BK Technologies Corp - Annual Report: 2011 (Form 10-K)

rwc_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-K

———————

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

For the fiscal year ended December 31, 2011

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

For the transition period from __________ to __________

———————

RELM WIRELESS CORPORATION

(Exact name of registrant as specified in its charter)

———————

Nevada		000-07336		59-3486297
(State of other jurisdiction of incorporation or organization)		(Commission file number)		(I.R.S. Employer Identification No.)

7100 Technology Drive

West Melbourne, Florida 32904

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (321) 984-1414

Securities registered pursuant to Section 12(b) of the Act:

Title of Class		Name of each Exchange on Which Registered
Common Stock, par value $.60		NYSE Amex LLC

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 þ

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

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 þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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 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). Yes þ No £

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 (Check one):

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer þ	Smaller reporting company ¨
(Do not check if a smaller reporting company)

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2011, based on the closing price of such stock on the NYSE Amex on such date, was $15,979,004.

As of February 24, 2012, 13,542,982 shares of the registrant’s Common Stock were outstanding.

Documents Incorporated by Reference: Portions of the registrant’s definitive proxy statement for its 2012 annual stockholders’ meeting are incorporated by reference in Part II (Item 5(d)) and in Part III (Items 10-14) of this report. The registrant’s definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after December 31, 2011.

TABLE OF CONTENTS

PART I			1

	Item 1.	Business.	1

	Item 1A.	Risk Factors	6

	Item 1B.	Unresolved Staff Comments	10

	Item 2.	Properties	10

	Item 3.	Legal Proceedings	11

	Item 4.	[Removed and Reserved]	11

PART II			11

	Item 5.	Market For Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities	11

	Item 6.	Selected Financial Data	13

	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	22

	Item 8.	Financial Statements and Supplementary Data	22

	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	23

	Item 9A.	Controls and Procedures	23

	Item 9B.	Other Information	23

Part III			24

	Item 10.	Directors, Executive Officers and Corporate Governance	24

	Item 11.	Executive Compensation	24

	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	24

	Item 13.	Certain Relationships and Related Transactions, and Director Independence	24

	Item 14.	Principal Accountant Fees and Services	24

Part IV			25

	Item 15.	Exhibits and Financial Statement Schedules	25

SIGNATURES			27

PART I

ITEM 1. BUSINESS.

General

RELM Wireless Corporation (RELM) provides two-way radio communications equipment of highquality and reliability.

In business for over 64 years, RELM (NYSE Amex: RWC) designs, manufactures and markets wireless communications products consisting of two-way land mobile radios, repeaters, base stations, and related components and subsystems. Two-way land mobile radios can be units that are hand-held (portable) or installed in vehicles (mobile). Repeaters expand the range of two-way land mobile radios, enabling them to operate over a wider area. Base station components and subsystems are installed at radio transmitter sites to improve performance by enhancing the signal and reducing or eliminating signal interference and enabling the use of one antenna for both transmission and reception. We employ both analog and digital technologies in our products.

Our digital technology is compliant with the Project 25 standard of the Association of Public Communications Officials (APCO Project 25, or P-25). Our P-25 digital products and our analog products function in the VHF (136MHz – 174MHz), UHF (380MHz – 470MHz, 450MHz – 520MHz) and 700-800 MHz bands. Our P-25 KNG Series mobile and portable digital radios have been validated under the P-25 Compliance Assessment Program (CAP) as being P-25 compliant and interoperable with four of our competitors’ communications network infrastructure. We believe this CAP validation of interoperability will increase demand for our KNG Series mobile and portable digital radios by federal, state and local emergency response agencies who use such competitors’ communications network infrastructure, even though we do not provide our own communications network infrastructure.

We offer products under two brand names: BK Radio and RELM. Generally, BK Radio-branded products serve the government and public safety market, while RELM-branded products serve the business and industrial market.

BK Radio-branded products consist of high-specification land-mobile radio equipment for professional radio users primarily in government and public safety applications. These products have more extensive features and capabilities than those offered in the RELM and RELM/BK lines. Our P-25 digital products are marketed under the BK Radio brand, which includes the next-generation KNG product line that was launched in 2008 and is currently being expanded.

RELM-branded products provide basic yet feature-rich and reliable, two-way communications for commercial and industrial concerns, such as hotels, construction firms, schools, and transportation services. Typically these users are not radio professionals, and require easy, fast and affordable communication among a defined group of users.

We provide superior products and value to a wide array of customers with demanding requirements; including, for example, emergency, public safety, homeland security and military customers of federal and state government agencies, as well as various commercial enterprises. Our two-way radio products excel in applications with harsh and hazardous conditions. They offer high-specification performance, durability and reliability at a low cost relative to comparable offerings.

Our principal executive offices are located at 7100 Technology Drive, West Melbourne, Florida 32904 and the telephone number is (321) 984-1414.

Available Information

Our Internet website address is www.relm.com. We make available on our Internet website free of charge our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports as soon as practicable after we electronically file and/or furnish such material with or to the Securities and Exchange Commission. In addition, our Code of Business Conduct and Ethics, Audit Committee Charter and Corporate Governance Guidelines are available at our website. The information contained on our website is not incorporated by reference in this report. A copy of any of these materials also may be obtained, free of charge, upon request from our investor relations department.

Industry Overview

Land mobile radio (LMR) communications consist of hand-held (portable) and mobile (vehicle mounted) two-way radios commonly used by the public safety sector (e.g., police, fire, and emergency responders), commercial business concerns (e.g., corporate disaster recovery, hotels, airports, farms, transportation service providers, and construction firms), and government agencies within the United States and abroad. LMR systems are constructed to meet an organization’s specific communication needs. The cost of a complete system can vary widely depending on the size and configuration. Likewise, the cost of radio sets can range from under $100 for a basic analog portable, to thousands of dollars for a fully featured P-25 digital unit. Typically, there are no recurring airtime usage charges. Accordingly, LMR usage patterns are considerably different from those for cellular and other wireless communications tools. LMR usage is characterized by frequent calls of short duration. A typical user may transmit and receive 20 to 50 calls per day, with most calls lasting less than 30 seconds. The average useful life of a unit can vary, depending upon the application in which the unit is deployed and its handling.

LMR systems are the most widely-used and longest-used form of wireless dispatch communications in the United States, having been first placed in service in 1921. LMR was initially used almost exclusively by law enforcement, and all radio communications were transmitted in an analog format. Analog transmissions typically consist of a voice or other signal modulated directly onto a continuous radio carrier wave. Over time, advances in technology decreased the cost of LMR products and increased its popularity and usage by businesses and other agencies. To respond to the growing usage, additional radio frequency spectrum was allocated by the Federal Communications Commission (FCC) for LMR use.

More recently the LMR industry has been characterized by slow growth, reflecting several factors:

●	LMR is a mature industry, having been in existence for over 90 years;

●	some LMR users are in mature industry segments that have experienced slow growth rates;

●	funding and budgets for government and public safety agencies have been reduced; and

●	most significantly, growth has been hampered by the lack of available radio frequency spectrum, which has prevented existing users from expanding their systems and hindered efforts of many potential new users from obtaining licenses for new systems.

Years ago, as a result of the limited spectrum availability, the FCC mandated that new LMR equipment utilize technology that is more spectrum-efficient. This effectively meant that the industry had to migrate to digital technology. Responding to the mandate, the Association of Public Safety Communications Officials (APCO), in concert with several LMR manufacturers, including RELM, recommended a standard for digital LMR devices that would meet the FCC spectrum-efficiency requirements and provide solutions to several problems experienced primarily by public safety users. The standard is called Project 25. The primary objectives of Project 25 are to: i) allow effective and reliable communication among users of compliant equipment, regardless of its manufacturer, known as interoperability, ii) maximize radio spectrum efficiency, and iii) promote competition among LMR providers through an open system architecture.

Although the FCC does not require public safety agencies or any radio users to purchase P-25 equipment or otherwise adopt the standard, compliance with the standard is a primary consideration for government and public safety purchasers. Accordingly, although funding for LMR purchases by many government agencies is limited, we anticipate that demand for P-25 equipment will ultimately increase and fuel greater LMR market growth as users upgrade equipment to achieve interoperability and comply with the FCC mandate. Presently, the migration to P-25 equipment is primarily limited to government and public safety agencies. Radio users in the business and industrial market continue to utilize predominantly analog LMR products.

By some estimates, the North American LMR market for infrastructure and subscriber units is approximately $5 billion in annual sales. Presently, the market is dominated by one supplier, Motorola Solutions, Inc. However, the open architecture of the P-25 standard is designed to eliminate the ability of one or more suppliers to lockout competitors. Formerly, because of proprietary characteristics incorporated in many analog LMR systems, a customer was effectively precluded from purchasing additional LMR products from a supplier other than the initial supplier of the system. Additionally, the system infrastructure technology was prohibitive for smaller suppliers to develop. P-25 provides an environment in which users will increasingly have a wider selection of LMR suppliers, including smaller suppliers such as RELM.

Description of Products and P-25 CAP Compliance

We design, manufacture, and market wireless communications equipment consisting of two-way land mobile radios, repeaters, base stations, and related components and subsystems. We do not provide complete, integrated, communications systems and infrastructure. Two-way land mobile radios can be units that are hand-held (portable) or installed in vehicles (mobile). Repeaters expand the range of two-way land mobile radios, enabling them to communicate over a wider area. Base station components and subsystems are installed at radio transmitter sites to improve performance by enhancing the signal, reducing or eliminating signal interference and enabling the use of one antenna for both transmission and reception.

We employ both analog and digital technologies in our products. Our digital products are compliant with P-25 specifications. Our P-25 digital products and our analog products function in the VHF (136MHz – 174MHz), UHF (380MHz – 470MHz, 450MHz – 520MHz) and 700-800 MHz bands.

In June 2011, our P-25 KNG Series mobile and portable digital radios were validated under the P-25 Compliance Assessment Program (CAP) as being P-25 compliant and interoperable with four of our competitors’ communications network infrastructure. We believe this P-25 CAP validation of interoperability will increase demand for our KNG Series mobile and portable digital radios by federal, state and local emergency response agencies who use such competitors’ communications network infrastructure, even though we do not provide our own communications network infrastructure.

The P-25 Compliance Assessment Program is a voluntary program that allows land mobile radio equipment suppliers to formally demonstrate their products’ compliance with P-25 requirements. The purpose of the program is to provide federal, state and local emergency response agencies with evidence that the communications equipment they are purchasing satisfies P-25 standards for performance, conformance, and interoperability. The program is a result of legislation passed by the U.S. Congress to improve communication interoperability for first responders and is a partnership of the Department of Homeland Security’s (DHS) Command, Control and Interoperability Division, the National Institute of Standards and Technology, radio equipment manufacturers, and the emergency response community.

To assist the emergency response community with selecting interoperable communications equipment, DHS provides the Responder Knowledge Base (RKB) website; an integrated, online source of information on products, standards, certifications, grants, and other equipment-related information. Manufacturers must submit a Supplier’s Declaration of Compliance and Summary Test Report for inclusion on the site. These documents provide a means of verifying that federal grant dollars are being invested in standardized solutions and equipment that promotes interoperability. Information on our KNG Series mobiles and portables is now available on the RKB site.

Description of Markets

Government and Public Safety Market

The government and public safety market includes the military, fire, rescue, law enforcement, homeland security and emergency responder personnel. In most instances, BK Radio-branded products serve this market and are sold either directly to end-users, or through two-way communications dealers. Government and public safety sales represented approximately 93%, 92% and 94% of our total sales for 2011, 2010 and 2009, respectively.

Government and public safety users currently use products that employ either P-25 digital or analog technology. However, public safety users in federal, state and local government agencies and certain other countries are migrating to digital P-25 products. The evolution of the standard and compliant digital products is explained in the Industry Overview section starting on page 2 of this report.

Business and Industrial Market

This market includes enterprises of all sizes that require fast and affordable, push-to-talk communication among a discrete group of users such as corporate disaster recovery, hotels, construction firms, schools, and transportation service providers. Users in this market continue to predominantly utilize analog products. We offer products to this market under the RELM brand name. Our sales in this market may be direct to end-users or to dealers and distributors who then resell the products. Our sales to this market represented approximately 7%, 8% and 6% of our total sales for 2011, 2010 and 2009, respectively.

Engineering, Research and Development

Our engineering and product development activities are conducted by a team of 16 employees combined with contract engineering resources. Their primary development focus is the design of our line of next generation P-25 digital products, the KNG Series, and related capabilities. The first models in the KNG line were introduced in 2008 and are included on our primary federal contract vehicles. Subsequently we added UHF and 800MHz products, as well as P-25 trunking in 2010.

Our first P-25 digital product, named the DPH, was introduced to the market in 2003. Shortly thereafter, the DPH was added to the contract to supply agencies of the U.S. Department of Interior with digital two-way communications equipment.

A segment of our engineering team is responsible for product specifications based on customer requirements and supervising quality assurance activities. They also have primary responsibility for applied engineering, production engineering and the specification compliance of contract manufacturers.

For 2011, 2010 and 2009, our engineering and development expenses were approximately $4.4 million, $4.9 million and $3.6 million, respectively.

Intellectual Property

We presently have no United States patents in force. We hold several trademarks related to the names “RELM” and “BK Radio” and certain product names. We also rely on trade secret laws and employee and third party non-disclosure agreements to protect our intellectual property rights.

Manufacturing and Raw Materials

Our manufacturing strategy is to utilize the highest quality and most cost effective resources available for every aspect of our manufacturing. Consistent with that strategy, for many years we have successfully utilized outside contract arrangements for different segments of our manufacturing operations. These arrangements, some of which are with offshore concerns, have been managed and updated to meet our present requirements, and they continue to be instrumental in controlling our product costs, allowing us to improve our competitive position and manage our gross margins.

Contract manufacturers produce various subassemblies and products on our behalf. Generally, the contract manufacturers procure raw materials from RELM-approved sources and complete manufacturing activities in accordance with our specifications. Original Equipment Manufacturer (OEM) agreements govern the business relationship with each contract manufacturer. These agreements have various terms and may be renewed upon agreement by both parties. The scope of these agreements may also be expanded to include new products in the future.

We plan to continue utilizing contract manufacturing where it furthers our business objectives. This strategy allows us to focus on our core technological competencies of product design and development, and to reduce the substantial capital investment required to manufacture our products. We also believe that our use of experienced, high-volume manufacturers will provide greater manufacturing specialization and expertise, higher levels of flexibility and responsiveness, and faster delivery of product; all of which contributes toward minimized product costs. To ensure that products manufactured by others meet our quality standards, our production and engineering team works closely with our ISO 9002 industry-qualified contract manufacturers in all key aspects of the production process. We establish product specifications, select the components and, in some cases, the suppliers. We retain all document control. We also work with our contract manufacturers to improve process control and product design, and conduct periodic on-site inspections.

We rely upon a limited number of both domestic and foreign suppliers for several key products and components. We place purchase orders from time to time with these suppliers and have no guaranteed supply arrangements. In addition, we obtain certain components from a single source. During 2011, 2010 or 2009, our operations were not materially impaired due to delays from single source suppliers. However, the absence of a single source component could potentially delay the manufacture of finished products. We manage the risk of such delays by securing secondary sources and redesigning products in response to component shortages or obsolescence. We strive to maintain strong relations with all our suppliers. We anticipate that the current relationships, or others that are comparable, will be available to us in the future.

Seasonal Impact

We experience seasonality in our quarterly results in part due to governmental customer spending patterns that are influenced by government fiscal year-end budgets and appropriations. We also experience seasonality in our quarterly results in part due to our concentration of sales to federal and state agencies that participate in fire-suppression efforts, which are typically the greatest during the summer season when forest fire activity is heightened. In some years, these factors may cause an increase in sales for the second and third quarters compared with the first and fourth quarters of the same fiscal year. Such increases in sales may cause quarterly variances in our cash flow from operations and overall financial condition.

Significant Customers

Sales to the United States Government represented approximately 52%, 70% and 60% of our total sales for the years ended December 31, 2011, 2010 and 2009, respectively. These sales were primarily to various government agencies, including those within the United States Department of Defense (DOD), the United States Forest Service (USFS) and the United States Department of the Interior (DOI).

Backlog

Our backlog of unshipped customer orders was approximately $1.5 million, $5.6 million and $3.2 million as of December 31, 2011, 2010 and 2009, respectively.

Competition

We compete with many domestic and foreign companies primarily in the North American market. One dominant competitor, Motorola Solutions, Inc., is estimated to have well in excess of half the market for LMR products. We compete by capitalizing on our advantages and strengths, which include price, product quality, and customer responsiveness.

Employees

As of December 31, 2011, we had 89 full-time employees, most of whom are located at our West Melbourne, Florida facility; 49 of these employees are engaged in direct manufacturing or manufacturing support, 16 in engineering, 15 in sales and marketing, and 9 in headquarters, accounting and human resources activities. Our employees are not represented by any collective bargaining agreements, nor has there ever been a labor-related work stoppage. We believe our relations with our employees are good.

Information Relating to Domestic and Export Sales

The following table summarizes our sales of LMR products by customer location:

	2011			2010			2009
	(in Millions)
United States		$	22.5		$	25.3		$	27.9
International			1.6			0.6			0.1
Total		$	24.1		$	25.9		$	28.0

ITEM 1A. RISK FACTORS

Various portions of this report contain forward-looking statements that involve risks and uncertainties. Actual results, performance or achievements could differ materially from those anticipated in these forward-looking statements as a result of certain risk factors, including those set forth below and elsewhere in this report. These risk factors are not presented in the order of importance or probability of occurrence.

Our industry is characterized by rapidly changing technology

Our business could suffer if we are unable to keep pace with rapid technological changes and product development in our industry. The market for our LMR products is characterized by ongoing technological development, evolving industry standards and frequent product introductions. The LMR industry is experiencing a transition from analog LMR products to digital LMR products. In addition, the APCO Project 25 standard is being increasingly adopted.

We depend on the success of our LMR product line

We currently depend on our LMR products as our sole source of sales. A decline in the price of and/or demand for LMR products, as a result of competition, technological change, the introduction of new products by us or others or a failure to manage product transitions successfully, could have a material adverse effect on our business, financial condition and results of operations. In addition, our future success will largely depend on the successful introduction and sale of new digital LMR products. Even if we successfully develop these products, we cannot guarantee that they will achieve market acceptance.

We are engaged in a highly competitive industry

We face intense competition from other LMR suppliers, and the failure to compete effectively could materially and adversely affect our market share, financial condition and results of operations. The largest supplier of LMR products in the world, Motorola Solutions, Inc., currently is estimated to have well in excess of half the market for LMR products. This supplier is also the world’s largest supplier of P-25 products. Some of our competitors are significantly larger and have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we have. Some also have established reputations for success in developing and supplying LMR products, including providing complete, integrated, communications systems and infrastructure. We do not provide complete, integrated, communications systems and infrastructure. These advantages may allow them:

●	to be more attractive to customers who desire a single source supplier and provider of LMR products;

●	to respond more quickly to new or emerging technologies and changes in customer requirements which may render our products obsolete or less marketable;

●	to engage in more extensive research and development;

●	to undertake more far-reaching marketing campaigns;

●	to be able to take advantage of acquisitions and other opportunities;

●	to adopt more aggressive pricing policies; and

●	to be more attractive to potential employees, strategic partners and advertisers.

Many of our competitors have established extensive networks of sales locations and multiple distribution channels, and thus enjoy a competitive advantage over us in these areas as well. We may not be able to compete successfully and competitive pressures may materially and adversely affect our business, results of operations and financial condition.

An increase in the demand for P-25 products could benefit competitors who are better financed and have inventories on-hand that will meet such demand. P-25 products have been brought to the market by an increasing number of our competitors. Our first P-25 portable radio was brought to market in 2003, and we introduced a new line of P-25 products, the KNG Series, starting in 2008 and have since expanded the product line and expect to continue doing so in the future. Bringing such products to market and achieving a significant market penetration for these products will continue to require time and expenditures of funds. There can be no assurance that we will be successful in developing and marketing, on a timely basis, fully functional product enhancements or new products that respond to these and other technological advances, or that our new products will be accepted by customers. An inability to successfully develop and/or market products could have a material adverse effect on our business, results of operations and financial condition.

We face a number of risks related to the current economic conditions

Current economic conditions in the United States and elsewhere remain uncertain. These uncertain economic conditions could materially and adversely impact our business, liquidity and financial condition in a number of ways, including:

●

Potential Deferment or Reduction of Purchases by Customers: Significant budget deficits and limited appropriations confronting our federal, state and local government customers may cause them to defer or reduce purchases of our products. Furthermore, uncertainty about current and future economic conditions may cause customers to defer purchases of our products in response to tighter credit and decreased cash availability.

●	Customers’ Inability to Obtain Financing to Fund their Operations: Some of our customers require substantial financing in order to fund their operations. Insolvencies of our customers could materially and adversely impact our business and financial condition.

●

Negative Impact from Increased Financial Pressures on Third-Party Dealers and Distributors: We make sales to certain of our customers through third-party dealers and distributors. If credit pressures or other financial difficulties result in insolvencies of these third parties and we are unable to successfully transition the end customers to purchase our products from other third parties, or directly from us, it could materially and adversely impact our operating results and financial condition.

●	Limited Access by Us to Credit and Capital: Although we do not anticipate needing additional capital in the near term, the constrained credit markets may limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all.

The availability of our credit facility is conditioned upon our being in compliance with certain covenants

We have a $5.0 million secured credit facility with Silicon Valley Bank (SVB). As of December 31, 2011 and as of the date of this report, there were no borrowings outstanding under the facility. The loan and security agreement, as amended, governing the credit facility contains certain financial maintenance and restrictive covenants. For instance, we are required to maintain at all times, tested on the last day of each month: (1) a ratio of “quick assets to current liabilities” minus “deferred revenue” (all as defined in the loan and security agreement) of at least 1.00:1.00 and (2) “tangible net worth” (as defined in the loan and security agreement) of at least $25.3 million increasing by (i) 50% of quarterly net profits and (ii) 75% of net proceeds derived from issuances of equity and issuances of subordinated debt. Failure to comply with any of these covenants would constitute an event of default that would permit SVB to accelerate repayment of any outstanding borrowings at the time of occurrence. We are currently in compliance with all of these covenants. However, there is no assurance that we will be able to comply with these covenants in the future or, in the event we fail to do so, that we will be able to either obtain a waiver from SVB or refinance the credit facility in a timely manner on acceptable terms or at all.

We depend on a limited number of manufacturers and on a limited number of suppliers of components to produce our products

We contract with manufacturers to produce our products and our dependence on a limited number of contract manufacturers exposes us to certain risks, including shortages of manufacturing capacity, reduced control over delivery schedules, quality assurance, production yield and costs. If any of our manufacturers terminate production or cannot meet our production requirements, we may have to rely on other contract manufacturing sources or identify and qualify new contract manufacturers. The lead-time required to qualify a new manufacturer could range from approximately two to six months. Despite efforts to do so, we may not be able to identify or qualify new contract manufacturers in a timely and cost effective manner and these new manufacturers may not allocate sufficient capacity to us in order to meet our requirements. Any significant delay in our ability to obtain adequate quantities of our products from our current or alternative contract manufacturers could have a material adverse effect on our business, financial condition and results of operations.

In addition, our dependence on limited and sole source suppliers of components involves several risks, including a potential inability to obtain an adequate supply of components, price increases, late deliveries and poor component quality. Approximately 46.3% of our material, subassembly and product procurements in 2011 were sourced from one supplier. Disruption or termination of the supply of these components could delay shipments of our products. The lead-time required for orders of some of our components is as much as six months. In addition, the lead-time required to qualify new suppliers for our components is as much as six months. If we are unable to accurately predict our component needs, or if our component supply is disrupted, we may miss market opportunities by not being able to meet the demand for our products. This may damage our relationships with current and prospective customers and, thus, have a material adverse effect on our business, financial condition and results of operations.

We depend heavily on sales to the U.S. Government

We are subject to risks associated with our reliance on sales to the U.S. Government. For the year ended December 31, 2011, approximately 52% of our sales were to agencies and departments of the U.S. Government. These sales were primarily to agencies of the DOD, USFS and the DOI. There can be no assurance that we will be able to maintain this government business. Our ability to maintain our government business will depend on many factors outside of our control, including competitive factors, changes in government personnel making contract decisions, spending limits, and political factors. The loss of sales to the U.S. Government would have a material adverse effect on our business, financial condition and results of operations.

We have deferred tax assets that we may not be able to utilize under certain circumstances

If we incur future operating losses, we may be required to provide some or all of our deferred tax assets with a valuation allowance, resulting in additional non-cash income tax expense. The change in the valuation may have a material impact on future results. If we do not achieve sufficient federal taxable income in future years to utilize all or some of our net operating loss carry forwards, they will expire.

Retention of our executive officers and key personnel is critical to our business

Our success is largely dependent on the personal efforts of our President and Chief Executive Officer, our Chief Financial Officer, and our Chief Technology Officer, as well as other key executives and employees. We do not have employment agreements with these individuals, and we cannot be sure that we will retain their services. We carry key-man life insurance of $5 million on the life of our President and Chief Executive Officer. Notwithstanding such life insurance, the loss of services from any of our executive officers or these other key employees due to any reason whatsoever could have a material adverse effect on our business, financial condition and results of operations.

Our success is also dependent upon our ability to hire and retain qualified operations, development and other personnel. Competition for qualified personnel in our industry is intense. There can be no assurance that we will be able to hire or retain necessary personnel. The inability to attract and retain qualified personnel could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to manage our growth

Acquisitions and other business transactions may disrupt or otherwise have a negative impact on our business and results of operations. There can be no assurance that we will complete any asset purchases or other business transactions or that any such transactions which are completed will prove favorable to our business. We intend to seek stockholder approval for any such transactions only when so required by applicable law or regulation. We hope to grow rapidly, and the failure to manage our growth could materially and adversely affect our business, operations and financial condition. Our business plan contemplates, among other things, continued development of our product lines through internal development and growth in our customer base. This growth and continued development, if it materializes, could significantly challenge our management, employees, operations and financial capabilities. In the event of this expansion, we have to continue to implement and improve our operating systems and to expand, train, and manage our employee base. If we are unable to manage and integrate our expanding operations effectively, our business, results of operations and financial condition could be materially and adversely affected.

We are subject to government regulation

Failure to comply with government regulations applicable to our business could result in penalties. Our products are regulated by the FCC. As a public company, we are subject to regulations of the Securities and Exchange Commission. We believe that we are in substantial compliance with all applicable federal regulations governing our business and we believe that we have obtained all licenses necessary for the operation of our business. Failure to comply with these requirements and regulations or to respond to changes in these requirements and regulations could result in penalties on us such as fines, restrictions on operations or a temporary or permanent closure of our facility. These penalties could have a material adverse effect on our business, operating results and financial condition. In addition, there can be no assurance that we will not be materially and adversely affected by existing or new regulatory requirements or interpretations.

We engage in business with manufacturers located in other countries

We engage in business with manufacturers located in other countries. Approximately 57% of our material, subassembly and product procurements in 2011 were sourced internationally. Accordingly, we are subject to special considerations and risks not typically associated with companies operating solely in the United States. These include the risks associated with the political, economic and legal environments, among others. Our business, operating results and financial condition may be materially and adversely affected by, among other things, changes in the political and social conditions in foreign countries in which we maintain sourcing relationships, and changes in government policies with respect to laws and regulations, anti-inflation measures and method of taxation.

We carry substantial quantities of inventory

We carry a significant amount of inventory to service customer requirements in a timely manner. If we are unable to sell this inventory over a commercially reasonable time, in the future we may be required to take inventory markdowns, which would reduce our net sales and/or gross margins. In addition, it is critical to our success that we accurately predict trends in customer demand, including seasonal fluctuations, in the future and do not overstock unpopular products or fail to sufficiently stock popular products. Both scenarios could materially harm our business, operating results and financial condition.

We rely on a combination of contract, trademark and trade secret laws to protect our intellectual property rights

Currently, we hold no United States patents. We hold several trademarks related to the “RELM” and “BK Radio” names and certain product names. As part of our confidentiality procedures, we generally enter into non-disclosure agreements with our employees, distributors and customers, and limit access to and distribution of our proprietary information. We also rely on trade secret laws to protect our intellectual property rights. Although we believe that trademark protection, trade secret laws and non-disclosure agreements should prevent another party from manufacturing and selling competing products under one or more of our trademarks or otherwise violating our intellectual property rights, there can be no assurance that the steps we have taken to protect our intellectual property rights will be successful. It may also be particularly difficult to protect our products and intellectual property under the laws of certain countries in which our products are or may be manufactured or sold.

Our fluctuating quarterly operating results could cause volatility in our stock price

Our quarterly operating results may fluctuate significantly from quarter to quarter and may be below the expectations of securities analysts and investors, resulting in volatility for the market price for our common stock. Other factors affecting the volatility of our stock price include:

●	future announcements concerning us or our competitors;

●	the announcement or introduction of technological innovations or new products by us or our competitors;

●	changes in product pricing policies by us or our competitors;

●	changes in earnings estimates by us or our competitors or by securities analysts;

●	additions or departures of our key personnel; and

●	sales of our common stock.

Acts of war or terrorism could have a material adverse effect on our operations and financial condition

Acts of war or terrorism (wherever located around the world) may cause damage or disruption to our business, employees, suppliers, manufacturers, and customers that could have a material adverse effect on our business, operations and financial condition. While we cannot predict what impact a prolonged war on terrorism will have on the United States economy, we plan to prudently manage expenses, while continuing to invest in our business and make capital expenditures when they will increase productivity, profitably, or sales.

Any infringement claim against us could have a material adverse affect on our financial condition

Although we believe our products and technology do not infringe on any proprietary rights of others, as the number of competing products available in the market increases and the functions of those products further overlap, the potential for infringement claims may increase. Any such claims, with or without merit, may result in costly litigation or require us to redesign the affected product to avoid infringement or require us to obtain a license for future sales of the affected product. Any of the foregoing could have a material adverse effect upon our business, results of operations and financial condition. Any litigation resulting from any such claim could require us to incur substantial costs and divert significant resources, including the efforts of our management and engineering personnel.

Certain provisions in our charter documents and Nevada law may discourage a potential takeover

Certain provisions of our articles of incorporation and Nevada law could discourage or prevent potential acquisitions of our company that stockholders may consider favorable. Our articles of incorporation authorize the issuance of 1,000,000 shares of “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by our board of directors. Preferred stock could be issued, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company, which could be unfavorable to our stockholders.

We may not be able to maintain our NYSE Amex listing

Our common stock has been listed on the NYSE Amex (formerly known as the American Stock Exchange) since October 14, 2005. There is no assurance that we will be able to satisfy the NYSE Amex’s continued listing standards, which include, among others, minimum stockholders’ equity, market capitalization, pre-tax income and per share sales price. If our common stock is de-listed from the NYSE Amex, we would be forced to list our common stock on the OTC Bulletin Board or some other quotation medium, depending on our ability to meet the specific requirements of those quotation systems. Selling our common stock would be more difficult because smaller quantities of shares would likely be bought and sold and transactions could be delayed. These factors could result in lower prices and larger spreads in the bid and ask prices for shares of our common stock. If this happens, we will have greater difficulty accessing the capital markets to raise any additional necessary capital.

Future sales of shares of our common stock may negatively affect our stock price and impair our ability to raise equity capital

Approximately 2.0 million of our shares of outstanding common stock as of December 31, 2011 are owned by certain of our executive officers and directors and their affiliates, and may be resold publicly at any time subject to the volume and other restrictions under Rule 144 of the Securities Act of 1933. Approximately 85% of our outstanding shares of common stock as of December 31, 2011 are freely tradable without restriction.

Sales of substantial amounts of shares of our common stock, or even the potential for such sales, could lower the market price of our common stock and impair our ability to raise capital through the sale of equity securities.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES OWNED

We do not own any real estate.

Leased

We lease approximately 54,000 square feet of industrial space at 7100 Technology Drive in West Melbourne, Florida. The original lease, which expired on June 30, 2005, was renewed for an additional five years. In December 2008, we executed the first amendment to the lease, which reduces the amount of the monthly base rent payment and extends the expiration date to June 30, 2015. Rental, maintenance and tax expenses for this facility were approximately $468,000, $447,000 and $422,000 in 2011, 2010 and 2009, respectively. We also lease 8,100 square feet of office space in Lawrence, Kansas, to accommodate a segment of our engineering team. The lease, which expired on December 31, 2009, was renewed for an additional five years with an expiration date of December 31, 2014. Rental, maintenance and tax expenses for this facility were approximately $92,000, $92,000 and $81,000 in 2011, 2010 and 2009, respectively.

ITEM 3. LEGAL PROCEEDINGS

From time to time we may be involved in various claims and legal actions arising in the ordinary course of our business. There were no pending material claims or legal matters as of December 31, 2011.

ITEM 4. [REMOVED AND RESERVED]

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Market Information.

Our common stock trades on the NYSE Amex (formerly known as the American Stock Exchange) under the symbol “RWC.” The following tables set forth the high and low closing sales price for our common stock for the quarterly periods for the years ended December 31, 2011 and 2010, as reported by the NYSE Amex.

Common Stock

	High		Low
2011 Quarter Ended
First Quarter	$	2.05	$	1.59
Second Quarter		1.59		1.26
Third Quarter		1.39		0.91
Fourth Quarter		1.16		0.93


	High		Low
2010 Quarter Ended
First Quarter	$	4.63	$	2.86
Second Quarter		3.75		2.17
Third Quarter		2.57		1.72
Fourth Quarter		2.18		1.61

(b) Holders.

On February 24, 2012, there were 1,011 holders of record of our common stock.

We did not pay any cash dividends on our common stock during 2011 or 2010 and have no intention of doing so in the foreseeable future. The declaration and payment of cash dividends, if any, is subject to our board of directors discretion and final determination based upon its consideration of our operating results, financial condition and anticipated capital requirements, as well as such other factors it may deem relevant. In addition, our credit facility prohibits us from paying cash dividends on our common stock.

(d) Securities Authorized for Issuance under Equity Compensation Plans.

The information required by this item is incorporated by reference to our definitive proxy statement to be filed within 120 days of our fiscal year end in connection with solicitation of proxies for our 2012 meeting of stockholders.

(e) Performance Graph.

The following graph compares the five-year cumulative total stockholder return on our common stock with the five-year cumulative total return of The NYSE Amex Composite Index (the “NYSE Amex Composite”) and The NYSE Arca Technology Index (the “NYSE Arca Technology”). The comparisons cover the five years ended December 31, 2011 and are based on an assumed investment of $100 as of December 31, 2006 and the reinvestment of any dividends. The comparisons in the graph are based upon historical data and are not indicative of, nor intended to forecast future performance of our common stock.

	NYSE Amex Composite	NYSE Arca Technology	RELM

12/31/2006	$100.00	$100.00	$100.00
12/31/2007	122.46	56.00	58.35
12/31/2008	73.97	51.83	13.71
12/31/2009	100.19	57.61	58.16
12/31/2010	127.31	61.27	33.34
12/31/2011	128.98	47.07	20.37

The foregoing stock performance information, including the graph, shall not be deemed to be “soliciting material” or to be filed with the Securities and Exchange Commission nor shall this information be incorporated by reference into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934.

ITEM 6. SELECTED FINANCIAL DATA

The following table summarizes selected financial data and balance sheet data of RELM for its last five fiscal years, which are derived from our historical consolidated financial statements and should be read in conjunction with our Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this report:

Statement of Operations Data (In Thousands, except per share data)

	Years ended December 31
	2011			2010			2009		2008			2007
Sales, net	$	24,104		$	25,954		$	27,989	$	19,175		$	26,976
(Loss) income before income taxes	$	(766	)	$	(653	)	$	3,454	$	(2,912	)	$	2,817
Net (loss) income	$	(493	)	$	(660	)	$	2,363	$	(1,626	)	$	1,846
Net (loss) income per share-basic	$	(0.04	)	$	(0.05	)	$	0.18	$	(0.12	)	$	0.14
Net (loss) income per share-diluted	$	(0.04	)	$	(0.05	)	$	0.17	$	(0.12	)	$	0.13

●

Non-cash tax expense of approximately $7, $1,100 and $1,000 is included in the results for 2010, 2009 and 2007, respectively. Tax benefit of approximately $273 and $1,300 is included in the results for 2011 and 2008, respectively. The tax expense, benefits and related deferred tax asset are more fully explained under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Income Taxes” included elsewhere in this report.

●	Share-based employee compensation expense totaling approximately $172, $281 and $55 is included in the results for 2011, 2010 and 2009, respectively.

●	In September 2007, our Board of Directors authorized and declared a special cash dividend of $0.50 per share of common stock, which was paid on October 22, 2007 to stockholders of record on October 10, 2007.

Balance Sheet Data (In Thousands)

	As of December 31
	2011		2010		2009		2008		2007
Working Capital	$	19,467	$	19,744	$	17,798	$	16,633	$	20,634
Total assets		31,847		34,792		31,421		30,622		30,145
Long-term debt		-0-		2,000		-0-		1,500		-0-
Total stockholders’ equity		28,069		28,390		28,662		26,244		27,794

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Summary

For the year ended December 31, 2011 our operating loss of $653,000 was comparable to the $628,000 operating loss we reported for 2010. Our 2011 operating loss was primarily attributable to a decline in sales and a reduction in our gross margins, which was largely offset by corresponding reductions in operating expenses.

Total sales for 2011 decreased 7.1% to approximately $24.1 million compared with approximately $26.0 million for the prior year, reflecting lower sales of P-25 digital products to government and public safety customers while sales of analog products remained flat.

Gross margins as a percentage of sales in 2011 were 42.0% compared with 43.6% for the prior year. The decline in gross margins is primarily attributed to higher than normal product costs during the first half of the year related to the early production of some of our new products.

Selling, general and administrative expenses for 2011 decreased approximately $1.2 million (9.8%) to approximately $10.8 million compared with last year. This decrease was primarily from reductions in engineering expenses, sales and marketing expenses, and to a lesser extent, general and administrative expenses. These reductions were implemented in response to sluggish sales.

We reported a pretax loss for 2011 of $766,000 compared with a pretax loss of $653,000 last year. For 2011, we recognized an income tax benefit of $273,000 compared with income tax expense of $7,000 last year. Our income tax benefit and expense are largely non-cash, relating to deferred items including net operating loss carryforwards.

The net loss for 2011 was $493,000 ($0.04 per basic and diluted share), compared with approximately $660,000 ($0.05 per basic and diluted share) for the prior year.

As of December 31, 2011, working capital totaled approximately $19.5 million, of which $6.8 million was comprised of cash and trade receivables. This compares with working capital totaling approximately $19.7 million at year end 2010, which included $9.0 million of cash and trade receivables. During 2011 we repaid all borrowings outstanding under our revolving credit facility. Consequently, there were no borrowings outstanding as of December 31, 2011, compared with borrowings of $2 million as of year end 2010.

Results of Operations

As an aid to understanding our operating results, the following table shows items from our consolidated statements of operations expressed as a percent of sales:

	Percent of Sales for Years Ended December 31
	2011			2010			2009
Sales		100.0	%		100.0	%		100.0	%
Cost of products		(58.0	)		(56.4	)		(51.2	)
Gross margin		42.0			43.6			48.8
Selling, general and administrative expenses		(44.8	)		(46.0	)		(36.3	)
Net interest (expense) income		(0.4	)		(0.1	)		(0.2	)
(Loss) income before income tax (expense) benefit		(3.2	)		(2.5	)		12.3
Income tax benefit (expense)		1.1			(0.0	)		(3.9	)
Net (loss) income		(2.1	)%		(2.5	)%		8.4	%

Fiscal Year 2011 Compared With Fiscal Year 2010

Sales, net

Sales in 2011 decreased $1.9 million (7.1%) to approximately $24.1 million compared with approximately $26.0 million for the prior year. Sales of P-25 digital products in 2011 decreased approximately $1.2 million (7.3%) to approximately $15.4 million, compared with approximately $16.6 million for 2010.

The decrease in total sales and P-25 digital sales compared with the prior year was attributed primarily to federal government agencies. These agencies, including our longstanding legacy customers, faced budget and funding constraints during the year. The enactment of a federal budget was delayed until April 2011. Once enacted, the budget did not provide adequate funding for many land mobile radio requirements. Consequently, agencies had to scale-down or defer fulfilling their requirements. While present conditions remain uncertain, we are encouraged by an increasing pipeline of sales opportunities, including those with state and local governments, and public safety agencies. We believe our expanded line of products and technology increase our addressable market and, accordingly, improve our prospects to convert these opportunities into sales.

Cost of Products and Gross Margins

Cost of products as a percentage of sales for 2011 was 58.0% compared with 56.4% in 2010. Product mix, manufacturing volume and pricing are the primary factors that impact product costs and the resulting gross margins. For 2011, our cost of products and gross margins reflected reduced sales and higher material and labor costs for the early production of new products. These factors abated during the second half of the year. Production runs later in the year benefited from refinements in our manufacturing processes, yielding lower material costs and improved labor efficiencies. Also, sales increased in the second half of the year compared with the first half resulting in increased manufacturing volumes, and better utilization and absorption of our base of manufacturing support expenses.

We continue to utilize contract manufacturing relationships to maximize production efficiencies and minimize material and labor costs. We also regularly consider manufacturing alternatives to improve quality, speed and to reduce our product costs. We anticipate that the current contract manufacturing relationships or comparable alternatives will be available to us in the future. Leveraging increased sales volumes and P-25 product sales combined with continuing improvements in the production of new products, we believe, should favorably impact our costs and efficiencies. We anticipate that product cost and competitive pricing pressures will continue in the future, however, the extent of their impact on gross margins is uncertain.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses consist of marketing, sales, commissions, engineering, product development, management information systems, accounting, headquarters expenses and non-cash share-based employee compensation expense.

For 2011, SG&A expenses decreased approximately $1.2 million (9.8%) to approximately $10.8 million or 44.8% of sales compared with approximately $12.0 million or 46.0% of sales for the prior year.

Engineering and product development expenses for 2011 decreased approximately $464,000 (9.5%) compared with the prior year. The decrease was the result of expense reductions that commenced in the second quarter and continued for the remainder of the year, as some product development initiatives were completed. The expense reductions were partially offset by amortization of additional capitalized software that commenced during the fourth quarter 2010 when we released our new trunking digital radio and continued in 2011.

Marketing and selling expenses for 2011 decreased by approximately $616,000 (14.5%) compared with last year. These decreases relate primarily to expense and commission reductions implemented during the second quarter 2011 and maintained for the remainder of the year. Although expenses have been reduced, we intend to prioritize and support critical initiatives for sales growth.

General and administrative expenses for 2011 decreased by approximately $90,000 (3.2%) compared with last year. These expense reductions are primarily the result of reductions in headquarters and public company expenses, including non-cash share-based employee compensation expenses.

Operating (Loss)

We reported an operating loss of $653,000 for 2011, compared with an operating loss of $628,000 last year. The operating loss for 2011 was primarily due to sluggish sales and increases in cost of products during the first half of the year. These factors were partially offset by operating expense reductions implemented during the second quarter 2011 and maintained for the remainder of the year.

Interest Expense, net

For 2011, net interest expense totaled $106,000, compared with $29,000 for the prior year. The expense increase is due to borrowings under our revolving credit facility. We incur interest expense on outstanding borrowings under our revolving credit facility and earn interest income on our cash balances. We had no borrowings outstanding under the credit facility as of December 31, 2011, compared with $2.0 million outstanding as of year end 2010. The interest rate on such revolving credit facility as of December 31, 2011 was 3.75% per annum. This rate is variable based on the prime rate plus 50 basis points.

Income Tax Expense

We recorded an income tax benefit of $273,000 for 2011 compared with income tax expense of $7,000 last year. Our income tax expense is largely non-cash as a result of the deferred tax asset related primarily to federal and state net operating loss carryforwards.

As of December 31, 2011, we had deferred tax assets of approximately $8.2 million, which was materially unchanged from the previous the year. These assets are primarily composed of net operating loss carry forwards (NOLs), which are available to offset federal and state taxable income. These NOLs totaled approximately $10.7 million for federal and approximately $18.8 million for state purposes as of December 31, 2011, with expirations starting in 2017 through 2030. During 2011, we utilized approximately $4.2 million of our NOLs.

In order to fully utilize the net deferred tax assets, we will need to generate sufficient taxable income in future years to utilize our NOLs prior to their expiration. ASC Topic 740, “Income Taxes”, requires us to analyze all positive and negative evidence to determine if, based on the weight of available evidence, we are more likely than not to realize the benefit of the state deferred tax assets. The recognition of the net deferred tax assets and related tax benefits is based upon our conclusions regarding, among other considerations, estimates of future earnings based on information currently available, current and anticipated customers, contracts and product introductions, as well as recent operating results during 2011, 2010 and 2009, and certain tax planning strategies.

We have evaluated the available evidence and the likelihood of realizing the benefit of our net deferred tax assets. From our evaluation we have concluded that based on the weight of available evidence, we are more likely than not to not realize a portion of the benefit of our state deferred tax assets recorded at December 31, 2011. Accordingly, we established a valuation allowance totaling approximately $250,000 for the portion of benefit of state deferred tax assets that more likely than not will not be realized. We cannot presently estimate what, if any, changes to the valuation of our deferred tax assets may be deemed appropriate in the future. If we incur future losses, it may be necessary to record a valuation allowance related to the deferred tax assets recognized as of December 31, 2011.

Accounting for Income Taxes

We account for income taxes using the asset and liability method specified by ASC Topic 740 “ Income Taxes”, as modified by ASC Topic 740-10-05. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply in the period in which the deferred tax asset or liability is expected to be realized. The effect of changes in net deferred tax assets and liabilities is recognized on our consolidated balance sheets and consolidated statements of income in the period in which the change is recognized. Valuation allowances are provided to the extent that it is more likely than not that some portion, or all, of deferred tax assets will not be realized. In determining whether a tax asset is realizable, we consider among other things, estimates of future earnings based on information currently available, current and anticipated customers, contracts and new product introductions, as well as recent operating results during 2011, 2010 and 2009, and certain tax planning strategies. If we fail to achieve the future results anticipated in the calculation and valuation of net deferred tax assets, we may be required to adjust our valuation allowance related to our deferred tax assets in the future.

Fiscal Year 2010 Compared With Fiscal Year 2009

Sales, net

Sales in 2010 decreased $2.0 million (7.3%) to approximately $26.0 million compared with $28.0 million for the prior year. Sales of P-25 digital products in 2010 increased $0.3 million (1.6%) to approximately $16.6 million, compared with $16.3 million for 2009.

The decrease in total sales compared with the prior year was attributed primarily to a decline in orders from agencies of the DOD as well as some other federal and state agencies. The overall decrease in total sales was partially offset by increased sales with legacy customers such as the USFS and DOI purchasing our D-series P-25 digital radios.

During 2010, we added several products to our KNG line of P-25 digital radios. Most important was the fourth quarter launch of our P-25 digital trunked products; the first such products in RELM’s history. This enabled us to address a significant portion of the land mobile radio market that previously was beyond the scope of our product line.

Cost of Products and Gross Margins

Cost of products as a percentage of sales for 2010 was 56.4% compared with 51.2% in 2009. Our cost of products and gross margins are primarily related to product mix, manufacturing volumes and pricing. Compared with last year, our gross margins for the year reflected reduced sales and the impact of additional manufacturing costs, some of which relate to the start of new product production. Competitive pricing considerations and a change in the mix of products sold were also contributing factors.

We continued to utilize contract manufacturing relationships to maximize production efficiencies and minimize material and labor costs.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses consisted of marketing, sales, commissions, engineering, product development, management information systems, accounting, headquarters expenses and non-cash share-based employee compensation expense.

For 2010, SG&A expenses increased approximately $1.8 million (17.6%) to approximately $12 million or 46.0% of sales compared with approximately $10 million or 36.3% of sales for the prior year.

Engineering and product development expenses in 2010 increased by $1.3 million (36.6%) compared with last year. This increase was largely the result of efforts to advance the completion and launch of our P-25 trunking capability, as well as other P-25 radios and features in our expanding KNG product line.

Marketing and selling expenses in 2010 increased by approximately $373,000 (9.6%) compared with last year. During the year we increased sales staffing and incurred additional sales and marketing expenses focused on raising the profile of our new KNG product line and capabilities, and penetrating new markets and customers.

General and administrative expenses in 2010 increased by approximately $114,000 (4.2%) compared with last year primarily due to non-cash share-based employee compensation expense.

Operating (Loss) Income

We reported an operating loss of approximately $628,000 for 2010, compared with operating income of approximately $3.5 million last year. During 2010, total sales decreased $2.0 million, or 7.3%, from the previous year and there were additional manufacturing costs, some of which were associated with production of new products. Also, the mix of product sales was less favorable.

Interest Expense, net

For 2010, we incurred approximately $29,000 in net interest expense compared with approximately $41,000 for the prior year. We earn interest income on our cash balances and incur interest expense on borrowings from our revolving line of credit. We had $2.0 million in borrowings outstanding under the credit facility as of December 31, 2010, compared with no borrowings outstanding as of the end of the prior year. The interest rate on such revolving credit facility as of December 31, 2010 was 3.75% per annum. This rate is variable based on the prime rate plus 50 basis points.

Income Tax Expense

We recorded net income tax expense of approximately $7,000 for 2010 compared with approximately $1.1 million last year. Our income tax expense is largely non-cash as a result of the deferred tax asset related primarily to federal and state net operating loss carryforwards.

As of December 31, 2010, we had deferred tax assets of approximately $7.8 million, which was materially unchanged from the start of the year. These assets are primarily composed of net operating loss carry forwards (NOLs), which are available to offset federal and state taxable income. These NOLs totaled approximately $13.6 million for federal and approximately $19.4 million for state purposes as of December 31, 2010, with expirations starting in 2017 through 2028. During 2010, we generated $106,000 of NOLs.

In order to fully utilize the net deferred tax assets, sufficient taxable income must be generated in future years to utilize our NOLs prior to their expiration. ASC Topic 740, “Income Taxes”, requires us to analyze all positive and negative evidence to determine if, based on the weight of available evidence, we are more likely than not to realize the benefit of the state deferred tax assets. The recognition of the net deferred tax assets and related tax benefits is based upon our conclusions regarding, among other considerations, estimates of future earnings based on information currently available, current and anticipated customers, contracts and product introductions, as well as recent operating results during 2010, 2009 and 2008, and certain tax planning strategies.

We evaluated the available evidence and the likelihood of realizing the benefit of our net deferred tax assets. From our evaluation we concluded that based on the weight of available evidence, we were more likely than not to not realize a portion of the benefit of our state deferred tax assets recorded at December 31, 2010. Accordingly, we established a valuation allowance totaling approximately $320,000 for the portion of benefit of state deferred tax assets that more likely than not will not be realized. We could not estimate what, if any, changes to the valuation of our deferred tax assets might be deemed appropriate in the future.

Accounting for Income Taxes

We accounted for income taxes using the asset and liability method specified by ASC Topic 740 “ Income Taxes”, as modified by ASC Topic 740-10-05. Deferred tax assets and liabilities were recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities were measured using the enacted tax rates expected to apply in the period in which the deferred tax asset or liability was expected to be realized. The effect of changes in net deferred tax assets and liabilities was recognized on our consolidated balance sheets and consolidated statements of income in the period in which the change was recognized. Valuation allowances are provided to the extent that it is more likely than not that some portion, or all, of deferred tax assets will not be realized. In determining whether a tax asset was realizable, we considered among other things, estimates of future earnings based on information then available, current and anticipated customers, contracts and new product introductions, as well as recent operating results during 2010, 2009 and 2008, and certain tax planning strategies.

Changing Prices

Changing prices for the years ended December 31, 2011, 2010 and 2009 did not have a material impact on our operations. During 2010, in some instances, product unit prices were reduced to convert sales opportunities into sales, which reduced gross margins. The extent of competitive pricing pressure in the future and its impact is uncertain.

Liquidity and Capital Resources

For the year ended December 31, 2011, net cash used in operating activities totaled approximately $142,000 compared with net cash used in operating activities of approximately $3.1 million last year. Cash used in operating activities was primarily related to a net loss combined with payments of trade payables and increased inventories and trade receivables. These uses were largely offset by depreciation, amortization and deferred revenue from extended warranties. Net inventories increased during 2011 by approximately $206,000 compared with $5.3 million for last year as we controlled material purchases due to sluggish sales. In 2010, inventory increased significantly in support of the broader line of new products and anticipated demand. We have and are continuing to actively manage our purchases to align inventory with anticipated business levels. For 2011, accounts payable decreased by approximately $1.0 million as a result of payments to suppliers. For 2010, accounts payable increased by approximately $1.5 million primarily due to material purchases. Accounts receivable increased by approximately $255,000 during 2011 compared with an increase of approximately $150,000 for the prior year. Depreciation and amortization totaled approximately $1.4 million for 2011, compared with approximately $811,000 for the prior year, reflecting the additional amortization of capitalized software relating to our new products that commenced in the fourth quarter 2010.

Cash used in investing activities for 2011 totaled $215,000 compared with approximately $1.6 million last year. Cash used in investing activities for 2011 was primarily to fund the purchase of test equipment and tooling for manufacturing and engineering applications. For the prior year, cash used in investing activities was to fund digital software development and the acquisition of assets pertaining to the development of our new digital products. We anticipate that future capital expenditures will be funded through our existing cash balance and operating cash flow.

Cash used in financing activities for 2011 totaled $2 million representing repayment of all outstanding borrowings under our revolving credit facility. In 2010, cash provided by financing activities totaled approximately $2.1 million representing borrowings of $2.0 million under our revolving credit facility, $87,000 in proceeds from the issuance of common stock and $20,000 in tax benefits from the exercise and sale of employees’ stock options.

We have a secured revolving credit facility with Silicon Valley Bank (SVB) with maximum borrowing availability of $5 million (subject to the borrowing base) and a maturity date of December 31, 2012. Our obligations under the revolving credit facility are secured by substantially all of our assets, principally accounts receivable and inventory. The loan and security agreement, as amended, governing this revolving credit facility contains customary borrowing terms and conditions, including the accuracy of representations and warranties, compliance with financial maintenance and restrictive covenants and the absence of events of default. For a description of such borrowing terms and conditions, reference is made to Note 6 (Debt) of our Consolidated Financial Statements included elsewhere in this report.

As of December 31, 2011 and the date of this report, we were in compliance with all covenants under the loan and security agreement, as amended. As of December 31, 2011 and the date of this report, there were no borrowings outstanding under the revolving credit facility. As of December 31, 2011 and the date of this report, approximately $3.3 million and $2.8 million, respectively, was available for borrowing under the revolving credit facility.

Our cash balance at December 31, 2011 was approximately $2.7 million. We believe these funds combined with anticipated cash generated from operations and borrowing availability under our revolving credit facility are sufficient to meet our working capital requirements for the foreseeable future. However, although we do not anticipate needing additional capital in the near term, the current financial and economic conditions could limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all. We also face other risks that could impact our business, liquidity and financial condition. For a description of these risks, see “Item 1A. Risk Factors” set forth elsewhere in this report.

The following table sets forth the Company’s future contractual obligations for the next five years and in the aggregate as of December 31, 2011:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
					(In thousands)

Operating leases	$	1,927	$	236	$	1,691	$	—	$	—
Purchase Obligations		2,701		2,701		—		—		—
Revolving credit facility		—		—		—		—		—
Total	$	4,628	$	2,937	$	1,691	$	—	$	—

For a description of our revolving credit facility and our operating leases, reference is made to Notes 6 and 7 to our Consolidated Financial Statements included elsewhere in this report.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements that impacted the years ended December 31, 2011, 2010 and 2009, or which are expected to impact future periods, which were not previously disclosed in prior periods.

Critical Accounting Policies and Estimates

In response to the SEC’s financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, we have selected for discussion our revenue recognition process and our more subjective accounting estimation processes. These processes affect our reported revenues and current assets and are therefore critical in assessing the financial and operating status of RELM. The processes for determining the allowance for collection of trade receivables, reserves for excess or obsolete inventory, software development and income taxes, involve certain assumptions that if incorrect could create an adverse impact on RELM's operations and financial position.

Revenue

Sales revenue is recognized when the earnings process is complete and collection is reasonably assured. The earnings process is generally complete when the product is shipped by the Company or delivered to the customer, depending upon whether the title to the goods, as well as the risks and benefits of ownership are transferred to the customer at point of shipment or point of delivery. However, sales to the federal government are recognized when the products are delivered. For extended warranties, sales revenue associated with the warranty is deferred at the time of sale and later recognized on a straight-line basis over the extended warranty period. We periodically review our revenue recognition procedures to assure that such procedures are in accordance with ASC Topic 605 Revenue Recognition.

Allowance for Doubtful Accounts

The allowance for doubtful accounts was approximately $44,000 on gross trade receivables of approximately $4.2 million as of December 31, 2011, as compared with $44,000 on gross trade receivables of approximately $4.0 million as of December 31, 2010. This allowance is used to state trade receivables at a net realizable value or the amount that we estimate will be collected on our gross receivables as of December 31, 2011. Because the amount that we will actually collect on the receivables outstanding as of December 31, 2011 cannot be known with certainty as of this report’s date, we rely on prior experience. Our historical collection losses have typically been infrequent with write-offs of trade receivables being less than 1% of sales during past years. Accordingly, we have maintained a general allowance up to approximately 5% of the gross trade receivables balance in order to allow for future collection losses that arise from customer accounts that do not indicate the inability to pay but turn out to have such an inability. Currently, our general allowance on trade receivables is approximately 1.1% of gross receivables. As revenues and total receivables increase, the allowance balance may also increase. We also maintain a specific allowance for customer accounts that we know may not be collectible due to various reasons such as bankruptcy and other customer liquidity issues. We analyze our trade receivable portfolio based on the age of each customer’s invoice. In this way, we can identify those accounts that are more likely than not to have collection problems. We may reserve a portion or all of the customer’s balance.

Excess and Obsolete Inventory

The allowance for obsolete and slow moving inventory was approximately $2.8 million at December 31, 2011 as compared to approximately $2.6 million at December 31, 2010. The reserve for slow-moving, excess, or obsolete inventory is used to state our inventories at the lower of cost or market. Because the amount of inventory that we will actually recoup through sales cannot be known with certainty at any particular time, we rely on past sales experience, future sales forecasts, and our strategic business plans. Generally, in analyzing our inventory levels, we classify inventory as having been used or unused during the past year and establish a reserve based upon several factors, including, but not limited to, business forecasts, inventory quantities and historic usage profile.

Supplemental to the aforementioned analysis, specific inventory items are reviewed individually by management. Based on the review, considering business levels, future prospects, new products and technology changes, the valuation of specific inventory items may be adjusted to reflect an accurate valuation, in the business judgment of management. Management also performs a determination of net realizable value for all finished goods with a selling price below cost. For all such items, the inventory is valued at not more than the selling price less cost, if any, to sell.

Software Development

We account for the costs of software within its products in accordance with ASC Topic 985-20 “Costs of Software to be Sold, Leased or Marketed”, under which certain software costs incurred subsequent to the establishment of technological feasibility are capitalized and amortized over the estimated lives of the related products. We determine technological feasibility to be established upon the internal release of a detailed program design as specified by Topic 985-20. Upon the general release of the product to customers, development costs for that product are amortized over periods not exceeding five years, based on current and future revenue of the product. Net capitalized software costs totaled approximately $2.8 million as of December 31, 2011, as compared with approximately $3.8 million as of December 31, 2010.

Income Taxes

We account for income taxes using the asset and liability method specified by ASC Topic 740, “Income Taxes”, as modified by ASC Topic 740-10-05. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply in the period in which the deferred tax asset or liability is expected to be realized. The effect of changes in net deferred tax assets and liabilities is recognized on our consolidated balance sheets and consolidated statements of operations in the period in which the change is recognized. Valuation allowances are provided to the extent that it is more likely than not that some portion, or all, of deferred tax assets will not be realized. In determining whether a tax asset is realizable, we consider among other things, estimates of future earnings based on information currently available, current and anticipated customers, contracts and new product introductions, as well as recent operating results and certain tax planning strategies. If we fail to achieve the future results anticipated in the calculation and valuation of net deferred tax assets, we may be required to adjust the valuation allowance related to our deferred tax assets in the future.

Forward-Looking Statements

We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” ”will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.

Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in “Item 1A. Risk Factors” and elsewhere in this report and in our subsequent filings with the Securities and Exchange Commission. We assume no obligation to publicly update or revise any forward-looking statements made in this report, whether as a result of new information, future events, changes in assumptions or otherwise, after the date of this report. Readers are cautioned not to place undue reliance on these forward-looking statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We may be subject to the risk of fluctuating interest rates in the ordinary course of business for borrowings under our revolving credit facility, which bear interest at a variable rate. The lender presently charges interest at the prime rate, as in effect from time to time, plus 50 basis points. As of December 31, 2011, we had no outstanding borrowings under this facility. Interest rate changes on variable debt impacts the interest incurred and cash flows but does not impact the net market value of the debt instrument.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See pages F-1 through F-20.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

RELM Wireless Corporation

West Melbourne, Florida

We have audited the accompanying consolidated balance sheets of RELM Wireless Corporation as of December 31, 2011 and 2010 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 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 the 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 audits 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 also 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 RELM Wireless Corporation at December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

Miami, Florida

March 6, 2012

F-1

RELM WIRELESS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in Thousands, except share data)

	December 31,
	2011				2010
ASSETS

Current assets:
Cash and cash equivalents		$	2,693			$	5,050
Trade accounts receivable (net of allowance for doubtful accounts of $44 in 2011 and 2010)			4,155				3,900
Inventories, net			12,148				11,942
Deferred tax assets			3,458				2,165
Prepaid expenses and other current assets			526				703
Total current assets			22,980				23,760
Property, plant and equipment, net			1,158				1,357
Deferred tax assets, net			4,712				5,637
Capitalized software, net			2,778				3,776
Other assets			219				262
Total assets		$	31,847			$	34,792


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable		$	1,756			$	2,753
Accrued compensation and related taxes			807				795
Accrued warranty expense			247				266
Accrued other expenses and other current liabilities			318				202
Deferred revenue			385				—
Total current liabilities			3,513				4,016

Deferred revenue			265				386
Long-term debt			—				2,000
Total liabilities		$	3,778			$	6,402
Commitments and contingencies
Stockholders' equity:
Preferred stock; $1.00 par value; 1,000,000 authorized shares none issued or outstanding.			—				—
Common stock; $.60 par value; 20,000,000 authorized shares: 13,519,323 and 13,508,815 issued and outstanding shares at December 31, 2011 and 2010, respectively			8,111				8,105
Additional paid-in capital			24,570				24,404
Accumulated deficit			(4,612	)			(4,119	)
Total stockholders' equity			28,069				28, 390
Total liabilities and stockholders' equity		$	31,847			$	34,792

See notes to consolidated financial statements.

F-2

RELM WIRELESS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in Thousands, except per share data)

	Years Ended December 31,
	2011			2010			2009
Sales, net	$	24,104		$	25,954		$	27,989
Expenses
Cost of products		13,972			14,627			14,323
Selling, general and administrative		10,785			11,955			10,167
		24,757			26,582			24,490
Operating (loss) income		(653	)		(628	)		3,499
Other (expense) income:
Interest expense		(107	)		(30	)		(47	)
Interest income		1			1			6
Other (expense ) income		(7	)		4			(4	)
Total other expense		(113	)		(25	)		(45	)
(Loss) income before income taxes		(766	)		(653	)		3,454
Income tax benefit (expense)		273			(7	)		(1,091	)
Net (loss) income	$	(493	)	$	(660	)	$	2,363
Net (loss) income per share-basic:	$	(0.04	)	$	(0.05	)	$	0.18
Net (loss) income per share-diluted:	$	(0.04	)	$	(0.05	)	$	0.17
Weighted average shares outstanding-basic		13,514			13,480			13,411
Weighted average shares outstanding-diluted		13,514			13,480			13,600

See notes to consolidated financial statements.

F-3

RELM WIRELESS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in Thousands, except share data)

	Common Stock				Additional paid-In			Accumulated
	Shares		Amount		Capital			Deficit			Total
Balance at December 31, 2008		13,410,871	$	8,046	$	24,020		$	(5,822	)	$	26,244
Common stock option exercise and issued		5,256		4		(4	)		—			—
Share-based compensation expense		—		—		55			—			55
Net income		—		—		—			2,363			2,363
Balance at December 31, 2009		13,416,127		8,050		24,071			(3,459	)		28,662
Common stock option exercise and issued		92,688		55		32			—			87
Excess tax benefit from share-based compensation		—		—		20			—			20
Share-based compensation expense		—		—		281			—			281
Net loss		—		—		—			(660	)		(660	)
Balance at December 31, 2010		13,508,815		8,105		24,404			(4,119	)		28,390
Common stock option exercise and issued		10,508		6		(6	)		—			—
Share based compensation expense		—		—		172			—			172
Net loss		—		—		—			(493	)		(493	)
Balance at December 31, 2011		13,519,323	$	8,111	$	24,570		$	(4,612	)	$	28,069

See notes to consolidated financial statements.

F-4

RELM WIRELESS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW

(in Thousands, except share data)

	Years Ended December 31,
	2011			2010			2009
Operating activities
Net (loss) income	$	(493	)	$	(660	)	$	2,363
Adjustments to reconcile net (loss) income to net cash (used in ) provided by
operating activities:
Allowance for doubtful accounts		—			17			5
Inventory reserve		148			271			245
Deferred tax benefit (expense)		(368	)		12			1,406
Depreciation and amortization		1,412			811			672
Share-based compensation expense		172			281			55
Excess tax benefit from share-based payment arrangement		—			(20	)		—
Changes in operating assets and liabilities:
Accounts receivable		(255	)		(150	)		(2,003	)
Inventories		(354	)		(5,590	)		2,906
Prepaid expenses and other current assets		177			193			35
Other assets		43			89			4
Accounts payable		(997	)		1,503			(599	)
Accrued compensation and related taxes		12			(291	)		469
Accrued warranty expense		(19	)		38			(74	)
Deferred revenue		264			386			—
Accrued other expenses and other current liabilities		116			7			85
Net cash (used in) provided by operating activities		(142	)		(3,103	)		5,569

Investing activities
Purchases of property, plant and equipment		(215	)		(465	)		(357	)
Capitalized software		—			(1,149	)		(1,527	)
Net cash used in investing activities		(215	)		(1, 614	)		(1,884	)

Financing activities
Proceeds from issuance of common stock		—			87			—
Excess tax benefit from share-based payment arrangement		—			20			—
Proceeds from debt		1,500			2,000			—
Repayment of revolving credit line		(3,500	)		—			(1,500	)
Net cash (used in) provided by financing activities		(2,000	)		2,107			(1,500	)
(Decrease) increase in cash		(2,357	)		(2,610	)		2,185
Cash and cash equivalents, beginning of year		5,050			7,660			5,475
Cash and cash equivalents, end of year	$	2,693		$	5,050		$	7,660
Supplemental disclosure
Cash paid for interest	$	107		$	30		$	47
Cash paid for income taxes	$	—		$	11		$	50
Non-cash financing activity Cashless exercise of stock options	$	6		$	7		$	4

See notes to consolidated financial statements.

F-5

RELM WIRELESS CORPORATION

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in Thousands, except share data and percentages)

1. Summary of Significant Accounting Policies

Description of Business

RELM Wireless Corporation and its subsidiary’s (collectively, the “Company”) primary business is the designing, manufacturing, and marketing of wireless communications equipment consisting primarily of two-way land mobile radios and related products which are sold in two primary markets: (1) the government and public safety market and (2) business and industrial market. The Company has only one reportable business segment.

Principles of Consolidation

The accounts of the Company have been included in the accompanying consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.

Inventories

Inventories are stated at the lower of cost (determined by the average cost method) or market. Freight costs are classified as a component of cost of products in the accompanying consolidated statements of operations.

Property, Plant and Equipment

Property, plant and equipment is carried at cost. Expenditures for maintenance, repairs and minor renewals are expensed as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the resulting gain or loss is reflected in operations for the period.

Depreciation is generally computed on the straight-line method using lives of 3 to 10 years on machinery and equipment and 5 to 10 years on buildings and building improvements.

Capitalized Software Costs

Capitalized software development costs are those incurred during the programming, codification and testing phase. Costs incurred during the design and planning, product definition and product specification state are accounted for as expenses.

The amortization of capitalized software costs during a reporting period is the greater of the amount computed using (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product and (b) the straight-line method over the remaining estimated economic life of the software or the product they are incorporated within.

Impairment of Long-Lived Assets

Management regularly reviews long-lived assets and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets which considers the discounted future net cash flows. No long-lived assets were considered impaired at December 31, 2011.

F-6

RELM WIRELESS CORPORATION

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in Thousands, except share data and percentages)

1. Summary of Significant Accounting Policies (Continued)

Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts based on specifically identified amounts that the Company believes to be uncollectible. The Company also records additional allowance based on certain percentages of the Company’s aged receivables, which are determined based on historical experience and the Company’s assessment of the general financial conditions affecting the Company’s customer base. If the Company’s actual collections experience changes, revisions to the Company’s allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, management believes the allowance for doubtful accounts as of December 31, 2011 is adequate.

Revenue Recognition

Sales revenue is recognized when the earnings process is complete and collection is reasonably assured. The earnings process is generally complete when the product is shipped or received by the customer, depending upon whether the title to the goods, as well as the risks and benefits of ownership are transferred to the customer at point of shipment or point of delivery. However, sales to the federal government are recognized when the products are delivered. For extended warranties, sales revenue associated with the warranty is deferred at the time of sale and later recognized on a straight-line basis over the extended warranty period.

The Company periodically reviews its revenue recognition procedures to assure that such procedures are in accordance with ASC Topic 605 Revenue Recognition. Surcharges collected on certain sales to government customers and remitted to governmental agencies are not included in revenues or in costs and expenses.

Income Taxes

The Company accounts for income taxes using the asset and liability method specified by ASC Topic 740, “Income Taxes”, as modified by ASC Topic 740-10-05. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply in the period in which the deferred tax asset or liability is expected to be realized. The effect of changes in net deferred tax assets and liabilities is recognized on the Company’s consolidated balance sheets and consolidated statements of operations in the period in which the change is recognized. Valuation allowances are provided to the extent that impairment of tax assets are more likely than not. In determining whether a tax asset is realizable, the Company considers among other things, estimates of future earnings based on information currently available, current and anticipated customers, contracts and new product introductions, as well as recent operating results during 2011, 2010 and 2009 and certain tax planning strategies. If the Company fails to achieve the future results anticipated in the calculation and valuation of net deferred tax assets, the Company may be required to adjust the valuation allowance related to its deferred tax assets in the future.

Concentration of Credit Risk

The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. At December 31, 2011, 2010 and 2009, accounts receivable from governmental customers were approximately $1,626, $3,829 and $1,544, respectively. Generally, receivables are due within 30 days. Credit losses relating to customers consistently have been within management’s expectations.

F-7

RELM WIRELESS CORPORATION

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in Thousands, except share data and percentages)

1. Summary of Significant Accounting Policies (Continued)

The Company primarily maintains cash balances at one financial institution. Accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250. From time to time, the Company has had cash in financial institutions in excess of federally insured limits. As of December 31, 2011, the Company had cash and cash equivalents in excess of FDIC limits of approximately $2,313.

Manufacturing and Raw Materials

The Company relies upon a limited number of manufacturers to produce its products and on a limited number of component suppliers. Some of these manufacturers and suppliers are in other countries. Approximately 57% of the Company’s material, subassembly and product procurements in 2011 were sourced internationally, of which approximately 46.3% were sourced from one supplier. For 2010, approximately 65.5% of the Company’s material, subassembly and product procurements were sourced internationally, of which approximately 55.1% were sourced from one supplier. For 2009, the Company’s internationally sourced material, subassembly and product procurements totaled approximately 60%, of which approximately 30% were sourced from one supplier. Purchase orders denominated in U.S. dollars are placed with these suppliers from time to time and there are no guaranteed supply arrangements or commitments.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of sales and expenses during the reporting period. Significant estimates include accounts receivable allowances, inventory obsolescence reserves, warranty reserves, capitalized software costs and income tax accruals. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company’s management believes that carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximates fair value due to the short-term nature of these financial instruments.

Shipping and Handling Costs

Shipping and handling costs are classified as a part of cost of revenues in the accompanying consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009. Amounts billed to a customer, if any, for shipping and handling are reported as a revenue.

Advertising and Promotion Costs

The cost for advertising and promotion is expensed as incurred. Advertising and promotion expense are classified as part of selling, general and administrative expenses in the accompanying consolidated statements of operations. For the years ended December 31, 2011, 2010, and 2009, such expenses totaled $348, $328, and $299, respectively.

Research and Development Costs

Included in selling, general and administrative expenses for the years ended December 31, 2011, 2010, and 2009 are research and development costs of $4,397, $4,859, and $3,562, respectively.

F-8

RELM WIRELESS CORPORATION

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in Thousands, except share data and percentages)

1. Summary of Significant Accounting Policies (Continued)

Share-Based Compensation

In December 2004, the Financial Accounting Standards Board (FASB) issued ASC Topic 718, “Compensation-Stock Compensation.” This Topic requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which the employee is required to provide service in exchange for the award requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Employee share purchase plans will not result in recognition of compensation cost if certain conditions are met; those conditions are much the same as the related conditions in ASC Topic 718.

Earnings Per Share

Earnings per share amounts are computed and presented for all periods in accordance with ASC Topic 260-10-05, “Earnings per Share.”

Comprehensive Income

Pursuant to ASC Topic 220-10-05, “Reporting Comprehensive Income”, the Company is required to report comprehensive income (loss) and its components in its consolidated financial statements. The Company does not have any significant components of other comprehensive income (loss) to be reported under ASC Topic 220-10-05. Total comprehensive income (loss) is equal to net income (loss) reported for all periods presented in the consolidated financial statements.

Product Warranty

The Company offers two-year warranties to its customers depending on the specific product and terms of the customer purchase agreement. The Company’s typical warranties require it to repair and replace defective products during the warranty period at no cost to the customer. At the time the product revenue is recognized, the Company records a liability for estimated costs under its warranties. The costs are estimated based on historical experience. The Company periodically assesses the adequacy of its recorded liability for product warranties and adjusts the amount as necessary.

Recent Accounting Pronouncements

F-9

RELM WIRELESS CORPORATION

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in Thousands, except share data and percentages)

1. Summary of Significant Accounting Policies (Continued)

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

2. Inventories, net

Inventories, which are presented net of allowance for obsolete and slow moving inventory, consisted of the following:

	December 31,
	2011		2010

Finished goods	$	3,981	$	3,110
Work in process		4,671		6,075
Raw materials		3,496		2,757
	$	12,148	$	11,942

Changes in the allowance for obsolete and slow moving inventory is as follows:

	Years Ended December 31,
	2011		2010		2009

Balance, beginning of year	$	2,617	$	2,346	$	2,405
Charged to cost of sales		148		271		245
Disposal of inventory		-		-		(304	)
Balance, end of year	$	2,765	$	2,617	$	2,346

3. Allowance for Doubtful Accounts

Changes in the allowance for doubtful accounts is composed of the following:

	Years Ended December 31,
	2011		2010			2009

Balance, beginning of year	$	44	$	44		$	81
Provision for doubtful accounts		-		17			5
Uncollectible accounts written off		-		(17	)		(42	)
Balance, end of year	$	44	$	44		$	44

F-10

RELM WIRELESS CORPORATION

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in Thousands, except share data and percentages)

4. Property, Plant and Equipment, net

Property, plant and equipment, net include the following:

	December 31,
	2011			2010

Leasehold improvements	$	274		$	269
Machinery and equipment		4,934			4,724
Less accumulated depreciation and amortization		(4,050	)		(3,636	)
Property, plant and equipment, net	$	1,158		$	1,357

Depreciation and amortization expense relating to property, plant, and equipment for the years ended December 31, 2011, 2010 and 2009 was $414, $414 and $437, respectively.

5. Accounting for Software Costs

The Company accounts for the costs of software within its products in accordance with ASC Topic 985-20 “Costs of Software to be Sold, Leased or Marketed”, under which certain software costs incurred subsequent to the establishment of technological feasibility are capitalized and amortized over the estimated lives of the related products. The Company determines technological feasibility to be established upon the internal release of a detailed program design as specified by Topic 985-20. Upon the general release of the product to customers, development costs for that product are amortized over periods not exceeding five years, based on current and future revenue of the product. Net capitalized software costs totaled $2,778 and $3,776 as of December 31, 2011 and 2010, respectively. For the years ended December 31, 2011, 2010 and 2009, the Company’s amortization expense for capitalized software was approximately $998, $631 and $235, respectively.

6. Debt

The Company has a secured revolving credit facility with Silicon Valley Bank (SVB) with maximum borrowing availability of $5 million (subject to the borrowing base) and a maturity date of December 31, 2012. The loan and security agreement, as amended, governing this revolving credit facility contains customary borrowing terms and conditions, including the accuracy of representations and warranties, compliance with financial maintenance and restrictive covenants and the absence of events of default. Under the financial maintenance covenants, the Company is required to maintain at all times, tested on the last day of each month: (1) a ratio of “quick assets to current liabilities” minus “deferred revenue” (all as defined in the loan and security agreement) of at least 1.00:1.00 and (2) “tangible net worth” (as defined in the loan and security agreement) of at least $25,350 increasing by (i) 50% of quarterly net profits and (ii) 75% of net proceeds derived from issuances of equity and issuances of subordinated debt. Borrowings under the revolving credit facility bear interest at the prime rate, as in effect from time to time, plus 50 basis points. The maximum that the Company may borrow at any given time is based on among other things, eligible accounts receivable, inventory, and cash. The Company is prohibited from paying cash dividends on its common stock. The Company’s obligations are secured by substantially all of its assets, principally accounts receivable and inventory. As of December 31, 2011, there were no borrowings outstanding under the revolving credit facility and approximately $3,274 was available for borrowing thereunder. As of December 31, 2011, the Company was in compliance with all covenants under the loan and security agreement, as amended. The foregoing description of the revolving credit facility is not complete and is qualified in its entirety by reference to the loan and security agreement dated as of October 23, 2008, as amended by the first amendment to loan and security agreement dated as of October 20, 2010 and further amended by the second amendment to loan and security agreement dated June 22, 2011, copies of which are listed and incorporated by reference as Exhibits 10.9, 10.10 and 10.11 to the report in which these Consolidated Financial Statements are included, and are incorporated by reference herein.

F-11

RELM WIRELESS CORPORATION

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in Thousands, except share data and percentages)

7. Leases

The Company leases approximately 54,000 square feet of industrial space in West Melbourne, Florida. The original lease, which expired on June 30, 2005, was renewed for an additional five years with an expiration date of June 30, 2010. In December 2008, the lease was amended to reduce the monthly rent expense and extend the expiration date by five years to June 30, 2015. Rental, maintenance and tax expenses for this facility were approximately $468, $447 and $422 in 2011, 2010 and 2009, respectively. The Company also leases 8,100 square feet of office space in Lawrence, Kansas, to accommodate a portion of the Company’s engineering team. The lease, which expired on December 31, 2009, was renewed for an additional five years with an expiration date of December 31, 2014. Rental, maintenance and tax expenses for this facility were approximately $92 in 2011and 2010, respectively, and $81 in 2009.

The following table summarizes future minimum rental payments under these leases as of December 31, 2011:

2012	$	564
2013		564
2014		564
2015		236
Later years		-

	$	1,928

F-12

8. Income Taxes

The income tax (expense) benefit is summarized as follows:

	Years Ended December 31,
	2011			2010			2009
Current:
Federal	$	83		$	3		$	(317	)
State		11			2			2
		94			5			(315	)
Deferred:
Federal		(359	)		32			1,327
State		(8	)		(30	)		79
		(367	)		2			1,406
	$	(273	)	$	7		$	1,091

A reconciliation of the statutory United States income tax rate to the effective income tax rate follows:

	Years Ended December 31,
	2011			2010			2009

Statutory U.S. income tax rate		(34.0	)%		(34.0	)%		34.0	%
States taxes, net of federal benefit		(0.58	)%		(4.4	)%		2.4	%
Permanent differences		11.07	%		19.0	%		1.1	%
Change in valuation allowance		(9.13	)%		52.0	%		0.0	%
Change in net operating loss carryforwards and
tax credits		(3.36	)%		(33.2	)%		(5.5	)%
Other		0.42	%		1.7	%		(0.4	)%

Effective income tax rate		35.58	%		1.1	%		31.6	%

F-13

RELM WIRELESS CORPORATION

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in Thousands, except share data and percentages)

8. Income Taxes (Continued)

The components of the deferred income tax assets (liabilities) are as follows:

	December 31,
	2011					2010
	Current		Long Term			Current		Long Term
Deferred tax assets:
Operating loss carryforwards	$	1,224	$	3,109		$	368	$	5,359
R and D tax credit		—		860			—		832
AMT tax credit		—		202			—		122
Section 263A costs		496		—			293		—
Research and development costs		244		1,432			132		108
Amortization		—		15			—		11

Asset reserves:
Bad debts		16		—			16		—
Inventory reserve		987		—			933		—

Accrued expenses:
Non-qualified stock options		—		78			—		77
Compensation		187		—			190		—
Warranty		304		—			233		—
Deferred tax assets		3,458		5,696			2,165		6,509
Less valuation allowance		—		(250	)		—		(320	)
Less APIC pool reserve		—		(380	)		—		(380	)
Total deferred tax assets		3,458		5,066			2,165		5,809

Deferred tax liabilities:
Depreciation		—		(354	)		—		(172	)
Total deferred tax liabilities		—		(354	)		—		(172	)

Net deferred tax assets	$	3,458	$	4,712		$	2,165	$	5,637

As of December 31, 2011, the Company had a net deferred tax asset of approximately $8,170. This asset is primarily composed of net operating loss carry forwards (NOLs). The NOLs total $10,736 for federal and $18,838 for state purposes as of December 31, 2011, with expirations starting in 2017 through 2030. Included in the Company’s NOLs as of December 31, 2011 is approximately $1,009 from the exercises of stock options. The benefit from utilization of this portion of the NOL, which equates to a deferred tax asset of approximately $380 and is reserved through a valuation allowance at December 31, 2011, will be recorded as a debit to valuation allowance and credit to additional paid in capital when the related deferred tax asset is realized.

During 2011 and 2010 the Company utilized $4,160 and generated $106, respectively, of its NOLs. The NOL utilization assumes an election under §59(e) to capitalize and amortize certain tax preferences – specifically §174(a) research and development expenditures. The deferred tax asset amounts are based upon management’s conclusions regarding, among other considerations, the Company’s current and anticipated customer base, contracts, and product introductions, certain tax planning strategies, and management’s estimates of future earnings based on information currently available, as well as recent operating results during 2011, 2010, and 2009. ASC Topic 740 “Income Taxes” requires that all positive and negative evidence be analyzed to determine if, based on the weight of available evidence, the Company is more likely than not to realize the benefit of the deferred tax asset.

F-14

RELM WIRELESS CORPORATION

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in Thousands, except share data and percentages)

8. Income Taxes (Continued)

The Company has evaluated the available evidence and the likelihood of realizing the benefit of its deferred tax asset. Based on this evaluation, the weight of available evidence supports the conclusion that the Company, more likely than not, will not realize a portion of the benefit of its state deferred tax assets. For 2011, the Company has established a valuation allowance of $250 for the portion of benefit of its state deferred tax assets that more likely than not will not be realized. Should the factors underlying management’s analysis change, future valuation adjustments to the Company’s net deferred tax assets may be necessary. If future losses are incurred, it may be necessary to record an additional valuation allowance related to the Company’s net deferred tax assets recorded as of December 31, 2011. It cannot presently be estimated what, if any, changes to the valuation of the Company’s deferred tax asset may be deemed appropriate in the future. The 2011 federal and state net operating loss and tax credit carryforwards could be subject to limitation if, within any three year period prior to the expiration of the applicable carryforward period, there is a greater than 50% change in ownership of the Company.

For the years ended December 31, 2011, 2010, and 2009, the Company incurred $83, $3 and $45, respectively in alternative minimum tax expense in connection with the federal limitation on alternative tax net operating loss carry-forwards.

As a result of the implementation of ASC Topic 740 “Income Taxes”, the Company performed a comprehensive review of its portfolio of uncertain tax positions in accordance with recognition standards established by ASC Topic 740 “Income Taxes”. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. As a result of this review, on January 1, 2012, the Company is not aware of any uncertain tax positions that would require additional liabilities or which such classification would be required. The amount of unrecognized tax positions did not change as of December 31, 2011 and the Company does not believe there will be any material changes in its unrecognized tax positions over the next twelve months.

Tax penalties and related interest expense, of which there were no material amounts for the year ended December 31, 2011 are reported as a component of income tax expense.

The Company files federal income tax returns, as well as multiple state and local jurisdiction tax returns. A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution on any particular uncertain tax position, the Company believes that its reserves for income taxes reflect the most probable outcome. The Company adjusts these reserves, as well as the related interest, in light of changing facts and circumstances. The resolution of a matter would be recognized as an adjustment to the provision for income taxes and the effective tax rate in the period of resolution. The calendar years 2008, 2009, and 2010 are still open to IRS examination under the statute of limitations. An IRS examination on the Company’s 2007 calendar year was recently closed with no change.

F-15

9. Income Per Share

The following table sets the computation of basic and diluted (loss) income per share:

	Years ended December 31,
	2011			2010			2009
Numerator:
Net (loss) income from continuing operations numerator for basic and diluted earnings per share	$	(493	)	$	(660	)	$	2,363
Denominator:
Denominator for basic earnings per share weighted average shares		13,513,939			13,479,601			13,411,188
Effect of dilutive securities:
Stock options		—			—			188,555
Denominator for diluted earnings per share weighted average shares		13,513,939			13,479,601			13,599,743
Basic (loss) income per share	$	(0.04	)	$	(0.05	)	$	0.18
Diluted (loss) income per share	$	(0.04	)	$	(0.05	)	$	0.17

Approximately 681,000, 1,000,000, and 184,000 stock options for the years ended December 31, 2011, 2010, and 2009, respectively, were excluded from the calculation because they were anti-dilutive.

10. Share-Based Employee Compensation

The Company has employee and non-employee director stock option programs. Related to these programs, and in accordance with ASC Topic 718, “Compensation-Stock Compensation”, the Company recorded $172, $281and $55 of share-based employee compensation expense during the years ended December 31, 2011, 2010 and 2009, respectively, and is included as a component of cost of products and selling, general and administrative expenses in the accompanying consolidated statements of operations. No amount of share–based employee compensation expense was capitalized as part of capital expenditures or inventory for the years presented.

The Company uses the Black-Scholes-Merton option valuation model to calculate the fair value of a stock option grant. The share-based employee compensation expense recorded in the years ended December 31, 2011, 2010 and 2009 was calculated using the assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company’s common stock over the period of time commensurate with the expected life of the stock options. While the Company paid a one-time special cash dividend in 2007, it has never paid a cash dividend previously, nor is a cash dividend planned for the future. Accordingly, the assumed dividend yield is zero. The Company has estimated its future stock option exercises. The expected term of option grants is based upon the observed and expected time to the date of post vesting exercises and forfeitures of options by the Company’s employees. The risk-free interest rate is derived from the average U.S. Treasury rate for the period, which approximates the rate at the time of the stock option grant.

	FY 2011			FY 2010			FY 2009
Expected Volatility		86.4	%		76.6% - 83.7	%		72.8% - 88.8	%
Expected Dividends		0.00			0.00			0.00
Expected Term (In years)		3.0			3.0 - 6.5			3.0 - 6.5
Risk-Free Rate		0.90	%		2.54	%		1.56	%
Estimated forfeitures		0.0	%		0.0	%		0.0	%

F-16

RELM WIRELESS CORPORATION

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in Thousands, except share data and percentages)

10. Share-Based Employee Compensation (Continued)

A summary of stock option activity under our stock option plans as of December 31, 2011, and changes during the year ended December 31, 2011 are presented below:

As of January 1, 2011	Stock Options		Wgt. Avg. Exercise Price ($) Per Share		Wgt. Avg. Remaining Contractual Life (Years)		Wgt Avg. Grant Date Fair Value ($) Per Share		Aggregate Intrinsic Value ($)
Outstanding		1,000,224		2.74		—		1.81		—
Vested		861,889		2.65		—		1.73		—
Nonvested		138,335		3.31		—		2.26		—

Period activity
Issued		30,000		2.00		—		1.11		—
Exercised		41,412		1.00		—		0.71		—
Forfeited		—		—		—		—		—
Expired		307,900		1.10		—		0.77		—

As of December 31, 2011
Outstanding		680,912		3.56		3.90		2.31		550
Vested		609,244		3.60		3.59		2.33		550
Nonvested		71,668		3.20		6.60		2.14		—

Outstanding:

Range of Exercise Prices ($) Per Share		Stock Options Outstanding		Wgt. Avg. Exercise Price ($) Per Share		Wgt. Avg. Remaining Contractual Life (Years)
0.77	2.80		372,000		1.84		3.05
4.00	6.33		244,508		4.35		5.39
7.00	11.40		64,404		10.47		3.18
			680,912		3.56		3.90

Exercisable:

Range of Exercise Prices ($) Per Share		Stock Options Exercisable		Wgt. Avg. Exercise Price ($)
0.77	2.80		342,000		1.82
4.00	6.33		202,840		4.41
7.00	11.40		64,404		10.47
			609,244		3.60

The weighted-average grant-date fair value per option granted during the years 2011, 2010, and 2009 was $1.11, $2.59, and $0.41, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2011, 2010, and 2009, was approximately $4, $240, and $20, respectively.

F-17

RELM WIRELESS CORPORATION

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in Thousands, except share data and percentages)

11. Significant Customers

Sales to the United States Government represented approximately 52%, 70% and 60% of the Company’s total sales for the years ended December 31, 2011, 2010, and 2009, respectively. These sales were primarily to the various government agencies, including those within the United States Department of Defense, the United States Forest Service, and the United States Department of the Interior.

12. Retirement Plans

The Company sponsors a participant contributory retirement (401K) plan, which is available to all employees. The Company’s contribution to the plan is either a percentage of the participants contribution (50% of the participants contribution up to a maximum of 6%) or a discretionary amount. For the years ended December 31, 2011, 2010 and 2009, total contributions made by the Company were $38, $108 and $99, respectively.

13. Commitments and Contingencies

Royalty Commitment

In 2002, the Company entered into a technology license related to its development of digital products. Under this agreement, the Company is obligated to pay a royalty for each product sold that utilizes the technology covered by this agreement. The Company paid $77, $98 and $91 for the years ended December 31, 2011, 2010 and 2009, respectively. The agreement has an indefinite term, and can be terminated by either party under certain conditions.

Purchase Commitments

The Company has purchase commitments for inventory totaling $2,701 as of December 31, 2011.

Self Insured Health Benefits

The Company maintains a self-insured health benefit plan for its employees. This plan is administered by a third party. As of December 31, 2011, the plan had a stop loss provision insuring losses beyond $70 per employee per year and an aggregate stop loss of $1,374. As of December 31, 2011, the Company recorded an accrual for estimated claims in the amount of approximately $144 in the accrued liabilities in the Company’s consolidated balance sheet. This amount represents the Company’s estimate of incurred but not reported claims as of December 31, 2011.

F-18

RELM WIRELESS CORPORATION

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in Thousands, except share data and percentages)

13. Commitments and Contingencies (Continued)

Liability for Product Warranties

Changes in the Company’s liability for its standard two year product warranties during the years ended December 31, 2011, 2010 and 2009 are as follows:

	Balance at Beginning of Year		Warranties Issued		Warranties Settled			Balance at End of Year

2011	$	266		247		(266	)	$	247
2010	$	228		263		(225	)	$	266
2009	$	302		228		(302	)	$	228

Legal Proceedings

From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of its business. There were no pending material claims or legal matters as of December 31, 2011.

F-19

RELM WIRELESS CORPORATION

YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in Thousands, except share data and percentages)

14. Quarterly Financial Data (Unaudited)

Selected quarterly financial data is summarized below:

	Quarters Ended
	March 31, 2011			June 30, 2011			September 30, 2011		December 31, 2011
Year Ended December 31, 2011
Sales, net	$	6,714		$	4,671		$	6,976	$	5,743
Gross profit		2,601			1,656			3,509		2,366
Net (loss) income		(688	)		(855	)		914		136
(Loss) earnings per share – basic		(0.05	)		(0.06	)		0.07		0.01
(Loss) earnings per share – diluted		(0.05	)		(0.06	)		0.07		0.01

	Quarters Ended
	March 31, 2010		June 30, 2010		September 30, 2010		December 31, 2010
Year Ended December 31, 2010
Sales, net	$	6,449	$	7,079	$	7,052	$	5,374
Gross profit		2,964		3,401		3,272		1,690
Net income (loss)		1		339		127		(1,127	)
Earnings (loss) per share – basic		0.00		0.03		0.01		(0.08	)
Earnings (loss) per share – diluted		0.00		0.02		0.01		(0.08	)

F-20

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

Our Chief Executive Officer and Chief Financial Officer (who serves as our principal financial and accounting officer) have evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of December 31, 2011. Based on this evaluation they have concluded that our disclosure controls and procedures were effective as of December 31, 2011.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with United States generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

An internal control material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.

Our management, including our principal executive officer and principal accounting officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2011, and concluded that our internal controls over financial reporting were effective as of December 31, 2011. In making the assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the year ended December 31, 2011 that have materially affected, or are reasonably likely to materially effect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to RELM’s definitive proxy statement to be filed within 120 days of its fiscal year end in connection with solicitation of proxies for its 2012 annual meeting of stockholders.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this item is incorporated by reference to RELM’s definitive proxy statement to be filed within 120 days of its fiscal year end in connection with solicitation of proxies for its 2012 annual meeting of stockholders.

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

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	The following documents are filed as a part of this report:

1. Consolidated Financial Statements listed below:

	Page

Report of Independent Registered Public Accounting Firm		F-1

Consolidated Balance Sheets as of December 31, 2011 and 2010		F-2

Consolidated Statements of Changes in Stockholders’ Equity - years ended December 31, 2011, 2010 and 2009		F-3

Consolidated Statements of Operations - years ended December 31, 2011, 2010 and 2009		F-4

Consolidated Statements of Cash Flows - years ended December 31, 2011, 2010 and 2009		F-5

Notes to Consolidated Financial Statements		F-6

(b)	Exhibits: The exhibits listed below are filed as a part of, or incorporated by reference into this report:

Number		Exhibit
3(i)		Articles of Incorporation (2)
3(ii)		Certificate of Amendment to Articles of Incorporation (3)
3(iii)		By-Laws, as amended (6)
10.1		1996 Stock Option Plan for Non-Employee Directors (1)
10.2		1997 Stock Option Plan, as amended (7)
10.3		2007 Non-Employee Directors’ Stock Option Plan (11)
10.4		2007 Incentive Compensation Plan (11)
10.5		Manufacturing Agreement (3)
10.6		Contract dated July 6, 2005 between RELM Wireless Corporation and the United States Postal Service (8)
10.7		Form of Non-Employee Director Option Agreement (9)
10.8		Form of Option Agreement for 1997 Stock Option Plan (10)
10.9		Loan and Security Agreement dated as of October 23, 2008 by and among Silicon Valley Bank, RELM Wireless Corporation and RELM Communications, Inc. (12)
10.10		First Amendment to Loan and Security Agreement dated as of October 20, 2010 by and among Silicon Valley Bank, RELM Wireless Corporation and RELM Communications, Inc. (13)
10.11		Second Amendment to Loan and Security Agreement dated as of June 22, 2011 by and among Silicon Valley Bank, RELM Wireless Corporation and RELM Communications, Inc. (14)
14.1		Code of Ethics (5)
21		Subsidiary of Registrant (4)
23.1		Consent of BDO USA, LLP relating to RELM Wireless Corporation’s Registration Statements on Form S-8 (Registration No. 333-112446, Registration No. 333-25795 and Registration No. 333-147354)*
24		Power of Attorney (included on signature page)
31.1		Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2		Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of Regulation S-K)*
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of Regulation S-K)*

______________________

*	Included with this filing

(1)	Incorporated by reference from the Adage, Inc. (predecessor to RELM Wireless Corporation) Annual Report on Form 10-K for the year ended December 31, 1996.

(2)	Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1997.

(3)	Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.

(4)	Incorporated by reference from the Company’s Current Report on Form 8-K dated December 6, 2002.

(5)	Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

(6)	Incorporated by reference to the Company’s Registration Statement on Form S-3 (Registration No. 333-129113).

(7)	Incorporated by reference to the Company’s Registration Statement on Form S-8 (Registration No. 333-112446).

(8)	Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005.

(9)	Incorporated by reference from the Company’s Current Report on Form 8-K dated May 11, 2005.

(10)	Incorporated by reference from the Company’s Current Report on Form 8-K dated February 23, 2006.

(11)	Incorporated by reference from the Company’s definitive Proxy Statement dated April 5, 2007, relating to the 2007 annual stockholders’ meeting.

(12)	Incorporated by reference from the Company’s Current Report on Form 8-K dated October 23, 2008.

(13)	Incorporated by reference from the Company’s Current Report on Form 8-K dated October 20, 2010.

(14)	Incorporated by reference from the Company’s Current Report on Form 8-K dated June 22, 2011.

Each management contract or compensation plan or arrangement required to be filed as an exhibit to this report pursuant to Item 15 is listed in exhibit 10.1, 10.2, 10.3, 10.4, 10.7 and 10.8.

(d)	Consolidated Financial Statement Schedules:

All schedules have been omitted because they are inapplicable or not material, or the information called for thereby is included in the Consolidated Financial Statements and notes thereto.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of West Melbourne, Florida on the 6th day of March 2012.

	RELM WIRELESS CORPORATION


	By:	/s/ David P. Storey
		David P. Storey
		President and Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints David P. Storey and William P. Kelly and each of them, his attorneys-in-fact, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report on Form 10-K, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them or his or their substitute or substitutes, may lawfully 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 the Registrant and in the capacities and on the dates indicated.

SIGNATURE	TITLE	DATE

/s/ George N. Benjamin, III	Chairman of the Board	March 6, 2012
George N. Benjamin, III

/s/ David P. Storey	President, Chief Executive Officer, and Director (Principal Executive Officer)	March 6, 2012
David P. Storey

/s/ William P. Kelly	Executive Vice President – Finance and Chief Financial Officer (Principal Financial Officer and Accounting Officer)	March 6, 2012
William P. Kelly

/s/ Donald F. U. Goebert	Director	March 6, 2012
Donald F. U. Goebert

/s/ Randolph K. Piechocki	Director	March 6, 2012
Randolph K. Piechocki

/s/ Warren N. Romine	Director	March 6, 2012
Warren N. Romine

/s/ Timothy W. O’Neil	Director	March 6, 2012
Timothy W. O’Neil

/s/ John Wellhausen	Director	March 6, 2012
John Wellhausen

INDEX TO EXHIBITS

Exhibit Number		Description of Exhibits

23.1		Consent of BDO USA LLP relating to RELM Wireless Corporation’s Registration Statements on Form S-8 (Registration No. 333-112446, Registration No. 333-25795 and Registration No. 333-147354)

24		Power of Attorney (included on signature page)

31.1		Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of Regulation S-K)

32.2		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of Regulation S-K)