UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




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


SECURITIES
EXCHANGE ACT OF 1934







For the
quarterly period ended March 31, 2010




OR




o  TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE




SECURITIES
EXCHANGE ACT OF 1934




For the
transition period from _________  to _________




Commission
file number 000-07336




RELM WIRELESS
      CORPORATION(Exact name of
      registrant as specified in its charter)




Nevada
            
            59-3486297State
      or other jurisdiction of

                Incorporation
      or organization
            
            (I.R.S.
      Employer
              Identification
      No.)





7100
Technology Drive


West
Melbourne, Florida  32904


(Address
of principal executive offices and Zip Code)




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




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 £                                No
£




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




Yes £                                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 definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):




Large
      accelerated filer
            o
            Accelerated
      filer
            oNon-accelerated
      filer
            þ
            Smaller
      reporting company
            o(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 Exchange Act).




Yes £                                No
þ




There
were 13,489,815 shares of common stock, $0.60 par value, of the registrant
outstanding at April 23, 2010.












PART
I. - FINANCIAL INFORMATION




ITEM
1.    FINANCIAL STATEMENTS


RELM
WIRELESS CORPORATION


Condensed
Consolidated Balance Sheets


(In thousands, except share
data)(Unaudited)




March
      31,
              2010
            
            
            December
      31,
              2009ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            5,684
            
            
            $
            7,660Trade
      accounts receivable (net of allowance for doubtfulaccounts
      of $44 at March 31, 2010 and at December 31, 2009,
      respectively)
            
            
            5,555
            
            
            
            3,767Inventories,
      net
            
            
            7,296
            
            
            
            6,623Deferred
      tax assets, net
            
            
            1,610
            
            
            
            1,611Prepaid
      expenses and other current assets
            
            
            830
            
            
            
            896Total
      current assets
            
            
            20,975
            
            
            
            20,557Property,
      plant and equipment, net
            
            
            1,282
            
            
            
            1,306Deferred
      tax assets, net
            
            
            6,203
            
            
            
            6,183Capitalized
      software, net
            
            
            3,383
            
            
            
            3,024Other
      assets
            
            
            342
            
            
            
            351Total
      assets
            
            $
            32,185
            
            
            $
            31,421LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            1,898
            
            
            $
            1,250Accrued
      compensation and related taxes
            
            
            829
            
            
            
            1,086Accrued
      warranty expense
            
            
            276
            
            
            
            228Accrued
      other expenses and other current liabilities
            
            
            299
            
            
            
            195Total
      current liabilities
            
            
            3,302
            
            
            
            2,759Long-term
      debt
            
            
            −
            
            
            
            −Commitments
      and contingenciesStockholders'
      equity:Preferred
      stock; $1.00 par value; 1,000,000 authorized sharesnone
      issued or outstanding
            
            
            −
            
            
            
            −Common
      stock; $.60 par value; 20,000,000 authorized shares:13,484,815
      and 13,416,127 issued and outstanding shares at March 31, 2010 and
      December 31, 2009, respectively
            
            
            8,091
            
            
            
            8,050Additional
      paid-in capital
            
            
            24,250
            
            
            
            24,071Accumulated
      deficit
            
            
            (3,458
            )
            
            
            (3,459
            )Total
      stockholders' equity
            
            
            28,883
            
            
            
            28,662Total
      liabilities and stockholders' equity
            
            $
            32,185
            
            
            $
            31,421





See notes to condensed consolidated
financial statements.


1




RELM
WIRELESS CORPORATION


Condensed
Consolidated Statements of Operations


(In thousands, except per share
data) (Unaudited)




Three
      Months EndedMarch
      31,
                2010
            
            
            March
      31,
                2009Sales,
      net
            
            $
            6,449
            
            
            $
            3,973ExpensesCost
      of products
            
            
            3,485
            
            
            
            2,358Selling,
      general and administrative
            
            
            2,950
            
            
            
            2,467Total
      expenses
            
            
            6,435
            
            
            
            4,825Operating
      income (loss)
            
            
            14
            
            
            
            (852
            )Other
      (expense) income:Net
      interest (expense)  income
            
            
            -
            
            
            
            (16
            )Other
      (expense) income
            
            
            (12
            )
            
            
            1Total
      other (expense) income
            
            
            (12
            )
            
            
            (15
            )Income
      (loss) before income tax (expense) benefit
            
            
            2
            
            
            
            (867
            )Income
      tax (expense) benefit
            
            
            (1
            )
            
            
            -Net
      income (loss)
            
            $
            1
            
            
            $
            (867
            )Net
      earnings (loss) per share-basic:
            
            $
            0.00
            
            
            $
            (0.06
            )Net
      earnings (loss) per share-diluted:
            
            $
            0.00
            
            
            $
            (0.06
            )Weighted
      average shares outstanding-basic
            
            
            13,436,736
            
            
            
            13,410,871Weighted
      average shares outstanding-diluted
            
            
            13,873,677
            
            
            
            13,410,871




See notes to condensed consolidated
financial statements.




2





RELM
WIRELESS CORPORATION


Condensed
Consolidated Statements of Cash Flows


(In thousands) (Unaudited)




Three
      months EndedMarch
      31,
                2010
            
            
            March
      31,
                2009Cash
      flows from operating activitiesNet
      income (loss)
            
            $
            1
            
            
            $
            (867
            )Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Allowance
      for doubtful accounts
            
            
            7
            
            
            
            (36
            )Inventories
      reserve
            
            
            128
            
            
            
            91Deferred
      tax asset
            
            
            1
            
            
            
            -Depreciation
      and amortization
            
            
            154
            
            
            
            165Shared-based
      compensation expense
            
            
            132
            
            
            
            15Excess
      tax benefit from share-based compensation
            
            
            (20
            )
            
            
            -Change
      in operating assets and liabilities:Accounts
      receivable
            
            
            (1,795
            )
            
            
            (559
            )Inventories
            
            
            (801
            )
            
            
            642Prepaid
      expenses and other current assets
            
            
            66
            
            
            
            338Other
      assets
            
            
            9
            
            
            
            (74
            )Accounts
      payable
            
            
            648
            
            
            
            149Accrued
      compensation and related taxes
            
            
            (257
            )
            
            
            82Accrued
      warranty expense
            
            
            48
            
            
            
            (27
            )Accrued
      other expenses and other current liabilities
            
            
            104
            
            
            
            62Net
      cash used in operating activities
            
            
            (1,575
            )
            
            
            (19
            )Cash
      flows from investing activitiesPurchases
      of property, plant and equipment
            
            
            (71
            )
            
            
            (320
            )Capitalized
      software
            
            
            (418
            )
            
            
            (489
            )Net
      cash used in investing activities
            
            
            (489
            )
            
            
            (809
            )Cash
      flows from financing activitiesProceeds
      from issuance of common stock
            
            
            68
            
            
            
            -Excess
      tax benefit from share-based compensation
            
            
            20
            
            
            
            -Cash
      provided by financing activities
            
            
            88
            
            
            
            -Net
      change in cash and cash equivalents
            
            
            (1,976
            )
            
            
            (828
            )Cash
      and cash equivalents, beginning of period
            
            
            7,660
            
            
            
            5,475Cash
      and cash equivalents, end of period
            
            $
            5,684
            
            
            $
            4,647Supplemental
      disclosureCash
      paid for interest
            
            $
            -
            
            
            $
            3





See notes to condensed consolidated
financial statements.





3





Notes
to Condensed Consolidated Financial Statements


Unaudited (in
Thousands, Except Share Data and
Percentages)


1.           Condensed
Consolidated Financial Statements




The
condensed consolidated balance sheets as of March 31, 2010 and December 31,
2009, the condensed consolidated statements of operations for the three months
ended March 31, 2010 and 2009 and the condensed consolidated statements of cash
flows for the three months ended March 31, 2010 and 2009 have been prepared by
RELM Wireless Corporation (the Company), and are unaudited.  In the
opinion of management, all adjustments, which include normal recurring
adjustments, necessary for a fair presentation have been made.  The
condensed consolidated balance sheet at December 31, 2009 has been derived from
the Company’s audited consolidated financial statements at that
date.




Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted.  It is
suggested that these condensed consolidated financial statements be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2009, as filed with the Securities and Exchange
Commission.  The results of operations for the three months ended
March 31, 2010 are not necessarily indicative of the operating results for a
full year.




Recent
Accounting Pronouncements




In August
2009, the Financial Accounting Standard Board (FASB) issued Accounting Standards
Update (ASU) 2009-05, which provides additional guidance under the FairValue Measurements and
Disclosures Topic, ASC 820-10 Application to Liabilities. The guidance
clarifies that the quoted price for the liability when traded as an asset in an
active market is a Level 1 measurement, when no adjustment to the quoted price
is required. In the absence of a Level 1 (quoted price) measurement, an entity
must use one or more valuation techniques to estimate fair value in a manner
consistent with the principles in ASC 820.  The Company’s adoption of
this guidance is not expected to have an impact on its consolidated financial
statements.





In
October 2009, the FASB issued ASU 2009-14 which amended the accounting
requirements under the Software Topic, ASC 985-605
Revenue Recognition. The objective of this update is to address the accounting
for revenue arrangements that contain tangible products and software.
Specifically, products that contain software that is “more than incidental” to
the product as a whole will be removed from the scope of ASC subtopic 985-605
(previously AICPA Statement of Position 97-2). The amendments align the
accounting for these revenue transaction types with the amendments under ASU
2009-13. The guidance provided within ASU 2009-14 is effective for fiscal years
beginning on or after June 15, 2010 and allows for either prospective or
retrospective application, with early adoption permitted.  The Company
is currently evaluating the impact that adoption of this guidance will have on
its consolidated financial statements.




In
January 2010, the FASB issued ASU No. 2010-06, which requires new fair
value disclosures pertaining to significant transfers in and out of Level 1 and
Level 2 fair value measurements and the reasons for the transfers and activity.
For Level 3 fair value measurements, purchases, sales, issuances and settlements
must be reported on a gross basis. Further, additional disclosures are required
by class of assets or liabilities, as well as inputs used to measure fair value
and valuation techniques. ASU No. 2010-06 is effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances and settlements on a gross basis,
which is effective for fiscal years beginning after December 15, 2010. The
Company’s adoption of this guidance is not expected to have an impact on its
consolidated financial statements.




In
February 2010, the FASB issued ASU No. 2010-09, which amends subsequent
event disclosure requirements for SEC filers. An entity that is an SEC filer is
not required to disclose the date through which subsequent events have been
evaluated. This ASU was effective upon issuance and adoption of this ASU did not
result in a material impact to its consolidated financial
statements.




4


Notes
to Condensed Consolidated Financial Statements
 Unaudited (in
Thousands, Except Share Data and
Percentages)


2.           Significant
Events and Transactions




In April
2010, the Company was selected as one of a group of P25 digital two-way radio
equipment suppliers to the City of Phoenix, Arizona.  The initial
period of the contract spans five years, which commenced on March 15, 2010, and
may be extended for up to five additional one-year periods.  The
estimated total value of the initial contract period is $6 million, but may be
higher or lower depending on the city’s needs and budgets.  The
contract does not specify purchase dates or quantities of equipment from any
particular supplier.




In March
2010, the Company successfully completed P25 interoperability tests on
Motorola’s ASTRO P25 system infrastructure.  The Company’s KNG-Series
radios demonstrated interoperability by passing all of the required P25 Phase 1
Common Air Interface Trunked Interoperability tests specified by the
Telecommunications Industry Association (TIA) and the U.S. Department of
Homeland Security.  This testing is required by these agencies to meet
radio users’ need for documented proof of interoperability on the Motorola
infrastructure.  The testing was conducted at Motorola’s lab as part
of the formal P25 Compliance Assessment Program.




In March 2010, the Company demonstrated
its trunked version KNG-Series P25 digital radios at the International Wireless
Communications Exposition held March 10-12, 2010 in the Las Vegas Convention
Center.





In
February 2010, the Company received an order totaling approximately $6.6 million
from the U. S. Department of Agriculture Forest Service.  This order
is comprised of RELM’s long-time flagship D-Series digital P-25 portable and
mobile radios.  A portion of the order was fulfilled during the first
quarter of 2010 while the remainder is anticipated to be fulfilled during the
second quarter of 2010.




3.           Allowance
for Doubtful Accounts




The
allowance for doubtful accounts on trade receivables was approximately $44 on
gross trade receivables of $5,599 and $3,811 at March 31, 2010 and December 31,
2009, respectively.  This allowance is used to state trade receivables
at a net realizable value or the amount that the Company estimates will be
collected of the Company’s gross receivables as of March 31, 2010.




4.           Inventories,
net




The
components of inventory, net of reserves for slow-moving, excess or obsolete
inventory, consist of the following:




March
      31, 2010
            
            
            December
      31, 2009Finished
      goods
            
            $
            2,019
            
            
            $
            1,879Work
      in process
            
            
            2,216
            
            
            
            2,172Raw
      materials
            
            
            3,061
            
            
            
            2,572$
            7,296
            
            
            $
            6,623





Reserves
for slow-moving, excess, or obsolete inventory were approximately $2,475 at
March 31, 2010, compared with approximately $2,346 at December 31, 2009.
The reserve for slow-moving, excess, or obsolete inventory is used to state the
Company’s inventories at the lower of cost or market.




5


Notes
to Condensed Consolidated Financial Statements
 Unaudited (in
Thousands, Except Share Data and
Percentages)


5.           Income
Taxes




Net
income tax expense totaling approximately $1 has been recorded for the three
months ended March 31, 2010.




As of
March 31, 2010, the Company’s deferred tax assets totaled approximately $7,813,
compared with $7,794 as of December 31, 2009, and are primarily composed of net
operating loss carry forwards (NOLs).  These NOLs are available to offset
any Federal or state taxable income and expire starting in 2018 through
2028.




In order
to fully realize the net deferred tax assets, the Company will need to generate
sufficient taxable income in future years to utilize its NOLs prior to their
expiration. ASC Topic 740 “Income Taxes” requires the
Company to analyze all positive and negative evidence to determine if, based on
the weight of available evidence, the Company is more likely than not to realize
the benefit of the net deferred tax assets. The recognition of the net deferred
tax assets and related tax benefit is based upon the Company’s 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 historical operating results and certain
tax planning strategies.




The
Company has evaluated the available evidence and the likelihood of realizing the
benefit of its net deferred tax assets. From its evaluation, the Company has
concluded that based on the weight of available evidence the Company is more
likely than not to realize the benefit of its net deferred tax assets recorded
at March 31, 2010. Accordingly, no valuation allowance has been
established.  The Company cannot presently estimate what, if any,
changes to the valuation of its deferred tax assets may be deemed appropriate in
the future.  If the Company incurs future losses, it may be necessary
to record a valuation allowance related to the deferred tax assets recorded as
of March 31, 2010.




In April
2010, the Company was notified by the Internal Revenue Service of its intent to
examine the Company’s federal tax return for the fiscal year ended December 31,
2007.  The examination has not commenced.




6.           Capitalized
Software




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. For the three months
ended March 31, 2010, the Company’s amortization cost was $59 compared with $58
for the three months ended March 31, 2009.  Net capitalized software
costs totaled $3,383 and $3,024 as of March 31, 2010 and December 31, 2009,
respectively.




7.           Stockholders’
Equity




The
changes in consolidated stockholders’ equity for the three months ended March
31, 2010 are as follows:




Common
      Stock Shares
            
            
            Common
      Stock Amount
            
            
            Additional
      Paid-In Capital
            
            
            Accumulated
      Deficit
            
            
            TotalBalance
      at December 31, 2009
            
            
            13,416,127
            
            
            $
            8,050
            
            
            $
            24,071
            
            
            $
            (3,459
            )
            
            $
            28,662Common
      stock option exercise and issued
            
            
            68,688
            
            
            
            41
            
            
            
            27
            
            
            
            
            
            
            
            68Excess
      tax benefit from share- based compensation
            
            
            
            
            
            
            
            
            
            
            20
            
            
            
            
            
            
            
            20Share-based
      compensation
              expense
            
            
            −
            
            
            
            −
            
            
            
            132
            
            
            
            −
            
            
            
            132Net
      income
            
            
            −
            
            
            
            −
            
            
            
            −
            
            
            
            1
            
            
            
            1Balance
      at March 31, 2010
            
            
            13,484,815
            
            
            $
            8,091
            
            
            $
            24,250
            
            
            $
            (3,458
            )
            
            $
            28,883


6


Notes
to Condensed Consolidated Financial Statements


Unaudited (in
Thousands, Except Share Data and
Percentages)


8.           Income
(loss) per Share




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




Three
      Months EndedMarch
      31, 2010
            
            
            March
      31, 2009Numerator:Net  income
      (loss)  (numerator for basic and diluted earnings per
      share)
            
            $
            1
            
            
            $
            (867
            )Denominator:Denominator
      for basic earnings per share weighted average shares
            
            
            13,436,736
            
            
            
            13,410,871Effect
      of dilutive securities:Options
            
            
            436,941
            
            
            
            -DenominatorDenominator
      for diluted earnings per share weighted average shares
            
            
            13,873,677
            
            
            
            13,410,871Basic
      income (loss) per share
            
            $
            0.00
            
            
            $
            (0.06
            )Diluted
      income (loss) per share
            
            $
            0.00
            
            
            $
            (0.06
            )




A total
of 1,186,912 shares related to options are not included in the computation of
diluted loss per share for the three months ended March 31, 2009 because to do
so would have been anti-dilutive for that period.




9.           Non-Cash
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 $132 of non-cash share-based employee
compensation expense for the three months ended March 31, 2010, compared with
$15  for the same period last year.  The Company considers
its non-cash share-based employee compensation expenses as a component of cost
of products ($14 for the three months ended March 31, 2010, compared with $0 for
the same period last year) and selling, general and administrative expenses
($118 for the three months ended March 31, 2010, compared with $15 for the same
period last year).  There was no non-cash share–based employee
compensation expense capitalized as part of capital expenditures or inventory
for the periods presented.




The
Company uses the Black-Scholes-Merton option valuation model to calculate the
fair value of a stock option grant.  The non-cash share-based employee
compensation expense recorded in the three months ended March 31, 2010 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.  The dividend yield of zero is
based on the fact that the Company presently has no intention to pay cash
dividends in the future and the Company is prohibited from doing so under its
current secured revolving credit facility.    The Company
has estimated future stock option exercises by the optionees.  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
optionees.  The risk-free interest rate is derived from the average
U.S. Treasury rate for the periods, which approximates the rate at the time of
the stock option grant.




7




Notes
to Condensed Consolidated Financial Statements
 Unaudited (in
Thousands, Except Share Data and
Percentages)


Three
      months ended
                March 31,
      2010Expected
      Term in Years
            
            
            6.5Expected
      Volatility
            
            
            76.6%Risk-Free
      Rate
            
            
            2.85%Expected
      Dividends
            
            
            0.00





A summary
of stock option activity under the Company’s stock option plans as of March 31,
2010, and changes during the three months ended March 31, 2010 are presented
below:




As
      of January 1, 2010
            
            Stock
      Options
            
            
            Wgt.
      Avg. Exercise
                Price
      ($)
            
            
            Wgt.
      Avg. Remaining Contractual Life (Years)
            
            
            Wgt.
      Avg. Grant Date Fair Value($)
            
            
            Aggregate
      Intrinsic
                Value
      ($)Outstanding
            
            
            979,912
            
            
            
            2.34
            
            
            
            -
            
            
            
            1.53
            
            
            
            -Vested
            
            
            883,245
            
            
            
            2.42
            
            
            
            -
            
            
            
            1.60
            
            
            
            -Nonvested
            
            
            96,667
            
            
            
            1.58
            
            
            
            -
            
            
            
            0.84
            
            
            
            -Period
      activityIssued
            
            
            125,000
            
            
            
            4.07
            
            
            
            -
            
            
            
            2.88
            
            
            
            -Exercised
            
            
            68,688
            
            
            
            1.00
            
            
            
            -
            
            
            
            0.71
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -As
      of March 31, 2010Outstanding
            
            
            1,036,224
            
            
            
            2.64
            
            
            
            4.16
            
            
            
            1.75
            
            
            
            1,719,837Vested
            
            
            856,223
            
            
            
            2.62
            
            
            
            3.28
            
            
            
            1.74
            
            
            
            1,512,136Nonvested
            
            
            180,001
            
            
            
            2.73
            
            
            
            8.36
            
            
            
            1.78
            
            
            
            207,701




10.           Commitments
and Contingencies




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 March 31, 2010.




Other




As of
March 31, 2010, the Company had commitments for purchase orders to suppliers of
approximately $5,345.




Significant
Customers




Sales to
United States government agencies represented approximately $4,654 (72.2%) of
the Company’s total sales for the three months ended March 31, 2010, compared
with approximately $1,000 (31.1%) for the same period last
year.  Accounts receivable from agencies of the United States
government were approximately $4.2 million as of March 31, 2010 compared with
approximately $0.7 million at the end of the same period last year.




8


ITEM
2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


SPECIAL
NOTE CONCERNING




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 the “Risk Factors” section of and
elsewhere in our Annual Report on Form 10-K for the fiscal year ended December
31, 2009 and in our subsequent filings with the Securities and Exchange
Commission, and include, among others, the following:




●
            changes in customer
      preferences;●
            our inventory and
      debt levels;●
            heavy reliance on
      sales to agencies of the United States government;●
            federal, state and
      local government budget deficits and spending limitations;●
            quality of
      management, business abilities and judgment of our personnel;●
            the availability,
      terms and deployment of capital;●
            competition in the
      land mobile radio industry;●
            reliance on contract
      manufacturers;●
            limitations in
      available radio spectrum for use of land mobile radios;●
            changes
      or advances in technology; and●
            general economic and
      business conditions.





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.




Reported
dollar amounts in management’s discussion and analysis are disclosed in millions
or as whole dollar amounts.




Executive
Summary




For the
first quarter ended March 31, 2010, our financial and operating results improved
significantly from the comparable period last year.  This included
increased total sales, increased P25 digital sales, and increased operating
income for the quarter.  We also maintained our strong working capital
position while remaining long-term debt-free.




9





A
previously announced order from the U.S. Department of Agriculture Forest
Service contributed significantly to our results for the first
quarter.  We also continued to progress with our P25 Trunking
development; demonstrating Trunked KNG products in March 2010 at the
International Wireless Communications Exposition, and passing interoperability
tests on Motorola’s ASTRO P25 system infrastructure.




For the
first quarter ended March 31, 2010, total sales were approximately $6.4 million,
an increase of approximately $2.5 million (62.3%), compared with the same
quarter last year.  Sales of P25 digital products for the first
quarter comprised approximately $4.5 million (69.5% of total sales) compared
with approximately $1.8 million (45.2% of total sales) for the same quarter last
year.




Gross
margins as a percentage of sales for the three months ended March 31, 2010 were
46.0% compared with 40.6% for the same quarter last year.  Our gross
margins for the first quarter, while improved from the first quarter last year,
reflect competitive pricing pressures and additional manufacturing
costs.




For the
three months ended March 31, 2010, selling, general and administrative expenses
increased approximately $483,000 (19.6%) compared with the same period last
year, reflecting costs related to marketing and sales, as well as product
development initiatives during the quarter, some of which are non-recurring for
the remainder of the year.




Pretax
income for the three months ended March 31, 2010 improved by $0.9 million to
approximately $2,000 compared with a pretax loss of approximately $867,000 for
the same quarter last year.




For the
three months ended March 31, 2010, we recognized income tax expense of
approximately $1,000, which is primarily non-cash.  For the same
quarter last year, we recognized neither income tax expense nor
benefit.




Net
income for the three months ended March 31, 2010 was approximately $1,000 ($0.0
per basic and diluted share), compared with a net loss of approximately $867,000
($0.06 per basic and diluted share) for the same quarter last year.




As of
March 31, 2010, we had approximately $17.7 million in working capital of which
$11.2 million was comprised of cash and trade receivables; substantially
unchanged from December 31, 2009.  Additionally, we had no indebteness
on our revolving credit facility as of March 31, 2010.




10


Results of
Operations




As an aid
to understanding our operating results for the periods covered by this report,
the following table shows selected items from our condensed consolidated
statements of operations expressed as a percentage of sales:




Percentage
      of Sales
                Three
      Months Ended
                March
      31, 2010Sales
            
            
            100.0
            %
            
            
            100.0
            %Cost
      of products
            
            
            (54.0
            )
            
            
            (59.4
            )Gross
      margin
            
            
            46.0
            
            
            
            40.6Selling,
      general and administrative expenses
            
            
            (45.7
            )
            
            
            (62.1
            )Net
      interest expense
            
            
            0.0
            
            
            
            (0.4
            )Other
      (expense) income
            
            
            (0.2
            )
            
            
            0.1Pretax  income
      (loss)
            
            
            0.1
            
            
            
            (21.8
            )Income
      tax (expense) benefit
            
            
            (0.0
            )
            
            
            0.0Net
      income (loss)
            
            
            0.1
            %
            
            
            (21.8
            %)





Net
Sales




Net sales
for the first quarter ended March 31, 2010, totaled approximately $6.4 million,
an increase of approximately $2.5 million (62.3%), compared with the same
quarter last year.  Sales of P25 digital products for the quarter
totaled approximately $4.5 million (69.5% of total sales), compared with
approximately $1.8 million (45.2% of total sales) for the same quarter last
year.




A
previously announced order from the U.S. Department of Agriculture Forest
Service contributed significantly to our sales growth for the
quarter.  The order was primarily for our D-Series P25 digital
portable and mobile radios with accessories.  This large purchase
emphasizes the importance of our long-term customers and legacy products in our
continued success.  Also, in April 2010, we were selected as a
supplier on a contract with the City of Phoenix, Arizona, an initial success in
our strategic efforts to penetrate the state and local government
segment.  These events combined with improved sales for the first
quarter of 2010, and for the second half of 2009, offer encouraging signs of
recovery in the industry and with our customers.




Meaningful
progress has continued in the development of our P25 trunking products and
capabilities, which we anticipate should be commercially available later this
year.  During the quarter, we demonstrated these items at our
industry’s primary trade show, the International Wireless Communications
Exposition (IWCE).  Shortly thereafter, we achieved an important
milestone by successfully completing P25 interoperability tests on Motorola’s
ASTRO P25 system infrastructure.




Cost
of Products and Gross Margin




Gross
margins as a percentage of sales for the three months ended March 31, 2010 were
46.0% compared with 40.6% for the same quarter last year.




Our cost
of products and gross margins are primarily related to product mix,
manufacturing volumes and pricing.  Compared with the same quarter
last year, our gross margins for the quarter reflected increased manufacturing
volumes and an improved sales-mix of high-margin P25 digital
products.  Consequently, we more fully utilized and absorbed our base
of manufacturing and support expenses.  However, gross margins were
impacted by competitive pricing considerations and some increased product
manufacturing costs.  Some of these factors were specific to the
circumstances of the quarter and are not expected to be recurring, nor are they
reflective of permanent changes in our pricing or cost structure.




11





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 the introduction of planned new products, we believe, should
result in further cost improvements
and   efficiencies.  We anticipate that competitive
pricing pressures will continue in future quarters, 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 and non-cash share-based employee compensation
expenses.




SG&A
expenses for the first quarter of 2010 were approximately $3.0 million, or 45.7%
of sales, compared with approximately $2.5 million, or 62.1% of sales, for the
same quarter last year.




Engineering
and product development expenses for the three months ended March 31, 2010
increased approximately $186,000 (20.7%) compared with the same quarter last
year.  During the first quarter, we incurred additional costs
primarily associated with our P25 mobile, and other engineering and new product
development initiatives.  New products and capabilities in our KNG
line, including a P25 mobile radio and P25 trunking, are in the pipeline and
planned for introduction later this year.




Marketing
and selling expenses for the three months ended March 31, 2010 increased by
approximately $160,000 (16.6%) compared with the same quarter last
year.  During the quarter we increased sales and marketing programs
designed to raise the profile of the Company and our new products, some of which
related to our enhanced presence at the International Wireless Communications
Exposition trade show.  Also, in the same quarter last year we reduced
selling expenses and payroll in response to sluggish sales.  We plan
to continue investing in selling and marketing initiatives that we believe will
support our efforts to penetrate new customers and markets.




General
and administrative expenses for the three months ended March 31, 2010 increased
by approximately $137,000 (22.6%), compared with the same quarter last year as
primarily a result of non-cash share-based employee compensation and other
headquarters and public company related expenses.




Operating
Income




Operating
income for the three months ended March 31, 2010 increased to approximately
$14,000 (0.2% of sales), compared with an operating loss of $852,000 (21.4% of
sales) for the same quarter last year.  The improvement in operating
income for the three months ended March 31, 2010 was derived primarily from
increased total sales and sales of P25 digital products, which yielded improved
gross margins.




Net
Interest (Expense) Income




For the
three months ended March 31, 2010, we incurred no interest expense or income,
compared to net interest expense of approximately $16,000 for the same period
last year.  We incur interest expense on outstanding borrowings under
our revolving credit facility and earn interest income on our cash
balances.  For the quarter, we had no borrowings outstanding under our
revolving credit facility.  The interest rate on such revolving credit
facility as of March 31, 2010 was 5.5%.  This rate is variable based
on the prime rate plus 100 basis points (subject to a reduction of 50 basis
points anytime our quarterly net income is greater than $1.0
million).




Income
Taxes




We
recorded net income tax expense of approximately $1,000 for the three months
ended March 31, 2010.  For the same quarter last year, we did not
record any income tax expense or benefit.  Our income tax expense is
primarily non-cash.




As of
March 31, 2010 and December 31, 2009,, we had deferred tax assets of
approximately $7.8 million, These assets are primarily composed of net operating
loss carry forwards (NOLs), which are available to offset any federal and state
taxable income.  The NOLs expire starting in 2018 through
2028.




12





In order
to fully realize 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
net 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  historical operating results, 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
realize the benefit of our net deferred tax assets recorded at March 31,
2010.  Accordingly, no valuation allowance has been
established.  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 recorded as of March 31,
2010.




In April
2010 we were notified by the Internal Revenue Service of its intent to examine
our federal tax return for the fiscal year ended December 31,
2007.  The examination has not commenced.




Inflation
and Changing Prices




Inflation
for the three months ended March 31, 2010 did not have a material impact on our
operations.  In some instances during the quarter, product unit prices
were reduced to enhance our competitive position and sales prospects, which
unfavorably impacted gross margins.  We anticipate that competitive
pricing pressure will continue in future quarters.  The extent of
their impact is uncertain.




Liquidity
and Capital Resources




For the
quarter ended March 31, 2010, net cash used in operating activities totaled
approximately $1.6 million, compared with net cash used in operating activities
of approximately $19,000 during the same period last year.  Cash used in
operating activities resulted from net income of approximately $1,000 compared
with a net loss of approximately $0.9 million for the same period last year, as
well as a $1.8 million increase in accounts receivable compared with an increase
of $0.6 million for the same period last year.  The increase in
accounts receivable as of March 31, 2010 was primarily the result of sales
occurring later in the quarter.  Net inventories increased during the
quarter by approximately $0.8 million in support of customer
orders.  For the same period last year, inventory decreased
approximately $0.7 million from the sale of products in stock and reduced
manufacturing.  Likewise, accounts payable increased as of March 31,
2010 by approximately $0.6 million primarily due to material purchases related
to the aforementioned customer orders.  For the same period last year,
accounts payable increased approximately $0.1
million.    Deferred tax assets for the first three months
of 2010 remained static .  For the same period last year, deferred tax
assets were also unchanged.  Depreciation and amortization totaled
approximately $154,000 for the three months ended March 31, 2010, compared with
$165,000 for the same period last year.




Cash used
in investing activities was primarily to fund digital software development and
the acquisition of assets pertaining to the development of our new digital
products.  During the three months ended March 31, 2010, we incurred
$418,000 in capitalized software compared with $489,000 for the same period last
year.  Purchases of property, plant and equipment for the three months
ended March 31, 2010 were approximately $71,000 compared with approximately
$320,000 for the same period last year.  We anticipate that future capital
expenditures will be funded through our existing cash balance and operating cash
flow.




Cash
generated from financing activities for the three months ended March 31, 2010
totaled approximately $88,000, representing  $68,000 in proceeds from
the issuance of common stock and $20,000 in tax benefits from the exercise and
sale of employees’ stock options.  For the same period last year,
there was no cash generated by or used in financing activities.




13





We have a
secured revolving credit facility with Silicon Valley Bank (SVB). The SVB
facility provides borrowing availability of up to $3.5 million and is
governed by a loan and security agreement entered into between us and SVB. The
facility is available on a revolving basis during the period that commenced on
October 23, 2008 and ending on October 22, 2010. Under the terms and
conditions of the loan and security agreement for the facility, advances are
generally subject to customary borrowing conditions, including the accuracy of
representations and warranties, compliance with financial maintenance and
restrictive covenants and the absence of events of default. For additional
information about the terms and conditions of the loan and security agreement,
reference is made to Note 6 (Debt) of the consolidated financial statements
included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2009.




Advances
under the facility bear interest at a variable rate equal to the prime rate, in
effect from time to time, plus 100 basis points, subject to a reduction of 50
basis points anytime our quarterly net income is greater than $1.0 million.
Under the terms and conditions of the loan and security agreement for the
facility, advances may be prepaid in whole or in part without premium or
penalty. Under the terms and conditions of the loan and security agreement for
the facility, our obligations are secured by substantially all of our assets,
principally accounts receivable and inventory. We were in compliance with all
covenants under the loan and security agreement as of the date of this report.
As of March 31, 2010, we had no borrowings outstanding under the facility and
approximately $3.2 million of borrowing availability.




Our cash
balance at March 31, 2010 was approximately $5.7 million.  We believe these
funds combined with anticipated cash generated from operations and borrowing
availability under our secured revolving credit facility with SVB are sufficient
to meet our working capital requirements for the next twelve months. 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 in our Annual Report on Form 10-K for the fiscal year ended December 31,
2009.




Critical
Accounting Policies




In
response to the SEC’s financial reporting release, FR-60, Cautionary Advice
Regarding Disclosure About Critical Accounting Policies, we have selected for
disclosure our revenue recognition process and our accounting processes
involving significant judgments, estimates and assumptions.  These
processes affect our reported revenues and current assets and are therefore
critical in assessing our financial and operating status.  We regularly
evaluate these processes in preparing our financial statements.  The
processes for determining the allowance for collection of trade receivables, the
reserves for excess or obsolete inventory, and software cost and income taxes
involve certain assumptions and estimates that we believe to be reasonable under
present facts and circumstances.  These estimates and assumptions, if
incorrect, could adversely impact our operations and financial position. 
Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31,
2009 includes a detailed discussion of these critical accounting
policies.




ITEM
3.    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 bears
interest at a variable rate based on the prime rate, in effect from time to
time, plus 100 basis points (subject to a reduction of 50 basis points anytime
our quarterly net income is greater than $1.0 million).  As of March
31, 2010, we had no borrowings outstanding under the facility.




ITEM
4T.    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 March 31, 2010.  Based on
this evaluation, they have concluded that our disclosure controls and procedures
were effective as of March 31, 2010.




Changes
in Internal Control over Financial Reporting




During
the first quarter ended March 31, 2010, there were no changes in our internal
control over financial reporting identified in connection with the evaluation
required by paragraph (d) of Securities Exchange Act Rules 13a-15 or 15d-15 that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.




14


PART
II- OTHER  INFORMATION





ITEM
1.    LEGAL PROCEEDINGS


Reference
is made to Note 10 of the Company’s Condensed Consolidated Financial Statements
included elsewhere in this report for the information required by this
Item.




Item
5.                 Exhibits




Exhibit
      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.Exhibit
      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.Exhibit
      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).Exhibit
      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).


15


SIGNATURES




Pursuant
to the requirements of Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.







RELM
      WIRELESS CORPORATION(The
      “Registrant”)Date:  May
      5, 2010
            By: /s/ David
      P.
      StoreyDavid P. Storey
              President and Chief Executive
      Officer
              (Principal executive officer
      and duly
              authorized
      officer)Date:  May
      5, 2010
            By: /s/
      William P.
      KellyWilliam P. Kelly
              Executive Vice President
      and
              Chief Financial
      Officer
              (Principal financial and
      accounting
              officer and duly authorized
      officer)




16


Exhibit
Index







Exhibit
              Number
            
            Description31.1
            
            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).





17