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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended DECEMBER 31, 2003

OR

[ ] 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 59-3486297
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization

7100 Technology Drive
West Melbourne, Florida 32904
(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act: NONE

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

COMMON STOCK, PAR VALUE $.60
----------------------------

WARRANTS TO PURCHASE COMMON STOCK
---------------------------------
(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer
Yes [ ] No [X]

The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant on March 12, 2004, based on the closing
price of such stock on the OTC Bulletin Board on such date, was $21,839,518.

As of March 12, 2004, 9,558,580 shares of the registrant's Common Stock
and 2,814,639 of the registrant's Warrants to Purchase Common Stock were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's proxy
statement for its 2004 annual shareholders' meeting are incorporated by
reference in Part III of this report. The registrant's proxy statement will be
filed within 120 days after December 31, 2003.





TABLE OF CONTENTS
PAGE
----

Part I............................................................................................................1
Item 1. Business..............................................................................................1
Item 2. Properties............................................................................................7
Item 3. Legal Proceedings.....................................................................................7
Item 4. Submission of Matters To A Vote of Security Holders...................................................9

Part II...........................................................................................................9
Item 5. Market for the Registrant's Common Equity and Related Stockholders Matters and
Issuer Purchases of Equity Securities................................................................9
Item 6. Selected Financial Data..............................................................................11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................12
Item 7A. Quantitative and Qualitative Disclosures About Market Risks.........................................23
Item 8. Financial Statements and Supplementary Data..........................................................30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................31
Item 9A. Controls and Procedures.............................................................................31

Part III.........................................................................................................31
Item 10. Directors and Executive Officers of the Registrant..................................................31
Item 11. Executive Compensation..............................................................................32
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.................................................................................32
Item 13. Certain Relationships and Related Transactions......................................................32
Item 14. Principal Accountant Fees and Services..............................................................33

Part IV..........................................................................................................33
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................................33

SIGNATURES.......................................................................................................36


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PART I
------

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

GENERAL

RELM Wireless Corporation, in business for over 56 years, designs, manufactures
and markets wireless communications products, principally two-way land mobile
radios (LMR) and related products. Our products are marketed using three
distinct brand names, BK Radio, RELM, and Uniden. These products are sold in two
primary markets:

1. The government and public safety market, which includes fire, rescue,
law enforcement, and emergency medical personnel, as well as the
military and various agencies of federal, state, and local governments;
and

2. The business and industrial market, which consists of enterprises
requiring fast, inexpensive communication among a discrete group of
users. Examples include hotels, construction companies, schools,
airports, and taxies.

Generally, BK Radio-branded products serve the government and public safety
market. The business and industrial market is served by RELM and Uniden-branded
products.

Our principal executive offices are located at 7100 Technology Drive, West
Melbourne, Florida 32904 and the telephone number is (321) 984-1414. More
information about our products and us is also available through the Internet at
"http://www.relm.com." The information provided on our website is not
incorporated by reference into this report.

EVENTS OF 2003

DIGITAL PRODUCTS

In March 2003, our new VHF digital portable radio, the DPH, was approved by the
Federal Communications Commission (FCC) for use in the United States. Shortly
thereafter, the DPH was added to contracts with the U. S. General Services
Administration (GSA) and the U. S. Department of Interior (DOI). The BK
Radio-branded DPH is compliant with the Project 25 standard established by the
Association of Public Safety Communication Officials (APCO). Project 25 is being
increasingly adopted by government and public safety, LMR users nationwide. The
DPH is the first in a broad family of digital products that we plan to introduce
over the next two years into both of our primary markets.

U. S. DEPARTMENT OF INTERIOR (DOI) CONTRACT

In July 2003, we were awarded contract participation to supply to the DOI with
digital LMR equipment that is compliant with APCO's Project 25 specifications.

The contract, originally established in November 2002, is a fixed-price,
indefinite-delivery and indefinite-quantity contract that is open to all federal
agencies. It includes one base year with options for four additional years.
Under the contract, U.S. government agencies may purchase up to $1 billion of
APCO Project 25 LMR equipment. The contract has no minimum purchase
requirements, and purchases may fluctuate from period to period subject to the
$1 billion cap.

1


REVOLVING CREDIT FACILITY

On August 29, 2003, we entered into an agreement with a new lender. The
agreement provides for a revolving line of credit of up to $2.5 million for one
year. The line is secured by substantially all of our assets, consisting
principally of our trade receivables and inventory. Concurrent with the
refinancing transaction, three funds affiliated with our directors purchased an
aggregate of 500,000 shares of our common stock at $0.60 per share, which was
the closing market price on the date the transaction was approved. The proceeds
of the transaction were used to pay off our previous revolving credit facility
and provide working capital to be used in executing our business plans,
including the expansion of our digital product line. In February 2004, our
lender increased the credit facility by $1 million to $3.5 million, of which
$1,272,000 was outstanding as of December 31, 2003, and the maturity date was
extended to January 1, 2005.

NASDAQ SMALL-CAP MARKET

On April 29, 2003, the Company was notified by Nasdaq Listing Qualifications
that it had not regained compliance with the minimum $1.00 closing bid price per
share requirement as set forth in marketplace rule 4310(c)(4). The Company was
not eligible for an additional 90 calendar day compliance period because it did
not meet the initial inclusion requirements of the Nasdaq SmallCap Market under
Marketplace Rule 4310(c)(2)(A). Accordingly, the Company's common stock and
common stock purchase warrants were delisted from the Nasdaq SmallCap Market at
the opening of business on May 8, 2003. The Company's common stock and common
stock purchase warrants became immediately eligible for quotation on the OTC
Bulletin Board effective with the open of business on May 8, 2003. The OTC
Bulletin Board symbol for the Company's common stock and common stock purchase
warrants are "RELM" and "RELMW," respectively.

INDUSTRY OVERVIEW

LMR communications consist of hand-held (portable) and mobile (vehicle mounted)
two-way radios commonly used by the public safety sector (e.g., police, fire,
and emergency medical personnel), businesses (e.g., hotels, airports, farms,
taxis, and construction firms), and government agencies within the United States
and abroad. LMR systems are constructed to meet an organization's specific
communication needs. The cost of a system varies widely, starting at
approximately $60,000 for a basic configuration. The cost of radio sets can
range from under $200 for a basic analog portable, to over $3,000 for a digital
unit, depending upon features. Typically, there are no recurring airtime usage
charges. Accordingly, LMR usage patterns are considerably different from those
for cellular and other wireless communications tools. LMR usage is characterized
by frequent calls of short duration. The majority of users make 20 to 50 calls
per day, with most calls lasting less than 30 seconds. The average useful life
is 8 years for a portable radio and 11 years for a mobile.

LMR systems are the oldest form of wireless dispatch communications used in the
U.S., having been first deployed by the Detroit Police Department in 1921. LMR
is also the most widely used form of dispatch communications in the U.S., with
current users estimated to exceed 16.3 million. Initially, LMR was used almost
exclusively by law enforcement. At that time all radio communications were
transmitted in an analog format. Analog transmissions typically consist of a
voice or other signal modulated directly onto a continuous radio carrier wave.
Over time, advances in technology decreased the cost of LMR products and
increased its popularity and usage by businesses and other agencies. To respond
to the growing usage, additional spectrum was allocated for LMR use.

2


In recent years LMR has been characterized by slow growth of approximately 2%
annually. This growth rate is a reflection of several factors:

o LMR is a mature industry, having been in existence for over 70
years;

o some LMR users are in mature industry segments that are
themselves experiencing slow growth rates; and

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

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

Although the FCC does not require public safety agencies or APCO to purchase
Project 25-compliant equipment or otherwise adopt the standard, compliance with
the standard is increasingly becoming the key consideration for government and
public safety purchasers. Accordingly, we anticipate that the demand for Project
25-compliant equipment will fuel significant LMR market growth as users upgrade
equipment to achieve interoperability and comply with the FCC mandate. A
privately commissioned study estimates the addressable market for APCO Project
25-compliant products will total approximately $38 billion over the next five
years. Roughly half of that estimate pertains to infrastructure equipment, which
is defined as towers, antennas, controllers, and combiners.

By some estimates, the LMR industry is as large as $5.7 billion in annual sales.
Presently, one manufacturer dominates the market. However, the open architecture
of the Project 25 standard effectively eliminates the ability of one or more
major companies to lockout competitors. Formerly, because of proprietary
characteristics incorporated in many conventional analog LMR systems, a customer
was effectively precluded from purchasing additional LMR products from a company
other than the initial provider of the system. Additionally, the system
infrastructure technology was prohibitive for smaller communications companies
to develop. Project 25 provides an environment under which users will have a
wider selection of LMR suppliers, including smaller companies such as RELM.

DESCRIPTION OF PRODUCTS

We design, manufacture, and market wireless communications equipment consisting
of two-way radios, repeaters, base stations, and related components and
subsystems. Two-way radios can be units that are hand-held (portable) or
installed in vehicles (mobile). Repeaters expand the range of two-way radios,
enabling them to operate over a wider area. Base station components and
subsystems are installed at radio transmitter sites to improve performance by
reducing or eliminating signal interference and to enable the use of one antenna
for both transmission and reception.

We employ both analog and digital technologies in our products. Our digital
products are compliant with Project 25 specifications.

3


We sell our products under the "BK RADIO," "UNIDEN," and "RELM" brand names.
Generally, BK Radio-branded products serve the government and public safety
market, while RELM and Uniden-branded products serve the business and industrial
market.

BK Radio (formerly "Bendix King") branded products consist of
higher-specification land-mobile radios whose primary market focus is
professional radio users in the government and public safety sectors. The BK
Radio products have more extensive features and capabilities than the products
offered in the RELM and Uniden product lines. Our Project 25-compliant digital
products are marketed under the BK Radio brand.

RELM and Uniden branded products provide basic, inexpensive, yet feature rich
and reliable, two-way communications for business and industrial users, such as
hotels, construction companies, schools, taxicab and limousine companies, and
airports. Typically these users are not radio professionals, and require easy,
fast, inexpensive communication among a defined group of users.

DESCRIPTION OF MARKETS

GOVERNMENT AND PUBLIC SAFETY MARKET

The government and public safety market includes the military, fire, rescue, law
enforcement, emergency medical personnel, as well as various agencies of
federal, state, and local government. In most instances, BK Radio branded
products serve this market and are sold either directly to end-users, or through
two-way communications dealers. Government and public safety revenues
represented approximately 82% of total sales for 2003, 78% of total sales for
2002 and 79% of total sales for 2001.

Most government and public safety users currently use products that employ
analog technology. However, users in the United States and certain other
countries are migrating at an increasing rate to digital products that comply
with the APCO Project 25 standard. The evolution of the standard and compliant
digital products is explained in the INDUSTRY OVERVIEW section starting on page
2 of this report.

BUSINESS AND INDUSTRIAL MARKET

This market includes businesses and enterprises of all sizes that require fast,
push-to-talk communication among a defined group of users such as hotels,
construction companies, schools, taxicab and limousine companies, and airports.
We offer products to this market under the RELM and Uniden brand names. Most of
our sales in this market are to dealers and distributors who then resell the
products to end-users. Our sales to this market represented approximately 18% of
total sales for 2003, 22% of total sales for 2002 and 21% of total sales for
2001.

ENGINEERING, RESEARCH AND DEVELOPMENT

Our engineering and development activities are conducted in West Melbourne,
Florida and Lawrence, Kansas by a team of 13 employees. Their primary
development focus is the execution of our plan to design Project 25-compliant
digital products, which started in 2001. During 2003, our first Project
25-compliant digital product, named the DPH, received FCC approval and was
introduced to the market. In July 2003, the DPH was added to the contract to
supply the DOI with digital two-way communications equipment. The DPH is the
first in a series of digital products that we plan to introduce in 2004 through
2005 into both of our primary markets. A segment of our engineering team is
responsible for product specifications based on customer requirements and


4


supervising quality assurance activities. They also have primary responsibility
for applied engineering, production engineering and the specification compliance
of contract manufacturers.

For 2003, 2002, and 2001, RELM's engineering and development expenditures were
approximately $1.5 million, $1.9 million and $1.4 million, respectively. The
effective use of internal resources and concentration on key initiatives, such
as the APCO Project 25 digital program, has enabled us to contain and, in some
instances, even reduce engineering expenses while delivering new products
relatively quickly.

INTELLECTUAL PROPERTY

Our United States patents covering various land-mobile radio products have
expired. We have no plans to renew them. We hold several trademarks related to
the "RELM" name and our product names. We also rely on trade secret laws and
employee and third party non-disclosure agreements to protect our intellectual
property rights.

MANUFACTURING AND RAW MATERIALS

Our manufacturing strategy is to utilize the highest quality and most cost
effective resources available for every aspect of our manufacturing. Consistent
with that strategy, we have successfully implemented several outside contract
manufacturing arrangements. These arrangements, some of which are with offshore
concerns, have been instrumental in decreasing our product costs significantly,
allowing us to improve our competitive position and gross margins.

Contract manufacturers produce both completed products and LMR subassemblies on
our behalf. Generally, the contract manufacturers purchase raw materials from
approved sources and complete subassemblies or finished products in accordance
with our specifications. An Original Equipment Manufacturer (OEM) manufacturing
agreement governs the business relationship with each contract manufacturer.
These agreements typically have a five-year term and may be renewed upon
agreement by both parties. The scope of the contracts may also be expanded to
include new products in the future.

In connection with the acquisition in 2000 of the Uniden LMR product line, we
entered into an OEM manufacturing agreement with Uniden America Corporation
under which Uniden manufactures product with the Uniden brand name. The initial
term of the contract was for 18 months. Although the contract expired in
September 2001, both parties continue to operate under its original terms.

We plan to continue to utilize contract manufacturing where it furthers our
business objectives. This strategy allows us to focus on our core technological
competencies of product design and development, and to reduce the substantial
capital investment required to manufacture our products. We also believe that
our use of experienced, high-volume manufacturers will provide greater
manufacturing specialization and expertise, higher levels of flexibility and
responsiveness, and faster delivery of product. To ensure that products
manufactured by others meet our standards, our West Melbourne production and
engineering team works closely with its ISO9002-qualified contract manufacturers
in all key aspects of the production process. We establish product
specifications, select the components and, in some cases, the suppliers. We
retain all document control. We also work with our contract manufacturers to
improve process control and product design, and to conduct periodic on-site
inspections.

We rely upon a limited number of both domestic and foreign suppliers for several
key products and components. We place purchase orders from time to time with
these suppliers and have no guaranteed supply arrangements. In addition, we


5


obtain certain components from a single source. The amount of these components
is not material relative to total component and raw material purchases. During
2003, 2002, and 2001, our operations have not been impaired due to delays from
single source suppliers. However, the absence of a single source component could
delay the manufacture of finished products. We manage the risk of such delays by
securing second sources and redesigning products in response to component
shortages or obsolescence. We strive to maintain strong relations with all our
suppliers. We anticipate that the current relationships, or others that are
comparable, will be available to us in the future.

SEASONAL IMPACT

Demand for our "BK Radio" LMR products is typically the greatest during the
summer season because of the increased forest fire activity during that time of
year.

SIGNIFICANT CUSTOMERS

Sales to the United States Government represented approximately 50%, 39% and 44%
of our total sales for the years ended December 31, 2003 and 2002, and 2001,
respectively. These sales were primarily to the United States Forest Service
(USFS), the DOI and the Communications Electronics Command of the United States
Army (CECOM).

Sales to the USFS represented approximately 27%, 22%, and 34% of total sales for
the years ended December 31, 2003, 2002 and 2001, respectively. Our new digital
portable radio, the DPH, was added to the DOI contract in July 2003. For the
year ended December 31, 2003 sales to the DOI represented approximately 12% of
total sales. For the years ended December 31, 2003 and 2002 we had no sales to
CECOM because our contract expired in 2001. Sales to CECOM represented
approximately 10% of total sales for the year ended December 31, 2001.

In December 2002, we were awarded a new contract with the USFS. It includes the
portable radios and repeaters that were on the previous contract. Additionally,
it includes our GMH mobile radio that was not on the previous contract. The new
contract is for one year with two additional option years.

BACKLOG

Our order backlog was approximately $2.8 million, $1.7 million, and $1.6 as of
December 31, 2003, 2002, and 2001, respectively.

COMPETITION

The worldwide land mobile radio markets are estimated to be $5.7 billion
annually with annual growth of approximately 2%. We compete with many domestic
and foreign companies in these markets. One competitor holds a share of the
market estimated to exceed 70%. We compete in these markets by capitalizing on
our advantages and strengths, which include price, quality, speed, and customer
responsiveness.

EMPLOYEES

We presently have 67 full-time employees, most of whom are located at our West
Melbourne, Florida facility; 34 of these employees are engaged in direct
manufacturing or manufacturing support, 13 in engineering, 12 in sales and
marketing, and 8 in general and administrative activities. Our employees are not
represented by any collective bargaining agreements, nor has there ever been a
labor-related work stoppage. We believe our relations with our employees are
good.

6


INFORMATION RELATING TO DOMESTIC AND EXPORT SALES

The following table summarizes our sales of wireless communications equipment by
location of our customers:

2003 2002 2001
-----------------------------------------
(in Millions)

United States $18.5 $14.9 $21.8
Other International 1.2 1.0 1.0
----------------------------------------
Total $19.7 $15.9 $22.8
========================================

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

OWNED.

We do not currently own any real estate.

LEASED

The majority of our operations are conducted in approximately 54,000 square feet
of leased industrial space at 7100 Technology Drive in West Melbourne, Florida.
The original lease term is five years, which expires on June 30, 2005. Rental,
maintenance and tax expenses were approximately $375,000, $378,000 and $384,000
in 2001, 2002 and 2003, respectively. We also lease 3,800 square feet of office
space in Lawrence, Kansas, to accommodate a segment of our engineering team.
This lease has a term of two years. Rental, maintenance and tax expenses for
2001, 2002 and 2003 were approximately $-0-, $20,000 and $33,000, respectively.

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

In 1993, a civil action was brought against us by a plaintiff to recover losses
sustained on the note of a former affiliate totaling $1.7 million plus interest
at 12% per annum. The plaintiff alleged violations of federal security and other
laws by us in collateral arrangements with the former affiliate. In February
1994, the liquidator of the former affiliate filed a complaint claiming that
intentional and negligent conduct by us and others caused the former affiliate
to suffer millions of dollars of losses leading to its ultimate failure. In
response, we filed motions for summary judgment to dismiss those complaints. On
September 12, 2002, the Court granted in significant part the motions for
summary judgment filed by us and one of our directors. The lone remaining claim
sought damages against us for non-payment of the note. We contended that this
note was canceled and released for fair consideration in 1993 and that there was
no basis in law or fact for the liquidator's claim. On March 1, 2004, we reached
a settlement agreement. Under the terms of the settlement, we will pay to the
plaintiff cash totaling $120,000 and issue 6,452 shares of restricted RELM
common stock valued at the closing price on March 1, 2004. Consequently, we
recognized a one-time charge of $140,000 in the fourth quarter 2003. The
settlement is subject to the execution by both parties of a written agreement
and release.

In February 12, 1999, we initiated collection and legal proceedings in Sao
Paulo, Brazil, against its Brazilian dealer, Chatral, for failure to pay for
product shipments totaling $1.4 million which has been fully reserved in a prior
year. In April 2001, the Brazilian court ordered us to post security with the
court totaling approximately $300,000 in the form of cash or a bond in order for
the case to proceed. We elected not to post security. Consequently, the case was
involuntarily dismissed. On December 8, 1999, Chatral filed a counter claim
against us alleging damages totaling $8 million as a result of our


7


discontinuation of shipments to Chatral. On September 11, 2002 we agreed to a
joint stipulation of dismissal under which all claims between the parties were
released.

Heath & Company filed a suit against RELM Wireless Corporation and RELM
Communications, Inc. in the United States District Court for the District of
Massachusetts in early 2001 year for breach of contract, misrepresentation and
unfair trade practices. Pursuant to a Memorandum and Order dated April 24, 2001,
most of Heath's claims were dismissed. The court ruled as a matter of law that a
fact finder must determine whether RELM Communications withheld information it
knew to be essential to the Plaintiff and whether it did so in a bad faith
attempt to withdraw from a brokerage agreement. On March 21, 2002, the parties
settled the matter for payment to Heath of $33,000.

On December 20, 2000, a products liability lawsuit was filed in Los Angeles
Superior Court in Los Angeles, California. Although the Company was not named in
the suit, one of the defendants had purchased all or substantially all of the
assets of a RELM affiliate. As part of the asset sale, the asset purchase
agreement contained indemnification provisions, which could result in liability
for us. On October 23, 2001, the purchaser of the assets of our former affiliate
served us with a claim for indemnification under a provision of the asset
purchase agreement. In June 2002, we were released from this matter.

In June 1997, substantially all of the assets of a RELM specialty-manufacturing
subsidiary were sold. The asset purchase agreement contains indemnification
provisions, which could result in liability for both parties. Presently, one
indemnification claim is pending against us. On November 19, 2001, a products
liability lawsuit was filed in the 353rd Judicial District Court of Travis
County, Texas. On August 26, 2002, a products liability lawsuit was filed in the
Probate Court of Galveston County, Texas. RELM Wireless Corporation, RELM
Communications, Incorporated, and the purchaser of the assets of our former
specialty-manufacturing subsidiary are named defendants in these lawsuits. We
have insurance coverage for these matters. The initial case was settled in
February 2004 by the insurance companies involved, including ours. We did not
incur any costs or liabilities related to the settlement. Counsel for our
insurer is continuing to vigorously defend the remaining claim. Counsel believes
we have meritorious defenses and the likelihood of an unfavorable outcome is
remote.

During 2002, the purchaser of the assets of our former specialty-manufacturing
subsidiary ceased making payments in accordance with a note receivable. The
initial amount of the note was approximately $355,000. Presently, the amount due
under the note is approximately $175,000 plus accrued interest. This note is
derived from the 1997 agreement for the sale of the assets of our
specialty-manufacturing subsidiary. Since its inception, the terms of the
obligation have been restructured several times to accommodate the purchaser.
The last payment was received in March 2002. Attempts to contact the purchaser
and collect the past-due installment payments have been unsuccessful. In
February 2003, we started legal proceedings to recover the remaining amount due
under the note plus accrued interest. With guidance from counsel, we believe
that we will prevail in these proceedings. However, we have been unable to
ascertain the financial position of the purchaser or their ability to pay the
debt. Accordingly, we have maintained the valuation reserve for the entire
principal amount ($175,000) of the note that was established in 2002.

In April 2002, we learned that the purchaser of the assets of our former
paper-manufacturing subsidiary had ceased operations. The purchaser owes us
$900,000 plus accrued interest under the terms of two secured promissory notes,
and has defaulted on its obligations to make principal and interest payments.
The Chief Executive Officer of the purchaser personally guaranteed the debt. Our
security interest is subordinated to the security interest granted to the


8


purchaser's senior lender. In connection with the sale of the subsidiary in
1997, we took back a secured promissory note from the purchaser in the initial
aggregate principal amount of $2.4 million. In December 2000, the terms of the
original promissory note were modified and we received a principal payment of
$700,000 plus accrued interest of approximately $166,000. After this payment,
the remaining principal amount due on the original note was $900,000. Also, as
part of the modification agreement, the original note was replaced by two
secured promissory notes, one in the principal amount of $600,000 and the other
in the principal amount of $300,000. The $600,000 note was payable in ten annual
installments starting on April 2, 2002. The $300,000 note was payable in five
annual installments starting on January 1, 2003. Interest on both notes accrued
at 2.75% over the prime rate and was payable, in the case of the $600,000 note,
in annual installments, and, in the case of the $300,000 note, in semi-annual
installments. The $600,000 note was subject to a standby creditor's agreement
under which principal and interest payments on the note were contingent upon the
purchaser achieving a certain debt service coverage ratio and the absence of any
uncured defaults on other loans or agreements of the purchaser. As security for
both notes, the purchaser has granted to us a lien and security interest in
certain collateral. Our security interest, however, is subordinated to the
security interest granted to the purchaser's senior lender. In addition, the
Company was subject to a standstill agreement with the senior lender. A
principal of the purchaser guaranteed the prompt and complete payment of both
notes when due. Both notes were subject to forbearance fee payment agreements
with both the purchaser and the guarantor under which additional amounts may be
payable to us if there is a merger, sale or change of control of the purchaser
and if the notes are not paid in full by certain dates. In December 2002, the
purchaser's senior lender notified us that they had sold the purchaser's assets
for $200,000. This amount was not sufficient to provide any recovery of amounts
owed to us under the notes. In February 2003, with the assistance of counsel, we
initiated legal proceedings against the guarantor. In October, 2003 we were
awarded a judgement against the guarantor in the amount of $1.0 million. We have
not been able to ascertain the financial position of the guarantor or evaluate
his ability to pay the debt. Accordingly, we have maintained the valuation
reserve for the entire principal amount ($900,000) of the two promissory notes
that was established in the first quarter 2002.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------

None

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
- -----------------------------------------------------
RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
----------------------------------------------------------------------

On April 29, 2003 the Company was notified by Nasdaq Listing Qualifications that
it had not regained compliance with the minimum $1.00 closing bid price per
share requirement as set forth in marketplace rule 4310(c)(4). The Company was
not eligible for an additional 90 calendar day compliance period because it did
not meet the initial inclusion requirements of the Nasdaq SmallCap Market under
Marketplace Rule 4310(c)(2)(A). Accordingly, the Company's common stock and
common stock purchase warrants were delisted from the Nasdaq SmallCap Market at
the opening of business on May 8, 2003. The Company's common stock and common
stock purchase warrants became immediately eligible for quotation on the OTC
Bulletin Board effective with the open of business on May 8, 2003. The OTC
Bulletin Board symbol for the Company's common stock and common stock purchase
warrants are "RELM" and "RELMW."

The following tables set forth the high and low closing sale price for our
common stock and common stock purchase warrants for the periods indicated, as
reported by the NASDAQ SmallCap Market or the OTC Bulletin Board. These
quotations reflect inter-dealer prices, without retail mark-up, markdown, or
commission and may not necessarily represent actual transactions.

9


Common Stock
2003 QUARTER ENDED HIGH LOW
-----------------------------------------------------------------------
March 31, 2003 $0.67 $0.37
June 30, 2003 0.77 0.15
September 30, 2003 1.60 0.47
December 31, 2003 1.80 1.40

2002 QUARTER ENDED HIGH LOW
-----------------------------------------------------------------------
March 31, 2002 $1.25 $0.83
June 30, 2002 1.01 0.80
September 30, 2002 0.82 0.41
December 31, 2002 0.60 0.39


Common Stock Purchase Warrants

2003 QUARTER ENDED HIGH LOW
-----------------------------------------------------------------------
March 31, 2003 $0.12 $0.10
June 30, 2003 0.15 0.01
September 30, 2003 0.60 0.12
December 31, 2003 0.90 0.52

2002 QUARTER ENDED HIGH LOW
-----------------------------------------------------------------------
March 31, 2002 $0.29 $0.24
June 30, 2002 0.45 0.04
September 30, 2002 0.16 0.07
December 31, 2002 0.20 0.10

On March 12, 2004, there were 1,230 holders of record of our common stock and 72
holders of record of our common stock purchase warrants.

We have never declared or paid cash dividends on our common stock. We currently
intend to retain all available funds and any future earnings for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future. In addition, our loan agreement with
Silicon Valley Bank prohibits us from paying dividends on our common stock. No
cash dividends were paid with respect to our common stock during the past five
years.

EQUITY COMPENSATION PLAN INFORMATION


- ----------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
Number of securities remaining
Number of securities to be Weighted average available for future issuance
issued upon exercise of exercise price of under equity compensation plan
outstanding options, outstanding options, (excluding securities reflected in
Plan Category warrants, and rights warrants and rights column (a)
- ----------------------------------------------------------------------------------------------------------------------------------

Equity compensation plans approved 1,364,000 $1.66 336,000
by security holders
- ----------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not -- -- --
approved by security holders
- ----------------------------------------------------------------------------------------------------------------------------------
Total 1,364,000 $1.66 336,000
========= ===== =======
- ----------------------------------------------------------------------------------------------------------------------------------


10


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

The following table summarizes selected financial data of RELM and should be
read in conjunction with the Consolidated Financial Statements and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this report:


STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)


YEAR ENDED DECEMBER 31
2003 2002 2001 2000 1999
---------------------------------------------------------------

Sales $19,728 $15,978 $22,809 $21,054 $22,404

Income (Loss) From Continuing Operations
881 (3,631) 122 (1,162) (2,294)

Loss From Discontinued Operations -- -- -- (266) --
---------------------------------------------------------------
Net Income (Loss) $ 868 $(3,631) $ 122 $(1,428) $(2,294)
===============================================================

Income (loss) Per Share-Basic:
Income (loss) Per Share From Continuing
Operations $ 0.10 $ (0.47) $ 0.02 $ (0.22) $ (0.45)

Income (loss) Per Share From
Discontinued Operations -- -- -- (0.05) --
---------------------------------------------------------------
Net Income (loss) Per Share $ 0.10 $ (0.47) $ 0.02 $ (0.27) $ (0.45)
===============================================================

Income (loss) Per Share-Diluted:
Income (loss) Per Share From
Continuing Operations $ 0.09 $ (0.47) $ 0.02 $ (0.22) $ (0.45)

Income (loss) Per Share From
Discontinued Operations -- -- -- (0.05) --
---------------------------------------------------------------
Net Income (loss) Per Share $ 0.09 $ (0.47) $ 0.02 $ (0.27) $ (0.45)
===============================================================


o Results for 2002 include, 1) a $900,000 note receivable valuation allowance
related to the purchase of the assets of the Company's former
paper-manufacturing subsidiary in the first quarter, 2) a collection
allowance of $175,333 for a note receivable from the purchaser of the
assets of our former specialty-manufacturing subsidiary, 3) the write-off
of a technology agreement with a book value of $210,981, 4) the write-off
of an investment banking services agreement with a book value of $119,851,
and 5) $185,270 in costs related to the restructuring of our sales and
marketing organization.
o Results for 2000 include a $984,000 net gain on the sale of our
manufacturing facility and the sale of certain manufacturing and test
equipment.

11


BALANCE SHEET (IN THOUSANDS)

DECEMBER 31
2003 2002 2001 2000 1999
-----------------------------------------------

Working Capital $ 5,273 $ 5,734 $ 9,262 $ 7,679 $ 5,676

Total Assets 12,229 12,856 17,623 18,422 22,853

Long-Term Debt 1,272 3,150 6,998 6,353 9,072

Total Stockholders' Equity 5,985 4,872 6,482 6,360 6,377

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

EXECUTIVE SUMMARY

Our operating results improved significantly in 2003 compared to the prior year.
Revenue increased while costs in almost every area of the company decreased,
resulting in net income of approximately $0.9 million, or $0.10 per basic and
$0.09 per fully diluted share, compared to last year's net loss of ($3.6)
million, or ($0.47) per basic and fully diluted share.

Revenue growth during the year was primarily the result of orders for new
products; including our BK Radio-brand digital portable radio and our new line
of portable radios targeting business and industrial customers. The digital
portable radio is compliant with the Project 25 standard of APCO. Project 25 is
being increasingly adopted by government and public safety agencies nationwide.
In July 2003, our new digital radio was added to a contract with the U.S.
Department of Interior (DOI). Orders from DOI agencies totaled in excess of $3
million through the remainder of 2003. We also expanded certain initiatives,
most notably in the federal government area, to take advantage of the growing
opportunities available to us as a result of these new products.

Product costs (cost of sales) showed marked improvement for 2003, totaling 61.4%
compared to 73.6% for the prior year. We successfully reduced product costs
through a series of programs that have improved manufacturing efficiencies.
These programs incorporate new, more cost-effective product designs and the
utilization of high-quality contract manufacturers, while reducing manufacturing
support staff and expenses.

Selling, general and administrative costs (SG&A) for 2003 showed a decrease
compared to the prior year. Although spending related to digital product
development programs and certain sales and marketing activities increased, they
were more than offset by decreases in administrative functions and other
non-recurring expenses from 2002. We also recognized an expense totaling
$140,000 related to the March 2004 settlement of a legal matter described in
Item 3 of this report. We anticipate continuing to increase our investment in
digital product development in order to speed the introduction of additional new
digital products in 2004 and 2005.

Further improvement from the prior year was realized because of one-time losses
on notes receivable that were recognized in 2002. These losses pertained to two
notes from the purchasers of the assets of our former paper manufacturing and
specialty-manufacturing subsidiaries. The subsidiaries and notes were legacies
from before 1997 and not at all related to the Company's current land mobile
radio operations.

12


During the year we secured a new credit facility with a new lender. The
facility, combined with improved operations, provided increased liquidity and
capital resources at an interest rate lower than the most recent rate charged by
our previous lender. We are in compliance with the covenants incorporated in the
associated revolving line of credit agreement. In February 2004, our lender
increased the facility by $1 million to $3.5 million, of which $1,272,000 was
outstanding as of December 31, 2003, and the maturity date was extended until
January 1, 2005.

For the year ended December 31, 2002, we suffered a substantial net loss and
were in default of our then revolving line of credit. These conditions raised
substantial doubt at that time about our ability to continue as a going concern.

During the following year ended December 31, 2003, we realized net income of
approximately $900,000 or $0.09 per diluted share, and obtained a new $2.5
million revolving line of credit with a new lender (see Note 8 Debt). In
February 2004, the new revolving line of credit's credit limit was increased by
$1 million to $3.5 million and the maturity date was extended to January 1,
2005. We are in compliance with all terms, conditions and covenants of our new
credit agreement as of December 31, 2003. Accordingly, the line of credit has
been classified as a long-term liability in the accompanying consolidated
balance sheet at December 31, 2003.

Additionally, we brought several new products to market during 2003, which
contributed to increased sales in 2003 compared to 2002. Also, manufacturing and
selling, general and administrative expenses were reduced. Our business plans
for 2004 and beyond anticipate that operations will generate sufficient working
capital to enable us to continue as a going concern. We believe that we have
sufficient resources to execute our plans and strategy.

RESULTS OF OPERATIONS

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

PERCENT OF NET SALES
FOR YEAR ENDED DECEMBER 31
2003 2002 2001
----------------------------

Sales 100.0% 100.0% 100.0%
Cost of Products 61.4 73.6 70.8
----------------------------
Gross Margin 38.6 26.4 29.2
Selling, General, and Administrative
Expenses (32.2) (40.5) (26.0)
Loss on notes receivable -- (6.7) --
Interest Expense (2.2) (2.9) (2.5)
Other Income 0.3 1.0 --
----------------------------
Pretax Income (loss) 4.5 (22.7) 0.7
Income Tax Expense (0.1) -- --
----------------------------
Net Income (loss)
4.4% (22.7%) 0.7%
============================

FISCAL YEAR 2003 COMPARED WITH FISCAL YEAR 2002

SALES

Total sales for the year ended December 31, 2003 increased $3.7 million (23.1%)
to approximately $19.7 million from approximately $16.0 million for the year
2002.

Sales for BK Radio products, targeted for the government and public safety
market of the LMR market, increased approximately $3.5 million (29.6%) compared
to the prior year. The increase in sales for the BK Radio product line, as well
as the increases in total sales, was driven principally by the introduction of a
new digital portable radio, the DPH. The DPH complies with the Project 25
Standard of APCO. This product received approval from the Federal Communication
Commission in March 2003, and in July 2003 was included on the U.S. Department
of Interior contract for digital LMR equipment. We are aggressively pursuing
additional opportunities with various federal and state government agencies for
this product. Additional Project 25 digital products are planned for 2004 and
2005.

For the year ended December 31, 2003, sales in the business and industrial
market, served by RELM-branded and Uniden-branded products, increased
approximately $0.2 million (6.0%) when compared to the prior year. During 2003
we introduced a new line of portable radios to address this market, the RELM RP
Series. The RP products are full-featured but low-cost, allowing us to compete
more effectively in the highly competitive business and industrial market. We
also expanded our channels to market for these products. Growth in revenues for


13


RELM-branded products was partially offset by declines in other products, due in
part to the migration of some customers to the new RP Series.

To capitalize on the advantages of our new products, we expanded our sales and
marketing efforts in 2003. A direct sales professional was added in the
Washington, D.C. area to more effectively pursue opportunities with federal
government agencies. We also established regional direct sales resources in
other parts of the U.S. These efforts are under the direction of a sales and
marketing management team that was put in place in 2003. As sales increase we
anticipate further expanding sales and marketing initiatives.

COST OF SALES AND GROSS MARGINS

Cost of sales as a percentage of sales for the year ended December 31, 2003
decreased to 61.4% from 73.6% last year. Continuing programs initiated in 2000
further expanded our use of contract manufacturing resources. All of our
products are now produced using such resources. Our contract manufacturing
relationships have improved efficiencies and resulted in lower material and
labor costs for all our products. They have enabled us to also reduce our
internal manufacturing support expenses. Furthermore, increased sales volumes
have enabled us to more fully utilize and absorb the smaller base of
manufacturing support expenses. As volumes increase, we believe additional
efficiencies and cost reductions may be realized.

We continuously evaluate manufacturing alternatives to further reduce our
product costs. We anticipate that the current contract manufacturing
relationships or comparable alternatives will be available to the company in the
future.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses (SG&A) include commissions,
marketing, sales, engineering, product development, management information,
accounting and headquarters. For the year ended December 31, 2003, SG&A expenses
decreased approximately $126,000 (2.0%) to $6.4 million or 32.2% of sales from
$6.5 million or 40.5% of sales for the prior year.

This decrease is primarily the result of reduced administrative staffing and
expenses as well as the completion of certain engineering initiatives. Also,
several non-recurring expenses were recognized in the prior year, all of which
pertained to old business lines and were unrelated to our current LMR
operations. They included the following items: (1) writing-off the unamortized
cost ($211,000) of a technology license, 2) writing-off the unamortized cost
($120,000) of an investment banking agreement, and 3) severance and other
expenses ($195,000) associated with restructuring our sales and marketing
organization.

The aforementioned decreases enabled us to expand our digital development
program in 2003, with the objective of speeding the completion of additional
Project 25 products to complement the DPH. Bringing such products to market, and
achieving a significant share of the market will continue to require substantial
investment to complete research and development and to achieve market
penetration.

Our internal development efforts are focused entirely on our digital product
development program. During 2003, expenses related to this project totaled
approximately $0.8 million. We estimate that these costs will total
approximately $1.2 million in 2004, and will be funded from existing cash
reserves and working capital from operations. This project is planned to yield
approximately 17 products through 2005. We anticipate that these products will
be the main source of revenue growth in the future.

14


We also increased our investment in sales and marketing initiatives during 2003
to capitalize on the advantages of our new products. A direct sales professional
was added in the Washington, D.C. area to more effectively pursue opportunities
with federal government agencies. Regional direct sales resources were placed in
other parts of the U.S. Starting in the first quarter of 2003, a new sales and
marketing management team was charged with these efforts. As sales increase we
anticipate expanding sales and marketing initiatives. Generally selling
commission expenses vary in approximate proportion to sales. Increased selling
commission expenses in 2003 were driven by sales growth.

General and administrative expenses include a one-time charge of $140,000
related to the March 2004 settlement of a legal matter described in Item 3 of
this report.

INTEREST EXPENSE

For the year ended December 31, 2003, interest expense decreased by
approximately $14,000 (3.1%) to $442,000 from $456,000 in 2002. We incur
interest expense on our revolving line of credit and our subordinated
convertible notes. The interest rate on our revolving line of credit is variable
and fluctuated with the prime lending rate. The interest rate on the convertible
notes is 8% per annum. The effective interest rate on our revolving line of
credit was lower during 2003 as a result of the reductions in the prime lending
rate, and our new revolving line of credit. Also, primarily as a result of
improved operations, the outstanding principal balance on the revolver and our
new revolver was reduced during the second half of 2003.

INCOME TAXES

Income tax expense for the years ended December 31, 2003 and 2002 was
approximately $13,000 and $0, and represented effective tax rates of 1.3% and
0%. These tax rates are made up of a 34% effective tax rate, the respective
state tax rates where we do business, and changes in valuation allowances
related to deferred tax assets. For tax purposes, as of December 31, 2003 and
2002, we have federal and state net operating loss carryforwards of
approximately $34.0 million and $35.0 million, respectively. These net operating
loss carryforwards begin to expire, for federal and state purposes, in 2010. In
accordance with SFAS Statement No. 109, Accounting for Income Taxes, valuation
allowances are provided against deferred tax assets if, based on the weight of
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. We have evaluated the realizability of the
deferred tax assets on our balance sheet and do not believe that we have met the
more likely than not criteria; therefore we have established a valuation
allowance in the amount of approximately $13.1 and $14.4 million against our net
deferred tax assets at December 31, 2003 and 2002, respectively. The federal and
state net operating loss and tax credit carryforwards could be subject to
limitation if, within any three year period prior to the expiration of the
applicable carryforward period, there is a greater than 50% change in ownership
of RELM.

FISCAL YEAR 2002 COMPARED WITH FISCAL YEAR 2001

SALES

Total sales for the year ended December 31, 2002 decreased approximately $6.8
million (30.0%) to approximately $15.9 million from approximately $22.8 million
for the year 2001.

Sales for BK Radio products, sold primarily to the government and public safety
of the LMR market, decreased $5.1 million (29.0%) compared to the prior year.
This decrease was attributed primarily to a decrease in sales derived from the
USFS and CECOM.

15


We did not ship any products to CECOM during 2002. During the prior fiscal year,
sales from product shipments to CECOM totaled approximately $2.4 million. The
contract under which those shipments were made expired in October 2001. CECOM
solicited bids for a new contract in March 2002 and we submitted proposals.
Numerous delays have been encountered by CECOM, and the contract has not yet
been awarded. CECOM has indicated in recent communications that the solicitation
will be canceled and a contract will not be awarded. Accordingly, we are
currently pursuing avenues for providing our products to CECOM under other
existing contracts.

During 2002, budget constraints and contract delays combined to reduce shipments
to the USFS by approximately $3.4 million compared to the prior year. The USFS
is our largest customer representing sales of approximately $3.5 million and
$6.9 million for the years ended December 31, 2002 and 2001, respectively. Due
to an extraordinarily active forest fire season, the USFS experienced a decrease
in the funding available for new two-way communications equipment. Additionally,
the USFS contract expired in September 2002, and a new contract was not awarded
until December 2002. Sales from the USFS also decreased because our mobile radio
was not included on the contract for most of 2002. We had been awarded the
mobile portion of the contract in prior years. The mobile radio has again been
awarded to us on the new contract that was issued in December 2002. We were also
awarded the portions of the contact for portable radios, base stations, and
repeaters. We anticipate that the margins that will be realized under this
contract will be consistent with or better than those realized under the
previous contract. The contract does not specify definite delivery dates or
quantities.

For the year ended December 31, 2002, sales in the business and industrial
market, served by RELM-branded and Uniden-branded products, decreased
approximately $1.7 million (50.3%) when compared to the prior year. Customer
demand in this market continued to be weak, reflecting the lack of a sustained
economic recovery. Also, due to engineering delays, our new family of portable
radios, the RP Series, was ready for sale later in the year than originally
anticipated. The RP series is designed as a quality, full-featured, low-cost
line to compete effectively in the business and industrial market. We anticipate
that the margins that will be realized from these products will be consistent
with or better than those realized from our other portable radios.

COST OF SALES AND GROSS MARGINS

Cost of sales as a percentage of sales for the year ended December 31, 2002 was
73.6% compared to 70.8% for the same period last year. Due to the lower volumes,
we did not fully absorb our manufacturing overhead costs, which adversely
impacted cost of sales and gross margins. Responding to lower production
volumes, starting in the fourth quarter of 2002 we reduced manufacturing support
staffing and expenses. Also related to lower volumes, during the year we
increased reserves for slow moving inventory by approximately $283,000.

Excluding the impact of under-absorption, we continued to decrease direct
product costs (i.e., material and labor). Direct product costs for the year
ended December 31, 2002 were 55.3% compared to 58.2% for the prior year. We
achieved this improvement by continuing to expand our utilization of
high-quality, low-cost contract manufacturers. During 2002 we had agreements
with several contract manufacturers. At the end of 2002 all of our products were
partially or entirely manufactured by these contract manufacturers. These
arrangements, combined with our reductions in manufacturing infrastructure
expenses, began favorably impacting margins in 2002.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses (SG&A) include commissions,
marketing, sales, sustaining engineering, product development, management


16


information, accounting, and headquarters. For the year ended December 31, 2002,
SG&A expenses totaled $6.5 million or 40.5% of sales compared with $5.9 million
or 26.0% for the prior year.

This increase of $550,000 is attributable to the following: (1) the expansion of
our product development initiatives ($321,000) for APCO Project 25-compliant
digital products and ESAS systems and (2) charges unrelated to our current LMR
operations, all of which pertained to old business lines of the company. These
charges pertained to a) writing-off the unamortized cost ($211,000) of a digital
technology license that we will no longer utilize, b) writing-off the
unamortized cost ($120,000) of an investment banking agreement, and c) severance
and other expenses ($195,000) associated with restructuring our sales and
marketing organization.

The aforementioned increases were partially offset by decreases in marketing and
selling ($94,000) and general and administrative expenses ($203,000). Marketing
and selling expenses decreased as a result of lower selling commission expenses,
which was driven by lower revenues. General and administrative expenses were
reduced as certain information systems functions ($121,000) were outsourced and
several pending legal matters ($82,000) were resolved.

LOSS ON NOTES RECEIVABLE

In April 2002, we learned that the purchaser of the assets of the Company's
former paper-manufacturing subsidiary, had ceased operations. The purchaser owed
the Company $900,000 plus accrued interest under the terms of two secured
promissory notes and had defaulted on its obligations to make principal and
interest payments. With guidance from counsel, we evaluated alternatives and
took all prudent actions to maximize the possibility of recovery. However, after
a comprehensive assessment, we believed that the value of the purchaser's assets
and the assets of the guarantor were insufficient to provide any recovery of the
amounts due under the notes. Accordingly, the Company wrote-off the entire
principal amount ($900,000) of the two promissory notes in the first quarter
2002.

During 2002, the purchaser of our former specialty-manufacturing subsidiary
ceased making payments in accordance with a note receivable. The initial amount
of the note was approximately $355,000. Presently, the amount due under the note
is approximately $175,000 plus accrued interest. This note is derived from the
1997 agreement for the sale of our specialty manufacturing operation. Since its
inception, the terms of the obligation have been restructured several times to
accommodate the purchaser. The last payment was received in March 2002. Attempts
during the second and third quarters 2002 to contact the purchaser and collect
the past-due installment payments have been unsuccessful. In February 2003, we
started legal proceedings to recover the remaining amount due under the note
plus accrued interest. With guidance from counsel, we believe that we will
prevail in these proceedings. However, we have been unable to ascertain the
financial position of the purchaser or their ability to pay the debt.
Accordingly we established a collection allowance in the fourth quarter 2002 for
the entire principal amount of the note, and have maintained the allowance in
2003.

The businesses and events associated with the purchasers of the assets of our
former subsidiaries are legacies from before 1997. They are not at all related
to land mobile radio (LMR) operations, which have been our focus for the past
several years. We have excluded these obligations from our cash flow projections
and operating plans since 2000. Although the write-off and allowance impacted
2002 earnings, we anticipate no future impact on the execution of our core LMR
business plan objectives, including our digital product development, which in
February 2003 yielded the introduction of our initial APCO Project 25 compliant
digital radio.

17


INTEREST EXPENSE

For the year ended December 31, 2002, interest expense totaled approximately
$456,000 compared to $579,000 for 2001. We incur interest expense on our
revolving line of credit and on the subordinated convertible notes. The interest
rate on our revolving line of credit is variable and fluctuated with the prime
lending rate. The interest rate on the convertible notes is 8% per annum. The
effective interest rate on our revolving line of credit was lower during 2002 as
a result of the reductions in the prime lending rate. Also, primarily as a
result of improved accounts receivable collections, the principal balance on the
revolver as of December 31, 2002 decreased by $780,000 compared to the balance
at the same time in 2001.

INCOME TAXES

Income taxes represented effective tax rates of 0% for the years ended December
31, 2002 and 2001. These tax rates are made up of a 34% effective tax rate, the
respective state tax rates where we do business, and changes in valuation
allowances related to deferred tax assets. For tax purposes, as of December 31,
2002 and 2001, we have federal and state net operating loss carryforwards of
approximately $35.0 million and $29.3 million, respectively. These net operating
loss carryforwards begin to expire, for federal and state purposes, in 2010.

In accordance with SFAS Statement No. 109, Accounting for Income Taxes,
valuation allowances are provided against deferred tax assets if, based on the
weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. We have evaluated the realizability of
the deferred tax assets on our balance sheet and do believe that we have met the
more likely than not criteria; therefore we have established a valuation
allowance in the amount of approximately $14.4 and $12.2 million against our net
deferred tax assets at December 31, 2002 and 2001, respectively.

The federal and state net operating loss and tax credit carryforwards could be
subject to limitation if, within any three year period prior to the expiration
of the applicable carryforward period, there is a greater than 50% change in
ownership of RELM.

INFLATION AND CHANGING PRICES
- -----------------------------

Inflation and changing prices for the years ended December 31, 2003, 2002, and
2001 have contributed to increases in wages, facilities, and certain raw
material costs. These inflationary effects were more than offset by reduced
manufacturing costs associated our initiatives to utilize low-cost contract
manufacturers.

DIVIDENDS
- ---------

No cash dividends have been paid with respect to our common stock during the
past five years. We intend to retain our earnings to fund growth and, therefore,
do not intend to pay dividends in the foreseeable future. In addition, our
revolving credit line restricts our ability to pay dividends.

LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------

Net cash provided by operating activities for the year ended December 31, 2003
totaled approximately $0.2 million compared to $1.5 million for the prior year.
The decrease is primarily attributable to changes in components of working
capital, particularly accounts receivable and inventory, partially offset by net
income and notes receivable that were written off in the prior year.

18


The decrease due to changes in working capital is primarily due to additional
trade receivables ($4.9 million) resulting from increased revenues, particularly
in the fourth quarter 2003. Decreased inventory ($1.1 million), the result of
improved revenues from items in existing inventory, helped offset the change in
receivables. Also, during the prior year, we recognized losses on notes
receivable (approximately $1.1 million) pertaining to former subsidiaries (see
"Loss On Notes Receivable"). Also contributing to the decrease in cash provided
from operating activities was the payment of trade payables (approximately $0.2
million) and decreasing depreciation and amortization (approximately $0.1
million) as certain assets reached the end of their depreciation cycle and
purchases of capital assets remained low.

Net cash used in investing activities for the year ended December 31, 2003 was
approximately $0.1 million, a decrease of approximately $0.1 million from the
prior year. This change was largely related to the non-recurring purchase during
the prior year of a digital technology license. Expenditures for property, plant
and equipment increased slightly ($12,000) due to the purchase of equipment
required for our digital development program. Annual capital expenditures are
expected to increase in 2004 to approximately $0.3 million as this program is
expanded and accelerated. Our new revolving line of credit contains restrictions
on our capital expenditures. We believe that our capital expenditure plans will
be within the provisions of our credit agreement. We anticipate that capital
expenditures will be funded through existing cash balances, operating cash flow,
and new revolving line of credit.

Net cash used in financing activities increased to approximately $0.5 million
from zero for the prior year. Cash (approximately $0.7 million) was used to
reduce the balance on our revolving line of credit. This was partially offset by
cash generated ($0.3 million) from the issuance of common stock related to our
new revolving line of credit. During the prior year we generated approximately
$2.0 million, including approximately $0.3 million from the over-allotment
option, in net cash proceeds from a public rights offering, and reduced our
revolving line of credit by approximately $2.0 million. The purpose of the
offering was to provide working capital for the development of our APCO Project
25-compliant digital product line. The securities offered were "units" priced at
$.90 per unit. A unit was comprised of one share of RELM common stock and one
warrant to purchase one share of RELM common stock, exercisable at $1.08 per
share at any time on or after February 12, 2003 and until February 11, 2006. The
offering resulted in the sale of 2,775,000 shares of common stock and warrants
to purchase 2,775,000 shares of common stock. The warrants are currently quoted
on the OTC Bulletin Board with the symbol RELMW. On May 17, 2002, the
underwriter exercised its option to purchase 416,250 additional units at a
purchase price of $0.90 per unit to cover over-allotments.

The exercise price of the common stock purchase warrants has been reduced to a
share price of $1.05 from $1.08 as a result of the issuance of common stock
related to our new credit facility and anti-dilution provisions contained in the
warrants. Additionally, we may call the common stock purchase warrants at $0.10
each when the market price of our common stock exceeds 150% of the exercise
price ($1.575) for 20 consecutive trading days. The price of our common stock
currently meets this criteria and we can call the warrants, if we elect to do
so. If all the common stock purchase warrants are exercised, we will receive net
proceeds of approximately $3.2 million. As of March 12, 2004, 376,611 shares of
common stock had been issued as a result of the exercise of the common stock
purchase warrants generating approximately $376,000 in net proceeds.

On August 29, 2003, we established a revolving line of credit with a new lender.
The credit agreement provides for a revolving line of credit of up to $2.5
million for one year. The line is secured by substantially all of our assets,
consisting principally of our trade receivables and inventory. Concurrently with
the refinancing transaction, three funds affiliated with our directors purchased
an aggregate of 500,000 shares of our common stock at $0.60 per share. The
proceeds of the transaction were used to pay off our previous revolving credit
facility and to provide working capital for use in executing our business plans,
including the expansion of our digital product line. The credit agreement
contains certain covenants with which we must comply. As of December 31, 2003 we


19


were in compliance with all such covenants. As of December 31, 2003 we had
approximately $1.2 million in available unused credit on the facility. In
February 2004, our lender increased the credit facility by $1 million and the
maturity date was extended to January 1, 2005.

In 2000, we privately placed convertible subordinated notes. The amount due
under the notes totals $3.15 million. The notes require interest only payments
at 8% per annum through December 31, 2004, at which time the principal amount
becomes due. At the time of issuance, the notes were convertible into shares of
RELM common stock at $3.25 per share. The notes contain provisions that protect
the purchasers of the notes against dilution should the Company issue shares of
common stock at a price less than the notes' conversion price then in effect.
These provisions provide for an adjustment in the notes' conversion price and
the number of shares into which the notes may be converted. On two occasions, in
March 2002 and August 2003 the Company issued shares of stock at a price below
the notes' conversion price then in effect. Accordingly, the conversion price of
the notes has been adjusted to $1.88, which was the effective conversion price
as of December 31, 2003. Upon maturity the notes must be repaid or converted
into shares of common stock. The decision regarding repayment or conversion is
at the option of the note holder unless the market price of our common stock
exceeds $6.50 per share for 30 consecutive trading days. The notes presently are
convertible into a total of 1,675,531 shares. Although we cannot be certain if
the notes will be converted or repaid, we believe that there is a reasonable
prospect that the notes may be converted. If the notes must be repaid, we
believe that we will be able to do so by using cash generated from operations,
the exercise of warrants, and our credit facility, as well as existing cash
funds.

Our cash balance as of December 31, 2003 was approximately $1.3 million. We
believe these funds combined with cash generated from operations and amounts
available from our credit facility are sufficient to meet our current working
capital requirements for the next twelve months. If sales volumes increase
substantially, additional sources of working capital may be required to fulfill
the demand.

The following table sets forth the Company's future contractual obligations as
of December 31, 2003:

(IN THOUSANDS)

- -------------------------------------------------------------------------------
2004 2005 2006 2007 2008
- -------------------------------------------------------------------------------
Future minimum lease commitments $ 435 $ 213 $ -- $ -- $ --
- -------------------------------------------------------------------------------
Convertible subordinated notes $3,150 $ -- $ -- $ -- $ --
- -------------------------------------------------------------------------------
Revolving credit facility(1) $ -- $1,272 $ -- $ -- $ --
- -------------------------------------------------------------------------------
Purchase orders $2,460 $ -- $ -- $ -- $ --
- -------------------------------------------------------------------------------

(1) As discussed, in February 2004, our lender agreed to extend the maturity
date of our revolving line of credit until January 2005.

In March 2000, we leased a 54,000 square feet facility in West Melbourne,
Florida. The lease has a term of five years, which expires on June 30, 2005.
Rental, maintenance and tax expenses were approximately $375,000, $377,856 and
$383,982 in 2001, 2002 and 2003, respectively. In May 2002, we rented 3,800
square feet of office space in Lawrence, Kansas, to accommodate the expansion of
our digital engineering team. The original lease has a term of two years. In
November 2003 we extended the lease for an additional year. Rental, maintenance
and tax expenses for 2001, 2002 and 2003 were $0, $20,000 and $33,351,
respectively. We anticipate that current leases will be renewed at the time of
their expiration dates.

20


RECENT ACCOUNTING PRONOUNCEMENTS

In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities,"
("Statement 146"). Statement 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring") ("Issue 94-3"). The principal
difference between Statement 146 and Issue 94-3 relates to Statement 146's
requirements for recognition of a liability for a cost associated with an exit
or disposal activity. Statement 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost as generally defined in
Issue 94-3 was recognized at the date of an entity's commitment to an exit plan.
A fundamental conclusion reached by the FASB in this Statement is that an
entity's commitment to a plan, by itself, does not create an obligation that
meets the definition of a liability. Therefore, this Statement eliminates the
definition and requirements for recognition of exit costs in Issue 94-3. This
Statement also establishes that fair value is the objective for initial
measurement of the liability. The provisions of this Statement are effective for
exit or disposal activities that are initiated after December 31, 2002. The
adoption of Statement 146 did not have a material impact on the Company's
consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57, and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002. The adoption of FIN 45 did not have a material impact on the Company's
consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation, Transition and Disclosure, an amendment of FASB Statement No.
123." SFAS No. 148 provides alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation. It also amends the disclosure provisions of SFAS No. 123
to require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. Finally, this Statement amends APB Opinion No. 28, "Interim
Financial Reporting," to require disclosure about those effects in the interim
financial information. The amendments to SFAS No. 123 that provide alternative
methods of transition for an entity that voluntarily changes to the fair value
based method of accounting for stock-based employee compensation are effective
for financial statements for fiscal years ending after December 15, 2002. The
amendment to SFAS No. 123 relating to disclosure and the amendment to APB
Opinion 28 is effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002. The adoption
of SFAS No. 148 did not have a material impact on the consolidated financial
statements.

In January 2003, the FASB issued FASB Interpretation No. 46 (" FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 applies immediately to variable interest


21


entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. On October 9, 2003 the
FASB issued FASB Staff Position No. FIN 46-6, "Effective Date of FASB
Interpretation No. 46, Consolidation of Variable Interest Entities," which
defers the implementation date for public entities that hold an interest in a
variable interest entity or potential variable interest entity from the first
fiscal year or interim period beginning after June 15, 2003 to the end of the
first interim or annual period ending after December 15, 2003. This deferral
applies only if 1) the variable interest entity was created before February 1,
2003 and 2) the public entity has not issued financial statements reporting that
variable interest entity in accordance with FIN 46, other than disclosures
required by paragraph 26 of FIN 46. In December 2003, the FASB issued a revision
to FIN 46 ("FIN 46R"), which clarifies and interprets certain provisions of FIN
46, without changing the basic accounting model of FIN 46. The adoption of FIN
46 and FIN 46R did not have a material impact on the Company's consolidated
financial position, liquidity, or results of operations.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments embedded
in other contracts and for hedging activities under SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." It is effective for
contracts entered into or modified after September 30, 2003, except as stated
within the statement, and should be applied prospectively. SFAS No. 149 did not
have a material impact on the Company's consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measurers in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. In accordance with SFAS No. 150,
financial instruments that embody obligations for the issuer are required to be
classified as liabilities. SFAS No. 150 shall be effective for financial
instruments entered into or modified after May 31, 2003, and otherwise shall be
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatorily redeemable noncontrolling (minority) interests
which on October 29, 2003, the FASB decided to defer indefinitely. The adoption
of SFAS No. 150 did not have a material impact on the Company's consolidated
financial statements.

FORWARD-LOOKING STATEMENTS
- --------------------------

This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended, and is subject to the safe-harbor created by such sections.
Such forward-looking statements concern the Company's operations, economic
performance and financial condition. Such statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; changes
in customer preferences; competition; changes in technology; the integration of
any acquisitions; changes in business strategy; the indebtedness of the Company;
quality of management, business abilities and judgment of the Company's
personnel; the availability, terms and deployment of capital; and various other
factors referenced in this Report. The words "believe," "estimate," "expect,"
"intend," "anticipate" and similar expressions and variations thereof identify
certain of such forward-looking statements. The forward-looking statements are
made as of the date of this Report, and the Company assumes no obligation to
update the forward-looking statements or to update the reasons why actual
results could differ from those projected in the forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements.

22


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
- ---------------------------------------------------------------------

We are subject to the risk of fluctuating interest rates in the ordinary course
of business for borrowings under our revolving credit facility. The lender
presently charges interest at the 2.00% over the prime rate.

Our primary exposure to market risk is to changes in interest rates. We have
both fixed and variable rate debt. We have $4.4 million of debt outstanding as
of December 31, 2003. Of our total debt, $3.15 million, or 71.2%, has been
borrowed at a fixed rate of 8.0% with a maturity of December 2004. We also have
$1.2 million of variable rate debt at December 31, 2003. As these debt
instruments mature, we refinance such debt at the existing market interest
rates, which may be more or less than interest rates on the maturing debt.
Changes in interest rates have different impacts on the fixed and variable rate
portions of our debt portfolio. A change in interest rates impacts the net
market value of our fixed rate debt, but has no impact on interest incurred or
cash flows on our fixed rate debt. Interest rate changes on variable debt
impacts the interest incurred and cash flows but does not impact the net market
value of the debt instrument. Based on our variable rate debt as of December 31,
2003, it is estimated that a 100 basis point increase in interest rates on our
revolving line of credit would result in an additional $12,000 in interest
incurred per year on its line of credit and a 100 basis point decline would
lower interest incurred by $12,000 per year.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
- ------------------------------------------

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

Revenue
- -------
Revenues are recognized when the earnings process is complete and collection is
reasonably assured. The earnings process is generally complete when the product
is shipped, or received by the customer, depending upon whether the title to the
goods, as well as the risks and benefits of ownership are transferred to the
customer at point of shipment or point of delivery. We periodically review our
revenue recognition procedures to assure that such procedures are in accordance
with accounting principles generally accepted in the United States.

Allowance For Collection Losses
- -------------------------------
The allowance for collection losses was approximately $61,000 on gross trade
receivables of $2.9 million as of December 31, 2003. This allowance is used to
state trade receivables at a net realizable value or the amount that we estimate
will be collected on our gross receivables as of December 31, 2003. Because the
amount that we will actually collect on the receivables outstanding as of
December 31, 2003 cannot be known with certainty as of this document's effective
date, we rely on prior experience. Our historical collection losses have
typically been infrequent with write-offs of trade receivables being less than
1% of sales. We maintain a general allowance of approximately 1% to 5% of the
gross trade receivables balance in order to allow for future collection losses
that arise from customer accounts that do not indicate the inability to pay but
turn out to have such an inability. Currently, our allowance on trade
receivables is 2.1% of gross receivables. We believe that revenues and total
receivables will increase during 2004, and accordingly, we may experience an
increase in this allowance balance. We also maintain a specific allowance for
customer accounts that we know may not be collectible due to various reasons
such as bankruptcy and other customer liquidity issues. We analyze our trade
receivable portfolio based on the age of each customer's invoice. In this way,


23


we can identify those accounts that are more likely than not to have collection
problems. We may reserve a portion or all of the customer's balance.

Inventory Reserve
- -----------------
The reserve for slow-moving, excess, or obsolete inventory was $2.8 million at
December 31, 2003 as compared to $2.6 million in 2002. The reserve for excess or
obsolete inventory is used to state our inventories at the lower of cost or
market. Because the amount of inventory that we will actually recoup through
sales of our inventory as of December 31, 2003 can not be known with certainty
as of this document's effective date, we rely on past sales experience, future
sales forecasts, and our strategic business plans. Generally, in analyzing our
inventory levels, we classify inventory as having been used or unused during the
past year. For raw material inventory with no usage in the past year, we reserve
85% of its cost which takes into account a 15% scrap value while for finished
goods inventory with no usage in the past year we reserve 80% of its costs. For
inventory with usage in the past year, we review the average annual usage over
the past three years, project that amount over the next five years, and then
reserve 25% of the excess amount (in which the excess amount equals inventory on
hand less a five year projected usage amount). We believe that 25% represents
the value of excess inventory we would not be able to recover due to our new
product introductions and other technological advancements over the next five
years.

RISK FACTORS
------------

WE HAVE INCURRED SUBSTANTIAL LOSSES PRIOR TO 2003

We have a history of substantial losses. We incurred a loss, totaling $3.6
million for the year ended December 31, 2002. For the fiscal year ended December
31, 2001 we reported net income of $0.1 million. As of December 31, 2003, we had
an accumulated deficit of approximately $20.8 million. We have taken steps to
improve operations, and realized net income of approximately $1.0 million for
the year ended December 31, 2003. We cannot, however, assure that we will
achieve or sustain profitable operations in the future.

WE RELY ON OUR CREDIT FACILITY TO FINANCE OPERATIONS

Our loan agreement contains numerous financial and operating covenants. We are
in compliance with these covenants as of December 31, 2003. However, there can
be no assurance that we will not cause an event of default in the future or that
such defaults will be cured or waived. The covenants restrict our ability to
incur additional indebtedness, to pay dividends and other distributions, to
repay other obligations, to create liens or other encumbrances, to make
investments, to engage in transactions with affiliates, to sell or otherwise
dispose of assets and to merge or consolidate with other entities.

Our failure to comply with covenants contained in the loan agreement could
result in acceleration of the indebtedness. To secure our obligations under the
agreement, we have granted a first priority pledge of, and security interest in,
substantially all of our assets.

When our loan agreement expires, we will need to renew the agreement, refinance
our loan, or raise additional funds from new sources. If we are unable to renew
the loan agreement or find an alternative lender, our operations could be
adversely affected.

We will continue to need capital to fund our operations and finance our growth,
and we may not be able to obtain it on terms acceptable to us or at all. In
addition, our capital requirements in connection with the development, marketing
and sale of our LMR products are, and will continue to be, significant.

24


We believe, based upon our current plans, that our existing credit facility,
cash reserves and cash expected to be generated from operations will provide the
funds necessary to satisfy our cash requirements for the next twelve months.

OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND LIMIT OUR
ABILITY TO FINANCE FULL OPERATIONS AND PLANNED GROWTH BECAUSE OF DEBT SERVICE
OBLIGATIONS

At December 31, 2003, our total liabilities and debt were approximately $6.2
million and shareholders' equity was approximately $6.0 million. Our leverage
could have important consequences to you. For example, it could:

o make it more difficult for us to satisfy our obligations with
respect to our indebtedness;

o increase our vulnerability to general adverse economic and
industry conditions;

o limit our ability to fund future working capital, capital
expenditures, acquisitions and general corporate requirements;

o limit our flexibility in planning for, or reacting to, changes
in our business and industry; and

o limit our ability to borrow additional funds.

Our ability to make principal and interest payments on our indebtedness will
depend on our ability to generate cash in the future through sales of our LMR
products. We cannot assure that our available liquidity will be sufficient to
service our indebtedness. Without sufficient funds to service our indebtedness,
we could have serious liquidity constraints and would need to seek additional
financing from other sources, but we may not be able to do so on commercially
reasonable terms, or at all.

OUR INDUSTRY IS CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGY

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

WE DEPEND ON THE SUCCESS OF OUR LMR PRODUCT LINE

We currently depend on our LMR products as our source of revenue. In 1997, we
worked to shift our focus to the development and sale of LMR products. A decline
in the price of or demand for LMR products as a result of competition,
technological change, the introduction of new products by us or others, a
failure to manage product transitions successfully, could cause our business,
financial condition and results of operations to suffer. In addition, our future
success will largely depend on the successful introduction and sale of new
analog and digital LMR products. Even if we successfully develop these products,
we cannot guarantee that they will achieve market acceptance.

25


WE ARE ENGAGED IN A HIGHLY COMPETITIVE INDUSTRY

We face intense competition from other LMR manufacturers, and the failure to
compete effectively could adversely affect our market share and results of
operations. We face intense competition from several companies currently
offering LMR products. The largest producer of LMR products in the world
currently is estimated to have in excess of 70% of the market for LMR products.
This producer is also the world's largest producer of APCO 25-compliant
products. Some of our competitors are significantly larger and have longer
operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we have.
Some also have established reputations for success in developing and producing
LMR products. These advantages may allow them:

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

o to engage in more extensive research and development; to
undertake more far-reaching marketing campaigns;

o to be able to take advantage of acquisitions and other
opportunities; to adopt more aggressive pricing policies; and

o make more attractive offers to potential employees, strategic
partners and advertisers.

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

An increase in the demand for APCO Project 25-compliant products, could benefit
competitors who are better financed and have inventories that will meet such
demand. APCO 25-compliant products have already been brought to the market by
several of our competitors. Our first APCO Project 25-compliant portable radio
was brought to market in 2003. Bringing such products to market and achieving a
significant share of the market for these products will continue to require
substantial expenditure of funds to complete development and execute plans to
achieve market penetration. There can be no assurance that we will be successful
in developing and marketing, on a timely basis, fully functional product
enhancements or new products that respond to these and other technological
advances, or that our new products will be accepted by customers. An inability
to successfully develop products could have a material adverse effect on our
business, results of operations and financial condition.

GOVERNMENT AGENCIES MAY INCUR BUDGET DEFICITS AND BUDGETS MAY BE LIMITED

Government budget deficits at the federal, state and local levels continue to be
a spending factor for certain government agencies. We expect continued
prioritization of limited funds for public safety applications. Recent United
States Government budget proposals, however, have indicated potential funding
reductions in areas where our products may be deployed. We do not anticipate
these potential reductions to have a material impact on our business in 2004.

26


WE DEPEND ON A FEW MANUFACTURERS TO PRODUCE OUR PRODUCTS

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

In addition, our dependence on limited and sole source suppliers of components
involves several risks, including a potential inability to obtain an adequate
supply of components, price increases, late deliveries and poor component
quality. Disruption or termination of the supply of these components could delay
shipments of our products. The lead-time required for orders of some of our
components is as much as six months. In addition, the lead-time required to
qualify new suppliers for our components is as much as six months. If we are
unable to accurately predict our component needs, or if our component supply is
disrupted, we may miss market opportunities by not being able to meet the demand
for our products. This may damage our relationships with current and prospective
customers.

WE DEPEND HEAVILY ON SALES TO THE UNITED STATES GOVERNMENT

We are subject to risks associated with our reliance on sales to the U.S.
Government. For the year ended December 31, 2003, approximately 50% of our LMR
sales were to agencies and departments of the federal government. There can be
no assurance that we will be able to maintain this government business. Our
ability to maintain our government business will depend on many factors outside
of our control, including competitive factors, changes in government personnel
making contract decisions, and political factors. The loss of sales to the U.S.
Government would have a material adverse effect on our business, financial
condition and results of operations.

RETENTION OF OUR EXECUTIVE OFFICERS AND KEY PERSONNEL IS CRITICAL TO
OUR BUSINESS

Our success is largely dependent on the personal efforts of our
President and Chief Executive Officer, our Chief Financial Officer, our Vice
President of Operations, our Engineering Vice Presidents and our Sales and
Marketing Vice President. We do not have employment agreements with these
individuals, and we cannot be sure that we will retain their services. The loss
of any of their services could have a material adverse effect on our operations.
In addition, we have not obtained key-person life insurance on any of our
executive officers or key employees.

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

27


WE MAY NOT BE ABLE TO MANAGE OUR GROWTH

Acquisitions and other business transactions may disrupt or otherwise have a
negative impact on our business and results of operations. There can be no
assurance that we will complete any additional asset purchases or other business
transactions or that any such transactions which are completed will prove
favorable to our business. We do not intend to seek stockholder approval for any
such transactions unless required by applicable law or regulation. We hope to
grow rapidly, and the failure to manage our growth could adversely affect our
business. Our business plan contemplates, among other things, continued
development of our LMR product lines through internal development as well as
acquisitions, and, as a result, significant growth in our customer base. This
growth and continued development, if it materializes, could place a significant
strain on our management, employees, operations and financial capabilities. In
the event of this expansion, we have to continue to implement and improve our
operating systems and to expand, train, and manage our employee base. If we are
unable to manage and integrate our expanding operations effectively, our
business, results of operations, and financial condition could be materially and
adversely affected.

WE ARE SUBJECT TO GOVERNMENT REGULATION

Failure to comply with government regulations applicable to our business could
result in penalties. Our LMR products are regulated by the Federal
Communications Commission. We believe that we are in substantial compliance with
all applicable federal regulations governing our operations and we believe that
we have obtained all licenses necessary for the operation of our business.
Failure to comply with these requirements and regulations or to respond to
changes in these requirements and regulations could result in penalties on us
such as fines, restrictions on operations or a temporary or permanent closure of
our facility. These penalties could harm our operating results and cause a
decline of our stock price. In addition, there can be no assurance that we will
not be materially adversely affected by existing or new regulatory requirements
or interpretations.

WE ENGAGE IN BUSINESS WITH MANUFACTURERS LOCATED OTHER COUNTRIES

We are beginning to place a substantial amount of emphasis on manufacturing our
product in other countries and, accordingly, we are subject to special
considerations and significant risks not typically associated with companies
operating in the United States. These include the risks associated with the
political, economic and legal environments, among others. Our results may be
affected by, among other things, changes in the political and social conditions
in these countries, and changes in government policies with respect to laws and
regulations, anti-inflation measures, currency conversion and rates and method
of taxation.

The governments of these countries may implement economic reform policies at any
time. It is possible that changes in leadership could lead to changes in
economic policy. Additionally, the laws and regulations applicable to us may be
subject to change, which could have a material adverse effect on our business.

WE CARRY SUBSTANTIAL QUANTITIES OF INVENTORY

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

28


WE RELY ON A COMBINATION OF CONTRACT, TRADEMARK AND TRADE SECRET LAWS TO PROTECT
OUR INTELLECTUAL PROPERTY RIGHTS

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

OUR FLUCTUATING QUARTERLY OPERATING RESULTS COULD CAUSE VOLATILITY IN OUR STOCK
PRICE

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

o future announcements concerning us or our competitors;

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

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

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

o additions or departures of key personnel; and

o sales of our common stock.

RISK OF WAR AND TERRORISM

Terrorist acts or acts of war (wherever located around the world) may cause
damage or disruption to our business, employees, supplies, distributors and
resellers, and customers that could have an adverse effect on our operations and
financial results. The economic uncertainty stemming from the terrorist attacks
of September 11, 2001 may continue. While we cannot predict what impact a
prolonged war on terrorism will have on the United States economy, we plan to
control expenses, continue to invest in our business and make capital
expenditures when they will increase productivity, profitably, or revenue.

WE MAY BE SUBJECT TO COSTLY LITIGATION RESULTING IN AN ADVERSE AFFECT ON OUR
FINANCIAL CONDITION

We are currently involved in two lawsuits as a defendant or plaintiff. While
there is no way to predict the success or failure of any litigation, we are
vigorously defending those actions in which we are defendants. Although we
believe our products and technology do not infringe on any proprietary rights of
others, as the number of competing products available in the market increases
and the functions of those products further overlap, infringement claims may
increase. Any such claims, with or without merit, could result in costly


29


litigation or might require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all. Any successful infringement claim could have a
material adverse effect upon our business, results of operations and financial
condition. In addition, agreements regarding the purchase or sale of certain
assets and businesses require us to indemnify the purchasers or buyers of such
assets or businesses for any damages they may suffer if third party claims give
rise to losses. One indemnification claim is pending. We cannot guarantee that
there will not be future claims. Any such claims could require us to pay
substantial damages, which could cause our business, financial condition and
results of operations to suffer.

CERTAIN PROVISIONS IN OUR CHARTER DOCUMENTS AND NEVADA LAW MAY DISCOURAGE A
POTENTIAL TAKEOVER

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

OUTSTANDING STOCK OPTIONS, WARRANTS AND CONVERTIBLE NOTES MAY CAUSE DILUTION TO
EXISTING SHAREHOLDERS AND LIMIT OUR ABILITY TO RAISE CAPITAL

If outstanding warrants, options, and convertible notes to purchase our common
stock are exercised or converted at a time when we otherwise could obtain a
price for the sale of shares of our common stock which is higher than such
securities' exercise prices, then existing shareholders would suffer dilution in
the value of their shares of common stock. The exercise of the options and
warrants and/or the conversion of outstanding notes, or the possibility of such
exercise or conversion, may impede our ability to seek financing in the future
through the sale of additional securities.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------

30


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
RELM Wireless Corporation

We have audited the accompanying consolidated balance sheets of RELM Wireless
Corporation as of December 31, 2003 and 2002, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of RELM Wireless
Corporation as of December 31, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the two years then ended in
conformity with accounting principles generally accepted in the United States of
America.

/s/ BDO Seidman LLP


Miami, Florida
February 13, 2004
except for Note 16, paragraph 3 (Legal Proceedings)
as to which the date is March 1, 2004, and Note 13,
paragraph 3, as to which the date is March 12, 2004

F-1


Report of Independent Certified Public Accountants

Board of Directors and Stockholders
RELM Wireless Corporation

We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of RELM Wireless Corporation for the year
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
RELM Wireless Corporation for the year ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States


/s/ Ernst & Young LLP

Jacksonville, Florida
March 1, 2002,
except for Note 13, paragraph 1, as to which the date is
March 22, 2002

F-2

RELM WIRELESS CORPORATION

CONSOLIDATED BALANCE SHEET
(In Thousands)


DECEMBER 31
2003 2002
-------------------

ASSETS
- -------

Current assets:
Cash and cash equivalents $ 1,293 $ 1,631
Trade accounts receivable (net of allowance for doubtful
accounts of $61 in 2003 and $69 in 2002) 2,880 765
Inventories, net 5,698 7,862
Prepaid expenses and other current 374 310
-------------------
Total current assets 10,245 10,568

Property, plant and equipment, net 1,468 1,792
Debt issuance costs, net 171 341
Other assets 345 155
-------------------
Total assets $12,229 $12,856
===================


See notes to consolidated financial statements.

F-3


RELM WIRELESS CORPORATION

CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In Thousands, Except Share Data)


DECEMBER 31
2003 2002
----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------

Current liabilities:
Current maturities of long-term debt $ 3,150 $ 1,970
Accounts payable 891 2,127
Accrued compensation and related taxes 547 466
Accrued warranty expense 82 103
Accrued other expenses and other current liabilities 302 168
----------------------
Total current liabilities 4,972 4,834

Long-term debt 1,272 3,150

Commitments and Contingencies
Stockholders' equity:
Preferred stock; $1.00 par value; 1,000,000 authorized shares
none issued or outstanding -- --
Common stock; $.60 par value; 20,000,000 authorized shares:
9,073,085 and 8,540,088 issued and outstanding shares at
December 31, 2003 and 2002, respectively 5,443 5,123
Additional paid-in capital 21,482 21,557
Accumulated Deficit (20,940) (21,808)
----------------------
Total stockholders' equity 5,985 4,872
----------------------
Total liabilities and stockholders' equity $ 12,229 $ 12,856
======================


See notes to consolidated financial statements.


F-4


RELM WIRELESS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)



YEAR ENDED DECEMBER 31
2003 2002 2001
------------------------------------

Sales $ 19,728 $ 15,978 $ 22,809
Expenses:
Cost of products 12,112 11,760 16,190
Selling, general & administrative 6,350 6,476 5,926
Loss on notes receivable -- 1,075 --
------------------------------------
18,462 19,311 22,116
------------------------------------

Operating income (loss) 1,266 (3,333) 693
Other income (expense):
Interest expense (442) (456) (579)
Other income 57 158 8
------------------------------------
Total other (expense) (385) (298) (571)
------------------------------------

Income (loss) before income taxes 881 (3,631) 122

Income taxes (13) -- --
------------------------------------
Net income (loss) $ 868 $ (3,631) $ 122
====================================

Net income (loss) per share-basic: $ 0.10 $ (0.47) $ 0.02

Net income (loss) per share-diluted: $ 0.09 $ (0.47) $ 0.02

Weighted average shares outstanding - basic 9,002 7,787 5,346
====================================
Weighted average shares outstanding - diluted 9,173 7,787 5,383
====================================


See notes to consolidated financial statements.

F-5


RELM WIRELESS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)



ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------------------------------------------------------


Balance at December 31, 2000 5,346,174 $3,207 $ 21,452 $(18,299) $ 6,360

Net income -- -- -- 122 122
------------------------------------------------------------
Balance at December 31, 2001 5,346,174 3,207 21,452 (18,177) 6,482

Public rights offering 3,191,250 1,915 106 -- 2,021

Other 2,664 1 (1) -- --

Net loss -- -- -- (3,631) (3,631)

------------------------------------------------------------
Balance at December 31, 2002 8,540,088 $5,123 $ 21,557 $(21,808) $ 4,872

Common stock issued 500,000 300 -- -- 300

Common stock option
exercises 32,500 20 (2) -- 18

Fees for registration
of shares -- -- (73) -- (73)

Other 497 -- -- -- --

Net income -- -- -- 868 868

------------------------------------------------------------
Balance at December 31, 2003 9,073,085 $5,443 $ 21,482 $(20,940) $ 5,985
============================================================


See notes to consolidated financial statements.

F-6

RELM WIRELESS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)


YEAR ENDED DECEMBER 31
2003 2002 2001
---------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 868 $(3,631) $ 122
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Loss on notes receivable -- 1,075 --
Allowance for doubtful accounts (8) (1,471) (15)
Inventories reserve 200 283 341
Write down of investment banking agreement -- 120 (8)
Write down of technology agreement -- 211 --
Allowance for note receivable 35 -- --
Depreciation and amortization 675 787 1,056
Change in operating assets and liabilities:
Accounts receivable (2,107) 4,303 130
Inventories 1,964 816 (362)
Accounts payable (1,237) (1,043) (431)
Prepaid expenses and other current (63) (13) (76)
Other assets (243) 222 (70)
Accrued compensation and related taxes 81 (66) 171
Accrued warranty expense (21) 24 (225)
Accrued other expenses and other current liabilities 134 (83) (341)
---------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 278 1,534 292
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (170) (157) (87)
Payment for technology agreement -- (125) --
Collections on notes receivable 7 9 13
Proceeds from disposals of facility and equipment -- 2 2
---------------------------------
Cash used in investing activities (163) (271) (72)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt and capital lease obligations -- (10) (748)
Proceeds from issuance of common stock 318 -- --
Net increase (decrease) in revolving credit lines (698) (1,978) 655
Fees for registration of shares (73) -- --
Rights offering -- 2,021 --
---------------------------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (453) 33 (93)
------- ------- -------

Increase (decrease) in cash (338) 1,296 127
Cash and cash equivalents, beginning of year 1,631 335 208
---------------------------------
Cash and cash equivalents, end of year $ 1,293 $ 1,631 $ 335
=================================

SUPPLEMENTAL DISCLOSURE
Interest paid $ 442 $ 476 $ 579
=================================


See notes to consolidated financial statements.

F-7


RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements
(in Thousands, Except Share Data and Percentages)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

The Company's primary business is the designing, manufacturing, and marketing of
wireless communications equipment consisting primarily of land mobile radios and
base station components and subsystems, which are sold to the government and
business and industrial markets. The Company has only one reportable business
segment.

PRINCIPLES OF CONSOLIDATION

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

INVENTORIES

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

PROPERTY, PLANT AND EQUIPMENT

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

Depreciation is generally computed on the straight-line method using lives of 3
to 10 years on machinery and equipment and 5 to 30 years on buildings and
building improvements.

IMPAIRMENT OF LONG-LIVED ASSETS

Management reviews long-lived assets and intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets which
considers the discounted future net cash flows. During 2002, the Company
recorded the following asset impairments.

On May 12, 2000, the Company engaged an investment banking firm. In connection
with the engagement, the Company granted warrants to JMS, valued at $226 to
purchase 166,153 shares of the Company's common stock at an aggregate purchase


F-8

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

price of one hundred dollars. The warrants had a five-year term and an exercise
price of $3.25 per share. The value of the warrants was being amortized on a
straight-line basis over the estimated life of the contract. Accumulated
amortization at December 31, 2002 was $120. During the fourth quarter of 2002,
the Company was notified that JMS had closed its New York office, and the firm
no longer employed the principals who handled the Company's account. Therefore,
the Company did not anticipate receiving further services under this agreement.
Accordingly, the Company elected to write-off the remaining value of the
warrants totaling approximately $120 during the fourth quarter of 2002.

In March 1998, the Company entered into an agreement with Racal Communications,
Inc. (presently known as "Thales") which, among other things, licensed the
Company to use Thales' digital APCO project 25-compliant technology under
specified terms and conditions. The cost of the technology license was $300 and
was being amortized over a period of eight years. The Company has since
developed its own APCO project 25-compliant digital technology, which was
completed in the fourth quarter 2002. Consequently, the Company does not
anticipate utilizing the technology provided for by its agreement with Racal.
Accordingly, the Company elected to write-off the remaining value of the
technology agreement totaling $211 during the fourth quarter of 2002.

CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company records an allowance for doubtful accounts based on specifically
identified amounts that the Company believes to be uncollectible. The Company
also records additional allowance based on certain percentages of the Company's
aged receivables, which are determined based on historical experience and the
Company's assessment of the general financial conditions affecting the Company's
customer base. If the Company's actual collections experience changes, revisions
to the Company's allowance may be required. After all attempts to collect a
receivable have failed, the receivable is written off against the allowance. In
addition, with respect to notes receivable, the Company stops accruing interest
when collection of a note becomes doubtful. Based on the information available,
management believes the allowance for doubtful accounts as of December 31, 2003
is adequate.

REVENUE RECOGNITION

Sales revenue is recognized as goods are shipped, except for sales to the U.S.
Government, which are recognized when the goods are received.

INCOME TAXES

Income taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."

F-9

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Realization of deferred tax assets associated with federal and state net
operating loss carry-forwards ("NOLs") is dependent upon generating sufficient
taxable income prior to their expiration. The Company believes that there is a
risk that these NOLs may expire unused and accordingly, has established a
valuation reserve against them in full.

CONCENTRATION OF CREDIT RISK

The Company is in the business of designing, manufacturing, and marketing of
wireless communications equipment consisting primarily of land mobile radios,
base station components and subsystems. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. At December 31, 2003 and 2002, accounts receivable from governmental
customers were approximately $2,183 and $125, respectively. Receivables
generally are due within 30 days. Credit losses relating to customers in the
land mobile radios, base station components and subsystems industry consistently
have been within management's expectations and are comparable to losses for the
portfolio as a whole.

The Company primarily maintains cash balances at one financial institution.
Accounts are insured by the Federal Deposit Insurance Corporation ("FDIC") up to
$100. From time to time, the Company had cash in financial institutions in
excess of federally insured limits. As of December 31, 2003, the Company had
cash in excess of FDIC limits of approximately $1,236.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's management believes that carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable and other accrued liabilities
approximates fair value because of the short-term nature of these financial
instruments. The fair value of short-term and long-term debt approximates
market, as the interest rates on these financial instruments approximate current
rates available to the Company.

ADVERTISING COSTS

The cost for advertising is expensed as incurred. The total advertising expense
for 2003, 2002, and 2001 was $241, $202, and $188, respectively.

F-10

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

ENGINEERING, RESEARCH AND DEVELOPMENT COSTS

Included in selling, general and administrative expenses for 2003, 2002, and
2001 are research and development costs of $1,455, $1,865, and $1,359,
respectively.

STOCK BASED COMPENSATION

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123."
This Statement amends methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation. In addition,
this Statement amends the disclosure requirements of Statement No. 123 to
require prominent disclosures in both annual and interim financial statements.
Certain of the disclosure modifications are required for fiscal years ended
after December 15, 2002 and are included in the Notes to Consolidated Financial
Statements.

The Company accounts for stock options issued using the intrinsic value method
and, accordingly, no compensation cost has been recognized for stock options
granted as such options granted had an exercise price greater than or equal to
the market value of the underlying common stock on the date of the grant. If the
Company determined compensation cost based on the fair value of the options at
the grant date, the Company's net income (loss) and basic and diluted net income
(loss) per common share would have reflected the pro forma amounts shown below:



YEAR ENDED DECEMBER 31
2003 2002 2001
------------------------------------

Net income (loss) as reported $868 $(3,631) $122
----------------------------------------------------------------------------------------
Add: Stock-based employee compensation -- -- --
expense included in reported net income,
net of related tax effects
----------------------------------------------------------------------------------------
Deduct: Total stock-based employee (84) (676) (620)
compensation expense determined under fair
value based method for all awards, net of
related tax effects
------------------------------------
Pro-forma net income (loss) $784 $(4,307) $(498)
====================================
EARNINGS PER SHARE:
----------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------
Basic--as reported $0.10 $(0.47) $0.02
===== ====== ======
Basic--pro forma 0.09 (0.55) (0.09)
===== ====== ======
Diluted--as reported 0.10 (0.47) 0.02
===== ====== ======
Diluted--pro forma $0.09 $(0.55) $(0.09)
===== ====== ======
----------------------------------------------------------------------------------------



F-11

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

EARNINGS (LOSS) PER SHARE

Earnings (loss) per share amounts are computed and presented for all periods in
accordance with SFAS No. 128, Earnings per Share.

COMPREHENSIVE INCOME (LOSS)

Pursuant to SFAS No. 130, Reporting Comprehensive Income, the Company is
required to report comprehensive income (loss) and its components in its
financial statements. The Company does not have any significant components of
other comprehensive income (loss) to be reported under SFAS No. 130. Total
comprehensive income (loss) is equal to net income (loss) reported in the
financial statements.

PRODUCT WARRANTY

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

RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------

In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities,"
("Statement 146"). Statement 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)" ("Issue 94-3"). The principal
difference between Statement 146 and Issue 94-3 relates to Statement 146's
requirements for recognition of a liability for a cost associated with an exit
or disposal activity. Statement 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost as generally defined in
Issue 94-3 was recognized at the date of an entity's commitment to an exit plan.
A fundamental conclusion reached by the FASB in this Statement is that an
entity's commitment to a plan, by itself, does not create an obligation that
meets the definition of a liability. Therefore, this Statement eliminates the
definition and requirements for recognition of exit costs in Issue 94-3. This
Statement also establishes that fair value is the objective for initial
measurement of the liability. The provisions of this Statement are effective for
exit or disposal activities that are initiated after December 31, 2002. The
adoption of Statement 146 did not have a material impact on the Company's
consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57, and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial


F-12

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

statements about its obligations under guarantees issued. The Interpretation
also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after December 31, 2002. The
adoption of FIN 45 did not have a material impact on the Company's consolidated
financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46 (" FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. On October 9, 2003 the
FASB issued FASB Staff Position No. FIN 46-6, "Effective Date of FASB
Interpretation No. 46, Consolidation of Variable Interest Entities," which
defers the implementation date for public entities that hold an interest in a
variable interest entity or potential variable interest entity from the first
fiscal year or interim period beginning after June 15, 2003 to the end of the
first interim or annual period ending after December 15, 2003. This deferral
applies only if 1) the variable interest entity was created before February 1,
2003 and 2) the public entity has not issued financial statements reporting that
variable interest entity in accordance with FIN 46, other than disclosures
required by paragraph 26 of FIN 46. In December 2003, the FASB issued a revision
to FIN 46 ("FIN 46R"), which clarifies and interprets certain provisions of FIN
46, without changing the basic accounting model of FIN 46. The adoption of FIN
46 and FIN 46R did not have a material impact on the Company's consolidated
financial position, liquidity, or results of operations.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments embedded
in other contracts and for hedging activities under SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." It is effective for
contracts entered into or modified after September 30, 2003, except as stated
within the statement, and should be applied prospectively. SFAS No. 149 did not
have a material impact on the Company's consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measurers in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. In accordance with SFAS No. 150,
financial instruments that embody obligations for the issuer are required to be
classified as liabilities. SFAS No. 150 shall be effective for financial
instruments entered into or modified after May 31, 2003, and otherwise shall be
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatorily redeemable noncontrolling (minority) interests
which on October 29, 2003, the FASB decided to defer indefinitely. The adoption
of SFAS No. 150 did not have a material impact on the Company's consolidated
financial statements.

RECLASSIFICATIONS

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

F-13

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

2. RESOLUTION OF GOING CONCERN UNCERTAINTIES

The Company's consolidated financial statements are presented on the going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. For the year ended December 31,
2002, the Company suffered a substantial net loss and was in default of its then
revolving line of credit. These conditions raised substantial doubt at that time
about the Company's ability to continue as a going concern.

During the year ended December 31, 2003, the Company realized net income of
approximately $900, or $0.09 per diluted share, and obtained a new $2.5 million
revolving line of credit with a new lender (see Note 8 Debt). In February 2004,
the new revolving line of credit's credit limit was increased by $1 million to
$3.5 million and the maturity date was extended to January 1, 2005. The Company
is in compliance with all terms, conditions and covenants of its new credit
agreement as of December 31, 2003. Accordingly, the line of credit has been
classified as a long-term liability in the accompanying consolidated balance
sheet at December 31, 2003.

Additionally, the Company brought several new products to market during 2003,
which contributed to increased sales in 2003 compared to 2002. Also,
manufacturing and selling, general and administrative expenses were reduced. The
Company's business plans for 2004 and beyond anticipate that operations will
generate sufficient working capital to enable the Company to continue as a going
concern.

3. INVENTORIES

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


DECEMBER 31
2003 2002
-------------------------

Finished goods $3,052 $4,948
Work in process 743 507
Raw materials 1,903 2,407
-------------------------
$5,698 $7,862
=========================

The allowance for obsolete and slow moving inventory is as follows:

YEAR ENDED DECEMBER 31
2003 2002 2001
-----------------------------------------

Balance, beginning of year $2,602 $2,319 $1,978
Charged to cost of sales 200 283 341
-----------------------------------------
$2,802 $2,602 $2,319
=========================================

F-14

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

4. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The allowance for doubtful accounts is composed of the following:

YEAR ENDED DECEMBER 31
2003 2002 2001
---------------------------------

Balance, beginning of year $ 69 $ 1,540 $1,555
Provision for doubtful accounts 17 (26) --
Uncollectible accounts written off (25) (1,445) (15)
---------------------------------
$ 61 $ 69 $1,540
=================================

5. DEBT ISSUANCE COSTS

On March 16, 2000, the Company completed the private placement of $3,250 of
convertible subordinated notes. The debt issuance costs included grants to
Simmonds Capital Limited of 50,000 shares of the Company's stock valued at $163
and warrants to purchase 300,000 shares of the Company's common stock valued at
$409. The warrants have a five-year term and an exercise price of $3.25 per
share. The debt issuance costs, which totaled $817, are being amortized on a
straight-line basis over the life of the notes (5 years). Accumulated
amortization at December 31, 2003 and 2002 was $647 and $476, respectively.

The warrants contain provisions that protect the warrant holders against
dilution should the Company issue shares of common stock at a price less than
the warrants' exercise price then in effect. These provisions provide for an
adjustment in the warrants' exercise price and the number of shares into which
the warrants may be exercised. On two occasions, in March 2002 and August 2003
the Company issued shares of stock at a price below the warrants' exercise price
then in effect. Accordingly, the exercise price of the warrants has been
adjusted to $1.88, which was the effective exercise price as of December 31,
2003.

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant, and equipment as of December 31, 2003, and 2002 includes the
following:

2003 2002
-------------------------

Leasehold improvements $ 109 $ 98
Machinery and equipment 8,861 8,702
Less accumulated depreciation (7,502) (7,008)
-------------------------
Net property, plant and equipment $ 1,468 $1,792
=========================


Depreciation expense for 2003, 2002, and 2001 was $493, $519, and $761,
respectively. During 2002 the Company exercised bargain purchase options

F-15

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

pursuant to certain capital lease agreements. The net book value of the
equipment to which these leases pertained was zero as of December 31, 2002.
Accordingly the original cost of the equipment ($2,202) and its accumulated
depreciation ($2,202) were reclassified from equipment under capital leases to
Property, Plant and Equipment.

7. NOTES RECEIVABLE

In April 2002, we became aware that the purchaser of the Company's former
paper-manufacturing subsidiary, had ceased operations. The purchaser owed the
Company $900 plus accrued interest under the terms of two secured promissory
notes and had defaulted on its obligations to make principal and interest
payments. With guidance from counsel, management evaluated alternatives and took
all prudent actions to maximize the possibility of recovery. However, after a
comprehensive assessment, we believed that the value of purchaser's assets and
the assets of the guarantor were insufficient to provide any recovery of the
amounts due under the notes. Accordingly, the Company wrote-off the amount owed
in the first quarter 2002.

During 2002, the purchaser of the Company's former specialty manufacturing
subsidiary, ceased making payments in accordance with a note receivable. The
original amount of the note was approximately $355. As of December 31, 2002 the
amount due under the note is approximately $175 plus accrued interest. This note
resulted from a 1997 agreement for the sale of the assets of our former
specialty-manufacturing subsidiary. Since its inception, the terms of the
obligation have been restructured several times to accommodate the purchaser.
The last payment was received in March 2002. Attempts during the second and
third quarters of 2002 to contact the purchaser and collect the past-due
installment payments have been unsuccessful. In February 2003, the Company
started legal proceedings to recover the remaining amount due under the note
plus accrued interest. With guidance from counsel, management believes that the
Company will prevail in these proceedings. However, we have been unable to
ascertain the financial position of the purchaser or their ability to pay the
debt. Accordingly, we established a collection allowance in the fourth quarter
2002 for the entire principal amount of the note.

8. DEBT

Long term debt consists of the following:



DECEMBER 31
2003 2002
--------------------


Line of credit (interest rate is Prime Rate plus 2%, the
minimum rate is 6.25%) $ 1,272 $ 1,970
Convertible subordinated note, matures 2004, interest only
payment at 8% per annum through December 31, 2004, at
which time principal is due 3,150 3,150
--------------------
Total debt 4,422 5,120
Less current portion (3,150) (1,970)
Long-term debt $ 1,272 $ 3,150


On August 29, 2003, we established a revolving line of credit with a new lender.
The credit agreement provides for a revolving line of credit of up to $2.5
million for one year. The line is secured by substantially all of our assets,


F-16

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

consisting principally of our trade receivables and inventory. Concurrently with
the refinancing transaction, three funds affiliated with our directors purchased
an aggregate of 500,000 shares of our common stock at $0.60 per share. The
proceeds of the transaction were used to pay off our previous revolving credit
facility and to provide working capital for use in executing our business plans,
including the expansion of our digital product line. The credit agreement
contains certain covenants with which we must comply. As of December 31, 2003 we
were in compliance with all such covenants. As of December 31, 2003 we had
approximately $1.2 million in available unused credit on the facility. In
February 2004, our lender increased the credit facility by $1 million and the
maturity date was extended to January 1, 2005.

The Company issued convertible subordinated notes through a private placement on
March 16, 2000 for $3,250. The amount currently due under the notes totals
$3,150. The notes require interest only payments at 8% per annum through
December 31, 2004, at which time the principal amount becomes due. At the time
of issuance, the notes were convertible into shares of RELM common stock at
$3.25 per share. The notes contain provisions that protect the purchasers of the
notes against dilution should the Company issue shares of common stock at a
price less than the notes' conversion price then in effect. These provisions
provide for an adjustment in the notes' conversion price and the number of
shares into which the notes may be converted. On two occasions, March 22, 2002
and August 29, 2003, the Company issued shares of stock at a price below the
notes' conversion price then in effect. Accordingly, the conversion price of the
notes has been adjusted to $1.88, which was the effective conversion price as of
December 31, 2003.

9. LEASES

The Company leases its facility in West Melbourne, Florida under a long-term
operating lease, which expires on June 30, 2005. In May 2002, the Company leased
a 3.8 thousand square feet of office space in Lawrence, Kansas, to accommodate
the expansion of its digital engineering team. This lease expires on April 30,
2005. At December 31, 2003, the future minimum lease payments for operating
leases are as follows: $435 in 2004 and $213 in 2005.

Total rental expense for 2003, 2002, and 2001 were $417, $398, and $375,
respectively.

10. INCOME TAXES

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



2003 2002 2001
------------------------------------------


Statutory U.S. income tax rate 34.00% (34.00)% 34.00%
States taxes, net of federal benefit 3.63% (3.63)% 4.35%
Permanent differences 0.90% 0.21% 6.77%
Change in valuation allowance (140.95)% 62.19% (15.09)%
Change in net operating loss
carryforwards and tax credits 73.03% -- --
Other 30.88% (24.77)% (30.03)%
------------------------------------------
Effective income tax rate 1.49% 0.00% 0.00%
==========================================



F-17

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

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

DECEMBER 31
2003 2002
----------------------
Deferred tax assets:
Operating loss carryforwards $ 12,028 $ 13,174
Tax credits 65 129
Section 263A costs 129 195

Asset reserves:
Bad debts 36 96
Inventory reserve 1,054 979
Accrued expenses:
Compensation 89 103
Accrued settlement 53 --
All other 33 24
----------------------
Total deferred tax assets 13,487 14,700

Deferred tax liabilities:
Depreciation (316) (286)
----------------------
Total deferred tax liabilities (316) (286)
----------------------
Subtotal 13,171 14,414

Valuation allowance (13,171) (14,414)
----------------------
Net deferred tax assets (liabilities) $ -- $ --
======================

For tax purposes, the Company, at December 31, 2003, has federal and state net
operating loss carryforwards of approximately $33,506 and 17,524, respectively.
These net operating loss carryforwards begin to expire, for federal and state
purposes, in 2010. During 2003 and 2002 the Company utilized $1,056 and $0,
respectively, of its net operating loss carryforwards.

In accordance with SFAS Statement No. 109, Accounting for Income Taxes,
valuation allowances are provided against deferred tax assets if, based on the
weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. The Company has evaluated the
realizability of the deferred tax assets on its consolidated balance sheet and
does not believe it has met the more likely than not criteria; therefore the
Company has established a valuation allowance in the amount of $13,171 against
its net deferred tax assets at December 31, 2003.

F-18

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

The decrease in the total valuation allowance for the year ended December 31,
2003 was $1,243 and relates to the Company's expectations regarding utilization
of its net deferred tax assets, including available net operating loss and tax
credit carryforwards. The increase in the total valuation allowance for the year
ended December 31, 2002 was $2,195 and relates primarily to an increase in
available net operating loss carryforwards as a result of the Company's net loss
during 2002.

For the year ended December 31, 2003, the Company incurred $13 in alternative
minimum tax expense in connection with the federal limitation on alternative tax
net operating loss carryforwards.

The federal and state net operating loss and tax credit carryforwards could be
subject to limitation if, within any three year period prior to the expiration
of the applicable carryforward period, there is a greater than 50% change in
ownership of the Company.

11. INCOME (LOSS) PER SHARE

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



YEAR ENDED DECEMBER 31
2003 2002 2001
------------------------------------------

Numerator:
Net income (loss) (numerator for basic and diluted
earnings (loss) per share) $ 868 $ (3,631) $ 122

Denominator:
Denominator for basic earnings per share-weighted
average shares 9,001,660 7,787,230 5,346,174
Denominator for diluted earnings per share-weighted
average shares 9,172,650 7,787,230 5,383,452
Basic income (loss) per share $ 0.10 $ (0.47) $ 0.02
------------------------------------------
Diluted income (loss) per share $ 0.09 $ (0.47) $ 0.02
==========================================


A total of 1,675,531 shares related to convertible debt are not included in the
computation of earnings per share for 2003; and a total of 7,295,968 shares
related to options and warrants and convertible debt are not included in the
computation of loss per share for 2002 because to do so would have been
anti-dilutive for these periods.

12. STOCK OPTION AND OTHER STOCK OPTION PLANS

The Company has two plans whereby eligible officers, directors and employees can
be granted options for the future purchase of Company common stock at the market
price on the grant date. The options, if not exercised within five-year or
ten-year periods, expire.

F-19

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

The following table summarizes information about fixed stock options outstanding
at December 31, 2003:


SHARES OPTION WEIGHTED AVERAGE
UNDER OPTION PRICE PER SHARE EXERCISE PRICE
-----------------------------------------------

Balance at December 31, 2000 959,666 $0.406-4.06 2.40
Options granted 527,500 0.99-1.10 1.06
Options expired or terminated (78,666) 2.56-4.00 2.88
-----------------------------------------------
Balance at December 31, 2001 1,408,500 0.406-4.06 1.84
Options granted 90,000 0.61-1.10 0.94
Options expired or terminated (80,000) 1.00-4.06 2.36
-----------------------------------------------
Balance at December 31, 2002 1,418,500 0.61-3.06 1.76
Options granted 125,000 0.26-1.14 0.41
Options exercised (32,500) 0.406-1.00 0.54
Options expired or terminated (147,000) 1.00-3.06 2.23
-----------------------------------------------
Balance at December 31, 2003 1,364,000 $0.26-$3.06 $ 1.67
===============================================

Exercisable at December 31, 2003 1,234,250 $0.26-$3.06 $ 1.71
===============================================


At December 31, 2003, 336,000 unissued options were available under the two
plans.

The weighted average contractual life of stock options outstanding as of
December 31, 2003, 2002, and 2001 was 7, 7.3, and 8 years, respectively.
Generally, employee options have a 10-year life and vest over a 4-year period
from grant date. Director options have a five-year life and vest in eleven
months from the grant date.

At December 31, 2003, 1,364,000 shares of common stock were reserved for
issuance under outstanding options and 336,000 shares of common stock were
reserved for the granting of additional options. In addition, 4,552,892 shares
of common stock were reserved for issuance under warrants and 1,675,531 shares
of common stock were reserved for issuance under convertible debt instruments.

The weighted average fair value of options granted during the years ended
December 31, 2003, 2002 and 2001 was $0.26, $0.62 and $0.74 respectively, using
the Black-Scholes option- pricing method. The following weighted-average
assumptions were utilized:

YEAR ENDED DECEMBER 31
2003 2002 2001
--------------------------
Black Scholes Pricing Assumptions:
Expected volatility 99.3% 49.6% 96.7%
Risk free interest rate 2.3% 3.0% 4.3%
Expected dividends None None None
Expected life in years 4 4 4

F-20

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

13. EQUITY

On March 22, 2002, the Company closed a public rights offering. The purpose of
the offering was to provide working capital, which among other things, will be
utilized to speed the development of the Company's new APCO Project 25-compliant
digital products and capabilities. The securities offered were "units"priced at
$.90 per unit. A unit was comprised of one share of RELM common stock and one
warrant to purchase one share of RELM common stock, exercisable at $1.08 per
share at any time on or after February 12, 2003 and until February 11, 2006. The
exercise price of the warrants has been reduced to $1.05 per share as a result
of the issuance of common stock related to the company's new credit facility and
anti-dilution provisions contained in the warrants. Units were offered initially
to RELM's equity holders in the form of a rights offering. The "right" allowed
investors in the offering to purchase units at a 10% discount to the market
price of a share of common stock.

Noble was engaged as the standby underwriter for this offering. The units were
offered to the public pursuant to a registration statement that was declared
effective by the Securities and Exchange Commission (SEC) on February 11, 2002.
The offering resulted in the sale of 2,775,000 shares of common stock and
warrants to purchase 2,775,000 shares of common stock. The offering generated
$1,695 in net proceeds. On May 17, 2002, Noble exercised its option to purchase
416,250 additional units at a purchase price of $0.90 per unit to cover
over-allotments. The Company received approximately $326 in net proceeds from
the purchase of these additional units.

The exercise price of the common stock purchase warrants has been reduced to a
share rice of $1.05 from $1.08 as a result of the issuance of common stock
related to the Company's new credit facility and anti-dilution provisions
contained in the warrants. Additionally, the Company may call the common stock
purchase warrants at $0.10 each when the market price of the Company's common
stock exceeds 150% of the exercise price($1.575) for 20 consecutive trading
days. The price of the Company's common stock currently meets this criteria and
the Company can call the common stock purchase warrants if we elect to do so. If
all the common stock purchase warrants are exercised, the Company will receive
net proceeds of approximately $3.2 million. As of March 12, 2004, 376,611 shares
of common stock had been issued as a result of the exercise of common stock
purchase warrants, generating approximately $376,000 in net proceeds.

In August 2003, the Company established a revolving line of credit with a new
lender. Concurrent with the transaction, three funds affiliated with the Company
directly purchased an aggregate of 500,000 shares of our common stock at $0.60
per share, which was the closing market price on the date the transaction was
approved.

In 2003, a total of 32,500 shares of the Company's common stock were issued as a
result of the exercise of employee stock options.

The Company had no shares of its $1.00 par value preferred stock issued as of
December 31, 2003 and 2002.

F-21

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

14. SIGNIFICANT CUSTOMERS

Sales to the United States government and to foreign markets as a percentage of
the Company's total sales were as follows for the year ended December 31:

2003 2002 2001
---------------------------------------

U.S. Government 50% 39% 44%
Foreign markets 6% 6% 4%

Sales to the United States Government represented approximately 50%, 39% and 44%
of our total sales for the years ended December 31, 2003 and 2002, and 2001,
respectively. These sales were primarily to the USFS, DOI and the CECOM. Sales
to the USFS represented approximately 27%, 22%, and 34% of total sales for the
years ended December 31, 2003, 2002, and 2001, respectively. For the year ended
December 31, 2003, sales to the DOI represented approximately 12% of total
sales. For the year ended December 31, 2003 and 2002 we had no sales to CECOM
because our contract expired in 2001. However, sales to CECOM for the years
ended December 31, 2001 represented approximately 10% of total sales.

In 1998, the Company was awarded portions of the USFS contract. This contract
expired in September 2001. Earlier in 2001, bids for a new contract were
solicited, and the Company was awarded the contract for portable radios and base
stations. The contract was for a period of one year with options for three
additional years, and did not specify a minimum purchase. In December 2002, the
Company was awarded a new contract with similar terms. It continues to include
the portable radios and repeaters that were on the previous contract.
Additionally, it includes the Company's GMH mobile radio that was not on the
previous contract. The new contract is for one year with two additional option
years.

In 1996, the Company was awarded a contract to provide land mobile radios to
CECOM. This contract was for a term of five years with no specified minimum
purchase requirement. The contract expired in 2001.

15. PENSION PLANS

The Company sponsors a participant contributory retirement (401K) plan, which is
available to all employees. The Company's contribution to the plan is either a
percentage of the participants salary (50% of the participants contribution up
to a maximum of 6%) or a discretionary amount. In 2003 the Company elected to
not contribute to the participants' retirement plan. In 2002 and 2001 total
contributions made by the Company were $78 and $69, respectively.

16. COMMITMENTS AND CONTINGENCIES

ROYALTY COMMITMENT

In 2002, the Company has entered into a technology license related to its
development of digital products. Under this agreement, the Company is obligated


F-22

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

to pay a royalty for each product sold that utilizes the technology covered by
this agreement. The Company paid $6 and $0 in 2003 and 2002, respectively. The
agreement has an indefinite term, and can be terminated by either party under
certain conditions.

LIABILITY FOR PRODUCT WARRANTIES

Changes in the Company's liability for product warranties during the years ended
December 31, 2003 and 2002 are as follows:

Balance at Warranties Warranties Balance at
Beginning Issued Settled End
of year of year
-------------------------------------------------------
2003 $ 103 38 (59) $82

2002 $ 79 103 (79) $103

LEGAL PROCEEDINGS

In 1993, a civil action was brought against us by a plaintiff to recover losses
sustained on the note of a former affiliate totaling $1.7 million plus interest
at 12% per annum. The plaintiff alleged violations of federal security and other
laws by us in collateral arrangements with the former affiliate. In February
1994, the liquidator of the former affiliate filed a complaint claiming that
intentional and negligent conduct by us and others caused the former affiliate
to suffer millions of dollars of losses leading to its ultimate failure. In
response, we filed motions for summary judgment to dismiss those complaints. On
September 12, 2002, the Court granted in significant part the motions for
summary judgment filed by us and one of our directors. The lone remaining claim
sought damages against us for non-payment of the note. We contended that this
note was canceled and released for fair consideration in 1993 and that there was
no basis in law or fact for the liquidator's claim. On March 1, 2004, we reached
a settlement agreement. Under the terms of the settlement, we will pay to the
plaintiff cash totaling $120,000 and issue 6,452 shares of restricted RELM
common stock valued at the closing price on March 1, 2004. Consequently, we
recognized a one-time charge of $140,000 in the fourth quarter 2003. The
settlement is subject to the execution by both parties of a written agreement
and release.

In February 12, 1999, we initiated collection and legal proceedings in Sao
Paulo, Brazil, against its Brazilian dealer, Chatral, for failure to pay for
product shipments totaling $1.4 million which has been fully reserved in a prior
year. In April 2001, the Brazilian court ordered us to post security with the
court totaling approximately $300 in the form of cash or a bond in order for the
case to proceed. We elected not to post security. Consequently, the case was
involuntarily dismissed. On December 8, 1999, Chatral filed a counter claim
against us alleging damages totaling $8 million as a result of our
discontinuation of shipments to Chatral. On September 11, 2002 we agreed to a
joint stipulation of dismissal under which all claims between the parties were
released.

F-23

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

Heath & Company filed a suit against RELM Wireless Corporation and RELM
Communications, Inc. in the United States District Court for the District of
Massachusetts in early 2001 year for breach of contract, misrepresentation and
unfair trade practices. Pursuant to a Memorandum and Order dated April 24, 2001,
most of Heath's claims were dismissed. The court ruled as a matter of law that a
fact finder must determine whether RELM Communications withheld information it
knew to be essential to the Plaintiff and whether it did so in a bad faith
attempt to withdraw from a brokerage agreement. On March 21, 2002, the parties
settled the matter for payment to Heath of $33.

On December 20, 2000, a products liability lawsuit was filed in Los Angeles
Superior Court in Los Angeles, California. Although the Company was not named in
the suit, one of the defendants had purchased all or substantially all of the
assets of a RELM affiliate. As part of the asset sale, the asset purchase
agreement contained indemnification provisions, which could result in liability
for us. On October 23, 2001, the purchaser of the assets of our former affiliate
served us with a claim for indemnification under a provision of the asset
purchase agreement. In June 2002, we were released from this matter.

In June 1997, substantially all of the assets of a RELM specialty-manufacturing
subsidiary were sold. The asset purchase agreement contains indemnification
provisions, which could result in liability for both parties. Presently, one
indemnification claim is pending against us. On November 19, 2001, a products
liability lawsuit was filed in the 353rd Judicial District Court of Travis
County, Texas. On August 26, 2002, a products liability lawsuit was filed in the
Probate Court of Galveston County, Texas. RELM Wireless Corporation, RELM
Communications, Incorporated, and the purchaser of the assets of our former
specialty-manufacturing subsidiary are named defendants in these lawsuits. We
have insurance coverage for these matters. The initial case was settled in
February 2004 by the insurance companies involved, including ours. We did not
incur any costs or liabilities related to the settlement. Counsel for our
insurer is continuing to vigorously defend the remaining claim. Counsel believes
we have meritorious defenses and the likelihood of an unfavorable outcome is
remote.

During 2002, the purchaser of the assets of our former specialty-manufacturing
subsidiary ceased making payments in accordance with a note receivable. The
initial amount of the note was approximately $355. Presently, the amount due
under the note is approximately $175,000 plus accrued interest. This note is
derived from the 1997 agreement for the sale of the assets of our
specialty-manufacturing subsidiary. Since its inception, the terms of the
obligation have been restructured several times to accommodate the purchaser.
The last payment was received in March 2002. Attempts to contact the purchaser
and collect the past-due installment payments have been unsuccessful. In
February 2003, we started legal proceedings to recover the remaining amount due
under the note plus accrued interest. With guidance from counsel, we believe
that we will prevail in these proceedings. However, we have been unable to
ascertain the financial position of the purchaser or their ability to pay the
debt. Accordingly, we have maintained the valuation reserve for the entire
principal amount ($175) of the note that was established in 2002.

In April 2002, we learned that the purchaser of the assets of our former
paper-manufacturing subsidiary had ceased operations. The purchaser owes us $900
plus accrued interest under the terms of two secured promissory notes, and has
defaulted on its obligations to make principal and interest payments. The Chief


F-24

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

Executive Officer of the purchaser personally guaranteed the debt. Our security
interest is subordinated to the security interest granted to the purchaser's
senior lender. In connection with the sale of the subsidiary in 1997, we took
back a secured promissory note from the purchaser in the initial aggregate
principal amount of $2.4 million. In December 2000, the terms of the original
promissory note were modified and we received a principal payment of $700 plus
accrued interest of approximately $166. After this payment, the remaining
principal amount due on the original note was $900. Also, as part of the
modification agreement, the original note was replaced by two secured promissory
notes, one in the principal amount of $600 and the other in the principal amount
of $300. The $600 note was payable in ten annual installments starting on April
2, 2002. The $300 note was payable in five annual installments starting on
January 1, 2003. Interest on both notes accrued at 2.75% over the prime rate and
was payable, in the case of the $600 note, in annual installments, and, in the
case of the $300 note, in semi-annual installments. The $600 note was subject to
a standby creditor's agreement under which principal and interest payments on
the note were contingent upon the purchaser achieving a certain debt service
coverage ratio and the absence of any uncured defaults on other loans or
agreements of the purchaser. As security for both notes, the purchaser has
granted to us a lien and security interest in certain collateral. Our security
interest, however, is subordinated to the security interest granted to the
purchaser's senior lender. In addition, the Company was subject to a standstill
agreement with the senior lender. A principal of the purchaser guaranteed the
prompt and complete payment of both notes when due. Both notes were subject to
forbearance fee payment agreements with both the purchaser and the guarantor
under which additional amounts may be payable to us if there is a merger, sale
or change of control of the purchaser and if the notes are not paid in full by
certain dates. In December 2002, the purchaser's senior lender notified us that
they had sold the purchaser's assets for $200. This amount was not sufficient to
provide any recovery of amounts owed to us under the notes. In February 2003,
with the assistance of counsel, we initiated legal proceedings against the
guarantor. In October, 2003 we were awarded a judgment against the guarantor in
the amount of $1.0 million. We have not been able to ascertain the financial
position of the guarantor or evaluate his ability to pay the debt. Accordingly,
we have maintained the valuation reserve for the entire principal amount ($900)
of the two promissory notes that was established in the first quarter 2002.

In addition, the Company is involved in various claims and legal actions arising
in the ordinary course of its business. It is the opinion of management that the
ultimate disposition of these matters would not have a material effect upon the
Company's consolidated financial position or results of operations.

F-25

RELM Wireless Corporation
December 31, 2003
Notes to Consolidated Financial Statements (continued)
(in Thousands, Except Share Data and Percentages)

17. QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data is summarized below:



QUARTERS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
2003 2003 2003 2003
------------------------------------------------------

FISCAL 2003
Sales $3,596 $5,231 $5,000 $5,901
Gross profit 1,077 1,765 1,991 2,783
Net income (loss) (377) 122 291 832
Earnings (loss) per share-basic (0.04) 0.01 0.03 0.09
Earning (loss) per share-diluted (0.04) 0.01 0.03 0.08




QUARTERS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
2002 2002 2002 2002
------------------------------------------------------

FISCAL 2002
Sales $4,733 $4,950 $3,979 $2,316
Gross profit 1,355 1,538 1,157 168
Net income (loss) (1,016) 3 (395) (2,223)
Earnings (loss) per share-basic (0.18) 0.00 (0.05) (0.26)
Earnings (loss) per share-diluted (0.18) 0.00 (0.05) (0.26)


In the fourth quarter 2003, we recognized an expense totaling $140 related to
the settlement of a legal matter discussed in Note 16, Commitments and
Contingencies.

In the fourth quarter 2002, the Company recorded adjustments that increased its
net loss by approximately $984 to reflect, (i) the adjustment of inventories for
slower moving items ($283), (ii) the provision for an uncollectible note
receivable from the purchaser of the Company's former specialty-manufacturing
subsidiary ($175), (iii) the write-off of the remaining book value of a
technology agreement ($211), (iv) the write-off of the remaining book value of
an investment banking agreement ($120), and (v) severance and other costs
pertaining the reorganization of the Company's sales and marketing efforts
($195).

Additionally, sales for the fourth quarter of 2002 declined by $3.4 million
(59.2%) compared to the same period in the prior year. Consequently, the Company
was unable to absorb manufacturing overhead or cover other fixed costs ($1,240).


F-26


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

On December 2, 2002, we dismissed our independent accountant, Ernst & Young LLP
("EY"). On December 12, 2002, we engaged BDO Seidman, LLP ("BDO") as our
independent accountant to audit our financial statements for the year ending
December 31, 2002. EY audited our consolidated balance sheet and those of our
subsidiaries as of December 31, 1997 through and including December 31, 2001,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years then ended (collectively referred to as the
"Financial Statements"). EY's reports on the Financial Statements did not
contain an adverse opinion, disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope, or accounting principles.

The decision to dismiss EY and engage BDO was unanimously recommended by our
Audit Committee and unanimously approved by our Board of Directors.

During the two most recent fiscal years and the subsequent interim period
through December 2, 2002, there were no disagreements between us and EY on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which disagreements, if not resolved to the
satisfaction of EY, would have caused EY to make reference in connection with
their opinion to the subject matter of the disagreement.

ITEM 9A. CONTROLS AND PROCEDURES
- ---------------------------------

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of December
31, 2003. Based on this evaluation, they have concluded that, as of December 31,
2003, our disclosure controls and procedures are reasonably designed and
effective to alert them on a timely basis to material information relating to us
required to be included in our reports filed or submitted under the Exchange
Act.

CHANGES IN INTERNAL CONTROLS

There were no significant changes to our internal controls or, to our knowledge,
in other factors that could significantly affect our internal controls, at the
date of our Chief Executive Officer's and Chief Financial Officer's last
evaluation of our internal controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.


PART III
--------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------------------------------------------------------------

We have adopted a written code of ethics that applies to our senior financial
officers and persons performing similar functions, which Code has been filed as
Exhibit 14 hereto. We intend to disclose any amendments to, or waivers from, the
Code on our website, www.relm.com. Upon written request to our corporate
secretary by U.S. mail, we will provide, at no charge, a copy of such Code to
any person requesting a copy.

31


The other information required by this item is incorporated by reference to
RELM's definitive proxy statement to be filed within 120 days of its fiscal year
end in connection with solicitation of proxies for its 2004 annual meeting of
shareholders.

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

Information required by this item is incorporated by reference to RELM's
definitive proxy statement to be filed within 120 days of its fiscal year end in
connection with solicitation of proxies for its 2004 annual meeting of
shareholders.

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

Except for the Equity Compensation Plan Information set forth below, the
information required by this item is incorporated by reference to RELM's
definitive proxy statement to be filed within 120 days of its fiscal year end in
connection with solicitation of proxies for its 2004 annual meeting of
shareholders.

The following table provides information as of December 31, 2003 about our
common stock that may be issued upon the exercise of options, warrants and
rights under all of our existing equity compensation plans, including the 1996
Stock Option Plan for Non-Employee Directors and the 1997 Stock Option Plan.



- ----------------------------------------------------------------------------------------------------------------------------------
( a ) ( b ) ( c )
Plan Category Number of securities Weighted average exercise Number of securities remaining
to be issued upon exercise price of outstanding options, available for future issuance
of outstanding options, warrants and rights under equity compensation
warrants, and rights plan (excluding securities
reflected in column (a)
- ----------------------------------------------------------------------------------------------------------------------------------

Equity compensation plans
approved by security holders 1,364,000 $ 1.66 336,000
- ----------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total 1,364,000 $ 1.66 336,000
==================================================================================================================================


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------

Information required by this item is incorporated by reference to RELM's
definitive proxy statement to be filed within 120 days of its fiscal year end in
connection with solicitation of proxies for its 2004 annual meeting of
shareholders.

32


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
- -----------------------------------------------

The information required by this item is incorporated by reference to RELM's
definitive proxy statement to be filed within 120 days of its fiscal year end in
connection with solicitation of proxies for its 2004 annual meeting of
shareholders.


PART IV
-------

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------

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

1. Consolidated Financial Statements listed below:



Page
----

Report of Independent Certified Public Accountants BDO Seidman LLP F-1

Report of Independent Certified Public Accountants Ernst & Young LLP F-2

Consolidated Balance Sheets
as of December 31, 2003 and 2002 F-3 - F4

Consolidated Statements of Operations
- years ended December 31, 2003, 2002 and 2001 F-5

Consolidated Statements of Changes in Stockholders' Equity
- years ended December 31, 2003, 2002 and 2001 F-6

Consolidated Statements of Cash Flows
- years ended December 31, 2003, 2002 and 2001 F-7

Notes to Consolidated Financial Statements F-8 - F-26


(b) Reports on Form 8-K

None.

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


NUMBER EXHIBIT
------------------ ---------------------------------------------------------------------------------------

3(i) Articles of Incorporation(2)
3(ii) By-Laws (2)
4(ii) 8% Convertible Subordinate Promissory Note(5)
10.1 1996 Stock Option Plan for Non-Employee Directors (1)
10.2 1997 Stock Option Plan, as amended (3)
10.3 Workers Compensation Close Out Agreement (4)
10.4 Simmonds Agreement(5)
10.5 Contract for Sale of West Melbourne Fl. Real Estate(6)
10.6 Sub Lease Agreement(5)
10.7 Uniden Asset Purchase Agreement(6)
10.8 OEM Uniden Manufacturing Agreement(6)



33



NUMBER EXHIBIT
------------------ ---------------------------------------------------------------------------------------

10.9 Uniden ESAS Technology Agreement(6)
10.10 Manufacturing Agreement(7)
10.11 Transaction Agreement for Real Estate Sale and Contract Manufacturing(6)
10.12 Post-Termination Benefits Agreement between the Company and David P. Storey dated
October 1, 2000(8)
10.13 Post-Termination Benefits Agreement between the Company and William P. Kelly dated
October 1, 2000(8)
10.14 Certificate of Amendment to Articles of Incorporation(7)
10.15 Security and Loan Agreement(9)
10.16 Loan Modification Agreement(10)
14.1 Code of Ethics*
16.1 Letter to the Commission regarding change in certifying account(8)
21 Subsidiary of Registrant(8)
23.1 Consent of BDO Seidman LLP*
23.2 Consent of Ernst & Young LLP*
24 Power of Attorney (included on signature page)
31.1 Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002*
31.2 Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002*
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of
Regulation S-K)*
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of
Regulation S-K)*


- ----------
* Included with this filing

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

(2) Incorporated by reference from the Company's report on form 10-K for the
year ended December 31, 1997.

(3) Incorporated by reference from the Company's report on form 10-K for the
year ended December 31, 1998.

(4) Incorporated by reference from the Company's report on form 10-Q for the
quarter ended March 31, 1999 filed May 12, 1999.

(5) Incorporated by reference from the Company's report on form 10-K for the
year ended December 31, 1999.

(6) Incorporated by reference from the Company's report on form 10-K/A-1 for
the year ended December 31, 1999, filed April 12, 2000.

(7) Incorporated by reference from the Company's report on form 10-Q for the
quarter ended September 30, 2001 dated November 1, 2001.

(8) Incorporated by reference from the Company's report on form 8-K dated
December 6, 2002, filed on December 6, 2002.

(9) Incorporated by reference from the Company's report on form 8-K dated
September 5, 2003, filed on September 5, 2003



34


(10) Incorporated by reference from the Company's report on form 8-K dated
February 27, 2004, filed on February 27, 2004.

Each management contract or compensation plan or arrangement required to be
filed as an exhibit to this report pursuant to Item 15 is listed in exhibit
10.1, 10.2, 10.12, and 10.13.

(d) Consolidated Financial Statement Schedules:

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

35


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of West
Melbourne, Florida on the 18th day of March 2004.

RELM WIRELESS CORPORATION

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

POWER OF ATTORNEY

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.



SIGNATURE TITLE DATE


/s/George N. Benjamin, III Chairman of the Board March 18, 2004
- ------------------------------------
George N. Benjamin, III

/s/David P. Storey President, Chief Executive Officer, March 18, 2004
- ------------------------------------
David P. Storey and Director (Principal Executive
Officer)

/s/William P. Kelly Executive Vice President - Finance March 18, 2004
- ------------------------------------
William P. Kelly and Chief Financial Officer
(Principal Financial Officer and
Accounting Officer)

/s/Donald F. U. Goebert Director March 18, 2004
- ------------------------------------
Donald F. U. Goebert

/s/James C. Gale Director March 18, 2004
- ------------------------------------
James C. Gale

/s/Ralph R. Whitney Jr. Director March 18, 2004
- ------------------------------------
Ralph R. Whitney Jr.

/s/Randolph K. Piechocki Director March 18, 2004
- ------------------------------------
Randolph K. Piechocki


36


Index to Exhibits
- -----------------


EXHIBIT DESCRIPTION OF EXHIBITS
NUMBER
---------------------------------------------------------------------------------------------------------------

14.1 Code of Ethics
23.1 Consent of BDO Seidman LLP
23.2 Consent of Ernst & Young LLP
24 Power of Attorney (included on signature page)
31.1 Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of Regulation S-K)
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of Regulation S-K)


37