10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2012

OR

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

For the transition period from _________  to _________

Commission file number 001-32644

RELM WIRELESS CORPORATION

(Exact name of registrant as specified in its charter)

Nevada	59-3486297
State or other jurisdiction of Incorporation or organization	(I.R.S. Employer Identification No.)

7100 Technology Drive

West Melbourne, Florida  32904

(Address of principal executive offices and Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

There were 13,545,482 shares of common stock, $0.60 par value, of the registrant outstanding at October 27, 2012.

PART I. - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

RELM WIRELESS CORPORATION

Condensed Consolidated Balance Sheets

(In thousands, except share data) (Unaudited)

	September 30,				December 31,
	2012				2011
ASSETS
Current assets:
Cash and cash equivalents		$	6,232			$	2,693
Trade accounts receivable (net of allowance for doubtful accounts of  $39 and $44 at September 30, 2012 and December 31, 2011, respectively)			4,609				4,155
Inventories, net			12,316				12,148
Deferred tax assets			2,520				3,458
Prepaid expenses and other current assets			937				526
Total current assets			26,614				22,980
Property, plant and equipment, net			1,193				1,158
Deferred tax assets, net			4,712				4,712
Capitalized software, net			2,277				2,778
Other assets			338				219
Total assets		$	35,134			$	31,847
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	2,551			$	1,756
Accrued compensation and related taxes			1,546				807
Accrued warranty expense			223				247
Accrued other expenses and other current liabilities			231				318
Note payable			35				-
Deferred revenue			593				385
Total current liabilities			5,179				3,513
Deferred revenue			112				265
Long-term debt			-				-
Total liabilities		$	5,291			$	3,778
Commitments and contingencies
Stockholders' equity:
Preferred stock; $1.00 par value; 1,000,000 authorized shares none issued or outstanding.			-				-
Common stock; $.60 par value; 20,000,000 authorized shares: 13,545,482 and 13,519,323 issued and outstanding shares at September 30, 2012 and December 31, 2011, respectively			8,127				8,111
Additional paid-in capital			24,599				24,570
Accumulated deficit			(2,883	)			(4,612	)
Total stockholders' equity			29,843				28,069
Total liabilities and stockholders' equity		$	35,134			$	31,847

See notes to condensed consolidated financial statements.

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RELM WIRELESS CORPORATION

Condensed Consolidated Statements of Operations

(In thousands, except share data) (Unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Sales, net	$	8,112		$	6,976		$	21,809		$	18,361
Expenses
Cost of products		4,084			3,467			11,473			10,594
Selling, general and administrative		2,633			2,541			7,598			8,273
Total expenses		6,717			6,008			19,071			18,867
Operating income (loss)		1,395			968			2,738			(506	)
Other expense:
Net interest expense		-			(27	)		(3	)		(89	)
Other expense		(3	)		(2	)		(10	)		(8	)
Total other expense		(3	)		(29	)		(13	)		(97	)
Income (loss) before income taxes		1,392			939			2,725			(603	)
Income tax expense		(508	)		(25	)		(996	)		(25	)
Net income (loss)	$	884		$	914		$	1,729		$	(628	)
Net earnings (loss) per share-basic:	$	0.07		$	0.07		$	0.13		$	(0.05	)
Net earnings (loss) per share-diluted:	$	0.07		$	0.07		$	0.13		$	(0.05	)
Weighted average shares outstanding-basic		13,545,482			13,518,638			13,541,250			13,512,125
Weighted average shares outstanding-diluted		13,549,146			13,525,082			13,543,631			13,512,125

See notes to condensed consolidated financial statements.

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RELM WIRELESS CORPORATION

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

	Nine Months Ended
	September 30, 2012			September 30, 2011
Operating activities
Net income (loss)	$	1,729		$	(628	)
Adjustments to reconcile net loss to net cash  provided by operating activities:
Allowance for doubtful accounts		(5	)		-
Inventories reserve		6			107
Deferred tax obligation		938			-
Depreciation and amortization		975			1,059
Shared-based compensation expense		23			131
Changes in operating assets and liabilities:
Accounts receivable		(449	)		633
Inventories		(174	)		(385	)
Prepaid expenses and other current assets		(411	)		198
Other assets		(119	)		34
Accounts payable		795			(1,279	)
Accrued compensation and related taxes		739			61
Accrued warranty expense		(24	)		31
Note payable		35			-
Deferred revenue		55			226
Accrued other expenses and other current liabilities		(87	)		59
Net cash  provided by operating activities		4,026			247
Investing activities
Purchases of property, plant and equipment		(349	)		(198	)
Capitalized software		(160	)		-
Net cash used in investing activities		(509	)		(198	)
Financing activities
Proceeds from issuance of common stock		22			-
Increase in revolving line of credit		-			1,500
Decrease in revolving line of credit		-			(1,700	)
Cash provided by (used in) financing activities		22			(200	)
Net change in cash and cash equivalents		3,539			(151	)
Cash and cash equivalents, beginning of period		2,693			5,050
Cash and cash equivalents, end of period	$	6,232		$	4,899
Supplemental disclosure
Cash paid for interest	$	3		$	90
Income tax paid	$	62		$	-
Non-cash financing activity
Cashless exercise of stock options and related conversion of net shares to stockholders’ equity	$	4		$	6

See notes to condensed consolidated financial statements.

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Notes to Condensed Consolidated Financial Statements

Unaudited

(in Thousands, Except Share Data and Percentages)

1.           Condensed Consolidated Financial Statements

The condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011, the condensed consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2012 and 2011 have been prepared by RELM Wireless Corporation (the Company), and are unaudited.  In the opinion of management, all adjustments, which include normal recurring adjustments, necessary for a fair presentation have been made.  The condensed consolidated balance sheet at December 31, 2011 has been derived from the Company’s audited consolidated financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as filed with the Securities and Exchange Commission.  The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the operating results for a full year.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements that impacted the quarterly or nine month periods ended September 30, 2012 and 2011, or which are expected to impact future periods, which were not previously disclosed in prior periods.

2.           Allowance for Doubtful Accounts

The allowance for doubtful accounts on trade receivables was approximately $39 on gross trade receivables of $4,648 at September 30, 2012 and $44 on gross receivables of $4,199 at December 31, 2011.  This allowance is used to state trade receivables at a net realizable value or the amount that the Company estimates will be collected of the Company’s gross receivables.

3.           Inventories, net

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

	September 30, 2012		December 31, 2011
Finished goods	$	3,207	$	3,981
Work in process		6,200		4,671
Raw materials		2,909		3,496
	$	12,316	$	12,148

Reserves for slow-moving, excess, or obsolete inventory were approximately $2,771 at September 30, 2012, compared with approximately $2,765 at December 31, 2011. The reserve for slow-moving, excess, or obsolete inventory is used to state the Company’s inventories at the lower of cost or market.

4.           Income Taxes

Income tax expense totaling approximately $508 and $996 has been recorded for the three and nine months ended September 30, 2012.

As of September 30, 2012 and December 31, 2011, the Company’s net deferred tax assets totaled approximately $7,232 and $8,170, respectively, and are primarily composed of net operating loss carry forwards (NOLs).  These NOLs total $10,716 for federal and $18,829 for state purposes, with expirations starting in 2017 through 2030.

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Notes to Condensed Consolidated Financial Statements

Unaudited

(in Thousands, Except Share Data and Percentages)

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

The Company has evaluated the available evidence and the likelihood of realizing the benefit of its net deferred tax assets.  From its evaluation the Company has concluded that based on the weight of available evidence, it is more likely than not that the Company will not realize a portion of the benefit of its net deferred tax assets recorded at September 30, 2012.  Accordingly, for the nine months ended September 30, 2012, the Company maintained its valuation allowance totaling approximately $250 for the portion of benefit of its federal and state deferred tax assets that more likely than not will not be realized.  The Company cannot presently estimate what, if any, changes to the valuation of its deferred tax assets may be deemed appropriate in the future.  If the Company incurs future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of September 30, 2012.

5.           Capitalized Software

The Company accounts for the costs of software within its products in accordance with ASC Topic 985-20 “Costs of Software to be Sold, Leased or Marketed”, under which certain software costs incurred subsequent to the establishment of technological feasibility are capitalized and amortized over the estimated lives of the related products. The Company determines technological feasibility to be established upon the internal release of a detailed program design as specified by Topic 985-20. Upon the general release of the product to customers, development costs for that product are amortized over periods not exceeding five years, based on current and future revenue of the product. For the three and six months ended September 30, 2012, the Company recorded capitalized software of $160.  For the three and nine months ended September 30, 2012, the Company’s amortization cost was approximately $221 and $661, respectively, compared with $250 and $750 for the same periods last year.  Net capitalized software costs totaled $2,277 and $2,778 as of September 30, 2012 and December 31, 2011, respectively.

6.           Stockholders’ Equity

The changes in consolidated stockholders’ equity for the nine months ended September 30, 2012 are as follows:

	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital		Accumulated Deficit			Total
Balance at December 31, 2011		13,519,323	$	8,111	$	24,570	$	(4,612	)	$	28,069
Common stock option exercise and issued		26,159		16		6		−			22
Share-based compensation expense		−		−		23		−			23
Net income		−		−		−		1,729			1,729
Balance at September 30, 2012		13,545,482	$	8,127	$	24,599	$	(2,883	)	$	29,843

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Notes to Condensed Consolidated Financial Statements

Unaudited

(in Thousands, Except Share Data and Percentages)

7.           Income (Loss) per Share

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

	Three Months Ended				Nine months Ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Numerator:
Net  income (loss) (numerator for basic and diluted earnings per share)	$	884	$	914	$	1,729	$	(628	)
Denominator:
Denominator for basic earnings per share weighted average shares		13,545,482		13,518,638		13,541,250		13,512,125
Effect of dilutive securities:
Options		3,664		2,719		2,381		-
Denominator
Denominator for diluted earnings per share weighted average shares		13,549,146		13,521,357		13,543,631		13,512,125
Basic income (loss) per share	$	0.07	$	0.07	$	0.13	$	(0.05	)
Diluted income (loss) per share	$	0.07	$	0.07	$	0.13	$	(0.05	)

A total of  988,812 shares related to options are not included in the computation of diluted loss per share for the three and nine months ended September 30, 2011 because to do so would have been anti-dilutive for these periods.

8.           Non-Cash Share-Based Employee Compensation

The Company has employee and non-employee director stock option programs.  Related to these programs, and in accordance with ASC Topic 718, “Compensation-Stock Compensation”, the Company recorded non-cash share-based employee compensation expense of $5 and $23, respectively, for the three and nine months ended September 30, 2012, compared with $40 and $131 for the same periods last year.  The Company considers its non-cash share-based employee compensation expenses as a component of cost of products ($0 and $0 for the three and nine months ended September 30, 2012, respectively, compared with $4 and $11 for the same periods last year) and selling, general and administrative expenses ($5 and $23 for the three and nine months ended September 30, 2012, respectively, compared with $36 and $120 for the same periods last year).  There was no non-cash share–based employee compensation expense capitalized as part of capital expenditures or inventory for the periods presented.

The Company uses the Black-Scholes-Merton option valuation model to calculate the fair value of a stock option grant.  The non-cash share-based employee compensation expense recorded in the three and nine months ended September 30, 2012 was calculated using certain assumptions.  For a description of such assumptions, reference is made to Note 10 (Share-Based Employee Compensation) of the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

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Notes to Condensed Consolidated Financial Statements

Unaudited

(in Thousands, Except Share Data and Percentages)

A summary of stock option activity under the Company’s stock option plans as of September 30, 2012, and changes during the three months ended September 30, 2012 are presented below:

As of July 1, 2012	Stock Options		Wgt. Avg. Exercise Price ($) Per Share		Wgt. Avg. Remaining Contractual Life (Years)		Wgt. Avg. Grant Date Fair Value($) Per Share		Aggregate Intrinsic Value ($)
Outstanding		495,944		3.43		-		2.24		-
Vested		470,944		3.51		-		2.33		-
Nonvested		25,000		2.03		-		0.68		-
Period activity
Issued		-		-		-		-		-
Exercised		-		-		-		-		-
Forfeited		-		-		-		-		-
Expired		35,000		2.91		-		1.67		-
As of September 30, 2012
Outstanding		460,944		3.47		4.34		2.29		9,750
Vested		435,944		3.55		4.33		2.38		9,750
Nonvested		25,000		2.03		4.64		0.68		-

9.           Commitments and Contingencies

Legal Proceedings

From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of its business. There were no pending material claims or legal matters as of September 30, 2012.

Other

As of September 30, 2012, the Company had purchase orders to suppliers of approximately $4,029.

Significant Customers

Sales to United States government agencies represented approximately $4,637 (57.2%) and $9,834 (45.1%) of the Company’s total sales for the three and nine months ended September 30, 2012, respectively, compared with approximately $4,722 (67.7%) and $9,822 (53.5%) for the same periods last year.  Accounts receivable from agencies of the United States government were approximately $2,256 as of September 30, 2012 compared with approximately $2,074 at the same date last year.

10.         Debt

The Company has a secured revolving credit facility with Silicon Valley Bank with maximum borrowing availability of $5,000 (subject to a borrowing base) and a maturity date of December 31, 2012.  As of September 30, 2012, the Company was in compliance with all covenants under the loan and security agreement, as amended, governing this revolving credit facility.   For a description of such covenants and the other terms and conditions of the loan and security agreement, as amended, reference is made to Note 6 (Debt) of the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  As of September 30, 2012, there were no borrowings outstanding under the revolving credit facility and there was approximately $3,758 of borrowing available under the revolving credit facility.

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

SPECIAL NOTE CONCERNING

FORWARD-LOOKING STATEMENTS

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

Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and in our subsequent filings with the Securities and Exchange Commission, and include, among others, the following:

●   changes or advances in technology;

●   the success of our LMR product line;

●   competition in the land mobile radio industry;

●   general economic and business conditions, including federal, state and local government budget deficits and spending limitations;

●   the availability, terms and deployment of capital;

●   reliance on contract manufacturers and suppliers;

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

●   our ability to utilize deferred tax assets;

●   retention of executive officers and key personnel;

●   our ability to manage our growth;

●   government regulation;

●   our business with manufacturers located in other countries;

●   our inventory and debt levels;

●   protection of our intellectual property rights;

●   acts of war or terrorism; and

●   any infringement claims.

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We assume no obligation to publicly update or revise any forward-looking statements made in this report, whether as a result of new information, future events, changes in assumptions or otherwise, after the date of this report.  Readers are cautioned not to place undue reliance on these forward-looking statements.

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

Executive Summary

Our financial and operating results for the three and nine months ended September 30, 2012 improved significantly compared with the same periods last year.  To date, total sales and sales of P25 digital products both increased, while costs of products and operating expenses declined.  These improvements combined to yield operating income for both the three and nine month periods ended September 30, 2012.

For the three and nine months ended September 30, 2012, total sales were approximately $8.1 million and $21.8 million, respectively, compared with approximately $7.0 million and $18.4 million for the same periods last year.  Sales of P25 digital products for the third quarter of 2012 totaled approximately $5.1 million (62.9% of total sales) compared with approximately $4.3 million (62.3% of total sales) for the same quarter last year.  For the nine months ended September 30, 2012, sales of P25 digital products totaled approximately $14.0 million (64.1% of total sales) compared with approximately $11.4 million (62.0% of total sales) for the same period last year.

Gross margins as a percentage of sales for the third quarter ended September 30, 2012 were approximately 49.7% compared with 50.3% for the same quarter last year.  For the nine months ended September 30, 2012, gross margins as a percentage of sales were 47.4% compared with 42.3% for the same period in 2011.  The gross margins for both periods reflect significant P25 digital product sales and an increase in total sales, which fueled higher manufacturing volumes.

For the three months ended September 30, 2012, selling, general and administrative expenses (SG&A) totaled approximately $2.6 million (32.5% of sales) compared with approximately $2.5 million (36.4% of sales) for the same period last year.  For the nine months ended September 30, 2012, selling, general and administrative expenses totaled approximately $7.6 million (34.8% of sales) compared with approximately $8.3 million (45.1% of sales) for the same period last year.  SG&A expenses for the third quarter and nine months ended September 30, 2012 include expense reductions that were initially implemented in May 2011.

Pretax income for the quarter ended September 30, 2012 totaled approximately $1.4 million, compared with approximately $939,000 for the same quarter last year.  For the nine months ended September 30, 2012, pretax income totaled approximately $2.7 million, compared with a pretax loss of approximately $603,000 for the same period last year.

For the three and nine months ended September 30, 2012, income tax expense totaled approximately $508,000 and $996,000, respectively, compared with $25,000, respectively, for each of the same periods last year.  Our income tax expense is largely non-cash due to deferred tax assets derived primarily from our net operating loss carryforwards.

Net income for the three months ended September 30, 2012 was approximately $884,000 ($0.07 per basic and diluted share), compared with approximately $914,000 ($0.07 per basic share) for the same period last year.  For the nine months ended September 30, 2012 net income was approximately $1.7 million ($0.13 per basic and diluted share), compared with a net loss of approximately $628,000 ($0.05 per basic share) for the same period last year.

As of September 30, 2012, working capital totaled approximately $21.4 million, of which approximately $10.8 million was comprised of cash and trade receivables.  As of December 31, 2011 working capital totaled approximately $19.5 million, of which approximately $6.8 million was comprised of cash and trade receivables.

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Results of Operations

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

	Percentage of Sales Three Months Ended						Percentage of Sales Nine months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products		(50.3	)		(49.7	)		(52.6	)		(57.7	)
Gross margin		49.7			50.3			47.4			42.3
Selling, general and administrative expenses		(32.5	)		(36.4	)		(34.9	)		(45.1	)
Net interest -expense-		(0.0	)		(0.4	)		(0.0	)		(0.0	)
Other expense-		(0.0	)		0.0			(0.0	)		(0.0	)
Pretax income (loss)		17.2			13.5			12.5			(3.3	)
Income tax expense		(6.3	)		(0.4	)		(4.6	)		(0.1	)
Net income (loss)		10.9	%		13.1	%		7.9	%		(3.4	)%

Net Sales

For the third quarter ended September 30, 2012, net sales were approximately $8.1 million compared with approximately $7.0 million for the same quarter last year.  Sales of P25 digital products for the quarter totaled approximately $5.1 million (64.1% of total sales), compared with approximately $4.3 million (62.3% of total sales) for the same quarter last year.

For the nine months ended September 30, 2012, net sales were approximately $21.8 million, compared with approximately $18.4 million for the same period last year.  Sales of P25 digital products for the nine months ended September 30, 2012 totaled approximately $14.0 million (64.1% of total sales) compared with approximately $11.4 million (62.0% of total sales) for the same period last year.

Continuing the improvement initiated in the second quarter, net sales and sales of P25 digital products for the third quarter increased compared to the same quarter last year.  Also consistent with the preceding quarter, the improvement was comprised of a broad mix of new customers and products, combined with business from our legacy federal customers and products.

Cost of Products and Gross Margin

Gross margin as a percentage of sales for the third quarter ended September 30, 2012 was 49.7% compared with 50.3% for the same quarter last year.  For the nine months ended September 30, 2012, gross margin as a percentage of sales was 47.4% compared with 42.3% for the same period last year.

Our cost of products and gross margins are primarily related to material and labor costs, product mix, manufacturing volumes and pricing.  The cost of products and corresponding gross margins for the three and nine months ended September 30, 2012 reflected a favorable mix of product sales weighted toward P25 digital products, building on a similar mix from the second quarter 2012.  Also, as a result of the increase in total sales relative to the same periods last year, manufacturing volumes increased.  Accordingly, we more fully utilized and absorbed our base of manufacturing and support expenses.

We continue to utilize contract manufacturing relationships to maximize production efficiencies and minimize material and labor costs.  We also regularly consider manufacturing alternatives to improve quality, speed and costs.  We anticipate that the current contract manufacturing relationships or comparable alternatives will be available to us in the future.  As demonstrated during the second and third quarters 2012, we believe leveraging increased sales volumes and P-25 product sales, combined with the aforementioned manufacturing improvements, should yield gross margin improvements.

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Selling, General and Administrative Expenses

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

SG&A expenses for the third quarter 2012 were approximately $2.6 million (32.5% of sales) compared with approximately $2.5 million (36.4% of sales) for the same quarter last year.  For the nine months ended September 30, 2012, SG&A expenses totaled approximately $7.6 million (34.9% of sales) compared with approximately $8.3 million (45.1% of sales) for the same period last year.

Engineering and product development expenses for the third quarter 2012 declined approximately $27,000 (2.7%) compared with the same quarter last year.  For the nine months ended September 30, 2012, engineering and product development expenses decreased approximately $819,000 (23.8%) compared with the same period last year.  The expense decreases for the third quarter and nine month periods were the result of expense reductions initially implemented during the second quarter last year, and maintained thereafter, as some product development initiatives were completed.

Marketing and selling expenses for the third quarter 2012 increased by approximately $104,000 (11.7%) compared with the same quarter last year.  For the nine months ended September 30, 2012, marketing and selling expenses increased approximately $25,000 (0.9%) compared with the same period last year.  The increase in marketing and selling expenses relates primarily to commissions and incentives, which directly correlate with the growth in sales.  Those increases were partially offset by expense reductions initially implemented during the second quarter last year and maintained thereafter.

General and administrative expenses for the third quarter 2012 increased by approximately $15,000 (2.3%) from the same period last year.  For the nine months ended September 30, 2012, general and administrative expenses increased approximately $119,000 (5.9%) compared with the same period last year.  These expense increases were primarily related to additional headquarters and public company expenses.

Operating Income (Loss)

Operating income for the quarter ended September 30, 2012 totaled approximately $1.4 million (17.2% of sales), compared with approximately $968,000 (13.9% of sales) for the same quarter last year.  For the nine months ended September 30, 2012, operating income totaled approximately $2.7 million (12.6% of sales), compared with an operating loss of approximately $506,000 (2.8% of sales) for the same period last year.  Changes in operating income for the third quarter and nine months ended September 30, 2012 were primarily due to higher product sales combined with improved product and operating costs.

Net Interest Expense

For the third quarter and nine months ended September 30, 2012, net interest expense totaled $0 and $3,000, respectively, compared with $27,000 and $89,000, respectively, for the same periods last year.  We incur interest expense on outstanding borrowings under our revolving credit facility and earn interest income on our cash balances.  The decreases in interest expense were the result of the repayment of borrowings under our revolving credit facility.  The interest rate on such revolving credit facility as of September 30, 2012 was 4.50% per annum.  This rate is variable based on the lender’s prime rate plus 50 basis points.

Income Taxes

We recorded income tax expense for the quarter ended September 30, 2012 of approximately $508,000, compared with $25,000 for the same quarter last year.  For the nine months ended September 30, 2012, income tax expense totaled approximately $1.0 million, compared with $25,000 for the same period last year.  Our income tax expense is primarily non-cash.

12

As of September 30, 2012, our net deferred tax assets totaled approximately $7.2 million, and are primarily composed of net operating loss carry forwards (NOLs).  These NOLs total $10.7 million for federal and $18.8 million for state purposes, with expirations starting in 2017 through 2030.

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

We have evaluated the available evidence and the likelihood of realizing the benefit of our net deferred tax assets.  From our evaluation we have concluded that based on the weight of available evidence, it is more likely than not that we will not realize a portion of the benefit of our net deferred tax assets recorded at September 30, 2012.  Accordingly, as of September 30, 2012, we maintained our valuation allowance totaling approximately $250,000 for the portion of benefit of our federal and state deferred tax assets that more likely than not will not be realized.  We cannot presently estimate what, if any, changes to the valuation of our deferred tax assets may be deemed appropriate in the future.  If we incur future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of September 30, 2012.

Liquidity and Capital Resources

For the nine months ended September 30, 2012, net cash provided by operating activities totaled approximately $4.0 million compared with approximately $247,000 for the same period last year.  Cash provided by operating activities was primarily related to net income, depreciation and amortization, deferred tax assets, accounts payable and accrued expenses.  These items were partially offset by increases in trade receivables and other current assets.  For the nine months ended September 30, 2012, we realized net income of approximately $1.7 million compared with a net loss totaling approximately $628,000 for the same period last year.  Depreciation and amortization totaled approximately $975,000 for the nine months ended September 30, 2012, compared with approximately $1.1 million for the same period last year as some capital assets reached the end or a later stage of their depreciation cycle.  Deferred tax assets for the first nine months of 2012 decreased by approximately $938,000 due to non-cash tax expense on our pretax income.  During the same period last year deferred tax assets were unchanged.  Accounts payable for the period increased approximately $795,000 due to higher business volumes and related material purchases.  Last year trade payables decreased by approximately $1.3 million primarily due to payments to suppliers.  Accrued compensation increased by approximately $739,000 reflecting incentive compensation related to improved sales and operating results.  For the same period last year, accrued compensation increased approximately $61,000.  Net inventories increased during the nine months ended September 30, 2012 by approximately $168,000 due to material purchases in anticipation of sales growth.

Cash used in investing activities for the nine months ended September 30, 2012 totaled approximately $509,000 compared with approximately $198,000 for the same period last year.  Cash used in investing activities for the nine months ended September 30, 2012 was primarily to fund the purchase of engineering and manufacturing equipment and the development of software.  We anticipate that future capital expenditures will be funded through our existing cash balance and operating cash flow.

Cash provided by financing activities for the nine months ended September 30, 2012 totaled approximately $22,000, representing proceeds from the issuance of common stock.  For the same period last year cash used in financing activities totaled approximately $200,000, which represented the repayment of borrowings under our revolving credit facility.

We have a secured revolving credit facility with Silicon Valley Bank with maximum borrowing availability of $5 million (subject to the borrowing base) and a maturity date of December 31, 2012.

As of September 30, 2012 and the date of this report, we were in compliance with all covenants under the loan and security agreement, as amended, governing the revolving credit facility.   For a description of such covenants and the other terms and conditions of the loan and security agreement, as amended, reference is made to Note 6 (Debt) of our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

13

As of September 30, 2012 and the date of this report, there were no borrowings outstanding under the revolving credit facility.  As of September 30, 2012 and the date of this report, there was approximately $3.7 million and $3.1 million, respectively, of borrowing available under the revolving credit facility.

Our cash balance at September 30, 2012 was approximately $6.2 million.  We believe these funds combined with anticipated cash generated from operations and borrowing availability under our revolving credit facility are sufficient to meet our working capital requirements for the foreseeable future.   However, although we do not anticipate needing additional capital in the near term, the current financial and economic conditions could limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all. We also face other risks that could impact our business, liquidity and financial condition. For a description of these risks, see “Item 1A. Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Critical Accounting Policies

In response to the SEC’s financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, we have selected for disclosure our revenue recognition process and our accounting processes involving significant judgments, estimates and assumptions.  These processes affect our reported revenues and current assets and are therefore critical in assessing our financial and operating status.  We regularly evaluate these processes in preparing our financial statements.  The processes for revenue recognition, allowance for collection of trade receivables, reserves for excess or obsolete inventory, software development and income taxes involve certain assumptions and estimates that we believe to be reasonable under present facts and circumstances.  These estimates and assumptions, if incorrect, could adversely impact our operations and financial position.  There were no changes to our critical accounting policies during the quarter ended September 30, 2012 as described in Item 7. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We may be subject to the risk of fluctuating interest rates in the ordinary course of business for borrowings under our revolving credit facility, which bears interest at a variable rate based on the lender’s prime rate, in effect from time to time, plus 50 basis points.  As of September 30, 2012, there were no borrowings outstanding under our revolving credit facility.

ITEM 4.   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer (who serves as our principal financial and accounting officer) have evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (Securities Exchange Act) Rules 13a-15(e) and 15d-15(e)) as of September 30, 2012.  Based on this evaluation, they have concluded that our disclosure controls and procedures were effective as of September 30, 2012.

Changes in Internal Control over Financial Reporting

During the third quarter ended September 30, 2012, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rules 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

14

PART II- OTHER  INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

Reference is made to Note 9 (Legal Proceedings) of the Company’s Condensed Consolidated Financial Statements included elsewhere in this report for the information required by this Item.

ITEM 6.   EXHIBITS

Exhibit 3(i)	Articles of Incorporation(1)
Exhibit 3(ii)	Certificate of Amendment to Articles of Incorporation(2)
Exhibit 3(iii)	By-Laws, as amended (3)
Exhibit 31.1	Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of Regulation S-K).
Exhibit 32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of Regulation S-K).
Exhibit 101.INS	XBRL Instance Document
Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.LAB	XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 101.DEF	XBRL Taxonomy Definition Linkbase Document

__________

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

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

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

15

SIGNATURES

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

	RELM WIRELESS CORPORATION
	(The “Registrant”)
Date: November 14, 2012	By:	/s/ David P. Storey
		David P. Storey President and Chief Executive Officer (Principal executive officer and duly authorized officer)
Date: November 14, 2012	By:	/s/ William P. Kelly
		William P. Kelly Executive Vice President and Chief Financial Officer (Principal financial and accounting officer and duly authorized officer)

16

Exhibit Index

Exhibit Number	Description
Exhibit 3(i)	Articles of Incorporation(1)
Exhibit 3(ii)	Certificate of Amendment to Articles of Incorporation(2)
Exhibit 3(iii)	By-Laws, as amended (3)
Exhibit 31.1	Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Certification Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of Regulation S-K).
Exhibit 32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32) of Regulation S-K).
Exhibit 101.INS	XBRL Instance Document
Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.LAB	XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 101.DEF	XBRL Taxonomy Definition Linkbase Document

__________

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

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

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

17

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, David P. Storey, President and Chief Executive Officer of RELM Wireless Corporation, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of RELM Wireless Corporation;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)           designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)           all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)           any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 14, 2012	By:	/s/ David P. Storey
		David P. Storey
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, William P. Kelly, Executive Vice President and Chief Financial Officer of RELM Wireless Corporation, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of RELM Wireless Corporation;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)           designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles:

(c)           evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)           all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)           any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 14, 2012	By:	/s/ William P. Kelly
		William P. Kelly
		Executive Vice President and
		Chief Financial Officer

EX-32.1

Exhibit 32.1

RELM WIRELESS CORPORATION

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of RELM Wireless Corporation (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David P. Storey, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	RELM Wireless Corporation
November 14, 2012	By:	/s/ David P. Storey
		David P. Storey
		President and Chief Executive Officer

EX-32.2

Exhibit 32.2

RELM WIRELESS CORPORATION

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of RELM Wireless Corporation (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William P. Kelly, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	RELM Wireless Corporation
November 14, 2012	By:	/s/ William P. Kelly
		William P. Kelly
		Executive Vice President and Chief Financial Officer

XML

5. Capitalized Software (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Capitalized Software Details Narrative
Amortization cost of softwares	$ 221	$ 250	$ 661	$ 750
capitalized software	160		160
Net capitalized software costs	$ 2,277		$ 2,277		$ 2,778

XML

4. Income Taxes

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

NOTE 4 - Income Taxes

Income tax expense totaling approximately $508 and $996 has been recorded for the three and nine months ended September 30, 2012.

As of September 30, 2012 and December 31, 2011, the Company’s net deferred tax assets totaled approximately $7,232, and

and $8,170, respectively, and  are primarily composed of net operating loss carry forwards (NOLs).  These NOLs total $10,716 for federal and $18,829 for state purposes, with expirations starting in 2017 through 2030.

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

The Company has evaluated the available evidence and the likelihood of realizing the benefit of its net deferred tax assets.  From its evaluation the Company has concluded that based on the weight of available evidence, it is more likely than not that the Company will not realize a portion of the benefit of its net deferred tax assets recorded at September 30, 2012.  Accordingly, for the nine months ended September 30, 2012, the Company maintained its valuation allowance totaling approximately $250 for the portion of benefit of its federal and state deferred tax assets that more likely than not will not be realized.  The Company cannot presently estimate what, if any, changes to the valuation of its deferred tax assets may be deemed appropriate in the future.  If the Company incurs future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of September 30, 2012.

XML

8. Non-Cash Share-Based Employee Compensation (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Non-Cash Share-Based Employee Compensation Details Narrative
Non-cash share-based employee compensation expense	$ 5	$ 40	$ 23	$ 131
Non-cash share-based employee compensation expenses as a component of cost of products	0	4	0	11
Selling, general and administrative expenses	$ 5	$ 36	$ 23	$ 120

XML

7. (Loss) Income per Share (Details Narrative)	9 Months Ended
	Sep. 30, 2012
Loss Income Per Share Details Narrative
Antidilutive Securities Excluded from Earning Per Share	988,812

XML

8. Non-Cash Share-Based Employee Compensation (Details) (USD $)	3 Months Ended
	Sep. 30, 2012
Notes to Financial Statements
Outstanding Stock Options	495,944
Vested Stock Options	470,944
Nonvested Stock Options	25,000
Issued Stock Options
Exercised Stock Options
Forfeited Stock Options
Expired Stock Options	35,000
Outstanding Stock Options	460,944
Vested Stock Options	435,944
Nonvested Stock Options	25,000
Outstanding Wgt. Avg. Exercise Price	$ 3.43
Vested Wgt. Avg. Exercise Price	$ 3.51
Nonvested Wgt. Avg. Exercise Price	$ 2.03
Issued Wgt. Avg. Exercise Price
Exercised Wgt. Avg. Exercise Price
Forfeited Wgt. Avg. Exercise Price
Expired Wgt. Avg. Exercise Price	$ 2.91
Outstanding Wgt. Avg. Exercise Price	$ 3.47
Vested Wgt. Avg. Exercise Price	$ 3.55
Nonvested Wgt. Avg. Exercise Price	$ 2.03
Outstanding Contractual Life	4 years 4 months 2 days
Vested Contractual Life	4 years 3 months 29 days
Nonvested Contractual Life	4 years 7 months 20 days
Outstanding Grant Date Fair Value	$ 2.24
Vested Grant Date Fair Value	$ 2.33
Nonvested Grant Date Fair Value	$ 0.68
Issued Grant Date Fair Value
Exercised Grant Date Fair Value
Forfeited Grant Date Fair Value
Expired Grant Date Fair Value	$ 1.67
Outstanding Grant Date Fair Value	$ 2.29
Vested Grant Date Fair Value	$ 2.38
Nonvested Grant Date Fair Value	$ 0.68
Outstanding Aggregate Intrinsic Value
Vested Aggregate Intrinsic Value
Nonvested Aggregate Intrinsic Value
Issued Aggregate Intrinsic Value
Exercised Aggregate Intrinsic Value
Forfeited Aggregate Intrinsic Value
Expired Aggregate Intrinsic Value
Outstanding Aggregate Intrinsic Value	9,750
Vested Aggregate Intrinsic Value	$ 9,750
Nonvested Aggregate Intrinsic Value

XML

10. Commitments and Contingencies (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Purchase orders to suppliers	$ 4,029		$ 4,029
UnitedStatesGovernmentAgenciesMember
Major customer sales contribution amount	4,637	4,722	9,834	9,822
Major customer sales contribution percent	57.20%	67.70%	45.10%	53.50%
Accounts receivable	$ 2,256	$ 2,074	$ 2,256	$ 2,074

XML

3. Inventories, net

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

NOTE 3 - Inventories, net

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

	September 30, 2012		December 31, 2011
Finished goods	$	3,207	$	3,981
Work in process		6,200		4,671
Raw materials		2,909		3,496
	$	12,316	$	12,148

Reserves for slow-moving, excess, or obsolete inventory were approximately $2,771 at September 30, 2012, compared with approximately $2,765 at December 31, 2011. The reserve for slow-moving, excess, or obsolete inventory is used to state the Company’s inventories at the lower of cost or market.

XML

11. Debt (Details Narrative) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Credit Facility Revolving credit facility	$ 3,758
SiliconValleyBankMember
Credit facility with maximum borrowing	$ 5,000
Maturity date	2012-12-31

XML

Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 6,232	$ 2,693
Trade accounts receivable (net of allowance for doubtful accounts of $39 and $44 at September 30, 2012 and December 31, 2011, respectively)	4,609	4,155
Inventories, net	12,316	12,148
Deferred tax assets	2,520	3,458
Prepaid expenses and other current assets	937	526
Total current assets	26,614	22,980
Property, plant and equipment, net	1,193	1,158
Deferred tax assets, net	4,712	4,712
Capitalized software, net	2,277	2,778
Other assets	338	219
Total assets	35,134	31,847
Current liabilities:
Accounts payable	2,551	1,756
Accrued compensation and related taxes	1,546	807
Accrued warranty expense	223	247
Accrued other expenses and other current liabilities	231	318
Note payable	35	0
Deferred revenue	593	385
Total current liabilities	5,179	3,513
Deferred revenue	112	265
Long-term debt	0	0
Total liabilities	5,291	3,778
Commitments and contingencies
Stockholders' equity:
Preferred stock; $1.00 par value; 1,000,000 authorized shares none issued or outstanding.	0	0
Common stock; $.60 par value; 20,000,000 authorized shares: 13,545,482 and 13,519,323 issued and outstanding shares at September 30, 2012 and December 31, 2011, respectively	8,127	8,111
Additional paid-in capital	24,599	24,570
Accumulated deficit	(2,883)	(4,612)
Total stockholders' equity	29,843	28,069
Total liabilities and stockholders' equity	$ 35,134	$ 31,847

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1. Condensed Consolidated Financial Statements

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

NOTE 1 - Condensed Consolidated Financial Statements

The condensed consolidated balance sheets as of September 30, 2012 and December 31, 2011, the condensed consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2012 and 2011 have been prepared by RELM Wireless Corporation (the Company), and are unaudited.  In the opinion of management, all adjustments, which include normal recurring adjustments, necessary for a fair presentation have been made.  The condensed consolidated balance sheet at December 31, 2011 has been derived from the Company’s audited consolidated financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as filed with the Securities and Exchange Commission.  The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the operating results for a full year.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements that impacted the quarterly or nine month periods ended September 30, 2012 and 2011, or which are expected to impact future periods, which were not previously disclosed in prior periods.

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3. Inventories, net (Details Narrative) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Inventories Net Details Narrative
Reserves for slow-moving, excess, or obsolete inventory	$ 2,771	$ 2,765

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4. Income Taxes (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Dec. 31, 2011
Income Taxes Details Narrative
Income tax expense	$ 508	$ 996
net deferred tax assets	7,232	7,232	7,232
Net Operating loss for federal tax	10,716	10,716
Net operating for state tax	18,829	18,829
Valuation allowance		$ 250

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2. Allowance for Doubtful Accounts

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

NOTE 2 - Allowance for Doubtful Accounts

The allowance for doubtful accounts on trade receivables was approximately $39 on gross trade receivables of $4,648 at September 30, 2012 and $44 on gross receivables of $4,199 at December 31, 2011.  This allowance is used to state trade receivables at a net realizable value or the amount that the Company estimates will be collected of the Company’s gross receivables.

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Allowance for doubtful accounts, net	$ 39	$ 44
Stockholders equity:
Preferred stock, par value	$ 1.00	$ 1.00
Preferred stock, authorized shares	1,000,000	1,000,000
Preferred stock, issued shares	0	0
Preferred stock, outstanding shares	0	0
Common stock, par value	$ 0.60	$ 0.60
Common stock, authorized shares	20,000,000	20,000,000
Common stock, issued shares	13,545,482	13,519,323
Common stock, outstanding shares	13,545,482	13,519,323

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3. Inventories, net (Tables)

9 Months Ended

Sep. 30, 2012

Inventories Net Tables

Components of inventory

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

	September 30, 2012		December 31, 2011
Finished goods	$	3,207	$	3,981
Work in process		6,200		4,671
Raw materials		2,909		3,496
	$	12,316	$	12,148

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 27, 2012
Document And Entity Information
Entity Registrant Name	RELM WIRELESS CORP
Entity Central Index Key	0000002186
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		13,545,482
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2012

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6. Stockholders’ Equity (Tables)

9 Months Ended

Sep. 30, 2012

Stockholders Equity Tables

Changes in consolidated stockholders’ equity

The changes in consolidated stockholders’ equity for the nine months ended September 30, 2012 are as follows:

	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital		Accumulated Deficit			Total
Balance at December 31, 2011		13,519,323	$	8,111	$	24,570	$	(4,612	)	$	28,069
Common stock option exercise and issued		26,159		16		6		-			22
Share-based compensation expense		−		−		23		−			23
Net income		−		−		−		1,729			1,729
Balance at September 30, 2012		13,545,482	$	8,127	$	24,599	$	(2,883	)	$	29,843

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Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Statement [Abstract]
Sales, net	$ 8,112	$ 6,976	$ 21,809	$ 18,361
Expenses
Cost of products	4,084	3,467	11,473	10,594
Selling, general and administrative	2,633	2,541	7,598	8,273
Total expenses	6,717	6,008	19,071	18,867
Operating income (loss)	1,395	968	2,738	(506)
Other expense:
Net interest expense	0	(27)	(3)	(89)
Other expense	(3)	(2)	(10)	(8)
Total other expense	(3)	(29)	(13)	(97)
Income (loss) before income taxes	1,392	939	2,725	(603)
Income tax benefit	(508)	(25)	(996)	(25)
Net income (loss)	$ 884	$ 914	$ 1,729	$ (628)
Net earnings (loss) per share-basic:	$ 0.07	$ 0.07	$ 0.13	$ (0.05)
Net earnings (loss) per share-diluted:	$ 0.07	$ 0.07	$ 0.13	$ (0.05)
Weighted average shares outstanding-basic	13,545,482	13,518,638	13,541,250	13,512,125
Weighted average shares outstanding-diluted	13,549,146	13,525,082	13,543,631	13,512,125

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7. Income (Loss) per Share

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

NOTE 7 - Income (Loss) per Share

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

	Three Months Ended				Nine months Ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Numerator:
Net  income (loss) (numerator for basic and diluted earnings per share)	$	884	$	914	$	1,729	$	(628	)
Denominator:
Denominator for basic earnings per share weighted average shares		13,545,482		13,518,638		13,541,250		13,512,125
Effect of dilutive securities:
Options		3,664		2,719		2,381		-
Denominator
Denominator for diluted earnings per share weighted average shares		13,549,146		13,521,357		13,543,631		13,512,125
Basic income (loss) per share	$	0.07	$	0.07	$	0.13	$	(0.05	)
Diluted income (loss) per share	$	0.07	$	0.07	$	0.13	$	(0.05	)

A total of  988,812 shares related to options are not included in the computation of diluted loss per share for the three and nine months ended September 30, 2011 because to do so would have been anti-dilutive for these periods.

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6. Stockholders' Equity

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

NOTE 6 - Stockholders' Equity

The changes in consolidated stockholders’ equity for the nine months ended September 30, 2012 are as follows:

	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital		Accumulated Deficit			Total
Balance at December 31, 2011		13,519,323	$	8,111	$	24,570	$	(4,612	)	$	28,069
Common stock option exercise and issued		26,159		16		6		-			22
Share-based compensation expense		−		−		23		−			23
Net income		−		−		−		1,729			1,729
Balance at September 30, 2012		13,545,482	$	8,127	$	24,599	$	(2,883	)	$	29,843

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3. Inventories, net (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Inventories Net Details
Finished goods	$ 3,207	$ 3,981
Work in process	6,200	4,671
Raw materials	2,909	3,496
Total Inventory	$ 12,316	$ 12,148

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7. (Loss) Income per Share (Tables)

9 Months Ended

Sep. 30, 2012

Loss Income Per Share Tables

Computation of basic and diluted (loss) income per share

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

	Three Months Ended				Nine months Ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011
Numerator:
Net  income (loss) (numerator for basic and diluted earnings per share)	$	884	$	914	$	1,729	$	(628	)
Denominator:
Denominator for basic earnings per share weighted average shares		13,545,482		13,518,638		13,541,250		13,512,125
Effect of dilutive securities:
Options		3,664		2,719		2,381		-
Denominator
Denominator for diluted earnings per share weighted average shares		13,549,146		13,521,357		13,543,631		13,512,125
Basic income (loss) per share	$	0.07	$	0.07	$	0.13	$	(0.05	)
Diluted income (loss) per share	$	0.07	$	0.07	$	0.13	$	(0.05	)

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10. Debt

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

NOTE 10 - Debt

The Company has a secured revolving credit facility with Silicon Valley Bank with maximum borrowing availability of $5,000 (subject to a borrowing base) and a maturity date of December 31, 2012.  As of September 30, 2012, the Company was in compliance with all covenants under the loan and security agreement, as amended, governing this revolving credit facility.   For a description of such covenants and the other terms and conditions of the loan and security agreement, as amended, reference is made to Note 6 (Debt) of the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  As of September 30, 2012, there were no borrowings outstanding under the revolving credit facility and there was approximately $3,758 of borrowing available under the revolving credit facility.

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8. Non-Cash Share-Based Employee Compensation

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

NOTE 8 - Non-Cash Share-Based Employee Compensation

The Company has employee and non-employee director stock option programs.  Related to these programs, and in accordance with ASC Topic 718, “Compensation-Stock Compensation”, the Company recorded non-cash share-based employee compensation expense of $5 and $23, respectively, for the three and nine months ended September 30, 2012, compared with $40 and $131 for the same periods last year.  The Company considers its non-cash share-based employee compensation expenses as a component of cost of products ($0 and $0 for the three and nine months ended September 30, 2012, respectively, compared with $4 and $11 for the same periods last year) and selling, general and administrative expenses ($5 and $23 for the three and nine months ended September 30, 2012, respectively, compared with $36 and $120 for the same periods last year).  There was no non-cash share–based employee compensation expense capitalized as part of capital expenditures or inventory for the periods presented.

The Company uses the Black-Scholes-Merton option valuation model to calculate the fair value of a stock option grant.  The non-cash share-based employee compensation expense recorded in the three and nine months ended September 30, 2012 was calculated using certain assumptions.  For a description of such assumptions, reference is made to Note 10 (Share-Based Employee Compensation) of the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

A summary of stock option activity under the Company’s stock option plans as of September 30, 2012, and changes during the three months ended September 30, 2012 are presented below:

As of July 1, 2012	Stock Options		Wgt. Avg. Exercise Price ($) Per Share		Wgt. Avg. Remaining Contractual Life (Years)		Wgt. Avg. Grant Date Fair Value($) Per Share		Aggregate Intrinsic Value ($)
Outstanding		495,944		3.43		-		2.24		-
Vested		470,944		3.51		-		2.33		-
Nonvested		25,000		2.03		-		0.68		-
Period activity
Issued		-		-		-		-		-
Exercised		-		-		-		-		-
Forfeited		-		-		-		-		-
Expired		35,000		2.91		-		1.67		-
As of September 30, 2012
Outstanding		460,944		3.47		4.34		2.29		9,750
Vested		435,944		3.55		4.33		2.38		9,750
Nonvested		25,000		2.03		4.64		0.68		-

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9. Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

NOTE 9 - Commitments and Contingencies

Legal Proceedings

From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of its business. There were no pending material claims or legal matters as of September 30, 2012.

Other

As of September 30, 2012, the Company had purchase orders to suppliers of approximately $4,029.

Significant Customers

Sales to United States government agencies represented approximately $4,637 (57.2%) and $9,834 (45.1%) of the Company’s total sales for the three and nine months ended September 30, 2012, respectively, compared with approximately $4,722 (67.7%) and $9,822 (53.5%) for the same periods last year.  Accounts receivable from agencies of the United States government were approximately $2,256 as of September 30, 2012 compared with approximately $2,074 at the same date last year.

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2. Significant Events and Transactions (Policies)

9 Months Ended

Sep. 30, 2012

Significant Events And Transactions Policies

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements that impacted the quarterly or nine month periods ended September 30, 2012 and 2011, or which are expected to impact future periods, which were not previously disclosed in prior periods.

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2. Allowance for Doubtful Accounts (Details Narrative) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Allowance For Doubtful Accounts Details Narrative
Allowance for doubtful accounts on trade receivables	$ 39	$ 44
Gross trade receivables	$ 4,648	$ 4,199

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6. Stockholders’ Equity (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Balance at December 31, 2011			13,519,323
Balance at December 31, 2011			$ 28,069
Common stock option exercise and issued
Common stock option exercise and issued			22
Share-based compensation expense			23
Net income	884	914	1,729	(628)
Balance at September 30, 2012	13,545,482		13,545,482
CommonStockMember
Balance at December 31, 2011			13,519,323
Common stock option exercise and issued			26,159
Share-based compensation expense
Net income
Balance at September 30, 2012	13,545,482		13,545,482
CommonStockAmountMember
Balance at December 31, 2011			8,111
Common stock option exercise and issued			16
Share-based compensation expense
Net income
Balance at September 30, 2012	8,127		8,127
CommonStockIncludingAdditionalPaidInCapitalMember
Balance at December 31, 2011			24,570
Common stock option exercise and issued			6
Share-based compensation expense			23
Net income
Balance at September 30, 2012	24,599		24,599
AccumulatedDeficitMember
Balance at December 31, 2011			(4,612)
Share-based compensation expense
Net income			1,729
Balance at September 30, 2012	$ (2,883)		$ (2,883)

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Operating activities
Net income (loss)	$ 1,729	$ (628)
Adjustments to reconcile net loss to net cash provided by operating activities:
Allowance for doubtful accounts	(5)	0
Inventories reserve	6	107
Deferred tax obligation	938	0
Depreciation and amortization	975	1,059
Share-based compensation expense	23	131
Changes in operating assets and liabilities:
Accounts receivable	(449)	633
Inventories	(174)	(385)
Prepaid expenses and other current assets	(411)	198
Other assets	(119)	34
Accounts payable	795	(1,279)
Accrued compensation and related taxes	739	61
Accrued warranty expense	(24)	31
Note payable	35	0
Deferred revenue	55	226
Accrued other expenses and other current liabilities	(87)	59
Net cash provided by operating activities	4,026	247
Investing activities
Purchases of property, plant and equipment	(349)	(198)
Capitalized software	(160)	0
Net cash used in investing activities	(509)	(198)
Financing activities
Proceeds from issuance of common stock	22	0
Increase in revolving line of credit	0	1,500
Decrease in revolving line of credit	0	(1,700)
Cash provided by (used in) financing activities	22	(200)
Net change in cash and cash equivalents	3,539	(151)
Cash and cash equivalents, beginning of period	2,693	5,050
Cash and cash equivalents, end of period	6,232	4,899
Supplemental disclosure
Cash paid for interest	3	90
Income tax paid	62	0
Non-cash financing activity
Cashless exercise of stock options and related conversion of net shares to stockholders' equity	$ 4	$ 6

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5. Capitalized Software

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

NOTE 5 - Capitalized Software

The Company accounts for the costs of software within its products in accordance with ASC Topic 985-20 “Costs of Software to be Sold, Leased or Marketed”, under which certain software costs incurred subsequent to the establishment of technological feasibility are capitalized and amortized over the estimated lives of the related products. The Company determines technological feasibility to be established upon the internal release of a detailed program design as specified by Topic 985-20. Upon the general release of the product to customers, development costs for that product are amortized over periods not exceeding five years, based on current and future revenue of the product. For the three and six months ended September 30, 2012, the Company recorded capitalized software of $160.  For the three and nine months ended September 30, 2012, the Company’s amortization cost was approximately $221 and $661, respectively, compared with $250 and $750 for the same periods last year.  Net capitalized software costs totaled $2,277 and $2,778 as of September 30, 2012 and December 31, 2011, respectively.

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7. (Loss) Income per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Numerator:
Net income (loss) (numerator for basis and diluted earnings per share)	$ 884	$ 914	$ 1,729	$ (628)
Denominator:
Denominator for basic earnings per share weighted average shares	13,545,482	13,518,638	13,541,250	13,512,125
Effect of dilutive securities:
Options	3,664	2,719	2,381
Denominator
Denominator for diluted earnings per share weighted average shares	13,549,146	13,525,082	13,543,631	13,512,125
Basic income (loss) per share	$ 0.07	$ 0.07	$ 0.13	$ (0.05)
Diluted income (loss) per share	$ 0.07	$ 0.07	$ 0.13	$ (0.05)

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8. Non-Cash Share-Based Employee Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Non-Cash Share-Based Employee Compensation Tables

A summary of stock option activity

A summary of stock option activity under the Company’s stock option plans as of September 30, 2012, and changes during the three months ended September 30, 2012 are presented below:

As of July 1, 2012	Stock Options		Wgt. Avg. Exercise Price ($) Per Share		Wgt. Avg. Remaining Contractual Life (Years)		Wgt. Avg. Grant Date Fair Value($) Per Share		Aggregate Intrinsic Value ($)
Outstanding		495,944		3.43		-		2.24		-
Vested		470,944		3.51		-		2.33		-
Nonvested		25,000		2.03		-		0.68		-
Period activity
Issued		-		-		-		-		-
Exercised		-		-		-		-		-
Forfeited		-		-		-		-		-
Expired		35,000		2.91		-		1.67		-
As of September 30, 2012
Outstanding		460,944		3.47		4.34		2.29		9,750
Vested		435,944		3.55		4.33		2.38		9,750
Nonvested		25,000		2.03		4.64		0.68		-