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:

·

changes in customer preferences;

·

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;

·

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 third quarter and nine months ended September 30, 2009 our financial and operating results improved significantly from the comparable periods last year. This included increased total sales, increased P25 digital sales, and reduced expenses; all of which combined to yield a profitable quarter and nine-month period. We also reduced inventory and eliminated long-term debt, while enhancing our cash and working capital positions.

Previously announced orders from the U.S. Departments of Defense, Agriculture and Interior contributed to our results. These larger orders were supplemented by continued strengthening in the flow of procurements and a larger addressable market due to our expanded line of new products. While the results for the last two quarters are encouraging, the business climate for land mobile radios and prospects for sales growth remain uncertain.

For the third quarter ended September 30, 2009, total sales were approximately $8.3 million, an increase of approximately $2.5 million (43.2%), compared with the same quarter last year. Sales of P25 digital products for the third quarter comprised approximately $4.9 million (59.4% of total sales) compared with approximately $2.9 million (49.8% of total sales) for the same quarter last year.

For the nine months ended September 30, 2009, total sales were approximately $22.1 million, an increase of approximately $6.5 million (41.9%), compared with the same period last year. Sales of P25 digital products for the nine-month period comprised approximately $13.0 million (58.7% of total sales) compared with approximately $6.7 million (43.2% of total sales) for the same period last year.

Gross margins as a percentage of sales for the three months ended September 30, 2009 were 51.1% compared with 50.7% for the same quarter last year. For the nine months ended September 30, 2009, gross margins as a percentage of sales were 48.5% compared with 48.2% for the same period last year. Our year-to-date gross margins reflect competitive pricing pressures, which are partially offset by increased sales volumes and an improved sales-mix of higher margin P25 digital products.

For the three months ended September 30, 2009 selling, general and administrative expenses increased approximately $164,000 (6.4%). For the nine months ended September 30, 2009 selling, general and administrative expenses decreased approximately $1.9 million (19.4%) compared with the same period last year, as certain engineering initiatives were completed and expense reductions were implemented.

Pretax income for the three months ended September 30, 2009 increased $1.1 million to approximately $1.5 million compared with pretax income of approximately $0.4 million for the same quarter last year. For the nine months ended September 30, 2009, pretax income increased $4.9 million to approximately $2.9 million compared with a pretax loss of $2.0 million for the same period last year.

For the three months ended September 30, 2009, we recognized income tax expense of approximately $577,000 compared with $75,000 for the same quarter last year. For the nine months ended September 30, 2009 we recognized income tax expense of approximately $881,000 compared with an income tax benefit of approximately $749,000 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 nine months ended September 30, 2009 was approximately $0.9 million ($0.07 per basic and diluted share) and $2.0 million ($0.15 per basic and diluted share), respectively, compared with net income of approximately $0.3 million ($0.03 per basic share and $0.02 per fully diluted share) for the third quarter last year, and a net loss of approximately $1.3 million ($0.10 per basic share) for the nine month period last year.

During the third quarter 2009 we repaid the remaining balance on our revolving credit facility and had no borrowings outstanding as of September 30, 2009. To date during 2009, we have reduced net inventories by approximately $3.6 million (37.1%). As of September 30, 2009, we had approximately $8.1 million of cash and $16.2 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                   Nine months Ended
                                     September 30,     September 30,     September 30,     September 30,
                                         2009              2008              2009              2008

Sales                                   100.0%            100.0%            100.0%            100.0%
Cost of products                        (48.9)            (49.3)            (51.5)            (51.8)
Gross margin                             51.1              50.7              48.5              48.2
Selling, general and
administrative expenses                 (32.8)            (44.1)            (35.2)            (62.0)
Net interest (expense) income            (0.1)              0.5              (0.2)              0.9
Other expense                            (0.2)             (0.0)              0.0              (0.1)
Pretax income (loss)                     18.0               7.1              13.1             (13.0)
Income tax (expense) benefit             (7.0)             (1.3)             (4.0)              4.8
Net income (loss)                        11.0%             5.8%              9.1%             (8.2%)

Net Sales

Net sales for the third quarter ended September 30, 2009 totaled approximately $8.3 million, an increase of approximately $2.5 million (43.2%), compared with the same quarter last year. Sales of P25 digital products for the third quarter 2009 totaled approximately $4.9 million (59.4% of total sales), compared with approximately $2.9 million (49.8% of total sales) for the same quarter last year.

For the nine months ended September 30, 2009, total sales were approximately $22.1 million, an increase of approximately $6.5 million (41.9%), compared with the same period last year. Sales of P25 digital products for the nine-month period totaled approximately $13.0 million (58.7% of total sales) compared with approximately $6.7 million (43.2% of total sales) for the same period last year.

Previously announced orders from the U.S. Departments of Defense, Agriculture and Interior during the third quarter contributed to our sales growth for the quarter and the nine-month period. Additionally, these orders were primarily for P25 digital products, including our new KNG Series products. 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, from both legacy and new customers. We believe our late-2008 inclusion in a blanket purchase agreement (BPA) from the U.S. General Services Administration was a contributing factor. 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 and third quarters show encouraging signs, the business climate for land mobile radios and prospects for sales growth remain uncertain.

Within the past year we have significantly expanded our P25 digital product offerings with the introduction of 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 coming quarters. 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 September 30, 2009 were 51.1% compared with 50.7% for the same quarter last year. For the nine months ended September 30, 2009, gross margins as a percentage of sales were 48.5% compared with 48.2% 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 increased manufacturing volumes and an improved sales-mix of high-margin P25 digital products. For the nine-month period, these improvements were partially offset by competitive pricing pressures.

Manufacturing volumes during both the third quarter and year-to-date 2009 increased compared with the same periods last year 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. We anticipate that 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 and headquarters expenses.

SG&A expenses for the third quarter 2009 were $2.7 million, or 32.8% of sales, compared with approximately $2.6 million, or 44.1% of sales, for the same quarter last year. For the nine months ended September 30, 2009, SG&A expenses decreased approximately $1.9 million (19.4%) to $7.8 million, or 35.2% of sales, compared with $9.7 million, or 62.0% of sales, for the same period last year.

Engineering and product development expenses for the three months ended September 30, 2009 increased approximately $72,000 (8.9%) compared with the same quarter last year. For the nine months ended September 30, 2009, engineering and product development expenses declined by $925,000 (25.3%) compared with the same period last year. During the third quarter we incurred costs associated with our KNG P25 development initiatives. However, for the nine-month period, the completion of several digital development initiatives and the related new product introductions enabled us to reduce the associated engineering costs compared to the same period last year. Additional new products in our KNG line are in the development process, however we do not anticipate significant increases from current engineering expense levels.

Marketing and selling expenses for the three months ended September 30, 2009 decreased by approximately $44,000 (4.0%) compared with the same quarter last year. For the nine months ended September 30, 2009 marketing and selling expenses declined by approximately $736,000 (19.8%) 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 and third quarters 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 September 30, 2009 increased by approximately $136,000 (20.8%), compared with the same quarter last year as a result of payroll related expenses. For the nine months ended September 30, 2009 general and administrative expenses decreased by approximately $213,000 (9.3%) 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 nine months ended September 30, 2009 increased to approximately $1.5 million (18.3% of sales) and $2.9 million (13.3% of sales), respectively, compared with operating income of $385,000 (6.6% of sales) for the third quarter last year and an operating loss of approximately $2.2 million (13.8% of sales) for the same periods last year. The improvement in operating income for the three and nine months ended September 30, 2009 was derived primarily from increased total sales and sales of P25 digital products combined with lower SG&A expense levels.

Net Interest (Expense) Income

For the three and nine months ended September 30, 2009, we incurred approximately $5,000 and $41,000, respectively, in net interest expense compared to net interest income of approximately $29,000 and $134,000, 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 September 30, 2009, we had no borrowings outstanding under the revolving credit facility. The interest rate on such revolving credit facility as of September 30, 2009 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 $577,000 and $881,000 for the three and nine months ended September 30, 2009, respectively, compared with tax expense of $75,000 for the third quarter last year and a tax benefit of $749,000 for the nine-month period last year. Our income tax expenses and benefits are largely non-cash deferred items. The income tax expense for the year-to-date 2009, however, is net of a federal research and development tax credit.

As of September 30, 2009, we had deferred tax assets of approximately $8.3 million compared with $9.2 million at the start of the year. 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.

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 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 September 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 September 30, 2009.

Inflation and Changing Prices

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

Liquidity and Capital Resources

For the nine months ended September 30, 2009, net cash provided by operating activities totaled approximately $4.4 million, compared with net cash used in operating activities of approximately $3.2 million during the same period last year. Cash generated from operating activities for the nine months ended September 30, 2009 was primarily the result of net income totaling approximately $2.0 million compared with a net loss of approximately $1.3 million for the same period last year, as well as a $3.6 million decrease in net inventories compared with an increase of $1.0 million for the same period last year. Net inventories declined during the period due to higher sales of in-stock products. As a result of sales growth, accounts receivable increased by approximately $2.5 million during the period, compared with $1.1 million for the same period last year. During the first nine months of 2009, we incurred $940,000 in capitalized software compared with $870,000 for the same period last year. Deferred tax assets for the first nine months of 2009 decreased by $855 due to non-cash tax expense on our pretax income. For the same period last year deferred tax assets increased by approximately $759,000 as a result of the tax benefit associated with our pretax loss. Depreciation and amortization totaled approximately $327,000 for the nine months ended September 30, 2009, compared with $290,000 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 nine months ended September 30, 2009 were approximately $341,000 compared with approximately $384,000 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 $1.5 million for the nine months ended September 30, 2009, representing a repayment of the entire principal balance outstanding on our revolving line of credit. For the same period last year we generated approximately $12,000 from the issuance of common stock.

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 September 30, 2009, we had no borrowings outstanding under the facility and approximately $3.2 million of borrowing availability.

Our cash balance at September 30, 2009 was approximately $8.1 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.