-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R0GOk+TndTDBSVBxPk2OVXUaDb6UyExy41mnDxyRThWyxuHkz07In9VrWUsGpT57 FKHYx6Glc7c+nSFEcF9CLQ== 0000950115-98-001728.txt : 19981113 0000950115-98-001728.hdr.sgml : 19981113 ACCESSION NUMBER: 0000950115-98-001728 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RELM WIRELESS CORP CENTRAL INDEX KEY: 0000002186 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] IRS NUMBER: 042225121 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-07336 FILM NUMBER: 98744117 BUSINESS ADDRESS: STREET 1: 7505 TECHNOLOGY DRIVE CITY: WEST MELBOURNE STATE: FL ZIP: 32904 BUSINESS PHONE: 2154303900 MAIL ADDRESS: STREET 1: 750 TECHNOLOGY DRIVE CITY: WEST MELBOURNE STATE: FL ZIP: 32904 FORMER COMPANY: FORMER CONFORMED NAME: ADAGE INC DATE OF NAME CHANGE: 19920703 10-Q 1 QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended September 30, 1998 ------------------------------------------------ Commission file number 33-31797 ------------------------------------------- RELM WIRELESS CORPORATION --------------------------------------------------------- (Exchange name of registrant as specified in its charter) Nevada 04-2225121 - ------------------------------- ------------------------------------- (State or other jurisdiction of I.R.S. Employer Identification Number Incorporation or organization) 7505 Technology Drive, West Melbourne, Florida 32904 -------------------------------------------------------- (Address of principal executive officers) (Zip Codes) (407) 984-1414 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date of September 30, 1998. 5,043,604 shares of Common Stock, par value $.60 per share ---------------------------------------------------------- PART I- FINANCIAL INFORMATION ITEM I - FINANCIAL STATEMENTS RELM WIRELESS CORPORATION Condensed Consolidated Balance Sheets (In thousands except share data) September 30 December 31 1998 1997 (Unaudited) (Audited) ------------ -------- ASSET Current Cash and cash equivalents $ 147 $ 213 Accounts receivable, net 5,614 5,379 Inventory 11,109 11,504 Investment securities-trading 738 881 Notes receivable 400 400 Real estate investments held for sale 1,011 1,833 Prepaid expenses and other 234 288 ------- ------- Total Current Assets 19,253 20,498 Property, Plant and Equipment, Net 9,083 8,805 Notes Receivable 1,800 2,200 Other Assets 65 162 ------- ------- Total Assets $30,201 $31,665 ======= ======= See Notes to Condensed Consolidated Financial Statements. 1 ITEM I - FINANCIAL STATEMENTS - Continued RELM WIRELESS CORPORATION Condensed Consolidated Balance Sheets (In thousands except share data)
September 30 December 31 1998 1997 ------------ ----------- (Unaudited) (Audited) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term liabilities: $ 1,191 $ 1,584 Accounts payable 3,222 1,935 Accrued expenses 2,897 3,773 Accrued restructuring liability 430 1,872 Accrued research costs 599 1,027 -------- -------- Total Current Liabilities 8,339 10,191 Long-term Liabilities Loans, notes and mortgages 7,763 5,405 Capital lease obligations 1,483 2,035 -------- -------- Total Long-term Liabilities 9,246 7,440 Stockholders' equity: Common $.60 par value: 10,000,000 authorized shares: issued and outstanding shares 5,043,604 at September 30, 1998 and 5,035,779 at December 31, 1997 3,026 3,021 Additional paid-in capital 20,211 20,185 Retained earnings (deficit) (10,621) (9,172) -------- -------- Total stockholders' equity 12,616 14,034 -------- -------- Total Liabilities and Stockholders' Equity $ 30,201 $ 31,665 ======== ========
See Notes to Condensed Consolidated Financial Statements. 2 ITEM I - FINANCIAL STATEMENTS - Continued RELM WIRELESS CORPORATION Consolidated Statements of Operations (In thousands except share data)
THREE MONTHS ENDED NINE MONTHS ENDED September 30 September 30 1998 1997 1998 1997 -------- -------- -------- -------- (Unaudited) (Unaudited) Unaudited) (Unaudited) Sales $ 7,228 $ 11,436 $ 22,010 $ 35,544 Expenses: Cost of sales 5,398 8,904 16,992 27,084 Selling, general & administrative 1,987 2634 5,920 8,461 -------- -------- -------- -------- 7,385 11,538 22,912 35,545 -------- -------- -------- -------- Operating income (loss) (157) (102) (902) (1) Other income (expense): Interest expense (202) (119) (605) (751) Net gains (losses) on investments (300) 320 (143) 306 Other income 63 -- 201 -- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes (596) 99 (1,449) (446) Income tax expense (benefit) -- 31 -- (170) -------- -------- -------- -------- Income (loss) from continuing operations (596) 68 (1,449) (276) Discontinued operations: Loss from discontinued operations net of income taxes -- -- -- (266) Loss on sale of discontinued operations net of income taxes -- -- -- (2,570) -------- -------- -------- -------- Net income (loss) $ (596) $ 68 $ (1,449) $ (3,112) ======== ======== ======== ======== Earnings (loss) per share - basic and diluted: Continuing operations $ (0.12) $ 0.01 $ (0.29) $ (0.05) Discontinued operations -- -- -- (0.05) Loss on sale of discontinued operations -- -- -- (0.51) -------- -------- -------- -------- Net income (loss) $ (0.12) $ 0.01 $ (0.29) $ (0.61) ======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements. 3 ITEM I - FINANCIAL STATEMENTS - Continued RELM WIRELESS CORPORATION Condensed Consolidated Statement of Cash Flow (In thousands) NINE MONTHS ENDED SEPTEMBER 30 1998 1997 -------- -------- (Unaudited) (Unaudited) Cash (used) provided by operations $ (1,525) $ 1,753 Investing activities: Property, plant and equipment purchases (1,257) (3,618) Proceeds from sale of segments 872 7,693 Collections of note receivables 400 -- -------- -------- Cash provided by investing activities 15 4,075 Financing activities: Proceeds from debt -- 4,300 Changes in lines of credit 2,016 (10,171) Capital lease, Mortgage (603) (640) Sale (purchase) of stock 31 (40) -------- -------- Cash provided (used) by financing activities 1,444 (6,551) -------- -------- Decrease in cash (66) (723) Cash and cash equivalent at beginning of period 213 502 -------- -------- Cash and cash equivalent at end of period (over draft) $ 147 $ (221) ======== ======== Supplemental disclosure Interest paid 605 751 See Notes to Condensed Consolidated Financial Statements. 4 Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands except share data) 1. Condensed Consolidated Financial Statements The condensed consolidated balance sheet as of September 30, 1998, the condensed consolidated statements of operations for the three months and nine months ended September 30, 1998 and 1997, and the condensed consolidated statements of cash flows for the nine months ended September 30, 1998 and 1997 have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows at September 30, 1998 and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1997 Annual Report to Shareholders. The results of operations for the period ended September 30, 1998 are not necessarily indicative of the operating results for a full year. As of January 1, 1998, the Company adopted FASB Statement 130, Reporting Comprehensive Income. Statement 130 establishes new rules for the reporting and display of comprehensive income and its components: however, the adoption of this Statement had no impact on the Company's net loss or stockholders' equity for 1998 or 1997. 2. Inventories: September 30 December 31 1998 1997 ------------ ----------- Inventories consisted of: Raw Material $ 4,391 $ 4,139 Work in Process 2,111 2,245 Finished Goods 4,607 5,120 --------- ---------- $ 11,109 $ 11,504 ========= ========== 5 3. Stockholders' Equity The consolidated changes in stockholders' equity for the nine months ended September 30, 1998 are as follows:
Common Stock Additional Retained Stockholders --------------------- Paid in Earnings Equity Shares Amount Capital (Deficit) Total --------- --------- ---------- --------- ------------ Balance at January 1, 1998 5,035,779 $ 3,021 $ 20,185 $ (9,172) $ 14,034 Exercise of stock options 7,825 5 26 -- 31 Net loss -- -- -- (1,449) (1,449) --------- --------- --------- --------- --------- Balance September 30, 1998 5,043,604 $ 3,026 $ 20,211 $ (10,621) $ 12,616 ========= ========= ========= ========= =========
4. Earnings (Loss) Per Share In 1997, the FASB issued SFAS No. 128, Earnings per Share. This statement replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share are very similar to the previously reported fully diluted earnings per share. All earnings (loss) per share amounts for all periods have been presented, and where appropriate, restated to conform to the Statement 128 requirements. The following table sets the computation of basic and diluted earnings (loss) per share from continuing operations:
Three Months Ended Nine Months Ended --------------------------- --------------------------- September 30 September 30 September 30 September 30 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Numerator: Net income (loss) (numerator for basic and diluted earnings (loss) per share) $ (596) $ 68 $ (1,449) $ (276) ----------- ----------- ----------- ----------- Denominator: Denominator for basic earnings per share- weighted average shares 5,043,604 5,059,185 5,042,749 5,088,628 Effect of dilutive securities: Options -- 4,271 -- -- ----------- ----------- ----------- ----------- Dilutive potential shares -- 4,271 -- -- ----------- ----------- ----------- ----------- Denominator for diluted earnings (loss) per share-adjusted weighted average shares 5,043,604 5,063,456 5,042,749 5,088,628 =========== =========== =========== =========== Basic earnings (loss) per share $ (0.12) $ 0.01 $ (0.29) $ (0.05) =========== =========== =========== =========== Diluted earnings (loss) per share $ (0.12) $ 0.01 $ (0.29) $ (0.05) =========== =========== =========== ===========
Shares related to options are not included in the computation of earnings (loss) per share for certain periods because to do so would have been anti-dilutive for the periods presented. 6 5. Reclassifications In accordance with Staff Accounting Bulletin No. 93, the Company's real estate operations have been classified in continuing operations for all periods presented as the real estate business has not been completely disposed of. The real estate operations were previously reported in discontinued operations. Management anticipates selling the remaining real estate assets and exiting the business in 1998. The summarized results of operations of the real estate business are as follows:
Three Months Ended Nine Months Ended ------------------ ------------------- September 30 September 30 ------------------ ------------------- 1998 1997 1998 1997 ---- ---- ---- ----- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Sales $ -- $ 463 $ 740 $ 1,502 Cost of sales -- 453 747 1,476 Selling, general & administrative -- 105 93 370 ------ ----- ------ ------- Operating Loss $ -- $ (95) $ (100) $ (344) ====== ===== ====== =======
The statements of operations for the three and nine months ended September 30, 1997 have been restated to properly reflect discontinued operations. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS Results of Operations As an aid to understanding the Company's operating results, the following table shows each item from the consolidated statements of operations expressed as a percentage of net sales:
Three Months Ended Nine Months Ended ----------------------------------------- ---------------------------------------- September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997 ------------------ ------------------ ------------------ ------------------ Sales 100.0% 100.0% 100.0% 100.0% Cost of sales (74.7%) (77.9%) (77.2%) (76.2%) Gross margin 25.3% 22.1% 22.8% 23.8 Selling, general and administrative expenses (27.5%) (23.0%) (26.9%) (23.8%) Interest expense (2.8%) (1.0%) (2.7%) (2.1%) Other income (expense) (3.3%) 2.8% 0.3% 0.9% ----- ----- ----- ----- Income (loss) from continuing operations before income tax benefit (8.3%) 0.9% (6.5%) (1.2%) Income tax (benefit) 0.3% (0.5%) ----- ----- ----- ----- Net Income (loss) from continuing operations (8.3%) 0.6% (6.5%) (0.7%) Income (loss) from discontinued operations -- -- -- (0.8%) Net Income (loss) on sale of discontinued operations -- -- -- (7.2%) ----- ----- ----- ----- Net Income (loss) from continuing operations (8.3%) 0.6% (6.5%) (8.7%) ===== ===== ===== =====
Net Sales Net sales for the three months and nine months ended September 30, 1998 decreased $4,208,000 (36.8%) and $13,534,000 (38.1%) respectively compared to sales for the same periods in 1997. This decrease is primarily the result of reduced radio requirements for the U.S. Army. The Company's five-year, $40 million contract with the Army remains intact. However, the Army's current inventory on-hand is sufficient to satisfy their requirements through Quarter 1 of 1999. Shipments are expected to resume at that time. Also, as previously announced, sales decreased as the Company discontinued products and businesses that were inadequately profitable or did not fit the Company's strategic focus in land mobile radios. Consistent with that strategy, the Demand Side Management business was sold during the third quarter for its net book value of approximately $125,000. Compared to the previous quarter, sales of LMR products increased $542,000 (8.1%). Furthermore, significant improvement was realized later in the quarter, as LMR sales in September increased $1,364,000 (69.4%) from August. This increase reflects the introduction of the Company's new "BK GOLD" series radios. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS -- CONTINUED. Net Sales Continued Additional new products that will be introduced by the Company in 1999, combined with an aggressive, highly focused marketing and sales strategy, will fuel sales growth in 1999 and beyond. Cost of Sales Cost of sales as a percentage of net sales for the three months ended September 30, 1998 decreased 3.2% compared to the same period in 1997. Cost of sales decreased 2.6% compared to the previous quarter of 1998. The three months ended September 30, 1998 represents the Company's third consecutive quarter of improvement in margin performance. Earlier in the year, consistent with lower volumes and revenues, the Company reduced staffing and manufacturing support costs in excess of 30%. These reductions, in concert with manufacturing quality initiatives and material procurement renegotiations, have yielded margin improvements. These initiatives are currently in their infancy. As they continue through 1999, additional margin gains will be realized. Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses consist of marketing, sales, commissions, sustaining engineering, product development, information systems, accounting, and headquarters. SG&A expenses as a percentage of sales for the three months and nine months ended September 30, 1998 increased 4.5% and 3.1% respectively, compared to the same periods in 1997. Expenses in all SG&A areas were reduced earlier in 1998 as a result of the Company's restructuring program and continue to be evaluated for reductions. In product development, however, the Company is continuing to invest aggressively in three new product initiatives. The Company's new "BK GOLD" series products were introduced during the third quarter. Design of the other new products will be completed in 1998, which will allow R&D expenses to be reduced in excess of $1,000,000 (39.4%) In 1999. The Company is also intensifying its sales and marketing efforts to fuel immediate sales growth in 1999. Interest Expense Interest expense for the three months and nine months ended September 30, 1998 increased $83,000 and decreased $146,000 respectively compared to the same periods in 1997. During the second half of 1997, debt levels were reduced using cash flow from operations and from the sales of discontinued operations. There was no significant change in interest expense between the first, second, and third quarters of 1998. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS -- CONTINUED. Income Taxes The Company has evaluated its tax position versus the requirements of SFAS No. 109, Accounting for Income Taxes and does not believe that it has met the more-likely-than-not criteria for recognizing a deferred tax asset and has provided valuation allowances against net deferred tax assets. Therefore, an income tax benefit was not provided for the three months and nine months ended September 30, 1998. Liquidity and Capital Resources As of September 30, 1998 the Company had working capital of $10,915,000 compared with $10,307,000 as of December 31, 1997. As of September 30, 1998, the Company has unutilized credit of $3.4 million under a revolving line of credit. The decrease in cash of $66,000 during the nine months ended September 30, 1998 is the result of $1,257,000 in capital expenditures, combined with a debt increase of $1,844,000. Capital expenditures for the comparable period in 1997 totaled $3,618,000. This was comprised of a $2,000,000 facility expansion and the replacement of obsolete manufacturing Surface Mount equipment for $1,400,000. Discontinued Operations There were no discontinued operations for the three months and nine months ended September 30, 1998. For the nine months ended September 30, 1997, the Company reported a loss from discontinued operations of $266,000. The discontinued operations (specialty manufacturing and recycled paper manufacturing) were sold during the second quarter of 1997 at a net loss of approximately $2.6 million. Inflation and Changing Prices Inflation and changing prices for the quarters September 30, 1998 and 1997 have contributed to increases in wages, facilities, and raw material costs. These inflationary effects were partially offset by increased prices to customers. The Company believes that it will be able to pass on most of its future inflationary increases to its customers. The Company is also subject to changing foreign currency exchange rates in its purchase of some raw materials. The Company employs several methods to protect against increases in cost due to currency fluctuations. It is not always possible to pass on these effects. Competitors in the land-mobile radio markets are subject to similar fluctuations. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS -- CONTINUED. Forward-Looking Statements This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe-harbor created by such sections. Such forward-looking statements concern the Company's operations, economic performance and financial condition. Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: General economic and business conditions; changes in customer preferences; competition; changes in technology; the integration of any acquisitions; changes in business strategy; the indebtedness of the Company; quality of management, business abilities and judgment of the Company's personnel; the availability, terms and deployment of capital; and various other factors referenced in this Report. The forward-looking statements are made as of the date of this Report, and the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. Year 2000 Discussion GENERAL As the year 2000 approaches, an issue has emerged with many companies regarding how existing application software programs and operating systems will accommodate this date value. Accordingly, 1999 could be the maximum date value that these systems will be able to process. Although the extent of the potential impact of this problem is not precisely known, estimates indicate that it could affect the global economy. The Company has addressed or is in the process of addressing all year 2000 related exposures. INTERNAL COMPANY SYSTEMS The Company implemented a new enterprise-wide information system in 1997. The current release of the software is year 2000 compliant. The Company has not yet upgraded to the current release. This upgrade will be completed in March 1999. Costs associated with upgrade are estimated to be approximately $20,000 and will be recognized in the first quarter of 1999. It is the Company's policy to utilize the most current releases of software. The aforementioned upgrade would be performed regardless of the status of the year 2000 issue. No other information technology projects are impacted by the upgrade. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS -- CONTINUED. Year 2000 Discussion -- Continued THIRD PARTY RELATIONSHIPS The Company has material relationships with certain suppliers and customers. Generally, suppliers provide components that are necessary to manufacture a finished product. The Company's products are sold primarily to dealers and distributors who resell to the end-users. If these suppliers and/or customers were unable to conduct business as a result of year 2000 issues the potential impact to the Company's business could be significant. The amount of the potential impact cannot be estimated at this time. The Company will determine the state of readiness of material third parties through the use of questionnaires. These questionnaires will be distributed at the end of 1998. As a contingency plan, and as is its normal practice, the Company in most cases has or will have secondary sources for purchases. Other than the US Government, no single customer represents a significant portion (greater than 10%) of the Company's sales. The cost of administering the questionnaire program is estimated to be less than $5,000. ITEM 6. Exhibits and Reports of Form 8-K a.) Reports on Form 8-K The Registrant was not required to file reports on Form 8K during the quarter ended September 30, 1998. Pursuant to the requirements of Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there- unto duly authorized. RELM WIRELESS CORPORATION ___________________________ William P. Kelly Chief Financial Officer and Vice President - Finance Date: November 4, 1998 12 EX-27 2 FDS --
5 1000 3-MOS DEC-31-1998 JAN-1-1998 SEP-30-1998 147 738 5,744 (130) 11,011 19,253 14,010 (4,927) 30,201 8,339 0 0 0 3,026 10,621 30,201 7,228 7,228 5,398 0 1,987 0 202 (596) 0 0 0 0 0 (596) (.12) (.12)
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