10-Q 1 d10q.txt FORM 10-Q FOR PERIOD ENDING 6/30/01 ================================================================================ ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark one) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES -- EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED June 30, 2001 -------------- 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 0-7336 RELM WIRELESS CORPORATION (Exact name of registrant as specified in its charter) Nevada 59-3486297 ------------------------------- ---------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7100 Technology Drive West Melbourne, Florida ----------------------- (Address of principal executive offices) 32904 ----- (Zip Code) Registrant's telephone number, including area code: (407) 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 X No _____ ---- Common Stock, $.60 Par Value - 5,346,174 shares outstanding as of June 30, 2001 =============================================================================== =============================================================================== 1 PART I- FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS ----------------------------- RELM WIRELESS CORPORATION Condensed Consolidated Balance Sheets (In thousands except share data)
June 30 December 31 2001 2000 ----------------------------------- (Unaudited) (See note 1) ASSETS ------ Current assets: Cash and cash equivalents $ 243 $ 208 Trade accounts receivable (net of allowance for doubtful 4,126 3,712 accounts of $1,549 as of June30, 2001 and $1,555 as of December 31, 2000) Inventories, net 9,106 8,940 Prepaid expenses and other current 561 528 ------- ------- Total current assets 14,036 13,388 Property, plant and equipment, net 2,504 2,833 Notes receivable, less current portion 977 984 Debt issuance costs, net 597 682 Other assets 479 535 ------- ------- Total assets $18,593 $18,422 ======= =======
See notes to condensed consolidated financial statements. 2 ITEM 1 - FINANCIAL STATEMENTS - Continued ----------------------------------------- RELM WIRELESS CORPORATION Condensed Consolidated Balance Sheets (In thousands except share data)
June 30 December 31 2001 2000 --------------------------------------- (Unaudited) (See note 1) LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities: Current maturities of long-term liabilities $ 215 $ 848 Accounts payable 3,161 3,604 Accrued compensation and related taxes 585 361 Accrued expenses and other current liabilities 884 896 ---------- --------- Total current liabilities 4,845 5,709 Long-term liabilities: Line of credit 4,370 3,193 Convertible subordinated notes 3,150 3,150 Capital lease obligations 10 10 ---------- --------- 7,530 6,353 Stockholders' equity: Common stock; $.60 par value; 20,000,000 and 10,000,000 authorized shares at June 30, 2001 and December 31, 2000: 5,346,174 issued and outstanding shares at June 30, 2001 and December 31, 2000 3,207 3,207 Additional paid-in capital 21,452 21,452 Accumulated deficit (18,441) (18,299) ---------- --------- Total stockholders' equity 6,218 6,360 ---------- --------- Total liabilities and stockholders' equity $ 18,593 $ 18,422 =========== ==========
See notes to condensed consolidated financial statements. 3 ITEM 1 - FINANCIAL STATEMENTS - continued ----------------------------------------- RELM WIRELESS CORPORATION Condensed Consolidated Statements of Operations (Unaudited) (In thousands except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------- -------------------------- June 30 June 30 June 30 June 30 2001 2000 2001 2000 -------- -------- -------- -------- Sales $ 6,188 $ 5,158 $ 10,908 $ 9,754 Expenses Cost of products 4,448 3,680 7,919 7,289 Selling, general & administrative 1,462 1,886 2,850 3,405 -------- -------- -------- -------- 5,910 5,566 10,769 10,694 -------- -------- -------- -------- Operating income (loss) 278 (408) 139 (940) Other income (expense): Interest expense (145) (217) (303) (522) Gain on sale of facility and equipment -- -- -- 1,165 Other income 12 83 22 146 -------- -------- -------- -------- Net income (loss) $ 145 $ (542) $ (142) $ (151) ======== ======== ======== ======== Earnings (loss) per share-basic $ 0.03 $ (0.10) $ (0.03) $ (0.03) ======== ======== ======== ======== Earnings (loss) per share-diluted $ 0.03 $ (0.10) $ (0.03) $ (0.03) ======== ======== ======== ========
See notes to condensed consolidated financial statements. 4 ITEM 1 - FINANCIAL STATEMENTS - continued ----------------------------------------- RELM WIRELESS CORPORATION Condensed Consolidated Statement of Cash Flows (Unaudited) (In thousands)
SIX MONTHS ENDED --------------------------------- June 30 June 30 2001 2000 --------- ----------- Cash used by operations $ (417) $(1,526) Investing activities: Cash paid for Uniden product line -- (2,016) Property and equipment purchases (53) (184) Proceeds from disposals of assets 2 5,246 Other (33) 4 ------- ------- Cash provided (used) by investing activities (84) 3,050 Financing activities: Net change in line of credit 1,177 (121) Proceeds from long term debt -- 3,250 Repayment of debt (633) (4,338) Payment of debt issuance costs -- (206) Other (8) -- ------- ------- Cash provided (used) by financing activities 536 (1,415) Increase in cash 35 109 Cash and cash equivalents at beginning of period 208 1 ------- ------- Cash and cash equivalents at end of period $ 243 $ 110 ======= ======= Supplemental disclosure: Interest paid $ 303 $ 522 ======= ======= Non-cash transactions: Common stock and common stock warrants payable for debt issuance and acquisition costs $ -- $ 1,059 ======= ======= Warrants issued for consulting services $ -- $ 226 ======= =======
See notes to condensed consolidated financial statements 5 Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands except share data and per share data) 1. Condensed Consolidated Financial Statements The condensed consolidated balance sheet as of June 30, 2001, the condensed consolidated statements of operations for the three and six months ended June 30, 2001 and 2000 and the condensed consolidated statements of cash flows for the six months ended June 30, 2001 and 2000 have been prepared by RELM Wireless Corporation (the Company), without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation have been made. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date. 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, 2000 Annual Report to Stockholders. The results of operations for the three and six month period ended June 30, 2001 are not necessarily indicative of the operating results for a full year. The Company maintains its records on a calendar year basis. The Company's first, second, and third quarters normally end on the Friday closest to the last day of the last month of such quarter, which was June 29, 2001 for the second quarter of fiscal 2001. The quarter began on March 31, 2001. 2. Significant Events and Transactions Acquisition of Product Line On March 13, 2000, the Company completed the acquisition of certain private radio communication products from Uniden America Corporation (Uniden) for $1,864 which included assumption of certain liabilities related to the product line. Additionally, the Company incurred acquisition costs of $639. The entire purchase price was allocated to tooling and inventory based on their estimated fair values. Uniden will continue to provide manufacturing support for certain Uniden land mobile radio products, which will be marketed by the Company. Acquisition costs included grants of 150,000 shares at $3.25 per share of the Company's common stock valued at $488. 6 ITEM 1 - FINANCIAL STATEMENTS - continued ----------------------------------------- Significant Events and Transactions - Continued Private Placement On March 16, 2000, the Company ___ completed the private placement of $3,250 of convertible subordinated notes. The notes earn interest at 8% per annum, are convertible at $3.25 per share, and are due on December 31, 2004. The registration of the common stock shares underlying the convertible notes was effective June 2000. Portions of the proceeds from this private placement were used to acquire the Uniden land mobile radio products. The debt issuance costs included grants to Simmonds Capital Limited of 50,000 shares at $3.25 per share of the Company's common stock valued at $163 and warrants to purchase 300,000 shares of the Company's common stock value at $409. The warrants have a five-year term and an exercise price of $3.25 per share. Additionally, the Company incurred approximately $817 in costs related to the private placement. These costs are currently being amortized on a straight-line basis over the life of the notes. Sale of West Melbourne, Florida Facility and Completion of Manufacturing Agreement On March 24, 2000, the Company completed the sale of its 144,000 square foot facility located in West Melbourne, Florida for $5.6 million. The transaction resulted in a net gain of $1.2 million and provided approximately $1.6 million in cash after related expenses and after payoff of the note and satisfaction of the mortgage on the property. Upon the sale of the building, the Company leased approximately 54 thousand square feet of comparable space at a nearby location. On March 23, 2000, the Company entered into a contract manufacturing agreement for the manufacture of certain land mobile radio subassemblies. Under this agreement, the contract manufacturer employed sixty-eight of the Company's direct manufacturing workforce and agreed to purchase certain existing raw material inventories from the Company as needed, based on material requirements indicated by purchase orders for finished product from the Company. Revenues are recognized as the contract manufacturer uses these inventories. Until that time, they are treated as an asset of the Company and are included in the Company's inventory reserve analysis. Intangible Asset On May 12, 2000, the Company engaged Janney Montgomery Scott (JMS) to provide certain investment banking services. In connection with the engagement, the 7 ITEM 1 - FINANCIAL STATEMENTS - continued ----------------------------------------- Significant Events and Transactions - Continued Company granted warrants to JMS, valued at $226 thousand, to purchase 166,153 shares of the Company's stock at an aggregate purchase price of one hundred dollars. The warrants have a five-year term and an exercise price of $3.25 per share. The value of the warrants is being amortized on a straight-line basis over the estimated life of the contract. 3. Inventories The components of inventory, net of reserves totaling $1,978 at June 30, 2001 and December 31, 2000, consist of the following: June 30 December 31 2001 2000 -------------- --------------- Finished goods $ 5,532 $ 5,043 Work in process 639 796 Raw materials 2,935 3,101 -------------- --------------- $ 9,106 $ 8,940 ============== =============== 4. Stockholders' Equity The consolidated changes in stockholders' equity for the six months ended June 30, 2001 are as follows:
Additional Common Stock Paid-In Accumulated ---------------------- Shares Amount Capital Deficit Total ------------------------------------------------------------------------- Balance at December 31, 2000 5,346,174 $3,207 $21,452 $ (18,299) $6,360 Net loss - - - (142) (142) ------------------------------------------------------------------------- Balance at June 30, 2001 5,346,174 $ 3,207 $21,452 $ (18,441) $6,218 =========================================================================
8 ITEM 1 - FINANCIAL STATEMENTS - continued ----------------------------------------- 5. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share:
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------- --------------------------- June 30 June 30 June 30 June 30 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Numerator: Net income (loss) (numerator for basic earnings per share) $ 145 $ (542) $ (142) $ (151) Effect of dilutive securities: 8% convertible notes -- -- -- -- ----------- ----------- ----------- ----------- Net income (loss) (numerator for dilutive earnings per share) 145 (542) (142) (151) ----------- ----------- ----------- ----------- Denominator: Denominator for basic earnings per share-weighted average shares 5,346,174 5,184,910 5,346,174 5,137,658 Effect of dilutive securities: 8% convertible notes -- -- -- -- Options 18,000 -- -- -- ----------- ----------- ----------- ----------- Denominator for diluted earnings per share - adjusted weighted average shares 5,364,174 5,184,910 5,346,174 5,137,658 =========== =========== =========== =========== Basic earnings per share $ 0.03 $ (0.10) $ (0.03) $ (0.03) =========== =========== =========== =========== Diluted earnings per share $ 0.03 $ (0.10) $ (0.03) $ (0.03) =========== =========== =========== ===========
Shares related to options and convertible debt are not included in the computation of loss per share for the six months ended June 30, 2001 and the three and six months ended June 30, 2000, because to do so would be anti-dilutive. 6. Comprehensive Income (Loss) The total comprehensive income (loss) for the three and six months ended June 30, 2001 was $145 and ($142), respectively, compared to ($542) and ($151) for the same periods in the previous year. 9 ITEM 1 - FINANCIAL STATEMENTS - continued ----------------------------------------- 7. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and its amendments Statements 137 and 138, in June 1999 and June 2000, respectively. The Statements require the Company to recognize all derivatives on the balance sheet at fair value. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change of fair value of assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company adopted these Statements on January 1, 2001, and did not have a material impact on the Company's financial position or operating results. At June 30, 2001, the Company had no hedges or firm commitments outstanding. 8. Contingent Liabilities From time to time, the Company may become liable with respect to pending and threatened litigation, tax, environmental and other matters. General Insurance Under the Company's insurance programs, coverage is obtained for catastrophic exposures as well as those risks required to be insured by law or contract. It is the policy of the Company to retain a portion of certain expected losses related primarily to workers' compensation, physical loss to property, business interruption resulting from such loss and comprehensive general, product, and vehicle liability. Provisions for losses expected under these programs are recorded based upon the Company's estimates of the aggregate liability for claims incurred. Such estimates utilize certain actuarial assumptions followed in the insurance industry and are included in accrued expenses. The amounts accrued are included in accrued compensation and related taxes in the balance sheets. 10 ITEM 1 - FINANCIAL STATEMENTS - continued ----------------------------------------- Contingent Liabilities-Continued Former Affiliate In 1993, a civil action was brought against the Company by a plaintiff to recover losses sustained on notes of a former affiliate. The plaintiff alleges violations of federal securities and other laws by the Company in collateral arrangements with the former affiliate. In response, the Company filed a motion to dismiss the complaint in the fall of 1993, which the court has yet to rule. In February 1994, the plaintiff executed and circulated for signature, a stipulation of voluntary dismissal. After the stipulation was executed the plaintiff refused to file the stipulation with the court. Subsequently the Company and others named in the complaint filed a motion to enforce their agreement with the plaintiff. The court has also yet to rule on that motion. A related action in connection with the bankruptcy proceedings of the former affiliate has been filed. In response to that complaint the Company filed a motion to dismiss for failure to state a cause of action. Although the motion for dismissal was filed during 1995, the bankruptcy court has not yet ruled on the motion. The range of potential loss, if any, as a result of these actions cannot be presently determined. In February 1996, the liquidator of the former affiliate filed a complaint claiming intentional and negligent conduct by the Company and others named in the complaint caused the former affiliate to suffer millions of dollars of losses leading to its ultimate failure. The complaint does not specify damages but an unfavorable outcome could have a material adverse impact on the Company's financial position. The range of potential loss, if any, cannot be presently determined. Management, with the advice of counsel, believes the Company has meritorious defenses and the likelihood of an unfavorable outcome in each of these actions is remote. Counter Claims In February 1999, the Company initiated collection and legal proceedings against its former Brazilian dealer, Chatral, for failure to pay for 1998 product shipments totaling $1.4 million which has been fully reserved. In April 2001, the Brazilian court ordered the Company to post security with the court totaling approximately $300,000 in the form of cash or a bond in order for the case to proceed. The Company has elected not to post security. Consequently, the case has been involuntarily dismissed. There has been no ruling on the merits of the case, and the Company has preserved its rights to pursue this matter in the future. 11 ITEM 1 - FINANCIAL STATEMENTS - continued ----------------------------------------- Counter Claims--continued On December 8, 1999, Chatral filed a counter claim against the Company that alleges damages totaling $8 million as a result of the Company's discontinuation of shipments to Chatral. Although the Company and its counsel believe the Company has a meritorious defense, the outcome of this action is uncertain. An unfavorable outcome could have a material adverse effect on the financial position of the Company. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND ----------------------------------------------------------------- FINANCIAL CONDITIONS -------------------- Results of Operations ---------------------
Percentage of Sales Percentage of Sales ---------------------------- ----------------------------- THREE MONTHS ENDED SIX MONTHS ENDED June 30 June 30 June 30 June 30 2001 2000 2001 2000 --------- --------- --------- --------- Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 71.9 71.3 72.6 74.7 Gross margin 28.1% 28.7 27.4 25.3 ----- ----- ----- ----- Selling, general and administrative expenses (23.6) (36.6) (26.1) (34.9) Interest expense (2.3) (4.2) (2.8) (5.3) Other income 0.2 1.6 0.2 13.4 ----- ----- ----- ----- Net income (loss) 2.4% (10.5)% (1.3)% (1.5)% ===== ===== ===== =====
As an aid to understanding our operating results, the following table shows each item from the consolidated statement of operations expressed as a percentage of net sales: Net Sales Net sales for the three months ended June 30, 2001 increased approximately $1.0 million (20.0%) compared to the same period for the prior year. This increase was the result of BK Radio product sales principally to the U.S. Forest Service and the Communications Electronics Command of the U.S. Army. These sales included $1.1 million of our GMH mobile radio that was introduced late last year. Additionally, sales of our Uniden-branded products increased $0.6 million (107.9%) compared to the same period for the prior year. The complete Uniden product line was not yet available for sale during the second quarter of the prior year. Sales of our RELM-branded products decreased $0.4 million (56.1%) compared to the same period for the prior year. This reflects the introduction of Uniden models with more modern designs and feature sets. Net sales for the six months ended June 30, 2001 increased approximately $1.2 million (11.8%) compared to the same period for the prior year. This increase was primarily due to BK Radio product sales, particularly our GMH mobile radio. Additionally, sales of Uniden-branded products increased by $1.1 million (115.3%) compared to the same period for the prior year. The Uniden product line was not acquired by RELM until late in March 2000 and the full compliment of product offerings was not available for sale until January 2001. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND ----------------------------------------------------------------- FINANCIAL CONDITIONS-continued ------------------------------ Cost of Sales and Gross Margin Cost of sales as a percentage of net sales for the three months ended June 30, 2001 was 71.9% compared to 71.3% for the same period in the prior year. This slight increase was driven by the mix of products sold. Specifically, prior year results included non-recurring sales of certain discontinued land mobile components, which yielded higher margins than sales of more conventional LMR products. For the six months ended June 30, 2001, cost of sales as a percentage of sales was 72.6% compared to 74.7% for the previous year. The overall gross margin improvement is the result of a more favorable product mix and our continued actions to reduce manufacturing costs while improving efficiency and quality. Over the past year these actions have included reductions in staff and facilities. We have realized additional cost reductions by employing a strategy to outsource certain manufacturing ___ operations and products. In March 2000 we entered into a contract manufacturing agreement with C-MAC for the manufacture of certain LMR subassemblies for a period of five years. Also, in connection with our acquisition in March 2000 of certain Uniden product lines, we entered into a manufacturing contract with Uniden Corporation pursuant to which Uniden Corporation manufactures our LMR products branded under the "Uniden" name. The Uniden manufacturing contract expires in September 2001 unless it is renewed by the parties. We are continuing to evaluate new external manufacturing alternatives, with a particular focus in the far-east, in order to further reduce our product costs. We anticipate that the current relationships or comparable alternatives will be available to the company in the future. Selling, General and Administrative Expenses Selling, general and administrative expenses (SG&A) consist of marketing, sales, commissions, engineering, research and development, management information systems, accounting, and headquarters expenses. For the three months ended June 30, 2001, expenses totaled approximately $1.5 million compared to $1.9 million for the same period last year. This decrease is driven by reduced selling and marketing expenses, primarily for our Uniden products. Also, general and administrative staff and expenses in Finance, Human Resources, MIS, and headquarters were all reduced from the prior year. For the six months ended June 30, 2001 SG&A expenses totaled $2.8 million compared to $3.4 million for the same period during the prior year. This decrease 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND ----------------------------------------------------------------- FINANCIAL CONDITIONS-continued ------------------------------ Selling, General and Administrative Expenses--continued reflects our actions to reduce staffing and expenses in selling and marketing, as well as in all general and administrative functions. Engineering expenses increased approximately $0.1 million (19.0%) compared to the prior year. This reflects the development of multi-site ___ dispatch capability for our Uniden ESAS Systems. These systems were introduced in March of this year. Interest Expense For the three months ended June 30, 2001 interest expense totaled $145,000 compared to $217,000 for the same period during the prior year. For the six months ended June 30, 2001 interest expense totaled $303,000 compared to $522,000 for the same period during the prior year. The decrease is primarily a result of the satisfaction of the mortgage on our facility in connection with its sale in the first quarter of 2000. Also, during the fourth quarter of 2000 we sold certain manufacturing equipment and satisfied the related capital lease commitment. A portion of the proceeds from our private placement of convertible subordinate notes and working capital generated from revenue growth and expense reductions enabled us to reduce the amounts outstanding on our revolving credit facility and existing capital lease obligations. Other Income On March 24, 2000, we completed the sale of our 144,000 square foot facility located in West Melbourne, Florida for $5.6 million. The transaction resulted in a gain of approximately $1.2 million and provided approximately $1.6 million in cash after related expenses and the satisfaction of the mortgage on the property. We have leased approximately 54,000 square feet of comparable space at a nearby location. Income Taxes No income tax provision was provided for the three or six months ended June 30, 2001 or June 30, 2000 as we have net operating loss carryforward benefits totaling approximately $30 million at June 30, 2001. We have evaluated our tax position in accordance with the requirements of SFAS No. 109, Accounting for Income Taxes, and do not believe that we have met the more-likely-than-not criteria for recognizing a deferred tax asset and have provided valuation allowances against net deferred tax assets. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND ----------------------------------------------------------------- FINANCIAL CONDITIONS-continued ------------------------------ Inflation and Changing Prices ----------------------------- Inflation and changing prices for the three and six months ended June 30, 2001 and 2000 have contributed to increases in wages, facilities, and raw material costs. Effects of these inflationary effects were partially offset by increased prices to customers. We believe that we will be able to pass on most of our future inflationary increases to our customers. Significant Customers --------------------- Sales to the United States government represented approximately 56.8% and 50.4% of our total sales for the three months and six months ended June 30, 2001, respectively, compared to 45.0% for the year ended December 31, 2001. These sales were primarily to the United States Forest Service (USFS) and the Communications Electronics Command of the U. S. Army (CECOM). Sales to the USFS represented approximately 38.2% and 39.9% of total sales for the three months and six months ended June 30, 2001, respectively. Sales to the CECOM represented approximately 18.9% and 10.5% of total sales for the three months and six months ended June 30, 2001, respectively. In 1998, we were awarded portions of the current USFS contract. This contract is for a period of one year with extension options for two additional years, which have been exercised, and will expire later this year. The contact does not specify a minimum purchase. Bids for a new contact were solicited and we have been awarded the contract for portable radios and base stations. The contract for mobile radios has not yet been awarded. In 1996, we were awarded a contract to provide land mobile radios to CECOM. This contract is for a term of five years with no specified minimum purchase requirement, and will expire this year. Bids for a new contract have not yet been solicited by CECOM. Liquidity and Capital Resources ------------------------------- As of June 30, 2001, we had working capital of $9.2 million compared with $7.7 million as of December 31, 2000. This increase was primarily the result of increased trade receivables driven by significant sales revenue in June 2001, as well as 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND ----------------------------------------------------------------- FINANCIAL CONDITIONS-continued ------------------------------ Liquidity and Capital Resources--continued ------------------------------------------ reductions in accounts payable and debt. A significant portion of revenues was recognized in the last three weeks of June 2001. Under our terms of sale, payment for these revenues will be received during the third quarter. Consequently, borrowings increased under our revolving line of credit. As these revenues are collected in succeeding weeks, borrowings are expected to decline. We have a $7 million revolving line of credit. As of June 30, 2001, the formula under the terms of the agreement supported a borrowing base totaling approximately $6.0 million,of which approximately $1.0 million was available. Capital expenditures for property and equipment for the three months ended March 31, 2001 were $36,000 compared to $94,000 for the same period in 2000. Forward-Looking Statements -------------------------- This report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act Of 1995 and is subject to the safe-harbor created by such act. These forward-looking statements concern the Company's operations, economic performance and financial condition and are based largely on the Company's beliefs and expectations. These 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 and risks include, among others, the following: the factors described in the Company's filings with the Securities and Exchange Commission; general economic and business conditions; changes in customer preferences; competition; changes in technology; changes in business strategy; the indebtedness of the Company; quality of management, business abilities and judgment of the Company's personnel; and the availability, terms and deployment of capital. Certain of these factors and risks, as well as other risks and uncertainties are stated in more detail in the Company's Annual Report on Form 10-K. These 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. 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK ------- ------------------------------------------------------- The Company utilizes a variable-rate line of credit. The Company does not expect changes in interest rates to have a material effect on income or cash flows in fiscal year 2001, although there can be no assurance that interest rates will not significantly change. PART II- OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS ----------------- As previously disclosed, in February 1999, the Company initiated criminal and civil proceedings in Sao Paulo, Brazil against its Brazilian dealer, Chatral, for failure to pay for product shipments totaling $1.4 million. The Company established a reserve for the full amount of this receivable in 1998. In April 2001, the Brazilian court ordered the Company to post security with the court totaling approximately $300,000 in the form of cash or a bond in order for the case to proceed. The Company has elected not to post security. Consequently, the case has been involuntarily dismissed. There has been no ruling on the merits of the case, and the Company has preserved its rights to pursue this matter in the future. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. ----------------------------------------- None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. ------------------------------- None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. --------------------------------------------------- The annual meeting of our shareholders was held on June 14, 2001. Of the 5,346,174 shares of common stock outstanding and entitled to vote at the meeting, 4,974,196 shares were represented in person or by proxy. Election of Directors On the proposal to elect Donald F. U. Goebert, David. P. Storey, Buck Scott, 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- Election of Directors--continued Robert MacDonald, Ralph R. Whitney, James C. Gale, and George M. Benjamin III as directors until the 2002 Annual Meeting of Shareholders and until their successors are duly elected and qualified, the nominees for Director received the number of votes as set forth below: For Withheld --------------------------- Donald F. U. Goebert 4,631,855 342,341 David P. Storey 4,632,005 342,191 Buck Scott 4,632,121 342,075 Robert MacDonald 4,632,060 342,136 Ralph R. Whitney 4,632,121 342,075 James C. Gale 4,632,121 342,075 George N. Benjamin III 4,632,121 342,075 Amendment To The Articles Of Incorporation To Increase Authorized Shares Of Common Stock From 10 Million To 20 Million On the proposal to amend article five of the Company's articles of incorporation, increasing the number of authorized shares of common stock from 10 million to 20 million, 4,831,345 shares were voted for the proposal, 130,304 shares were voted against the proposal, and 12,547 shares abstained from the vote. The affirmative vote of the holders of a majority of our common stock was required to approve this proposal. Based on this vote, the proposal was approved by the shareholders. Amendment To The Articles Of Incorporation To Increase Authorized Shares Of Preferred Stock From 20,000 to 1 Million On the proposal to amend article five of the Company's articles of incorporation, increasing the number of authorized shares of preferred stock from 20,000 to 1 million, 2,765,298 shares were voted for the proposal, 455,371 shares were voted against the proposal, and 1,753,527 shares abstained from the vote. The affirmative vote of the holders of a majority of our common stock was required to approve this proposal. Based on this vote, the proposal was approved by the shareholders. Ratification Of The Appointment Of Ernst & Young, LLP As Independent Certified Public Accountants On the proposal to ratify the appointment of Ernst & Young, LLP as the Company's independent auditors, 4,954,300 shares were voted for the proposal, 12,732 shares 19 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- Ratification Of The Appointment Of Ernst & Young, LLP As Independent Certified Public Accountants--continued were voted against the proposal, and 7,164 shares abstained from the vote. The affirmative vote of the holders of a majority of the total votes cast was required to approve this proposal. Based on the vote, the proposal was approved by the shareholders. ITEM 5. OTHER INFORMATION ----------------- On July 2, 2001 the NASDAQ Listing Qualification Review Panel granted the Company's request to transfer its listing from the Nasdaq National Market to the Nasdaq SmallCap Market, effective on July 5, 2001. On July 19, 2001, Nasdaq approved the Company's SmallCap transfer application. The Company is presently listed on the Nasdaq SmallCap market and is compliant with all the related listing requirements. ITEM 6. EXHIBITS AND REPORTS FORM 8-K ----------------------------- (a) The following documents are filed as part of this report: None (b) Reports on Form 8-K during the fiscal quarter ended June 30, 2001. None 20 SIGNATURES ---------- Pursuant to the requirements of Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized. RELM WIRELESS CORPORATION (The "Registrant") Date: August 13, 2001 By: /s/ W. P. Kelly -------------------------------------- William P. Kelly Vice President - Finance and Chief Financial Officer (Principal financial and accounting officer and duly authorized officer) 21