 31, 2006. The periods subject to examination for our state tax returns vary by state.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:



|                                                    |  |      |   |  |      |   |   |      |  |   |      |  
|--------------------------------------------------- |  | ---- | - |  | ---- | - | - | ---- |  | - | ---- | -
|                                                    |  | 2011 |   |  | 2010 |   |   | 2009 | 
|Balance of unrecognized tax benefits at September 1 |  | $    |  |  |      | $ |  |      |  | $ | 577  |  
|Reductions for prior year tax positions             |  |      |  |  |      |   |  |      |  |   | (577 | )
|                                                    |  |      |   |  |      |   |   |      |  |   |      |  
|Balance of unrecognized tax benefits at August 31   |  | $    |  |  |      | $ |  |      |  | $ |     |  
|                                                    |  |      |   |  |      |   |   |      |  |   |      |  



F-21



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##### Table of Contents

##### Index to Financial Statements

14. EMPLOYEE BENEFIT PLAN

We have a profit sharing plan under Section 401(k) of the Internal Revenue Code, which covers substantially all employees. We may
match employee contributions at a rate determined by the Board of Directors. Discretionary matching cash contributions of approximately $76,000 were made in fiscal year 2009. Because of economic conditions, the match of employee contributions was
suspended on December 31, 2008.

15. RESTRUCTURING AND IMPAIRMENT

In December of 2008, we announced our plan to restructure the Company in response to an expected decline in sales related to overall
economic conditions. Under this plan we reduced our workforce by approximately 36% through terminations and attrition and incurred approximately $458,000 in restructuring expense related to severance. We recorded this in our previous quarter ended
February 28, 2009. In May 2009, we expanded this restructuring plan and reduced our workforce by eight more full time employees and incurred approximately $51,000 in restructuring expense related to severance. We recorded this in our prior
quarter ended May 31, 2009.

Also in our third quarter of fiscal 2009, because of the economic downturn and in accordance with ASC topic
350 Intangibles - Goodwill and Other and ASC topic 360 Property, Plant and Equipment, we performed impairment and recoverability tests related to the remaining book values of goodwill and other intangibles, respectively, from
the Cirronet acquisition in early fiscal 2007. The result was an impairment of approximately $1.6 million that was recognized in our third quarter of fiscal 2009. This impairment included the remaining net book value of the amortizable intangibles
of approximately $1.3 million plus a portion of the trademark book value in the amount of approximately $0.3 million. Our test of goodwill resulted in no impairment.

We did not have additional restructuring and impairment expense in fiscal 2011 and 2010 related to any of the plans defined above.

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and debt. The estimated
fair value of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying amounts due to the relatively short period to maturity of these instruments. The estimated fair value of all debt as of August 31,
2011 approximated the carrying value since the loans incur interest at a variable rate.

* * * * * *



F-22



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##### Table of Contents

##### Index to Financial Statements

INDEX TO EXHIBITS



|         |  |                                                    |  |            |  |                                                                                                                                                                                     
|-------- |  | -------------------------------------------------- |  | ---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |  | Previously Filed*                                  |  | As Exhibit |  | Description                                                                                                                                                                         
|         |  |                                                    | 
|2.1      |  | Form 8-K (filed
8/28/06)                           |  | 2.1        |  | Agreement and Plan of Merger dated as of August 24, 2006 by and among the Registrant, CI Acquisition, Inc., Cirronet Inc. and certain other parties thereto                         
|         |  |                                                    | 
|2.2      |  | Form 8-K (filed
8/28/06)                           |  | 2.2        |  | Agreement and Plan of Merger dated as of August 24, 2006 by and among the Registrant, Aleier Inc., Caver-Morehead Systems, Inc. and the shareholders of Caver-Morehead Systems,
Inc.
|         |  |                                                    | 
|2.3      |  | Form 8-K (filed
8/28/06)                           |  | 10.1       |  | Form of Voting and Option Agreement dated as of August 24, 2006 between the Registrant and certain shareholders of Cirronet Inc.                                                    
|         |  |                                                    | 
|3.1      |  | Form 10-K (Year ended
8/31/94)                     |  | 3.1        |  | Restated Certificate of Incorporation                                                                                                                                               
|         |  |                                                    | 
|3.2      |  | Form 10-K (Year ended
8/31/94)                     |  | 3.2        |  | Bylaws                                                                                                                                                                              
|         |  |                                                    | 
|4.1      |  |                                                    |  |            |  | Reference is made to Exhibits 3.1 and 3.2                                                                                                                                           
|         |  |                                                    | 
|4.2      |  | Form 8-K (filed
12/29/94)                          |  | 4.3        |  | Rights Agreement dated as of 12/20/94                                                                                                                                               
|         |  |                                                    | 
|4.3      |  | Form 8-K (filed
8/19/96)                           |  | 4.4        |  | First Amendment to Rights Agreement dated 8/14/96                                                                                                                                   
|         |  |                                                    | 
|4.4      |  | Form 10-Q
(Quarter ended 11/30/00) (filed
1/16/01) |  | 4.5        |  | Second Amendment to Rights Agreement dated 12/11/00                                                                                                                                 
|         |  |                                                    | 
|4.5      |  | Form 8-A/A (Amendment
No. 2) (filed 12/17/04)      |  | 4.6        |  | Third Amendment to Rights Agreement between Registrant and Equiserve Trust Company, National Association, successor to Fleet National                                               
|         |  |                                                    | 
|4.6      |  | Form 10-K (Year ended
8/31/05) (filed 11/17/05)    |  | 4.9        |  | Specimen Stock Certificate                                                                                                                                                          
|         |  |                                                    | 
|4.7      |  | Form 8-K (filed
11/12/09)                          |  | 4.1        |  | Fourth Amendment to Rights Agreement between Registrant and Computershare Trust Company, N.A. (formerly known as EquiServe Trust Company,
N.A.)                                     



1



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##### Table of Contents

##### Index to Financial Statements

|         |  |                                                          |  |            |  |                                                                                                                                        
|-------- |  | -------------------------------------------------------- |  | ---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |  | Previously Filed*                                        |  | As Exhibit |  | Description                                                                                                                            
|         |  |                                                          | 
|10.1     |  | Form 10-Q (2001)
(Quarter ended 5/31/01) (filed
7/13/01) |  | 10.51      |  | Manufacturing Agreement between Registrant and Automated Technology (Phil.) Inc. Electronics Corporation dated 2/22/01                 
|         |  |                                                          | 
|10.2     |  | Form 10-K (Year ended
8/31/01) (filed 11/29/01)          |  | 10.59      |  | Amendment 1 to Manufacturing Agreement between Registrant and Automated Technology (Phil.) Inc. Electronics Corporation dated 7/19/01  
|         |  |                                                          | 
|10.3     |  | Form 10-K (Year ended
8/31/02) (filed 11/21/02)          |  | 10.72      |  | Product Agreement between Registrant and Tai-Saw Technology Co., LTD dated 9/1/002                                                     
|         |  |                                                          | 
|10.4     |  | Form 10-K (Year ended
8/31/04) (filed 11/18/04)          |  | 10.96      |  | Amended and Restated Manufacturing and Technical Support Agreement between Registrant and Morioka Seiko Instruments, Inc. dated 6/11/04
|         |  |                                                          | 
|10.5     |  | Form 8-K (filed
10/27/05)                                |  | 10.99      |  | Omnibus Cash Incentive Plan of 2005                                                                                                    
|         |  |                                                          | 
|10.6     |  | Form 8-K (filed
10/27/05)                                |  | 10.100     |  | Management Incentive Plan of 2005                                                                                                      
|         |  |                                                          | 
|10.7     |  | Form 10-K (filed
11/17/05)                               |  | 10.22      |  | Form of 1997 Equity Incentive Plan Notice of Grant of Stock Options and Grant Agreement                                                
|         |  |                                                          | 
|10.8     |  | Form 10-K (filed
11/17/05)                               |  | 10.23      |  | 1999 Equity Incentive Plan, as amended                                                                                                 
|         |  |                                                          | 
|10.9     |  | Form 8-K (filed
11/22/05                                 |  | 10.26      |  | Executive Sales Incentive Plan of 2005                                                                                                 
|         |  |                                                          | 
|10.10    |  | Form 8-K (filed
12/19/05                                 |  | 10.27      |  | Form of 1997 Equity Incentive Plan Restricted Stock Unit Award                                                                         
|         |  |                                                          | 
|10.11    |  | Form 8-K (filed
1/23/06)                                 |  | 99.1       |  | Employee Stock Purchase Plan as Amended                                                                                                
|         |  |                                                          | 
|10.12    |  | Form 8-K (filed
1/23/06)                                 |  | 99.2       |  | 1997 Equity Incentive Plan as Amended                                                                                                  
|         |  |                                                          | 
|10.13    |  | Form 10-K (filed
11/20/06)                               |  | 10.33      |  | Form of Lock-Up Agreement for the stock of Registrant with Executive Shareholders of Cirronet Inc.                                     
|         |  |                                                          | 
|10.14    |  | Form 10-K (filed
11/20/06)                               |  | 10.34      |  | Form of Lock-Up Agreement for the stock of Registrant with Non-executive Shareholders of Cirronet Inc.                                 



2



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##### Table of Contents

##### Index to Financial Statements

|         |  |                                                    |  |            |  |                                                                                                                              
|-------- |  | -------------------------------------------------- |  | ---------- |  | -----------------------------------------------------------------------------------------------------------------------------
|Exhibits |  | Previously Filed*                                  |  | As Exhibit |  | Description                                                                                                                  
|         |  |                                                    | 
|10.15    |  | Form 8-K (filed
1/22/07)                           |  | 99.1       |  | 2006 Equity Incentive Plan                                                                                                   
|         |  |                                                    | 
|10.16    |  | Form 10-Q
(Quarter ended 5/31/07) (filed
7/13/07)  |  | 10.4       |  | Omnibus Incentive Plan of 2007                                                                                               
|         |  |                                                    | 
|10.17    |  | Form 10-Q
(Quarter ended 5/31/07) (filed
7/13/07)  |  | 10.5       |  | Management Incentive Plan of 2007                                                                                            
|         |  |                                                    | 
|10.18    |  | Form 10-K (filed
11/29/07)                         |  | 10.30      |  | Manufacturing Agreement between Registrant and Tai-Saw Technology Co., LTD dated August 31, 2007                             
|         |  |                                                    | 
|10.19    |  | Form 10-K (filed
11/24/08)                         |  | 10.29      |  | Form of Indemnity Agreement entered into by the Registrant and each of its officers and directors                            
|         |  |                                                    | 
|10.20    |  | Form 10-K (filed
11/24/08)                         |  | 10.31      |  | Form of Amended and Restated Change in Control Agreement for certain officers.                                               
|         |  |                                                    | 
|10.21    |  | Form 10-Q
(Quarter ended 2/28/09) (filed
4/14/09)  |  | 10.34      |  | Non-Employee Director Stock Purchase Plan.                                                                                   
|         |  |                                                    | 
|10.22    |  | Form 10-Q
(Quarter ended 2/28/09) (filed
4/14/09)  |  | 10.35      |  | Long Range Incentive Plan of 2009.                                                                                           
|         |  |                                                    | 
|10.23    |  | Form 10-Q
(Quarter ended 2/28/09) (filed
4/14/09)  |  | 10.36      |  | Form of 2006 Equity Incentive Plan Restricted Stock Unit Award Letter.                                                       
|         |  |                                                    | 
|10.24    |  | Form 10-Q
(Quarter ended 5/31/09) (filed
7/15/09)  |  | 10.38      |  | Commercial Loan Agreement (Commercial  Single Advance) between Registrant and Viewpoint Bank dated April 13, 2009.          
|         |  |                                                    | 
|10.25    |  | Form 10-Q
(Quarter ended 5/31/09) (filed
7/15/09)  |  | 10.39      |  | Promissory Note (Commercial  Single Advance) made by Registrant payable to Viewpoint Bank dated April 13, 2009.             
|         |  |                                                    | 
|10.26    |  | Form 10-Q
(Quarter ended 11/30/09) (filed
1/13/10) |  | 10.40      |  | Commercial Loan and Security Agreement (Revolving Draw Loan) between Registrant and Viewpoint Bank dated November 30, 2009.  
|         |  |                                                    | 
|10.27    |  | Form 10-Q
(Quarter ended 11/30/09) (filed
1/13/10) |  | 10.41      |  | Promissory Note (Commercial - Revolving Draw) agreement made by Registrant payable to Viewpoint Bank dated November 30,
2009.



3



---

##### Table of Contents

##### Index to Financial Statements

|         |  |                                                    |  |            |  |                                                                                                                                                                    
|-------- |  | -------------------------------------------------- |  | ---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |  | Previously Filed*                                  |  | As Exhibit |  | Description                                                                                                                                                        
|         |  |                                                    | 
|10.28    |  | Form 10-Q
(Quarter ended 2/28/10) (filed
4/13/10)  |  | 10.42      |  | Manufacturing Agreement between Registrant and Tai-Saw Technology Co., LTD dated February 15, 2010.                                                                
|         |  |                                                    | 
|10.29    |  | Form 10-K (filed
11/22/10)                         |  | 10.35      |  | Modification Agreement dated August 6, 2010 to Promissory Note (Commercial-Revolving Draw) between Registrant and Viewpoint Bank dated November 30, 2009.          
|         |  |                                                    | 
|10.30    |  | Form 8-K (filed
8/24/10)                           |  | 99.1       |  | Stock Purchase Agreement between Registrant and Murata Electronics North America, Inc. dated August 23, 2010.                                                      
|         |  |                                                    | 
|10.31    |  | Form 10-Q
(Quarter ended 11/30/10) (filed
1/14/11) |  | 10.37      |  | Second amendment dated September 30, 2010 to Lease Agreement between Registrant and Duke Secured Financing 2006, LLC dated May 31, 2005.                           
|         |  |                                                    | 
|10.32    |  | Form 10-Q
(Quarter ended 11/30/10) (filed
1/14/11) |  | 10.38      |  | Second Modification Agreement dated November 30, 2010 to Promissory Note (Commercial-Revolving Draw) between Registrant and Viewpoint Bank dated November 30, 2009.
|         |  |                                                    | 
|10.33    |  |                                                    |  |            |  | Form of 1999 Equity Incentive Plan Notice of Grant of Stock Options and Grant Agreement.                                                                           
|         |  |                                                    | 
|10.34    |  |                                                    |  |            |  | Form of 2006 Equity Incentive Plan Notice of Grant of Stock Options and Grant Agreement.                                                                           
|         |  |                                                    | 
|23.1     |  |                                                    |  |            |  | Consent of McGladrey & Pullen LLP, Independent Registered Public Accounting Firm                                                                                   
|         |  |                                                    | 
|24.1     |  |                                                    |  |            |  | Power of Attorney**                                                                                                                                                
|         |  |                                                    | 
|31.1     |  |                                                    |  |            |  | Certification Pursuant to Section 302 of Sarbanes - Oxley Act of 2002 for CEO                                                                                      
|         |  |                                                    | 
|31.2     |  |                                                    |  |            |  | Certification Pursuant to Section 302 of Sarbanes - Oxley Act of 2002 for CFO                                                                                      
|         |  |                                                    | 
|32.1     |  |                                                    |  |            |  | Certification Pursuant to Section 906 of Sarbanes - Oxley Act of 2002 for CEO                                                                                      
|         |  |                                                    | 
|32.2     |  |                                                    |  |            |  | Certification Pursuant to Section 906 of Sarbanes - Oxley Act of 2002 for CFO                                                                                      



|* | Incorporated herein by reference.
|- | ---------------------------------

|** | Filed on the signature page of this Annual Report on Form 10-K.
|-- | ---------------------------------------------------------------



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