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, 2015

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 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	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 13,718,396 shares of common stock, $0.60 par value, of the registrant outstanding at October 30, 2015.

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,
	2015			2014
ASSETS
Current assets:
Cash and cash equivalents		$	7,856		$	11,363
Trade accounts receivable (net of allowance for doubtful accounts of $49 at September 30, 2015 and December 31, 2014, respectively)			4,216			3,266
Inventories, net			13,834			12,112
Deferred tax assets			3,310			3,743
Prepaid expenses and other current assets			2,569			1,921
Total current assets			31,785			32,405
Property, plant and equipment, net			1,771			1,282
Available-for-sale securities, at fair value			3,893			—
Deferred tax assets, net			1,937			2,290
Capitalized software, net			445			753
Other assets			234			256
Total assets		$	40,065		$	36,986
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	2,602		$	1,403
Accrued compensation and related taxes			1,381			1,246
Accrued warranty expense			517			384
Accrued other expenses and other current liabilities			191			217
Deferred revenue			132			291
Total current liabilities			4,823			3,541
Deferred revenue			371			212
Total liabilities		$	5,194		$	3,753
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: 13,718,396 and 13,665,087 issued and outstanding shares at September 30, 2015 and December 31, 2014, respectively			8,231			8,199
Additional paid-in capital			24,893			24,816
Retained earnings			1,047			218
Accumulated other comprehensive income			700			—
Total stockholders' equity			34,871			33,233
Total liabilities and stockholders' equity		$	40,065		$	36,986

See notes to condensed consolidated financial statements.

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RELM WIRELESS CORPORATION

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data) (Unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
Sales, net	$	7,606		$	8,670		$	22,773		$	25,552
Expenses
Cost of products		4,120			4,881			13,217			14,739
Selling, general and administrative		3,186			2,756			8,407			8,141
Total expenses		7,306			7,637			21,624			22,880
Operating income		300			1,033			1,149			2,672
Other income (expense):
Net interest income		1			-			1			1
Other (expense) income		(4	)		3			37			(7	)
Total other (expense) income		(3	)		3			38			(6	)
Income before income taxes		297			1,036			1,187			2,666
Income tax expense		(85	)		(380	)		(358	)		(864	)
Net income	$	212		$	656		$	829		$	1,802
Net earnings per share-basic:	$	0.02		$	0.05		$	0.06		$	0.13
Net earnings per share-diluted:	$	0.02		$	0.05		$	0.06		$	0.13
Weighted average shares outstanding-basic		13,718,396			13,655,988			13,699,355			13,641,520
Weighted average shares outstanding-diluted		13,794,276			13,781,534			13,857,746			13,741,750

See notes to condensed consolidated financial statements.

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RELM WIRELESS CORPORATION

Condensed Consolidated Statements of Comprehensive Income

(In thousands, except share and per share data) (Unaudited)

	Three Months Ended				Nine Months Ended
	September 30, 2015		September 30, 2014		September 30, 2015		September 30, 2014
Net Income	$	212	$	656	$	829	$	1,802
Unrealized gain on available-
for-sale securities, net of tax		700		-		700		-
Total comprehensive income	$	912	$	656	$	1,529	$	1,802

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, 2015			September 30, 2014
Operating activities
Net income	$	829		$	1,802
Adjustments to reconcile net income to net cash  provided by operating activities:
Allowance for doubtful account		-			38
Inventories reserve		(30	)		9
Deferred tax expense		354			881
Depreciation and amortization		697			930
Shared-based compensation expense		33			36
Changes in operating assets and liabilities:
Accounts receivable		(950	)		(1,741	)
Inventories		(1,692	)		(118	)
Prepaid expenses and other current assets		(648	)		(208	)
Other assets		22			37
Accounts payable		1,199			898
Accrued compensation and related taxes		135			527
Accrued warranty expense		133			60
Note payable		-			23
Deferred revenue		-			107
Accrued other expenses and other current liabilities		(26	)		19
Net cash provided by operating activities		56			3,300
Investing activities
Purchases of property, plant and equipment		(878	)		(483	)
Investment in securities		(2,761	)		-
Net cash used in investing activities		(3,639	)		(483	)
Financing activities
Proceeds from issuance of common stock		76			144
Cash provided by financing activities		76			144
Net change in cash and cash equivalents		(3,507	)		2,961
Cash and cash equivalents, beginning of period		11,363			7,945
Cash and cash equivalents, end of period	$	7,856		$	10,906
Supplemental disclosure
Cash paid for interest	$	-		$	-
Income tax paid	$	25		$	-
Non-cash financing activity
Cashless exercise of stock options and related conversion of net shares to stockholders’ equity	$	15		$	2

See notes to condensed consolidated financial statements.

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Notes to Condensed Consolidated Financial Statements

Unaudited

(in Thousands, Except Share and Per Share Data and Percentages)

1.           Condensed Consolidated Financial Statements

Basis of Presentation

The condensed consolidated balance sheets as of September 30, 2015 and December 31, 2014, the condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2015 and 2014 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2015 and 2014 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, 2014 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, 2014, as filed with the Securities and Exchange Commission.  The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the operating results for a full year.

Fair Value

The Company’s financial instruments consist of cash and cash equivalents, trade accounts receivable and available-for-sale securities, accounts payable, accrued expenses and other liabilities. As of September 30, 2015 and December 31, 2014, the carrying amount of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses and other liabilities approximated their respective fair value due to the short-term nature and maturity of these instruments.

The Company uses observable market data or assumptions (Level 1 inputs as defined in accounting guidance) that it believes market participants would use in pricing the available-for-sale securities. There were no sales of available-for-sale securities, nor gains or losses reclassified out of accumulated other comprehensive income as a result of an other-than-temporary impairment of the available-for-sale securities.

Available-For-Sale Securities

Investments reported on the September 30, 2015 balance sheet consist of marketable equity securities of publicly held companies. Management intends to hold such securities for a sufficient period in which to realize a reasonable return, which periods may range between one to several years, although there is no assurance that positive returns will be realized or that such securities will not be liquidated in a shorter-than-expected time frame to accommodate future liquidity requirements. Accordingly, investments were classified as non-current and available-for-sale in conformity with ASC Section 320. Investments are marked to market at each measurement date, with unrealized gains or losses presented as adjustments to accumulated other comprehensive income or loss.

Other Comprehensive Income

The Company reports its comprehensive income in accordance with FASB ASC Topic 220, Comprehensive Income, which establishes standards for reporting and presenting comprehensive income and its components in a full set of financial statements. Other comprehensive income consists of net income and unrealized gain on available-for-sale securities, net of taxes.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements that impacted the nine month periods ended September 30, 2015 and 2014, or which are expected to impact future periods, which were not previously disclosed in prior periods.

The FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory” to simplify the guidance on the subsequent measurement of inventory, excluding inventory measured using last-in, first out or the retail inventory method. Under the new standard, inventory should be at the lower of cost and net realizable value. The new accounting guidance is effective for interim and annual periods beginning after December 15, 2016 with early adoption 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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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. However, the FASB recently decided to delay the effective date by one year for all entities with the option to adopt the standard as of the original effective date. 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.           Significant Events and Transactions

In September 2015, the Company received awards under the U.S. Department of Homeland Security (DHS) Tactical Communications Contract totaling approximately $26.2 million for portable radios, repeaters, accessories and service.  The equipment will be deployed by the U.S. Transportation Security Administration (TSA) at over 400 airports both inside and outside the continental United States.  The awards are for a base term of one-year that commencing on September 28, 2015 with four one-year options.  The first option year was partially exercised immediately.  Approximately $15.5 million, or almost 60% of the total amount, is specified in delivery orders.  The precise timing for fulfilling these orders has not yet been determined as several logistical variables are addressed.  Accordingly, the impact to sales revenue in any particular quarter is uncertain.  The Company anticipates that shipments will commence during the first quarter of 2016.  No equipment under these awards was shipped during the third quarter 2015, and consequently no sales revenue was recorded.  The exercise, if any, of the remaining option years, which total $10.7 million, is not specified or guaranteed.

3.           Allowance for Doubtful Accounts

The allowance for doubtful accounts on trade receivables was approximately $49 on gross trade receivables of $4,265 at September 30, 2015 and $49 on gross receivables of $3,315 at December 31, 2014.  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.

4.           Inventories, net

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

	September 30, 2015		December 31, 2014
Finished goods	$	2,999	$	3,826
Work in process		6,892		5,127
Raw materials		3,943		3,159
	$	13,834	$	12,112

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 were approximately $1,673 at September 30, 2015, compared with approximately $1,703 at December 31, 2014.

5.           Income Taxes

Income tax expense totaling approximately $85 and $358 has been recorded for the three and nine months ended September 30, 2015, respectively.

As of September 30, 2015 and December 31, 2014, the Company’s net deferred tax assets totaled approximately $5,247 and $6,033, respectively, and are primarily composed of net operating loss carryforwards (“NOLs”), partially offset by deferred tax liabilities of $432 derived from the unrealized gain on available-for-sale securities.  These NOLs total approximately $5,194 for federal and $13,813 for state purposes, with expirations starting in 2018 through 2030.

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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 September 30, 2015.  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, 2015.

6.           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 nine months ended September 30, 2015, the Company did not capitalize any software costs.  For the three and nine months ended September 30, 2015, the Company’s amortization cost was approximately $103 and $308, respectively, compared with $197 and $591 for the same periods last year.  Net capitalized software costs totaled $445 and $753 as of September 30, 2015 and December 31, 2014, respectively.

7.           Investment in Securities

In July 2015 the Company, through its new wholly owned subsidiary, purchased approximately 1.6 million shares of Iteris (NYSE MKT: ITI), which is a non-controlling interest, where the Company does not have significant influence.  As the fair value of the investment is a quoted price in an active market, the investment is classified as Level 1 under the fair value hierarchy of ASC Topic 820. The investment is recorded at market value on the Company’s balance sheet as of September 30, 2015 as a non-current asset totaling approximately $3,900, with cost of approximately $2,800.  At September 30, 2015, the corresponding unrealized gain of approximately $700, net of tax of $432, is included in accumulated other comprehensive income as a separate component of stockholders’ equity.  There was no impact to the Company’s statement of operations.

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8.           Stockholders’ Equity

The changes in consolidated stockholders’ equity for the nine months ended September 30, 2015 are as follows:

	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
Balance at December 31, 2014		13,665,087	$	8,199	$	24,816	$	−	$	218	$	33,233
Common stock option exercise and issued		53,309		32		44		−		−		76
Share-based compensation expense		−		−		33		−		−		33
Net income		−		−		−		−		829		829
Unrealized gain on available- for-sales securities, net of tax		−		−		−		700		−		700
Balance at September 30, 2015		13,718,396	$	8,231	$	24,893	$	700	$	1,047	$	34,871

9.           Income per Share

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

	Three Months Ended				Nine months Ended
	September 30, 2015		September 30, 2014		September 30, 2015		September 30, 2014
Numerator:
Net  income (numerator for basic and diluted earnings per share)	$	212	$	656	$	829	$	1,802
Denominator:
Denominator for basic earnings per share weighted average shares		13,718,396		13,655,988		13,699,355		13,641,520
Effect of dilutive securities:
Options		75,880		125,546		158,392		100,230
Denominator
Denominator for diluted earnings per share weighted average shares		13,794,276		13,781,534		13,857,746		13,741,750
Basic income per share	$	0.02	$	0.05	$	0.06	$	0.13
Diluted income per share	$	0.02	$	0.05	$	0.06	$	0.13

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10.           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 $16 and $33 for the three and nine months ended September 30, 2015, respectively, compared with $11 and $36, respectively, for the same periods last year.  The Company considers its non-cash share-based employee compensation expenses as a component of selling, general and administrative expenses ($16 and $33 for the three and nine months ended September 30, 2015, respectively, compared with $11 and $36 for the same period 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, 2015 was calculated using certain assumptions.  Such assumptions are described more comprehensively in 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, 2014.

A summary of activity under the Company’s stock option plans during the nine months ended September 30, 2015 is presented below:

As of January 1, 2015	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		414,778		3.79		-		2.29		-
Vested		361,443		3.91		-		2.55		-
Nonvested		53,335		3.00		-		0.54		-
Period activity
Issued		30,000		5.53		-		1.99		-
Exercised		87,002		3.16		-		1.31		-
Forfeited		-		-		-		-		-
Expired		15,000		5.70		-		2.05		-
As of September 30, 2015
Outstanding		342,776		4.02		3.31		2.52		376,780
Vested		327,776		3.96		3.25		2.55		376,780
Nonvested		15,000		5.35		4.68		1.93		-

11.           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, 2015.

Other

As of September 30, 2015, the Company had purchase orders to suppliers of approximately $9,474.

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Significant Customers

Sales to United States government agencies represented approximately $3,539 (46.0%) and $9,809 (42.8%) of the Company’s total sales for the three and nine months ended September 30, 2015, respectively, compared with approximately $3,962 (44.2%) and $10,579 (40.3%) for the same periods last year.  Accounts receivable from agencies of the United States government were $1,896 as of September 30, 2015 compared with approximately $2,002 at the same date last year.

12.           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, 2015.  As of September 30, 2015, 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, 2014.  As of September 30, 2015, there were no borrowings outstanding under the revolving credit facility and there was approximately $4,003 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, 2014 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;

●   our ability to identify potential candidates for, and consummate, acquisition or investment transactions, and risks incumbent to being a noncontrolling interest stockholder in a corporation;

●   government regulation;

●   our business with manufacturers located in other countries;

●   our inventory and debt levels;

●   protection of our intellectual property rights;

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●   fluctuation in our operating results;

●   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.

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Executive Overview

Our Business

We design, manufacture and market two-way land mobile radios, repeaters, base stations, and related components and subsystems.

Two-way land mobile radios can be hand-held (portable) or installed in vehicles (mobile). Repeaters expand the range of two-way land mobile radios, enabling them to operate over a wider area. Base station components and subsystems are installed at radio transmitter sites to improve performance by enhancing the signal and reducing or eliminating signal interference and enabling the use of one antenna for both transmission and reception. We incorporate both analog and digital technologies in our products.  Our digital technology is compliant with the Project 25 standard of the Association of Public Communications Officials (“APCO Project 25,” or “P-25”).

We offer products under two brand names: BK Radio and RELM. Generally, BK Radio-branded products serve the government and public safety market, while RELM-branded products serve the business and industrial market.

Third Quarter and Nine Months Summary

For the three and nine months ended September 30, 2015, our financial and operating results compared unfavorably with for the same periods last year.  Total sales and sales of P25 digital products decreased for the three and nine month periods ended September 30, 2015, while SG&A expenses increased.  These were the primary factors that contributed to declines in operating income compared with the same periods last year.  During the quarter and nine months ended September 30, 2015, our cash and working capital positions decreased from the end of 2014 primarily as a result of our investment in securities.

For the three months ended September 30, 2015, total sales decreased 12.3% to approximately $7.6 million, compared with approximately $8.7 million for the same quarter last year.  Sales of P25 digital products for the third quarter of 2015 decreased 19.2% to approximately $5.2 million (68.5% of total sales) compared with approximately $6.3 million (72.1% of total sales) for the same quarter last year.

For the nine months ended September 30, 2015, total sales decreased 10.9% to approximately $22.8 million, compared with approximately $25.6 million for the same period last year.  Sales of P25 digital products for the nine months ended September 30, 2015 decreased 16.4% to approximately $15.6 million (68.6% of total sales) compared with approximately $18.6 million (72.6% of total sales) for the same period last year.

Gross margins as a percentage of sales for the third quarter ended September 30, 2015 increased to approximately 45.8%, compared with 43.7% for the same quarter last year and 36.2% for the preceding quarter.  For the nine months ended September 30, 2015, gross margins as a percentage of sales were approximately 42.0% compared with 42.3% for the same period last year.  Our gross margins for both periods are primarily a reflection of the mix of products sold, manufacturing volumes and competitive pressures.

For the three and nine months ended September 30, 2015, selling, general and administrative expenses (SG&A) totaled approximately $3.2 million (41.9% of sales) and $8.4 million (36.9% of sales), respectively, compared with approximately $2.8 million (31.8% of sales) and $8.1 million (31.9% of sales), respectively, for the same periods last year.

Pretax income for the three and nine months ended September 30, 2015 totaled approximately $297,000 and $1.2 million, respectively, compared with approximately $1.0 million and $2.7 million, respectively, for the same periods last year.

For the three and nine months ended September 30, 2015, income tax expense totaled approximately $85,000 and $358,000, respectively, compared with $380,000 and $864,000, 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.

14

Net income for the three and nine months ended September 30, 2015 was approximately $212,000 ($0.02 per basic and diluted share) and $829,000 ($0.06 per basic and diluted share), respectively, compared with $656,000 ($0.05 per basic and diluted share) and $1.8 million ($0.13 per basic and diluted share), respectively, for the same periods last year.

As of September 30, 2015, working capital totaled approximately $27.0 million, of which approximately $12.1 million was comprised of cash and trade receivables.  As of December 31, 2014 working capital totaled approximately $28.9 million, of which approximately $14.6 million was comprised of cash and trade receivables.  The decrease in cash and working capital is primarily attributed to our investment in securities (refer to footnote 7, Investment in Securities, on page 7 of this report).

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, 2015			September 30, 2014			September 30, 2015			September 30, 2014
Sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products		(54.2	)		(56.3	)		(58.0	)		(57.7	)
Gross margin		45.8			43.7			42.0			42.3
Selling, general and administrative expenses		(41.9	)		(31.8	)		(36.9	)		(31.9	)
Net interest expense		0.0			0.0			0.0			0.0
Other income (expense )		0.0			0.1			0.2			0.0
Pretax  income		3.9			12.0			5.3			10.4
Income tax expense		(1.1	)		(4.4	)		(1.6	)		(3.4	)
Net income		2.8	%		7.6	%		3.7	%		7.0	%

Net Sales

For the third quarter ended September 30, 2015, net sales totaled approximately $7.6 million, compared with approximately $8.7 million for the same quarter last year.  Sales of P25 digital products for the quarter totaled approximately $5.1 million (66.4% of total sales), compared with approximately $6.3 million (72.1% of total sales) for the same quarter last year.

For the nine months ended September 30, 2015, net sales totaled approximately $22.8 million, compared with approximately $25.6 million for the same period last year.  Sales of P25 digital products for the nine months ended September 30, 2015 totaled approximately $15.5 million (68.1% of total sales) compared with approximately $18.5 million (72.6% of total sales) for the same period last year.

The comparative decline in total sales and sales of digital products for the three and nine month periods was primarily attributable to generally weaker demand from federal, state and local public safety agencies, including our legacy strongholds within the wildland fire market, which was consistent with our experience during the second quarter.  In September, however, we received awards from the U.S. Department of Homeland Security (DHS) totaling $26.2 million for equipment to be deployed by the Transportation Security Administration (TSA) at over 400 airports in and out of the continental United States.  Approximately $15.5 million, or almost 60% of the total amount, is specified in delivery orders.  The precise timing for fulfilling these orders has not yet been determined as several logistical variables are addressed.  Accordingly, the impact to sales revenue in any particular quarter is uncertain.  We anticipate that shipments will commence during the first quarter of 2016.  No equipment under these awards was shipped during the third quarter 2015, and consequently no sales revenue was recorded. (refer to footnote 2, Significant Events and Transactions, on page 5 of this report).

The timing and size of orders from government agencies at all levels can be unpredictable due to the influence of budgets and funding priorities.  Requests for quotes and information increased late in the quarter and our funnel of prospects has expanded.  Also, we believe the aforementioned DHS/TSA award can enhance our profile and reputation in pursuing other new opportunities.  Considering these factors, we are expanding our sales resources and capabilities to capitalize on this momentum and drive sales growth.

15

Cost of Products and Gross Profit Margin

Gross profit margin as a percentage of sales for the third quarter ended September 30, 2015 was 45.8%; an improvement of 2% from the same quarter last year, and almost 10% from the second quarter this year.  For the nine months ended September 30, 2015, gross profit margin as a percentage of sales was 42.0% compared with 42.3% for the same period last year.

Our cost of products and gross profit margin are primarily related to material, labor and overhead costs, product mix, manufacturing volumes and pricing.  For the third quarter, lower costs of products and the corresponding increase in gross margins reflected a more favorable mix of product sales.  Also, improved utilization and absorption of our manufacturing and support expenses during the quarter contributed to the increase in gross profit margins.

We continue to utilize contract manufacturing relationships to maximize production efficiencies and minimize material and labor costs.  We also regularly consider manufacturing alternatives to improve quality, speed and costs.  We anticipate that our current contract manufacturing relationships or comparable alternatives will be available to us in the future.  We believe gross margin improvements can be realized by leveraging increased sales volumes and manufacturing efficiencies.  We may encounter product cost and competitive pricing pressures in the future.  However, the extent of their impact on gross margins, if any, is uncertain.

Selling, General and Administrative Expenses

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

SG&A expenses for the third quarter 2015 were approximately $3.2 million (41.9% of sales), compared with $2.8 million (31.6% of sales) for the same quarter last year.  For the nine months ended September 30, 2015, SG&A expenses totaled approximately $8.4 million (36.9% of sales) compared with approximately $8.1 million (31.8% of sales) for the same period last year.

Engineering and product development expenses for the third quarter 2015 totaled approximately $1.0 million (13.3% of total sales), compared with $999,000 (11.4% of total sales) for the same quarter last year.  For the nine months ended September 30, 2015 and 2014, engineering and product development expenses were flat, totaling approximately $2.8 million, or 12.4% and 10.9% of total sales, respectively.  Increased staffing and related costs were largely offset by decreases in capitalized software amortization.

Marketing and selling expenses for the third quarter 2015 totaled approximately $1.2 million (15.8% of total sales), compared with $975,000 (11.2% of total sales) for the same quarter last year.  For the nine months ended September 30, 2015, sales and marketing expenses totaled approximately $3.2 million (14.0% of total sales), compared with approximately $2.9 million (11.5% of total sales) for the same period last year.  The increase for both periods is attributed primarily to staffing and related costs as well as commissions and incentives.

General and administrative expenses for the third quarter 2015 totaled approximately $975,000 (12.8% of total sales), compared with approximately $782,000 (8.9% of total sales) for the same quarter last year.  The increase was related primarily to headquarters professional fees.  For the nine months ended September 30, 2015, total general and administrative expenses were materially unchanged, totaling approximately $2.4 million, or 10.5% and 9.4% of total sales, respectively.

Operating Income

Operating income for the third quarter ended September 30, 2015 totaled approximately $300,000 (3.9% of sales), compared with $1.0 million (11.9% of sales) for the same quarter last year.  For the nine months ended September 30, 2015, operating income totaled approximately $1.1 million (5.3% of sales), compared with $2.7 million (10.5% of sales) for the same period last year.  The decrease in operating income was primarily the result of sales declines and increased operating expenses.

16

Net Interest Income (Expense)

We realized minimal net interest income for the third quarter and nine months ended September 30, 2015, and 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 September 30, 2015 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 $85,000 and $358,000, respectively, for the third quarter and nine months ended September 30, 2015, compared with $380,000 and $864,000, respectively, for the same periods last year.  Our income tax expense is primarily non-cash.

As of September 30, 2015, our net deferred tax assets totaled approximately $5.2 million, and are primarily composed of net operating loss carryforwards (“NOLs”), offset by deferred tax liabilities of $432 derived from the unrealized gain on available-for-sale securities.  These NOLs total $5.2 million for federal and $13.8 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 September 30, 2015.  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, 2015.

Liquidity and Capital Resources

For the nine months ended September 30, 2015, net cash provided by operating activities totaled approximately $56,000, compared with $3.3 million for the same period last year.  Cash provided by operating activities was primarily related to net income, accounts payable, depreciation and amortization and deferred tax assets, largely offset by inventory, accounts receivable and other current assets.  For the nine months ended September 30, 2015, we realized net income of approximately $829,000 compared with approximately $1.8 million for the same period last year.  Net inventories and prepaid expenses increased during the nine months ended September 30, 2015 by approximately $1.7 million and $648,000, respectively, primarily due to material purchases and decreased sales.  This compares with an increase of $118,000 in inventory and $208,000 in prepaid expenses for the same period last year.  Accounts receivable increased approximately $950,000 during the period, compared with $1.7 million for the same period last year, both periods reflecting sales that were consummated later in the quarter that had not yet completed their collection cycle.  Accounts payable for the nine months ended September 30, 2015 increased approximately $1.2 million compared with $898,000 for the same period last year in anticipation of increasing business volumes and related material purchases.  Depreciation and amortization totaled approximately $697,000 for the nine months ended September 30, 2015, compared with approximately $930,000 for the same period last year, as some capitalized software was fully amortized.

17

Cash used in investing activities for the nine months ended September 30, 2015 totaled approximately $3.6 million, $2.8 million of which was related to the investment in Iteris common stock (see footnote 7 on page 7 of this report), and $878,000 that was utilized for the purchase of manufacturing and engineering equipment.   For the same period last year approximately $483,000 was used primarily for engineering and manufacturing related equipment.  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, 2015 and 2014 totaled approximately $76,000 and $144,000, respectively, 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, 2015.  We are presently evaluating financing alternatives for periods beyond the expiration date.

As of September 30, 2015 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, 2014.

As of September 30, 2015 and the date of this report, there were no borrowings outstanding under the revolving credit facility.  As of September 30, 2015 and the date of this report, there was approximately $4.0 million and $2.7 million, respectively, of borrowing available under the revolving credit facility.

Our cash balance at September 30, 2015 was approximately $7.9 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, 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, 2014.

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, 2015 as described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

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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, 2015.  Based on this evaluation, they have concluded that our disclosure controls and procedures were effective as of September 30, 2015.

Changes in Internal Control over Financial Reporting

During the first three months ended September 30, 2015, 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.

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PART II-OTHER INFORMATION

Item 1.                 LEGAL PROCEEDINGS

Reference is made to Note 11 (Commitments and Contigencies) of the Company’s Condensed Consolidated Financial Statements included elsewhere in this report for the information required by this Item.

Item 6.                 EXHIBITS

Exhibit No.	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

 (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.

20

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: November 4, 2015	By:	/s/ David P. Storey
		David P. Storey
		President and Chief Executive Officer
		(Principal executive officer and duly authorized officer)
Date: November 4, 2015	By:	/s/ William P. Kelly
		William P. Kelly
		Executive Vice President and Chief Financial Officer
		(Principal financial and accounting officer and duly authorized officer)

21

Exhibit Index

Exhibit No.	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

(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.

22

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 4, 2015

/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 4, 2015

/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, 2015 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 to my knowledge:

(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

November 4, 2015

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, 2015 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 to my knowledge:

(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

November 4, 2015

XML

3. Allowance for Doubtful Accounts

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

NOTE 3 - Allowance for Doubtful Accounts

The allowance for doubtful accounts on trade receivables was approximately $49 on gross trade receivables of $4,265 at September 30, 2015 and $49 on gross receivables of $3,315 at December 31, 2014.  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.

XML

8. Stockholders' Equity (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Beginning Balance, Amount			$ 33,233
Beginning Balance, Shares			13,665,087
Common stock option exercise and issued, Amount			$ 76
Share - based compensation expense			33
Net income	$ 212	$ 656	829	$ 1,802
Unrealized gain on available- for-sales securities, net of tax			700
Ending Balance, Amount	$ 34,871		$ 34,871
Ending Balance, Shares	13,718,396		13,718,396
CommonStockMember
Beginning Balance, Amount			$ 8,199
Beginning Balance, Shares			13,665,087
Common stock option exercise and issued, Amount			$ 32
Common stock option exercise and issued, Shares			53,309
Ending Balance, Amount	$ 8,231		$ 8,231
Ending Balance, Shares	13,718,396		13,718,396
AdditionalPaidInCapitalMember
Beginning Balance, Amount			$ 24,816
Common stock option exercise and issued, Amount			44
Share - based compensation expense			33
Ending Balance, Amount	$ 24,893		24,893
Accumulated Other Comprehensive Income
Beginning Balance, Amount			0
Common stock option exercise and issued, Amount			0
Unrealized gain on available- for-sales securities, net of tax			700
Ending Balance, Amount	700		700
AccumulatedDeficitMember
Beginning Balance, Amount			218
Common stock option exercise and issued, Amount			0
Net income			829
Ending Balance, Amount	$ 1,047		$ 1,047

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6. Capitalized Software (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Capitalized Software Details Narrative
Amortization cost of software	$ 103	$ 197	$ 308	$ 591
Net capitalized software costs	$ 445		$ 445

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9. Income per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Numerator:
Net income (numerator for basis and diluted earnings per share)	$ 212	$ 656	$ 829	$ 1,802
Denominator:
Denominator for basic earnings per share weighted average shares	13,718,396	13,655,988	13,699,355	13,641,520
Effect of dilutive securities:
Options	75,880	125,546	158,392	100,230
Denominator
Denominator for diluted earnings per share weighted average shares	13,794,276	13,781,534	13,857,746	13,741,750
Basic income per share	$ 0.02	$ 0.05	$ 0.06	$ 0.13
Diluted income per share	$ 0.02	$ 0.05	$ 0.06	$ 0.13

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10. Non-Cash Share-Based Employee Compensation (Details) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2015 USD ($) $ / shares shares
Notes to Financial Statements
Outstanding Stock Options, beginning | shares	414,778
Vested Stock Options, beginning | shares	361,443
Nonvested Stock Options, beginning | shares	53,335
Issued Stock Options | shares	30,000
Exercised Stock Options | shares	87,002
Forfeited Stock Options | shares	0
Expired Stock Options | shares	15,000
Outstanding Stock Options, ending | shares	342,776
Vested Stock Options, ending | shares	327,776
Nonvested Stock Options, ending | shares	15,000
Outstanding Wgt. Avg. Exercise Price, beginning	$ 3.79
Vested Wgt. Avg. Exercise Price, beginning	3.91
Nonvested Wgt. Avg. Exercise Price, beginning	3.00
Issued Wgt. Avg. Exercise Price	5.53
Exercised Wgt. Avg. Exercise Price	3.16
Forfeited Wgt. Avg. Exercise Price	0
Expired Wgt. Avg. Exercise Price	5.70
Outstanding Wgt. Avg. Exercise Price, ending	4.02
Vested Wgt. Avg. Exercise Price, ending	3.96
Nonvested Wgt. Avg. Exercise Price, ending	$ 5.35
Outstanding Contractual Life	3 years 3 months 22 days
Vested Contractual Life	3 years 3 months
Nonvested Contractual Life	4 years 8 months 5 days
Outstanding Grant Date Fair Value, beginning	$ 2.29
Vested Grant Date Fair Value, beginning	2.55
Nonvested Grant Date Fair Value, beginning	0.54
Issued Grant Date Fair Value	1.99
Exercised Grant Date Fair Value	1.31
Forfeited Grant Date Fair Value	0
Expired Grant Date Fair Value	2.05
Outstanding Grant Date Fair Value	2.52
Vested Grant Date Fair Value	2.55
Nonvested Grant Date Fair Value	$ 1.93
Outstanding Aggregate Intrinsic Value | $	$ 0
Vested Aggregate Intrinsic Value | $	$ 0
Nonvested Aggregate Intrinsic Value	$ 0
Issued Aggregate Intrinsic Value	$ 0
Exercised Aggregate Intrinsic Value | $	$ 0
Forfeited Aggregate Intrinsic Value	$ 0
Expired Aggregate Intrinsic Value	$ 0
Outstanding Aggregate Intrinsic Value | $	$ 376,780
Vested Aggregate Intrinsic Value | $	$ 376,780
Nonvested Aggregate Intrinsic Value	$ 0

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2. Significant Events and Transactions

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

NOTE 2 - Significant Events and Transactions

In September 2015, the Company received awards under the U.S. Department of Homeland Security (DHS) Tactical Communications Contract totaling approximately $26.2 million for portable radios, repeaters, accessories and service. The equipment will be deployed by the U.S. Transportation Security Administration (TSA) at over 400 airports both inside and outside the continental United States. The awards are for a base term of one-year that commencing on September 28, 2015 with four one-year options. The first option year was partially exercised immediately. Approximately $15.5 million, or almost 60% of the total amount, is specified in delivery orders. The precise timing for fulfilling these orders has not yet been determined as several logistical variables are addressed. Accordingly, the impact to sales revenue in any particular quarter is uncertain. The Company anticipates that shipments will commence during the first quarter of 2016. No equipment under these awards was shipped during the third quarter 2015, and consequently no sales revenue was recorded. The exercise, if any, of the remaining option years, which total $10.7 million, is not specified or guaranteed.

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12. Debt (Details Narrative) - SiliconValleyBankMember $ in Thousands	9 Months Ended
	Sep. 30, 2015 USD ($)
Credit facility with maximum borrowing	$ 5,000
Maturity date	12-31-2015
Revolving credit outstanding balance	$ 0
Borrowing available under the revolving credit facility	$ 4,003

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Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 7,856	$ 11,363
Trade accounts receivable (net of allowance for doubtful accounts of $49 at September 30, 2015 and December 31, 2014, respectively)	4,216	3,266
Inventories, net	13,834	12,112
Deferred tax assets	3,310	3,743
Prepaid expenses and other current assets	2,569	1,921
Total current assets	31,785	32,405
Property, plant and equipment, net	1,771	1,282
Available-for-sale securities, at fair value	3,893	0
Deferred tax assets, net	1,937	2,290
Capitalized software, net	445	753
Other assets	234	256
Total assets	40,065	36,986
Current liabilities:
Accounts payable	2,602	1,403
Accrued compensation and related taxes	1,381	1,246
Accrued warranty expense	517	384
Accrued other expenses and other current liabilities	191	217
Deferred revenue	132	291
Total current liabilities	4,823	3,541
Deferred revenue	371	212
Total liabilities	5,194	3,753
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: 13,718,396 and 13,665,087 issued and outstanding shares at September 30, 2015 and December 31, 2014, respectively	8,231	8,199
Additional paid-in capital	24,893	24,816
Retained earnings	1,047	218
Accumulated other comprehensive income	700	0
Total stockholders' equity	34,871	33,233
Total liabilities and stockholders' equity	$ 40,065	$ 36,986

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Operating activities
Net income	$ 829	$ 1,802
Adjustments to reconcile net income to net cash provided by operating activities:
Allowance for doubtful accounts	0	38
Inventories reserve	(30)	9
Deferred tax expense	354	881
Depreciation and amortization	697	930
Share-based compensation expense	33	36
Changes in operating assets and liabilities:
Accounts receivable	(950)	(1,741)
Inventories	(1,692)	(118)
Prepaid expenses and other current assets	(648)	(208)
Other assets	22	37
Accounts payable	1,199	898
Accrued compensation and related taxes	135	527
Accrued warranty expense	133	60
Note payable	0	23
Deferred revenue	0	107
Accrued other expenses and other current liabilities	(26)	19
Net cash provided by operating activities	56	3,300
Investing activities
Purchases of property, plant and equipment	(878)	(483)
Investment in securities	(2,761)	0
Net cash used in investing activities	(3,639)	(483)
Financing activities
Proceeds from issuance of common stock	76	144
Cash provided by financing activities	76	144
Net change in cash and cash equivalents	(3,507)	2,961
Cash and cash equivalents, beginning of period	11,363	7,945
Cash and cash equivalents, end of period	7,856	10,906
Supplemental disclosure
Cash paid for interest	0	0
Income tax paid	25	0
Non-cash financing activity
Cashless exercise of stock options and related conversion of net shares to stockholders' equity	$ 15	$ 2

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9. Income per Share (Tables)

9 Months Ended

Sep. 30, 2015

Income Per Share Tables

Computation of basic and diluted income per share

	Three Months Ended				Nine months Ended
	September 30, 2015		September 30, 2014		September 30, 2015		September 30, 2014
Numerator:
Net  income (numerator for basic and diluted earnings per share)	$	212	$	656	$	829	$	1,802
Denominator:
Denominator for basic earnings per share weighted average shares		13,718,396		13,655,988		13,699,355		13,641,520
Effect of dilutive securities:
Options		75,880		125,546		158,392		100,230
Denominator
Denominator for diluted earnings per share weighted average shares		13,794,276		13,781,534		13,857,746		13,741,750
Basic income per share	$	0.02	$	0.05	$	0.06	$	0.13
Diluted income per share	$	0.02	$	0.05	$	0.06	$	0.13

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3. Allowance for Doubtful Accounts (Details Narrative) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Allowance For Doubtful Accounts Details Narrative
Allowance for doubtful accounts on trade receivables	$ 49	$ 49
Gross trade receivables	$ 4,265	$ 3,315

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1. Condensed Consolidated Financial Statements

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

NOTE 1 - Condensed Consolidated Financial Statements

Basis of Presentation

The condensed consolidated balance sheets as of September 30, 2015 and December 31, 2014, the condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2015 and 2014 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2015 and 2014 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, 2014 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, 2014, as filed with the Securities and Exchange Commission.  The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the operating results for a full year.

Fair Value

The Company’s financial instruments consist of cash and cash equivalents, trade accounts receivable and available-for-sale securities, accounts payable, accrued expenses and other liabilities. As of September 30, 2015 and December 31, 2014, the carrying amount of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses and other liabilities approximated their respective fair value due to the short-term nature and maturity of these instruments.

The Company uses observable market data or assumptions (Level 1 inputs as defined in accounting guidance) that it believes market participants would use in pricing the available-for-sale securities. There were no sales of available-for-sale securities, nor gains or losses reclassified out of accumulated other comprehensive income as a result of an other-than-temporary impairment of the available-for-sale securities.

Available-For-Sale Securities

Investments reported on the September 30, 2015 balance sheet consist of marketable equity securities of publicly held companies. Management intends to hold such securities for a sufficient period in which to realize a reasonable return, which periods may range between one to several years, although there is no assurance that positive returns will be realized or that such securities will not be liquidated in a shorter-than-expected time frame to accommodate future liquidity requirements. Accordingly, investments were classified as non-current and available-for-sale in conformity with ASC Section 320. Investments are marked to market at each measurement date, with unrealized gains or losses presented as adjustments to accumulated other comprehensive income or loss. 

Other Comprehensive Income

The Company reports its comprehensive income in accordance with FASB ASC Topic 220, Comprehensive Income, which establishes standards for reporting and presenting comprehensive income and its components in a full set of financial statements. Other comprehensive income consists of net income and unrealized gain on available-for-sale securities, net of taxes.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements that impacted the nine month periods ended September 30, 2015 and 2014, or which are expected to impact future periods, which were not previously disclosed in prior periods.

The FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory” to simplify the guidance on the subsequent measurement of inventory, excluding inventory measured using last-in, first out or the retail inventory method. Under the new standard, inventory should be at the lower of cost and net realizable value. The new accounting guidance is effective for interim and annual periods beginning after December 15, 2016 with early adoption 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.

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, 2017, 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. However, the FASB recently decided to delay the effective date by one year for all entities with the option to adopt the standard as of the original effective date. 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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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
ASSETS
Allowance for doubtful accounts, net	$ 49	$ 49
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	$ .60	$ .60
Common stock, authorized shares	20,000,000	20,000,000
Common stock, issued shares	13,718,396	13,665,087
Common stock, outstanding shares	13,718,396	13,665,087

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11. Commitments and Contingencies

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

NOTE 11 - 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, 2015.

Other

As of September 30, 2015, the Company had purchase orders to suppliers of approximately $9,474.

Significant Customers

Sales to United States government agencies represented approximately $3,539 (46.0%) and $9,809 (42.8%) of the Company’s total sales for the three and nine months ended September 30, 2015, respectively, compared with approximately $3,962 (44.2%) and $10,579 (40.3%) for the same periods last year.  Accounts receivable from agencies of the United States government were $1,896 as of September 30, 2015 compared with approximately $2,002 at the same date last year.

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2015	Oct. 30, 2015
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, 2015
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		13,718,396
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2015

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12. Debt

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

NOTE 12 - 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, 2015.  As of September 30, 2015, 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, 2014.  As of September 30, 2015, there were no borrowings outstanding under the revolving credit facility and there was approximately $4,003 of borrowing available under the revolving credit facility.

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Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Income Statement [Abstract]
Sales, net	$ 7,606	$ 8,670	$ 22,773	$ 25,552
Expenses
Cost of products	4,120	4,881	13,217	14,739
Selling, general and administrative	3,186	2,756	8,407	8,141
Total expenses	7,306	7,637	21,624	22,880
Operating income	300	1,033	1,149	2,672
Other income (expense)
Net interest income	1	0	1	1
Other (expense) income	(4)	3	37	(7)
Total other income (expense)	(3)	3	38	(6)
Income before income taxes	297	1,036	1,187	2,666
Income tax expense	(85)	(380)	(358)	(864)
Net income	$ 212	$ 656	$ 829	$ 1,802
Net earnings per share-basic:	$ 0.02	$ 0.05	$ 0.06	$ 0.13
Net earnings per share-diluted:	$ 0.02	$ 0.05	$ 0.06	$ 0.13
Weighted average shares outstanding-basic	13,718,396	13,655,988	13,699,355	13,641,520
Weighted average shares outstanding-diluted	13,794,276	13,781,534	13,857,746	13,741,750

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6. Capitalized Software

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

NOTE 6 - 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 nine months ended September 30, 2015, the Company did not capitalize any software costs.  For the three and nine months ended September 30, 2015, the Company’s amortization cost was approximately $103 and $308, respectively, compared with $197 and $591 for the same periods last year.  Net capitalized software costs totaled $445 and $753 as of September 30, 2015 and December 31, 2014, respectively.

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5. Income Taxes

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

NOTE 5 - Income Taxes

Income tax expense totaling approximately $85 and $358 has been recorded for the three and nine months ended September 30, 2015, respectively.

As of September 30, 2015 and December 31, 2014, the Company’s net deferred tax assets totaled approximately $5,247 and $6,033, respectively, and are primarily composed of net operating loss carryforwards (“NOLs”), partially offset by deferred tax liabilities of $432 derived from the unrealized gain on available-for-sale securities.  These NOLs total approximately $5,194 for federal and $13,813 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 September 30, 2015.  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, 2015.

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

9 Months Ended

Sep. 30, 2015

Non-cash Share-based Employee Compensation Tables

A summary of stock option activity

As of January 1, 2015	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		414,778		3.79		-		2.29		-
Vested		361,443		3.91		-		2.55		-
Nonvested		53,335		3.00		-		0.54		-
Period activity
Issued		30,000		5.53		-		1.99		-
Exercised		87,002		3.16		-		1.31		-
Forfeited		-		-		-		-		-
Expired		15,000		5.70		-		2.05		-
As of September 30, 2015
Outstanding		342,776		4.02		3.31		2.52		376,780
Vested		327,776		3.96		3.25		2.55		376,780
Nonvested		15,000		5.35		4.68		1.93		-

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1. Condensed Consolidated Financial Statements (Policies)

9 Months Ended

Sep. 30, 2015

Condensed Consolidated Financial Statements Policies

Basis of Presentation

The condensed consolidated balance sheets as of September 30, 2015 and December 31, 2014, the condensed consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2015 and 2014 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, 2014 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, 2014, as filed with the Securities and Exchange Commission.  The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the operating results for a full year.

Fair Value

The Company’s financial instruments consist of cash and cash equivalents, trade accounts receivable and available-for-sale securities, accounts payable, accrued expenses and other liabilities. As of September 30, 2015 and December 31, 2014, the carrying amount of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses and other liabilities approximated their respective fair value due to the short-term nature and maturity of these instruments. 

The Company uses observable market data or assumptions (Level 1 inputs as defined in accounting guidance) that it believes market participants would use in pricing the available-for-sale securities. There were no sale of available-for-sale securities, nor gain or losses reclassified out of accumulated other comprehensive income as a result of an other-than-temporary impairment of the available-for-sale securities.

Available-For-Sale Securities

Investments reported on the September 30, 2015 balance sheet consist of marketable equity securities of publicly held companies. Management intended to hold such securities for a sufficient period in which to realize a reasonable return, which periods may range between one and several years, although there is no assurance that positive returns will be realized or that such securities will not be liquidated in a shorter-than-expected time frame to accommodate future liquidity requirements. Accordingly, investments were classified as non-current and available-for-sale in conformity with ASC Section 320. Investments are marked to market at each measurement date, with unrealized gains or losses presented as adjustments to accumulated other comprehensive income or loss.

Other Comprehensive Income

The Company reports its comprehensive income in accordance with FASB ASC Topic 220, Comprehensive Income, which establishes standards for reporting and presenting comprehensive income and its components in a full set of financial statements. Other comprehensive income consists of net income and unrealized gain on available-for-sale securities, net of taxes.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements that impacted the nine month periods ended September 30, 2015 and 2014, or which are expected to impact future periods, which were not previously disclosed in prior periods.

The FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory” to simplify the guidance on the subsequent measurement of inventory, excluding inventory measured using last-in, first out or the retail inventory method. Under the new standard, inventory should be at the lower of cost and net realizable value. The new accounting guidance is effective for interim and annual periods beginning after December 15, 2016 with early adoption 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.

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. However, the FASB recently decided to delay the effective date by one year for all entities with the option to adopt the standard as of the original effective date. 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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9. Income per Share

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

NOTE 9 - Income per Share

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

	Three Months Ended				Nine months Ended
	September 30, 2015		September 30, 2014		September 30, 2015		September 30, 2014
Numerator:
Net  income (numerator for basic and diluted earnings per share)	$	212	$	656	$	829	$	1,802
Denominator:
Denominator for basic earnings per share weighted average shares		13,718,396		13,655,988		13,699,355		13,641,520
Effect of dilutive securities:
Options		75,880		125,546		158,392		100,230
Denominator
Denominator for diluted earnings per share weighted average shares		13,794,276		13,781,534		13,857,746		13,741,750
Basic income per share	$	0.02	$	0.05	$	0.06	$	0.13
Diluted income per share	$	0.02	$	0.05	$	0.06	$	0.13

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7. Investment in Securities

9 Months Ended

Sep. 30, 2015

Schedule of Investments [Abstract]

NOTE 7 - Investment in Securities

In July 2015 the Company, through its new wholly owned subsidiary, purchased approximately 1.6 million shares of Iteris (NYSE MKT: ITI), which is a non-controlling interest, where the Company does not have significant influence. As the fair value of the investment is a quoted price in an active market, the investment is classified as Level 1 under the fair value hierarchy of ASC Topic 820. The investment is recorded at market value on the Company’s balance sheet as of September 30, 2015 as a non-current asset totaling approximately $3,900, with cost of approximately $2,800. At September 30, 2015 the corresponding unrealized gain of approximately $700, net of tax of $432, is included in accumulated other comprehensive income as a separate component of stockholders’ equity. There was no impact to the Company’s statement of operations.

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8. Stockholders' Equity

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

NOTE 8 - Stockholders' Equity

The changes in consolidated stockholders’ equity for the nine months ended September 30, 2015 are as follows:

	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
Balance at December 31, 2014		13,665,087	$	8,199	$	24,816	$	−	$	218	$	33,233
Common stock option exercise and issued		53,309		32		44				−		76
Share-based compensation expense		−		−		33				−		33
Net income		−		−		−				829		829
Unrealized gain on available- for-sales securities, net of tax		−		−		−		700		−		700
Balance at September 30, 2015		13,718,396	$	8,231	$	24,893	$	700	$	1,047	$	34,871

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10. Non-Cash Share-Based Employee Compensation

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

NOTE 10 - 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 $16 and $33 for the three and nine months ended September 30, 2015, respectively, compared with $11 and $36, respectively, for the same periods last year.  The Company considers its non-cash share-based employee compensation expenses as a component of selling, general and administrative expenses ($16 and $33 for the three and nine months ended September 30, 2015, respectively, compared with $11 and $36 for the same period 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, 2015 was calculated using certain assumptions. Such assumptions are described more comprehensively in 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, 2014. 

A summary of activity under the Company’s stock option plans during the nine months ended September 30, 2015 is presented below:

As of January 1, 2015	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		414,778		3.79		-		2.29		-
Vested		361,443		3.91		-		2.55		-
Nonvested		53,335		3.00		-		0.54		-
Period activity
Issued		30,000		5.53		-		1.99		-
Exercised		87,002		3.16		-		1.31		-
Forfeited		-		-		-		-		-
Expired		15,000		5.70		-		2.05		-
As of September 30, 2015
Outstanding		342,776		4.02		3.31		2.52		376,780
Vested		327,776		3.96		3.25		2.55		376,780
Nonvested		15,000		5.35		4.68		1.93		-

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8. Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2015

Stockholders Equity Tables

Changes in consolidated stockholders' equity

	Common Stock Shares		Common Stock Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
Balance at December 31, 2014		13,665,087	$	8,199	$	24,816	$	−	$	218	$	33,233
Common stock option exercise and issued		53,309		32		44				−		76
Share-based compensation expense		−		−		33				−		33
Net income		−		−		−				829		829
Unrealized gain on available- for-sales securities, net of tax		−		−		−		700		−		700
Balance at September 30, 2015		13,718,396	$	8,231	$	24,876	$	700	$	1,047	$	34,871

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4. Inventories, net (Details Narrative) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Inventories Net Details Narrative
Reserves for slow-moving, excess, or obsolete inventory	$ 1,673	$ 1,703

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Condensed Consolidated Statements Of Comprehensive Income
Net income	$ 212	$ 656	$ 829	$ 1,802
Unrealized gain on available- for-sale securities, net of tax	700	0	700	0
Total comprehensive income	$ 912	$ 656	$ 1,529	$ 1,802

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4. Inventories, net

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

NOTE 4 - Inventories, net

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

	September 30, 2015		December 31, 2014
Finished goods	$	2,999	$	3,826
Work in process		6,892		5,127
Raw materials		3,943		3,159
	$	13,834	$	12,112

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 were approximately $1,673 at September 30, 2015, compared with approximately $1,703 at December 31, 2014.

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5. Income Taxes (Details Narative) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Net deferred tax assets	$ 5,247	$ 6,033
Federal
Operating loss carry forwards	5,194
State
Operating loss carry forwards	$ 13,813

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4. Inventories, net (Tables)

9 Months Ended

Sep. 30, 2015

Inventories Net Tables

Components of inventory

	September 30, 2015		December 31, 2014
Finished goods	$	2,999	$	3,826
Work in process		6,892		5,127
Raw materials		3,943		3,159
	$	13,834	$	12,112