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 June 30, 2014

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 001-32644

RELM WIRELESS CORPORATION

(Exact name of registrant as specified in its charter)

Nevada	59-3486297
State or other jurisdiction of	(I.R.S. Employer
Incorporation or organization	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	o	Smaller reporting company	þ
(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 13,653,087 shares of common stock, $0.60 par value, of the registrant outstanding at July 27, 2014.

PART I. - FINANCIAL INFORMATION

Item 1.                      FINANCIAL STATEMENTS

RELM WIRELESS CORPORATION

Condensed Consolidated Balance Sheets

(In thousands, except share data) (Unaudited)

	June 30,				December 31,
	2014				2013
ASSETS
Current assets:
Cash and cash equivalents		$	9,162			$	7,945
Trade accounts receivable (net of allowance for doubtful accounts of $122 and $84 at June 30, 2014 and December 31, 2013, respectively)			6,255				2,844
Inventories, net			10,284				11,575
Deferred tax assets			3,241				3,836
Prepaid expenses and other current assets			1,778				1,920
Total current assets			30,720				28,120
Property, plant and equipment, net			1,152				1,045
Deferred tax assets, net			3,165				3,072
Capitalized software, net			1,084				1,478
Other assets			286				308
Total assets		$	36,407			$	34,023
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	1,712			$	950
Accrued compensation and related taxes			1,022				779
Accrued warranty expense			320				292
Accrued other expenses and other current liabilities			146				154
Deferred revenue			255				281
Total current liabilities			3,455				2,456
Deferred revenue			234				147
Total liabilities		$	3,689			$	2,603
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: 13,653,087 and 13,588,804 issued and outstanding shares at June 30, 2014 and December 31, 2013, respectively			8,192				8,153
Additional paid-in capital			24,784				24,672
Accumulated deficit			(258	)			(1,405	)
Total stockholders' equity			32,718				31,420
Total liabilities and stockholders' equity		$	36,407			$	34,023

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						Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Sales, net	$	9,057		$	6,191		$	16,882		$	13,264
Expenses
Cost of products		5,180			3,474			9,857			7,312
Selling, general and administrative		2,839			2,339			5,385			5,075
Total expenses		8,019			5,813			15,242			12,387
Operating income		1,038			378			1,640			877
Other income (expense):
Net interest expense		(0	)		(0	)		(0	)		(0	)
Other income (expense)		(9	)		31			(9	)		11
Total other income (expense)		(9	)		31			(9	)		11
Income before income taxes		1,029			409			1,631			888
Income tax expense		(357	)		(212	)		(484	)		(286	)
Net income	$	672		$	197		$	1,147		$	602
Net earnings per share-basic:	$	0.05		$	0.01		$	0.08		$	0.04
Net earnings per share-diluted:	$	0.05		$	0.01		$	0.08		$	0.04
Weighted average shares outstanding-basic		13,645,025			13,564,119			13,634,182			13,554,852
Weighted average shares outstanding-diluted		13,731,422			13,653,703			13,721,754			13,579,970

See notes to condensed consolidated financial statements.

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RELM WIRELESS CORPORATION

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

	Six Months Ended
	June 30, 2014			June 30, 2013
Operating activities
Net income	$	1,147		$	602
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Allowance for doubtful accounts		38			-
Inventories reserve		-			36
Deferred tax obligation		502			285
Depreciation and amortization		615			740
Shared-based compensation expense		25			33
Changes in operating assets and liabilities:
Accounts receivable		(3,449	)		(1,466	)
Inventories		1,291			436
Prepaid expenses and other current assets		142			(87	)
Other assets		22			17
Accounts payable		762			(194	)
Accrued compensation and related taxes		243			(672	)
Accrued warranty expense		28			6
Note payable		-			(18	)
Deferred revenue		61			(143	)
Accrued other expenses and other current liabilities		(8	)		(9	)
Net cash  provided by (used in) operating activities		1,419			(434	)
Investing activities
Purchases of property, plant and equipment		(328	)		(88	)
Capitalized software		-			(289	)
Net cash used in investing activities		(328	)		(377	)
Financing activities
Proceeds from issuance of common stock		126			34
Cash provided by financing activities		126			34
Net change in cash and cash equivalents		1,217			(777	)
Cash and cash equivalents, beginning of period		7,945			6,581
Cash and cash equivalents, end of period	$	9,162		$	5,804
Supplemental disclosure
Cash paid for interest	$	-		$	-
Income tax paid	$	-		$	-
Non-cash financing activity
Cashless exercise of stock options and related conversion of net shares to stockholders’ equity	$	2		$	9

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 June 30, 2014 and December 31, 2013, the condensed consolidated statements of operations for the three and six months ended June 30, 2014 and 2013 and the condensed consolidated statements of cash flows for the six months ended June 30, 2014 and 2013 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, 2013 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, 2013, as filed with the Securities and Exchange Commission.  The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the operating results for a full year.

Recent Accounting Pronouncements

In May 2014, the FASB issued guidance on revenue recognition, which provides for a single, principles-based model for revenue recognition and replaces the existing revenue recognition guidance. The guidance is effective for annual and interim periods beginning on or after December 15, 2016, and will replace most existing revenue recognition guidance under U.S. GAAP when it becomes effective. It permits the use of either a retrospective or cumulative effect transition method and early adoption is not permitted. The Company is in the process of evaluating the effect this standard will have, if any, on its condensed consolidated financial statements and related disclosures.

2.           Allowance for Doubtful Accounts

The allowance for doubtful accounts on trade receivables was approximately $122 on gross trade receivables of $6,377 at June 30, 2014 and $84 on gross receivables of $2,928 at December 31, 2013.  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:

	June 30, 2014		December 31, 2013
Finished goods	$	2,742	$	3,525
Work in process		4,689		5,702
Raw materials		2,853		2,348
	$	10,284	$	11,575

Reserves for slow-moving, excess, or obsolete inventory are used to state the Company’s inventories at the lower of cost or market.  The reserves for slow-moving, excess, or obsolete inventory were approximately $1,694 at June 30, 2014, compared with approximately $2,960 at December 31, 2013. During the first quarter  of 2014, the Company disposed of obsolete inventory that had been fully reserved previously.  There was no material impact to the Company’s balance sheet or statement of operations that resulted from this transaction.

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Notes to Condensed Consolidated Financial Statements

Unaudited

(in Thousands, Except Share Data and Percentages)

4.           Income Taxes

Income tax expense totaling approximately $357 and $484 has been recorded for the three and six months ended June 30, 2014.

As of June 30, 2014 and December 31, 2013, the Company’s net deferred tax assets totaled approximately $6,406 and $6,908, respectively, and are primarily composed of net operating loss carry forwards (NOLs).  These NOLs total $5,901 for federal and $14,216 for state purposes, with expirations starting in 2018 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 realize the full benefit of its net deferred tax assets recorded at June 30, 2014.  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 June 30, 2014.

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 June 30, 2014, the Company did not capitalize any software costs.  For the three and six months ended June 30, 2014, the Company’s amortization cost was approximately $197 and $394, respectively, compared with $272 and $544, respectively, for the same period last year.  Net capitalized software costs totaled $1,084 and $1,478 as of June 30, 2014 and December 31, 2013, respectively.

6.           Stockholders’ Equity

The changes in consolidated stockholders’ equity for the six months ended June 30, 2014 are as follows:

	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital		Accumulated Deficit			Total
Balance at December 31, 2013		13,588,804	$	8,153	$	24,672	$	(1,405	)	$	31,420
Common stock option exercise and issued		64,283		39		87		−			126
Share-based compensation expense		−		−		25		−			25
Net income		−		−		−		1,147			1,147
Balance at June 30, 2014		13,653,087	$	8,192	$	24,784	$	(258	)	$	32,718

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Notes to Condensed Consolidated Financial Statements

Unaudited

(in Thousands, Except Share Data and Percentages)

7.           Income per Share

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

	Three Months Ended				Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Numerator:
Net  income (numerator for basic and diluted earnings per share)	$	672	$	197	$	1,147	$	602
Denominator:
Denominator for basic earnings per share weighted average shares		13,645,025		13,564,119		13,634,182		13,554,852
Effect of dilutive securities:
Options		86,397		89,584		87,572		25,118
Denominator
Denominator for diluted earnings per share weighted average shares		13,731,422		13,653,703		13,721,754		13,579,970
Basic income per share	$	0.05	$	0.01	$	0.08	$	0.04
Diluted income per share	$	0.05	$	0.01	$	0.08	$	0.04

A total of  227,444 shares related to options are not included in the computation of diluted income per share for the three and six months ended June 30, 2014 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 $13 and $25, respectively, for the three and six months ended June 30, 2014, compared with $2 and $33 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 six months ended June 30, 2014, respectively, compared with $0 and $0 for the same periods last year) and selling, general and administrative expenses ($13 and $25 for the three and six months ended June 30, 2014, respectively, compared with $2 and $33 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 six months ended June 30, 2014 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, 2013.

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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 June 30, 2014, and changes during the six months ended June 30, 2014 are presented below:

As of January 1, 2014	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		482,611		3.50		-		2.18		-
Vested		410,942		3.64		-		2.41		-
Nonvested		71,669		2.68		-		0.87		-
Period activity
Issued		35,000		3.40		-		0.08		-
Exercised		75,833		2.18		-		1.03		-
Forfeited		-		-		-		-		-
Expired		5,000		3.45		-		0.03		-
As of June 30, 2014
Outstanding		436,778		3.72		4.13		2.24		368,459
Vested		373,443		3.86		3.83		2.52		307,773
Nonvested		63,335		2.90		5.87		0.61		60,686

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 June 30, 2014.

Other

As of June 30, 2014, the Company had purchase orders to suppliers of approximately $4,320.

Significant Customers

Sales to United States government agencies represented approximately $3,434 (37.0%) and $6,617 (38.3%) of the Company’s total sales for the three and six months ended June 30, 2014, respectively, compared with approximately $1,356 (21.9%) and $4,632 (34.9%) for the same periods last year.  Accounts receivable from agencies of the United States government were $2,512 as of June 30, 2014 compared with approximately $588 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, 2014.  As of June 30, 2014, 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, 2013.  As of June 30, 2014, there were no borrowings outstanding under the revolving credit facility and there was approximately $5,000 of borrowing available.

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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, 2013 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;

●   fluctuation in our operating results;

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●   acts of war or terrorism;

●   any infringement claims;

●   provisions in our charter documents and under Nevada law that may discourage a potential takeover;

●   maintenance of our NYSE MKT listing; and

●   the effect on our stock price and ability to raise equity capital of future sales of shares of our common stock.

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 six months ended June 30, 2014 improved compared with the same periods last year.  Total sales and sales of P25 digital products increased for both periods, while selling, general and administrative expenses as a percentage of sales declined.  These factors combined to yield an increase in operating income compared with the same periods last year.  Also, our financial position at the end of the second quarter 2014 improved with an increase in working capital, including growth in cash and trade receivables, and a decrease in inventory, compared with the year ended December 31, 2013 and the immediately preceding quarter ended March 31, 2014.

For the three months ended June 30, 2014, total sales increased 46.3% to approximately $9.1 million, compared with approximately $6.2 million for the same quarter last year.  Sales of P25 digital products for the second quarter of 2014 increased 81.5% to approximately $6.6 million (72.6% of total sales) compared with approximately $3.6 million (58.6% of total sales) for the same quarter last year.

For the six months ended June 30, 2014, total sales increased 27.3% to approximately $16.9 million, compared with approximately $13.3 million for the same quarter last year.  Sales of P25 digital products for the six months ended June 30, 2014 increased 46.2% to approximately $12.3 million (72.8% of total sales) compared with approximately $8.4 million (63.4% of total sales) for the same period last year.

Gross margins as a percentage of sales for the second quarter ended June 30, 2014 were approximately 42.8%, compared with 43.9% for the same quarter last year, and compared with 40.2% for the first quarter of 2014.  For the six months ended June 30, 2014, gross margins as a percentage of sales were approximately 41.6% compared with 44.9% for the same period last year.  The gross margins for the quarter are primarily a reflection of the mix of products sold, competitive pressures and manufacturing overhead absorption.

For the three and six months ended June 30, 2014, selling, general and administrative expenses (SG&A) totaled approximately $2.8 million (31.3% of sales) and $5.4 million (31.9% of sales), respectively, compared with approximately $2.3 million (37.8% of sales) and $5.1 million (38.3% of sales), respectively, for the same periods last year.

Pretax income for the three and six months ended June 30, 2014 increased to approximately $1.0 million and $1.6 million, respectively, compared with approximately $409,000 and $888,000, respectively, for the same periods last year.

For the three and six months ended June 30, 2014, income tax expense totaled approximately $357,000 and $484,000, respectively, compared with $212,000 and $286,000, respectively, for 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.

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Net income for the three and six months ended June 30, 2014 was approximately $672,000 ($0.05 per basic and diluted share) and $1.1 million ($0.08 per basic and diluted share), respectively, compared with $197,000 ($0.01 per basic and diluted share) and $602,000 ($0.04 per basic and diluted share), respectively for the same periods last year.

As of June 30, 2014, working capital totaled approximately $27.3 million, of which approximately $15.4 million was comprised of cash and trade receivables.  As of December 31, 2013 working capital totaled approximately $25.7 million, of which approximately $10.8 million was comprised of cash and trade receivables.

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 Six Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products		(57.2	)		(56.1	)		(58.4	)		(55.1	)
Gross margin		42.8			43.9			41.6			44.9
Selling, general and administrative expenses		(31.3	)		(37.8	)		(31.9	)		(38.2	)
Net interest expense		(0.0	)		(0.0	)		(0.0	)		(0.0	)
Other income (expense )		(0.1	)		0.5			(0.1	)		0.1
Pretax  income		11.4			6.6			9.6			6.8
Income tax expense		(3.9	)		(3.4	)		(2.9	)		(2.2	)
Net income		7.5	%		3.2	%		6.7	%		4.6	%

Net Sales

For the second quarter ended June 30, 2014, net sales increased 46.3% to approximately $9.1 million, compared with approximately $6.2 million for the same quarter last year.  Sales of P25 digital products for the quarter increased 81.5% totaling approximately $6.6 million (72.3% of total sales), compared with approximately $3.6 million (58.6% of total sales) for the same quarter last year.

For the six months ended June 30, 2014, net sales increased 27.3% to approximately $16.9 million, compared with approximately $13.3 million for the same period last year.  Sales of P25 digital products for the six months ended June 30, 2014 increased 46.2% to approximately $12.3 million (72.8% of total sales) compared with approximately $8.4 million (63.4% of total sales) for the same period last year.

The comparative growth in both total sales and sales of digital products was driven primarily by previously announced orders from new customers in state, county and municipal public safety agencies combined with orders from longstanding legacy customers.  These orders were for P25 digital products, a substantial portion of which is comprised of our newer KNG models, but also our legacy D-series products.

Cost of Products and Gross Profit Margin

Gross profit margin as a percentage of sales for the second quarter ended June 30, 2014 was 42.8% compared with 43.9% for the same quarter last year and 40.2% for the preceding quarter.  For the six months ended June 30, 2014, gross profit margin as a percentage of sales was 41.6% compared with 44.9% for the same period last year.

11

Our cost of products and gross profit margin are primarily related to material and labor costs, product mix, manufacturing volumes and pricing.  The cost of products and corresponding gross profit margin for the first half of 2014, particularly during the first quarter, reflected some competitive pressures and a less favorable mix of product sales.  Also, manufacturing volumes were impacted as a result of inventory reduction initiatives.  Accordingly, we did not optimize the utilization and absorption of our manufacturing and support expenses.  These factors abated somewhat during the second quarter, as gross profit margin improved 2.6% from the first quarter.  During the first quarter 2014 we disposed of obsolete inventory that had been fully reserved previously.  There was no material impact on our balance sheet or statement of operations as a result of this transaction.

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 our current contract manufacturing relationships or comparable alternatives will be available to us in the future.  We believe leveraging increased sales volumes and P-25 product sales, combined with the aforementioned manufacturing improvements, should yield gross margin improvements.

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 second quarter 2014 were approximately $2.8 million (31.3% of sales), compared with $2.3 million (37.8% of sales) for the same quarter last year.  For the six months ended June 30, 2014, SG&A expenses totaled approximately $5.4 million (31.9% of sales) compared with approximately $5.1 million (38.3% of sales) for the same period last year.

Engineering and product development expenses for the second quarter 2014 totaled approximately $902,000 (10.0% of total sales), compared with $918,000 (14.8% of total sales) for the same quarter last year.  For the six months ended June 30, 2014, engineering and product development expenses totaled approximately $1.8 million (10.6% of total sales) compared with $1.8 million (13.8% of total sales) for the same period last year.  The decreases are attributed primarily to the amortization of capitalized software, as one project was fully amortized.

Marketing and selling expenses for the second quarter 2014 totaled approximately $1.1 million (11.8% of total sales), compared with $732,000 (11.8% of total sales) for the same quarter last year.  For the six months ended June 30, 2014, sales and marketing expenses totaled approximately $2.0 million (11.6% of total sales), compared with approximately $1.8 million (13.5% of total sales) for the same period last year.  The increase for the second quarter and six month periods relates primarily to commissions and incentives, which directly correlate with the increase in sales.

General and administrative expenses for the second quarter 2014 totaled approximately $839,000 (9.3% of total sales), compared with approximately $688,000 (11.1% of total sales) for the same quarter last year.  For the six months ended June 30, 2014, general and administrative expenses totaled approximately $1.6 million (9.6% of total sales), compared with $1.5 million (11.1% of total sales) for the same period last year.  The increases were attributed primarily to compensation and public company related expenses.

Operating Income

Operating income for the quarter ended June 30, 2014 totaled approximately $1.0 million (11.5% of sales), compared with approximately $378,000 (6.1% of sales) for the same quarter last year.  For the six months ended June 30, 2014, operating income totaled approximately $1.6 million (9.7% of sales), compared with $877,000 (6.6% of sales) for the same period last year.  The improvement in operating income was primarily the result of increased total sales, and sales of P25 digital products.

12

Net Interest Expense

We incurred no net interest expense for the second quarter or six months ended June 30, 2014, or for the comparable prior year periods.  Interest expense may be incurred from time to time on outstanding borrowings under our revolving credit facility and earn interest income on our cash balances.  The interest rate on such revolving credit facility as of June 30, 2014 was 4.00% per annum.  This rate is variable based on the lender’s prime rate and our adjusted quick ratio.

Income Taxes

We recorded income tax expense of approximately $357,000 and $484,000, respectively for the quarter and six months ended June 30, 2014, compared with $212,000 and $286,000, respectively for the same periods last year.  Our income tax expense and benefit are primarily non-cash.

As of June 30, 2014, our deferred tax assets totaled approximately $6.4 million, and are primarily composed of net operating loss carry forwards (NOLs).  These NOLs total $5.9 million for federal and $14.2 million for state purposes, with expirations starting in 2018 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 realize the benefit of our net deferred tax assets recorded at June 30, 2014.  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 June 30, 2014.

Liquidity and Capital Resources

For the first six months ended June 30, 2014, net cash provided by operating activities totaled approximately $1.4 million, compared with cash used in operating activities totaling approximately $434,000 for the same period last year.  Cash provided by operating activities was primarily related to net income and decreases in net inventory.  For the six months ended June 30, 2014, we realized net income of approximately $1.1 million, compared with approximately $602,000 for the same period last year.  Net inventories decreased during the six months ended June 30, 2014 by approximately $1.3 million as a result of inventory reduction initiatives.  Accounts receivable increased approximately $3.4 million during the six months ended June 30, 2014, reflecting sales that were consummated later in the quarter that have not yet completed their collection cycle.  For the same period last year, accounts receivable increased approximately $1.5 million.  Accounts payable for the six months ended June 30, 2014 increased approximately $762,000 in anticipation of increasing business volumes and related material purchases.  For the same period last year trade payables decreased by approximately $194,000.  Depreciation and amortization totaled approximately $615,000 for the six months ended June 30, 2014, compared with approximately $740,000 for the same period last year, as some capitalized software was fully amortized.

13

Cash used in investing activities for the six months ended June 30, 2014 totaled approximately $328,000 compared with approximately $377,000 for the same quarter last year.  Cash used in investing activities for the six months ended June 30, 2014 was primarily for test equipment related to manufacturing and engineering, and to upgrade our company-wide enterprise system.  For the same period last year, cash used in investing activities was primarily for the development of software, which was capitalized.  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 six months ended June 30, 2014 totaled approximately $126,000, representing proceeds from the issuance of common stock upon the exercise of stock options.

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, 2014.

As of June 30, 2014 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, 2013.

As of June 30, 2014 and the date of this report, there were no borrowings outstanding under the revolving credit facility.  As of June 30, 2014 and the date of this report, there was approximately $5,000 million and $2,751 million, respectively, of borrowing available under the revolving credit facility.

Our cash balance at June 30, 2014 was approximately $9.2 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, 2013.

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 June 30, 2014 as described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

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 June 30, 2014.  Based on this evaluation, they have concluded that our disclosure controls and procedures were effective as of June 30, 2014.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended June 30, 2014, 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)	Amended and Restated By-Laws(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*

* Furnished herewith (not filed)

(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 Current Report on Form 8-K filed May 29, 2013.

15

SIGNATURES

Pursuant to the requirements 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.

	RELM WIRELESS CORPORATION
	(The “Registrant”)
Date: August 12, 2014	By:	/s/ David P. Storey
		David P. Storey
		President and Chief Executive Officer
		(Principal executive officer and duly authorized officer)
Date: August 12, 2014	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)	Amended and Restated By-Laws(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*

* Furnished herewith (not filed)

(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 Current Report on Form 8-K filed May 29, 2013.

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:  August 12, 2014

/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:  August 12, 2014

/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 June 30, 2014 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

/s/David P. Storey                                                              

David P. Storey

President and Chief Executive Officer

August 12, 2014

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 June 30, 2014 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

/s/William P. Kelly                                                                

William P. Kelly

Executive Vice President and Chief Financial Officer

August 12, 2014

XML

6. Stockholders' Equity (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Beginning Balance, Amount			$ 31,420
Beginning Balance, Shares			13,588,804
Common stock option exercise and issued, Amount			126
Share - based compensation expense			25
Net income	672	197	1,147	602
Ending Balance, Amount	32,718		32,718
Ending Balance, Shares	13,653,087		13,653,087
CommonStockMember
Beginning Balance, Amount			8,153
Beginning Balance, Shares			13,588,804
Common stock option exercise and issued, Amount			39
Common stock option exercise and issued, Shares			64,283
Ending Balance, Amount	8,192		8,192
Ending Balance, Shares	13,653,087		13,653,087
AdditionalPaidInCapitalMember
Beginning Balance, Amount			24,672
Common stock option exercise and issued, Amount			87
Share - based compensation expense			25
Ending Balance, Amount	24,784		24,784
AccumulatedDeficitMember
Beginning Balance, Amount			(1,405)
Net income			1,147
Ending Balance, Amount	$ (258)		$ (258)

XML

4. Income Taxes

6 Months Ended

Jun. 30, 2014

Notes to Financial Statements

NOTE 4 - Income Taxes

Income tax expense totaling approximately $357 and $484 has been recorded for the three and six months ended June 30, 2014.

As of June 30, 2014 and December 31, 2013, the Company’s net deferred tax assets totaled approximately $6,406 and $6,908, respectively, and are primarily composed of net operating loss carry forwards (NOLs).  These NOLs total $5,901 for federal and $14,216 for state purposes, with expirations starting in 2018 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 realize the full benefit of its net deferred tax assets recorded at June 30, 2014.  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 June 30, 2014.

XML

11. Debt (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jun. 30, 2014
Maturity date	2014-12-31
Revolving credit facility	$ 5,000
SiliconValleyBankMember
Credit facility with maximum borrowing	$ 5,000

XML

3. Inventories, net

6 Months Ended

Jun. 30, 2014

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:

	June 30, 2014		December 31, 2013
Finished goods	$	2,742	$	3,525
Work in process		4,689		5,702
Raw materials		2,853		2,348
	$	10,284	$	11,575

Reserves for slow-moving, excess, or obsolete inventory are used to state the Company’s inventories at the lower of cost or market.  The reserves for slow-moving, excess, or obsolete inventory were approximately $1,694 at June 30, 2014, compared with approximately $2,960 at December 31, 2013. During the first quarter  of 2014, the Company disposed of obsolete inventory that had been fully reserved previously.  There was no material impact to the Company’s balance sheet or statement of operations that resulted from this transaction.

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 9,162	$ 7,945
Trade accounts receivable (net of allowance for doubtful accounts of $122 and $84 at June 30, 2014 and December 31, 2013, respectively)	6,255	2,844
Inventories, net	10,284	11,575
Deferred tax assets	3,241	3,836
Prepaid expenses and other current assets	1,778	1,920
Total current assets	30,720	28,120
Property, plant and equipment, net	1,152	1,045
Deferred tax assets, net	3,165	3,072
Capitalized software, net	1,084	1,478
Other assets	286	308
Total assets	36,407	34,023
Current liabilities:
Accounts payable	1,712	950
Accrued compensation and related taxes	1,022	779
Accrued warranty expense	320	292
Accrued other expenses and other current liabilities	146	154
Deferred revenue	255	281
Total current liabilities	3,455	2,456
Deferred revenue	234	147
Total liabilities	3,689	2,603
Commitments and contingencies	0	0
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:13,653,087 and 13,588,804 issued and outstanding shares at June 30, 2014 and December 31, 2013, respectively	8,192	8,153
Additional paid-in capital	24,784	24,672
Accumulated deficit	(258)	(1,405)
Total stockholders' equity	32,718	31,420
Total liabilities and stockholders' equity	$ 36,407	$ 34,023

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1. Condensed Consolidated Financial Statements

6 Months Ended

Jun. 30, 2014

Notes to Financial Statements

NOTE 1 - Condensed Consolidated Financial Statements

The condensed consolidated balance sheets as of June 30, 2014 and December 31, 2013, the condensed consolidated statements of operations for the three and six months ended June 30, 2014 and 2013 and the condensed consolidated statements of cash flows for the six months ended June 30, 2014 and 2013 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, 2013 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, 2013, as filed with the Securities and Exchange Commission.  The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the operating results for a full year.

Recent Accounting Pronouncements

In May 2014, the FASB issued guidance on revenue recognition, which provides for a single, principles-based model for revenue recognition and replaces the existing revenue recognition guidance. The guidance is effective for annual and interim periods beginning on or after December 15, 2016, and will replace most existing revenue recognition guidance under U.S. GAAP when it becomes effective. It permits the use of either a retrospective or cumulative effect transition method and early adoption is not permitted. The Company is in the process of evaluating the effect this standard will have, if any, on its condensed consolidated financial statements and related disclosures.

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3. Inventories, net (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Inventories Net Details
Finished goods	$ 2,742	$ 3,525
Work in process	4,689	5,702
Raw materials	2,853	2,348
Total Inventory	$ 10,284	$ 11,575

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5. Capitalized Software (Details Narrative) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Capitalized Software Details Narrative
Amortization cost of software	$ 394	$ 544
Net capitalized software costs	$ 1,084		$ 1,478

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2. Allowance for Doubtful Accounts

6 Months Ended

Jun. 30, 2014

Notes to Financial Statements

NOTE 2 - Allowance for Doubtful Accounts

The allowance for doubtful accounts on trade receivables was approximately $122 on gross trade receivables of $6,377 at June 30, 2014 and $84 on gross receivables of $2,928 at December 31, 2013.  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	Jun. 30, 2014	Dec. 31, 2013
ASSETS
Allowance for doubtful accounts, net	$ 122	$ 84
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	13,653,087	13,588,804
Common stock, outstanding shares	13,653,087	13,588,804

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3. Inventories, net (Tables)

6 Months Ended

Jun. 30, 2014

Inventories Net Tables

Components of inventory

	June 30, 2014		December 31, 2013
Finished goods	$	2,742	$	3,525
Work in process		4,689		5,702
Raw materials		2,853		2,348
	$	10,284	$	11,575

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Jul. 27, 2014
Document And Entity Information
Entity Registrant Name	RELM WIRELESS CORP
Entity Central Index Key	0000002186
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
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	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		13,653,087
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2014

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6. Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2014

Stockholders Equity Tables

Changes in consolidated stockholders' equity

	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital		Accumulated Deficit			Total
Balance at December 31, 2013		13,588,804	$	8,153	$	24,672	$	(1,405	)	$	31,420
Common stock option exercise and issued		64,283		39		87		−			126
Share-based compensation expense		−		−		25		−			25
Net income		−		−		−		1,147			1,147
Balance at June 30, 2014		13,653,087	$	8,192	$	24,784	$	(258	)	$	32,718

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Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Income Statement [Abstract]
Sales, net	$ 9,057	$ 6,191	$ 16,882	$ 13,264
Expenses
Cost of products	5,180	3,474	9,857	7,312
Selling, general and administrative	2,839	2,339	5,385	5,075
Total expenses	8,019	5,813	15,242	12,387
Operating income	1,038	378	1,640	877
Other income (expense):
Net interest expense	0	0	0	0
Other income (expense)	(9)	31	(9)	11
Total other income (expense)	(9)	31	(9)	11
Income before income taxes	1,029	409	1,631	888
Income tax expense	(357)	(212)	(484)	(286)
Net income	$ 672	$ 197	$ 1,147	$ 602
Net earnings per share-basic:	$ 0.05	$ 0.01	$ 0.08	$ 0.04
Net earnings per share-diluted:	$ 0.05	$ 0.01	$ 0.08	$ 0.04
Weighted average shares outstanding-basic	13,645,025	13,564,119	13,634,182	13,554,852
Weighted average shares outstanding-diluted	13,731,422	13,653,703	13,721,754	13,579,970

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7. Income (Loss) per Share

6 Months Ended

Jun. 30, 2014

Notes to Financial Statements

NOTE 7 - Income (Loss) per Share

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

	Three Months Ended				Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Numerator:
Net  income (numerator for basic and diluted earnings per share)	$	672	$	197	$	1,147	$	602
Denominator:
Denominator for basic earnings per share weighted average shares		13,645,025		13,564,119		13,634,182		13,554,852
Effect of dilutive securities:
Options		86,397		89,584		87,572		25,118
Denominator
Denominator for diluted earnings per share weighted average shares		13,731,422		13,653,703		13,721,754		13,579,970
Basic income per share	$	0.05	$	0.01	$	0.08	$	0.04
Diluted income per share	$	0.05	$	0.01	$	0.08	$	0.04

A total of  227,444 shares related to options are not included in the computation of diluted income per share for the three and six months ended June 30, 2014 because to do so would have been anti-dilutive for these periods.

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6. Stockholders' Equity

6 Months Ended

Jun. 30, 2014

Notes to Financial Statements

NOTE 6 - Stockholders' Equity

The changes in consolidated stockholders’ equity for the six months ended June 30, 2014 are as follows:

	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital		Accumulated Deficit			Total
Balance at December 31, 2013		13,588,804	$	8,153	$	24,672	$	(1,405	)	$	31,420
Common stock option exercise and issued		64,283		39		87		−			126
Share-based compensation expense		−		−		25		−			25
Net income		−		−		−		1,147			1,147
Balance at June 30, 2014		13,653,087	$	8,192	$	24,784	$	(258	)	$	32,718

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3. Inventories, net (Details Narrative) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Inventories Net Details Narrative
Reserves for slow-moving, excess, or obsolete inventory	$ 1,694	$ 2,960

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7. Income per Share(Tables)

6 Months Ended

Jun. 30, 2014

Income Per Sharetables

Computation of basic and diluted (loss) income per share

	Three Months Ended				Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Numerator:
Net  income (numerator for basic and diluted earnings per share)	$	672	$	197	$	1,147	$	602
Denominator:
Denominator for basic earnings per share weighted average shares		13,645,025		13,564,119		13,634,182		13,554,852
Effect of dilutive securities:
Options		86,397		89,584		87,572		25,118
Denominator
Denominator for diluted earnings per share weighted average shares		13,731,422		13,653,703		13,721,754		13,579,970
Basic income per share	$	0.05	$	0.01	$	0.08	$	0.04
Diluted income per share	$	0.05	$	0.01	$	0.08	$	0.04

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10. Debt

6 Months Ended

Jun. 30, 2014

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, 2014.  As of June 30, 2014, 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, 2013.  As of June 30, 2014, there were no borrowings outstanding under the revolving credit facility and there was approximately $5,000 of borrowing available.

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8. Non-Cash Share-Based Employee Compensation

6 Months Ended

Jun. 30, 2014

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 $13 and $25, respectively, for the three and six months ended June 30, 2014, compared with $2 and $33 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 six months ended June 30, 2014, respectively, compared with $0 and $0 for the same periods last year) and selling, general and administrative expenses ($13 and $25 for the three and six months ended June 30, 2014, respectively, compared with $2 and $33 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 six months ended June 30, 2014 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, 2013.

A summary of stock option activity under the Company’s stock option plans as of June 30, 2014, and changes during the six months ended June 30, 2014 are presented below:

As of January 1, 2014	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		482,611		3.50		-		2.18		-
Vested		410,942		3.64		-		2.41		-
Nonvested		71,669		2.68		-		0.87		-
Period activity
Issued		35,000		3.40		-		0.08		-
Exercised		75,833		2.18		-		1.03		-
Forfeited		-		-		-		-		-
Expired		5,000		3.45		-		0.03		-
As of June 30, 2014
Outstanding		436,778		3.72		4.13		2.24		368,459
Vested		373,443		3.86		3.83		2.52		307,773
Nonvested		63,335		2.90		5.87		0.61		60,686

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9. Commitments and Contingencies

6 Months Ended

Jun. 30, 2014

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 June 30, 2014.

Other

As of June 30, 2014, the Company had purchase orders to suppliers of approximately $4,320.

Significant Customers

Sales to United States government agencies represented approximately $3,434 (37.0%) and $6,617 (38.3%) of the Company’s total sales for the three and six months ended June 30, 2014, respectively, compared with approximately $1,356 (21.9%) and $4,632 (34.9%) for the same periods last year.  Accounts receivable from agencies of the United States government were $2,512 as of June 30, 2014 compared with approximately $588 at the same date last year.

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2. Significant Events and Transactions (Policies)

6 Months Ended

Jun. 30, 2014

Significant Events And Transactions Policies

Recent Accounting Pronouncements

In May 2014, the FASB issued guidance on revenue recognition, which provides for a single, principles-based model for revenue recognition and replaces the existing revenue recognition guidance. The guidance is effective for annual and interim periods beginning on or after December 15, 2016, and will replace most existing revenue recognition guidance under U.S. GAAP when it becomes effective. It permits the use of either a retrospective or cumulative effect transition method and early adoption is not permitted. The Company is in the process of evaluating the effect this standard will have, if any, on its condensed consolidated financial statements and related disclosures.

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2. Allowance for Doubtful Accounts (Details Narrative) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Allowance For Doubtful Accounts Details Narrative
Allowance for doubtful accounts on trade receivables	$ 122	$ 84
Gross trade receivables	$ 6,377	$ 2,928

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7. Income per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Numerator:
Net income (numerator for basis and diluted earnings per share)	$ 672	$ 197	$ 1,147	$ 602
Denominator:
Denominator for basic earnings per share weighted average shares	13,645,025	13,564,119	13,634,182	13,554,852
Effect of dilutive securities:
Options	86,397	89,584	87,572	25,118
Denominator
Denominator for diluted earnings per share weighted average shares	13,731,422	13,653,703	13,721,754	13,579,970
Basic income per share	$ 0.05	$ 0.01	$ 0.08	$ 0.04
Diluted income per share	$ 0.05	$ 0.01	$ 0.08	$ 0.04

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Operating activities
Net income	$ 1,147	$ 602
Adjustments to reconcile net income to net cash provided (used in) by operating activities:
Allowance for doubtful accounts	38	0
Inventories reserve	0	36
Deferred tax obligation	502	285
Depreciation and amortization	615	740
Share-based compensation expense	25	33
Changes in operating assets and liabilities:
Accounts receivable	(3,449)	(1,466)
Inventories	1,291	436
Prepaid expenses and other current assets	142	(87)
Other assets	22	17
Accounts payable	762	(194)
Accrued compensation and related taxes	243	(672)
Accrued warranty expense	28	6
Note payable	0	(18)
Deferred revenue	61	(143)
Accrued other expenses and other current liabilities	(8)	(9)
Net cash provided (used in) by operating activities	1,419	(434)
Investing activities
Purchases of property, plant and equipment	(328)	(88)
Capitalized software	0	(289)
Net cash used in investing activities	(328)	(377)
Financing activities
Proceeds from issuance of common stock	126	34
Cash provided by financing activities	126	34
Net change in cash and cash equivalents	1,217	(777)
Cash and cash equivalents, beginning of period	7,945	6,581
Cash and cash equivalents, end of period	9,162	5,804
Supplemental disclosure
Cash paid for interest	0	0
Income tax paid	0	0
Non-cash financing activity
Cashless exercise of stock options and related conversion of net shares to stockholders' equity	$ 2	$ 9

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5. Capitalized Software

6 Months Ended

Jun. 30, 2014

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 June 30, 2014, the Company did not capitalize any software costs.  For the three and six months ended June 30, 2014, the Company’s amortization cost was approximately $197 and $394, respectively, compared with $272 and $544, respectively, for the same period last year.  Net capitalized software costs totaled $1,084 and $1,478 as of June 30, 2014 and December 31, 2013, respectively.

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8. Non-Cash Share-Based Employee Compensation (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Notes to Financial Statements
Outstanding Stock Options, beginning	482,611
Vested Stock Options, beginning	410,942
Nonvested Stock Options, beginning	71,669
Issued Stock Options	35,000
Exercised Stock Options	75,833
Forfeited Stock Options
Expired Stock Options	5,000
Outstanding Stock Options, ending	436,778
Vested Stock Options, ending	373,443
Nonvested Stock Options, ending	63,335
Outstanding Wgt. Avg. Exercise Price, beginning	$ 3.5
Vested Wgt. Avg. Exercise Price, beginning	$ 3.64
Nonvested Wgt. Avg. Exercise Price, beginning	$ 2.68
Issued Wgt. Avg. Exercise Price	$ 3.40
Exercised Wgt. Avg. Exercise Price	$ 2.18
Forfeited Wgt. Avg. Exercise Price
Expired Wgt. Avg. Exercise Price	$ 3.45
Outstanding Wgt. Avg. Exercise Price, ending	$ 3.72
Vested Wgt. Avg. Exercise Price, ending	$ 3.86
Nonvested Wgt. Avg. Exercise Price, ending	$ 2.90
Outstanding Contractual Life	4 years 1 month 17 days
Vested Contractual Life	3 years 9 months 29 days
Nonvested Contractual Life	5 years 10 months 13 days
Outstanding Grant Date Fair Value, beginning	$ 2.18
Vested Grant Date Fair Value, beginning	$ 2.41
Nonvested Grant Date Fair Value, beginning	$ 0.87
Issued Grant Date Fair Value	$ 0.08
Exercised Grant Date Fair Value	$ 1.03
Forfeited Grant Date Fair Value
Expired Grant Date Fair Value	$ 0.03
Outstanding Grant Date Fair Value	$ 2.24
Vested Grant Date Fair Value	$ 2.52
Nonvested Grant Date Fair Value	$ 0.61
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	368,459
Vested Aggregate Intrinsic Value	$ 307,773
Nonvested Aggregate Intrinsic Value	$ 60,686

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

6 Months Ended

Jun. 30, 2014

Non-Cash Share-Based Employee Compensation Tables

A summary of stock option activity

As of January 1, 2014	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		482,611		3.50		-		2.18		-
Vested		410,942		3.64		-		2.41		-
Nonvested		71,669		2.68		-		0.87		-
Period activity
Issued		35,000		3.40		-		0.08		-
Exercised		75,833		2.18		-		1.03		-
Forfeited		-		-		-		-		-
Expired		5,000		3.45		-		0.03		-
As of June 30, 2014
Outstanding		436,778		3.72		4.13		2.24		368,459
Vested		373,443		3.86		3.83		2.52		307,773
Nonvested		63,335		2.90		5.87		0.61		60,686