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, 2008 and in our subsequent filings with the Securities and Exchange Commission, and include, among others, the following:

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changes in customer preferences;

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our inventory and debt levels;

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heavy reliance on sales to agencies of the United States government;

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federal, state and local government budget deficits and spending limitations;

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quality of management, business abilities and judgment of our personnel;

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the availability, terms and deployment of capital;

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competition in the land mobile radio industry;

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reliance on contract manufacturers;

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limitations in available radio spectrum for use of land mobile radios;

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changes or advances in technology; and

·

general economic and business conditions amid the financial crisis.

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

The financial and operating results for the second quarter 2009 improved significantly from the same quarter in 2008 and from the preceding quarter. This included increased total sales and sales of P25 digital products, higher gross margins and reduced operating expenses; all of which combined to yield an operating profit for the quarter and year-to-date. We also realized reductions in inventory and long-term debt, while enhancing our cash and working capital positions.

Previously announced orders from the U.S. Departments of Defense, Agriculture and Interior were major contributors to our results. These orders were supplemented by continued modest improvement in overall procurements in our addressable markets. While the results for the second quarter are encouraging, the business climate for land mobile radios and prospects for economic recovery and growth remain uncertain.

For the second quarter ended June 30, 2009, total sales were approximately $9.9 million, an increase of approximately $3.6 million (56.8%), compared with the same quarter last year, and an increase of $5.9 million (148.6%) compared to the first quarter 2009. Sales of P25 digital products for the second quarter comprised approximately $6.3 million (63.4% of total sales) compared with approximately $2.6 million (41.8% of total sales) for the same quarter last year, and compared with $1.8 million (45.2% of total sales) for the immediately preceding quarter.

For the six months ended June 30, 2009, total sales were approximately $13.8 million, an increase of approximately $4.0 million (41.2%), compared with the same quarter last year. Sales of P25 digital products for the six-month period comprised approximately $8.1 million (58.2% of total sales) compared with approximately $3.9 million (39.3% of total sales) for the same period last year.

Gross margins as a percentage of sales for the three months ended June 30, 2009 were 49.6% compared with 50.8% for the same quarter last year, and compared with 40.6% for the immediately preceding quarter. For the six months ended June 30, 2009, gross margins as a percentage of sales were 47.0% compared with 46.7% for the same period last year. Our gross margins for the quarter and year-to-date reflect competitive pricing pressures, which are partially offset by increased sales volumes and an improved sales-mix of higher margin P25 digital products.

Selling, general and administrative expenses decreased approximately $1.0 million (27.6%) and $2.0 million (28.6%), respectively, for the three and six months ended June 30, 2009 compared with the same quarter last year. During the quarter we completed certain engineering initiatives and continued implementing actions to reduce selling, general and administrative expenses.

Pretax income for the three months ended June 30, 2009 increased $2.6 million to approximately $2.3 million compared with a pretax loss of approximately $0.3 million for the same quarter last year. For the six months ended June 30, 2009, pretax income increased $3.8 million to approximately $1.4 million compared with a pretax loss of $2.4 million for the same period last year.

For the three and six months ended June 30, 2009, we recognized income tax expense of approximately $0.3 million, compared with an income tax benefit of approximately $0.1 million and $0.8 million, respectively, for the same periods last year. Our income tax expense and benefit for all periods reported are primarily non-cash deferred items.

Net income for the three and six months ended June 30, 2009 was approximately $2.0 million ($0.15 per basic and diluted share) and $1.1 million ($0.08 per basic and diluted share), respectively, compared with net loss of approximately $0.3 million ($0.02 per basic share) and $1.6 million ($0.12 per basic share) for the same periods last year.

To-date during 2009, we reduced long-term debt by $1.0 million (66.7%) and reduced net inventories by approximately $2.8 million (28.2%). As of June 30, 2009, we had approximately $5.2 million of cash and $15.8 million in working capital.

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              Percentage of Sales
                                       Three Months Ended                Six Months Ended
                                    June 30,         June 30,        June 30,         June 30,
                                      2009             2008            2009             2008
Sales                                   100.0 %          100.0 %         100.0 %          100.0 %
Cost of products                        (50.4 )          (49.2 )         (53.0 )          (53.3 )
Gross margin                             49.6             50.8            47.0             46.7
Selling, general and
administrative expenses                 (26.5 )          (57.4 )         (36.7 )          (72.6 )
Net interest (expense) income            (0.2 )            0.7            (0.3 )            1.1
Other income (expense)                    0.0             (0.1 )           0.0             (0.1 )
Pretax income (loss)                     22.9             (6.0 )          10.0            (24.9 )
Income tax (expense) benefit             (3.1 )            2.0            (2.2 )            8.4
Net income (loss)                        19.8 %           (4.0 %)          7.8 %          (16.5 %)

Net Sales

Net sales for the second quarter ended June 30, 2009 totaled approximately $9.9 million, an increase of approximately $3.6 million (56.8%), compared with the same quarter last year, and an increase of $5.9 million (148.6%) compared to the immediately preceding quarter. Sales of P25 digital products for the second quarter 2009 totaled approximately $6.3 million (63.4% of total sales), compared with approximately $2.6 million (41.8% of total sales) for the same quarter last year, and compared with $1.8 million (45.2% of total sales) for the immediately preceding quarter.

For the six months ended June 30, 2009, total sales were approximately $13.8 million, an increase of approximately $4.0 million (41.2%), compared with the same quarter last year. Sales of P25 digital products for the six-month period comprised approximately $8.1 million (58.2% of total sales) compared with approximately $3.9 million (39.3% of total sales) for the same period last year.

Previously announced orders from the U.S. Departments of Defense, Agriculture and Interior during the second quarter were the major drivers of our sales growth for the quarter and the six-month periods. Additionally, these orders were primarily for P25 digital products, including our new KNG Series products that were introduced last year. The purchases by the U.S. Department of Defense are particularly important, as they represent sales to new customers, and for products in frequencies that we did not offer prior to 2008. Supplementing these large transactions, we also realized some improvement in the flow of lower-value run-rate purchases, particularly from legacy customers. This was fueled, in part, by our inclusion in a blanket purchase agreement (BPA) from the U.S. General Services Administration that was implemented in the fourth quarter 2008. The total estimated value of this BPA is $500 million to various suppliers over a maximum term of five years, and it will be utilized by various federal government agencies for the purchase of a wide range of analog and P25 digital radio equipment. While sales for the second quarter are encouraging, the business climate for land mobile radios and prospects for economic recovery and growth remain uncertain.

Within the past year we have significantly expanded our P25 digital product offerings with the introduction of four new radio models, some of which address customers and markets that were previously outside the scope of our products. We anticipate introducing additional new products in this line later in 2009. We believe these products will increase our addressable opportunities and, accordingly, improve our prospects for gaining market share and sales growth.

Cost of Products and Gross Margin

Gross margins as a percentage of sales for the three months ended June 30, 2009 were 49.6% compared with 50.8% for the same quarter last year, and compared with 40.6% for the immediately preceding quarter. For the six months ended June 30, 2009, gross margins as a percentage of sales were 47.0% compared with 46.7% for the same period last year.

Our cost of products and gross margins are primarily related to product mix, manufacturing volumes and pricing. Our gross margins for the quarter and year-to-date reflect competitive pricing pressures, which were partially offset by increased manufacturing volumes and an improved sales-mix of high-margin P25 digital products.

Manufacturing volumes during the second quarter 2009 increased significantly as a result of increased sales orders. Consequently, we more fully utilized and absorbed our base of manufacturing and support expenses, favorably impacting product unit costs and gross margins.

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, efficiencies and gross margin performance.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses consist of marketing, sales, commissions, engineering, product development, management information systems, accounting and headquarters expenses. During the second quarter 2009, we completed certain engineering initiatives and continued implementing actions to reduce SG&A expenses, responding to the uncertain business climate. These cost reductions are not anticipated to adversely impact the execution of our strategic business plan.

SG&A expenses decreased overall by approximately $1.0 million (27.6%) to $2.6 million, or 26.5% of sales, for the three months ended June 30, 2009 compared with the same quarter last year. For the six months ended June 30, 2009, SG&A expenses decreased approximately $2.0 million (28.6%) to $5.1 million, or 36.7% of sales, compared with the same period last year.

Engineering and product development expenses for the three months ended June 30, 2009 decreased by approximately $539,000 (35.9%) compared with the same quarter last year. For the six months ended June 30, 2009, engineering and product development expenses declined by $997,000 (34.9%) compared with the same period last year. The completion of several digital development initiatives and the related new product introductions enabled us to reduce the associated engineering costs. Additional new products in our KNG line are in the development process for introduction later this year and next, however we don't anticipate increases in current engineering expense levels related to these development projects.

Marketing and selling expenses for the second quarter ended June 30, 2009 decreased by approximately $448,000 (31.5%) compared with the same quarter last year. For the six months ended June 30, 2009 marketing and selling expenses declined by approximately $691,000 (26.3%) compared with the same period last year. During the second half of 2008 and the first quarter 2009, we reduced selling expenses and payroll in response to sluggish sales. We maintained this lower expense structure during the second quarter 2009. We are, however, investing in selling and marketing initiatives focused on raising the profile of our new KNG product line while penetrating new customers and markets.

General and administrative expenses for the three months ended June 30, 2009 decreased by approximately $13,000 (1.9%), compared with the same quarter last year. For the six months ended June 30, 2009 general and administrative expenses decreased by approximately $349,000 (21.3%) compared with the same period last year primarily due to reductions in professional fees and headquarters' expenses.

Operating Income

Operating income for the three and six months ended June 30, 2009 increased to approximately $2.3 million (23.0% of sales) and $1.4 million (10.3% of sales), respectively, compared with operating losses of approximately $0.4 million (6.6% of sales) and $2.5 million (25.9% of sales), respectively, for the same periods last year. The operating income for the three and six months ended June 30, 2009 was derived primarily from increased total sales and sales of P25 digital products combined with SG&A expense reductions.

Net Interest (Expense) Income

For the three and six months ended June 30, 2009, we incurred approximately $20,000 and $36,000, respectively, in net interest expense compared to net interest income of approximately $39,000 and $105,000, respectively, for the same periods last year. We incur interest expense on borrowings from our revolving credit facility and earn interest income on our cash balances. The increase in interest expense and decline in interest income is the result of a lower cash balance and lower interest rates earned on our cash investments combined with the interest expense on borrowings from our revolving credit facility. As of June 30, 2009, we had borrowings of $0.5 million outstanding under the revolving credit facility. The interest rate on such revolving credit facility as of June 30, 2009 was 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). For the third quarter 2009, because our net income for the quarter ended June 30, 2009 exceeded $1.0 million, the interest rate has been reduced by 50 basis points and such reduction will remain in effect so long as our net income for each subsequent quarter is greater than $1.0 million.

Income Taxes

We recorded net income tax expense of approximately $303,000 for the three and six months ended June 30, 2009, respectively, compared with a tax benefit of $124,000 and $824,000, respectively, for the same periods last year. Our income tax expenses and benefits are largely non-cash deferred items. The income tax expense for the second quarter and year-to-date 2009, however, is net of a cash refund totaling $26,000 that was derived from a federal research and development tax credit.

As of June 30, 2009, we had deferred tax assets of approximately $8.9 million compared with $9.2 million at the start of the year. These assets are primarily composed of net operating loss carry forwards (NOL's), which are available to offset any federal and state taxable income. The NOL's expire starting in 2018 through 2028.

In order to fully realize the net deferred tax assets, we will need to generate sufficient taxable income in future years to utilize our NOL's prior to their expiration. SFAS No. 109, "Accounting for 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 recent operating results during 2008, 2007 and 2006, 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 June 30, 2009. 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 June 30, 2009.

Inflation and Changing Prices

Inflation and changing prices for the three and six months ended June 30, 2009 did not have a material impact on our operations.

Liquidity and Capital Resources

For the six months ended June 30, 2009, net cash provided by operating activities totaled approximately $1.0 million, compared with net cash used in operating activities of approximately $3.0 million during the same period last year. Cash generated from operating activities for the six months ended June 30, 2009 was primarily the result of net income totaling approximately $1.1 million compared with a net loss of approximately $1.6 million for the same period last year, as well as a decrease in net inventories totaling $2.8 million compared with an increase of $0.8 million for the same period last year. Net inventories declined during the period as a result of higher sales of products in stock. As a result of sales growth, accounts receivable increased by approximately $3.8 million during the period, compared with $1.1 million for the same period last year. During the first six months of 2009, we recorded $822,000 in capitalized software compared with $405,000 for the same period last year. Deferred tax assets for the first six months of 2009 decreased by $329,000 due to non-cash tax expense on our pretax income. For the same period last year deferred tax assets increased by approximately $824,000 as a result of the tax benefit associated with our pretax loss. Depreciation and amortization totaled approximately $216,000 for the six months ended June 30, 2009, compared with $190,000 for the same period last year.

Cash used in investing activities was primarily to fund the acquisition of assets pertaining to the development of our new digital products. Capital expenditures for the six months ended June 30, 2009 were approximately $320,000 compared with approximately $295,000 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 used in financing activities totaled $1.0 million for the six months ended June 30, 2009, representing a reduction in the principal balance on our revolving line of credit. There was no cash used by or generated from financing activities for the same period last year.

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 5 (Debt) of the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

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 June 30, 2009, we had $0.5 million of borrowings outstanding under the facility and approximately $3.0 million of additional borrowing availability.

Our cash balance at June 30, 2009 was approximately $5.2 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 crisis and adverse economic conditions may limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all. In addition, we face a number of other risks related to the financial crisis that may impact our business, liquidity and financial condition. For a description of these risks, see "Item 1A. Risk Factors-"We face a number of risks related to the financial crisis" set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

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 slow-moving, excess or obsolete inventory, and the accounting for software costs 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 the Company's operations and financial position. Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 includes a detailed discussion of these critical accounting policies.

Item 3.