0001021408-01-509200.txt : 20011106
0001021408-01-509200.hdr.sgml : 20011106
ACCESSION NUMBER: 0001021408-01-509200
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 3
CONFORMED PERIOD OF REPORT: 20010930
FILED AS OF DATE: 20011101
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: RELM WIRELESS CORP
CENTRAL INDEX KEY: 0000002186
STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663]
IRS NUMBER: 042225121
STATE OF INCORPORATION: NV
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-07336
FILM NUMBER: 1772929
BUSINESS ADDRESS:
STREET 1: 7100 TECHNOLOGY DRIVE
CITY: WEST MELBOURNE
STATE: FL
ZIP: 32904
BUSINESS PHONE: 2154303900
MAIL ADDRESS:
STREET 1: 7100 TECHNOLOGY DRIVE
CITY: WEST MELBOURNE
STATE: FL
ZIP: 32904
FORMER COMPANY:
FORMER CONFORMED NAME: ADAGE INC
DATE OF NAME CHANGE: 19920703
10-Q
1
d10q.txt
PERIOD: SEPTEMBER 30, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 September 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: (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 X No _____
-----
Common Stock, $.60 Par Value - 5,346,174 shares outstanding as of September 30,
2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART I- FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
-----------------------------
RELM WIRELESS CORPORATION
Condensed Consolidated Balance Sheets
(In thousands except share data)
September 30 December 31
2001 2000
------------------------------------
(Unaudited) (See note 1)
ASSETS
------
Current assets:
Cash and cash equivalents $ 216 $ 208
Trade accounts receivable (net of allowance for doubtful 3,622 3,712
accounts of $1,546 as of September 30, 2001 and
$1,555 as of December 31, 2000)
Inventories, net 9,342 8,940
Prepaid expenses and other current 477 528
----------- ----------
Total current assets 13,657 13,388
Property, plant and equipment, net 2,326 2,833
Notes receivable, less current portion 977 984
Debt issuance costs, net 554 682
Other assets 448 535
----------- ----------
Total assets $ 17,962 $ 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)
September 30 December 31
2001 2000
-------------------------------
(Unaudited) (See note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term liabilities $ 129 $ 848
Accounts payable 3,133 3,604
Accrued compensation and related taxes 694 361
Accrued expenses and other current liabilities 824 896
------------ -------------
Total current liabilities 4,780 5,709
Long-term liabilities:
Line of credit 3,591 3,193
Convertible subordinated notes 3,150 3,150
Capital lease obligations 10 10
------------ -------------
6,751 6,353
Stockholders' equity:
Common stock; $.60 par value; 20,000,000 and 10,000,000
authorized shares at September 30, 2001 and December 31, 2000:
5,346,174 issued and outstanding shares at
September 30, 2001 and December 31, 2000 3,207 3,207
Additional paid-in capital 21,452 21,452
Accumulated deficit (18,228) (18,299)
------------ -------------
Total stockholders' equity 6,431 6,360
------------ -------------
Total liabilities and stockholders' equity $ 17,962 $ 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 NINE MONTHS ENDED
---------------------------------- -------------------------------------
September 30 September 30 September 30 September 30
2001 2000 2001 2000
------------ ------------ ------------- ------------
Sales $ 6,223 $ 5,958 $ 17,131 $ 15,712
Expenses
Cost of products 4,293 4,283 12,212 11,572
Selling, general & administrative 1,528 1,907 4,378 5,312
------------ ----------- ------------ -----------
5,821 6,190 16,590 16,884
------------ ----------- ------------ -----------
Operating income (loss) 402 (232) 541 (1,172)
Other income (expense):
Interest expense (149) (213) (452) (735)
Gain on sale of facility and equipment - - - 1,165
Other income (expense) (40) 115 (18) 261
------------ ----------- ------------ -----------
Net Income (loss) $ 213 $ (330) $ 71 $ (481)
============ =========== ============ ===========
Earnings (loss) per share-basic $ 0.04 $ (0.06) $ 0.01 $ (0.09)
============ =========== ============ ===========
Earnings (loss) per share-diluted $ 0.04 $ (0.06) $ 0.01 $ (0.09)
============ =========== ============ ===========
See notes to condensed consolidated financial statements.
4
ITEM 1 - FINANCIAL STATEMENTS - continued
-----------------------------------------
RELM WIRELESS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
NINE MONTHS ENDED
------------------------------------------
September 30 September 30
2001 2000
------------------ -------------------
Cash provided (used) by operations $ 348 $ (169)
Investing
activities:
Cash paid for Uniden product line - (2,016)
Property and equipment purchases (64) (217)
Proceeds from disposals of assets 2 5,246
Other 51 6
------------ ----------------
Cash provided (used) by investing activities (11) 3,019
Financing
activities:
Net change in line of credit 398 (1,141)
Proceeds from long term debt - 3,250
Repayment of debt (719) (4,551)
Payment of debt issuance costs - (280)
Other (8) -
------------ ----------------
Cash used by financing activities (329) (2,722)
Increase in cash 8 128
Cash and cash equivalents at beginning of period 208 1
------------ ----------------
Cash and cash equivalents at end of period $ 216 $ 129
============ ================
Supplemental disclosure:
Interest paid $ 452 $ 735
============ ================
Non-cash transactions:
Common stock and common stock warrants
payable for debt issuance and acquisition costs $ - $ 1,059
============ ================
Warrants issued for consulting services $ - $ 226
============ ================
Common stock issued for conversion of debt $ - $ 100
============ ================
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 September 30, 2001, the
condensed consolidated statements of operations for the three and nine
months ended September 30, 2001 and 2000 and the condensed consolidated
statements of cash flows for the nine months ended September 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 nine month period ended September 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 September 28, 2001
for the third quarter of fiscal 2001. The quarter began on June 30, 2001.
2. Significant Events and Transactions
Manufacturing Contract For Portable Radio Transceivers
In September 2001, we entered into a contract with Shenzhen Hyt Science &
Technology, LTD (HYT) for the manufacture of a new family of portable
two-way radios. Under the agreement, HYT will manufacture for RELM, four
models of VHF and UHF portable two-way radio transceivers, and we will have
exclusive distribution rights for these products in North, Central, and
South America. The agreement is for a term of five years and may be
expanded to include additional products. Certain models are expected to be
available for sale in the fourth quarter 2001, while the remaining models
are expected to be available in the first quarter 2002.
6
ITEM 1 - FINANCIAL STATEMENTS - continued
-----------------------------------------
Significant Events and Transactions - Continued
3. Inventories
The components of inventory, net of reserves totaling $1,978 at September
30, 2001 and December 31, 2000, consist of the following:
September 30 December 31
2001 2000
------------- -----------
Finished goods $ 6,019 $ 5,043
Work in process 578 796
Raw materials 2,745 3,101
------------- ------------
$ 9,342 $ 8,940
============= ============
4. Stockholders' Equity
The consolidated changes in stockholders' equity for the nine months ended
September 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 income - - - 71 71
----------------------------------------------------------------------
Balance at September 30, 2001 5,346,174 $ 3,207 $ 21,452 $ (18,228) $6,431
======================================================================
7
5. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- ---------------------------
September 30 September 30 September 30 September 30
2001 2000 2001 2000
------------ ------------ ------------ ------------
Numerator:
Net income (loss) (numerator for basic earnings
per share) $ 213 $ (330) $ 71 $ (481)
Effect of dilutive securities:
8% convertible notes - - - -
---------- ----------- ----------- -----------
Net income (loss) (numerator for dilutive earnings
per share) 213 (330) 71 (481)
---------- ----------- ----------- -----------
Denominator:
Denominator for basic earnings per share-weighted
average shares 5,346,174 5,303,114 5,346,174 5,193,213
Effect of dilutive securities:
8% convertible notes - - - -
Options 50,000 - 30,000 -
---------- ----------- ----------- -----------
Denominator for diluted earnings per share -
adjusted weighted average shares 5,396,174 5,303,114 5,376,174 5,193,213
========== =========== =========== ===========
Earnings (loss) per share-basic $ 0.04 $ (0.06) $ 0.01 $ (0.09)
========== =========== =========== ===========
Earnings (loss) per share-diluted $ 0.04 $ (0.06) $ 0.01 $ (0.09)
========== =========== =========== ===========
Shares related to options and convertible debt are not included in the
computation of loss per share for the three and nine months ended September
30, 2000, because to do so would be anti-dilutive.
6. Comprehensive Income (Loss)
The total comprehensive income (loss) for the three and nine months ended
September 30, 2001 was $213 and $71, respectively, compared to ($330) and
($481) for the same periods in the previous year.
8
ITEM 1 - FINANCIAL STATEMENTS - continued
-----------------------------------------
7. Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) 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 September 30, 2001, the Company
had no hedges or firm commitments outstanding.
In June 2001, the FASB issued Statements of Financial Accounting Standards
(SFAS) No. 141, Business Combinations, and No. 142, Goodwill and Other
Intangible Assets. Under the new rules, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible
assets acquired after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, the Company will apply
the new accounting rules beginning January 1, 2002. The adoption of SFAS
No. 141 and No. 142 will not have a material impact on our Consolidated
Financial Statements.
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.
9
ITEM 1 - FINANCIAL STATEMENTS - 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 thousand 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.
10
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.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
-----------------------------------------------------------------
FINANCIAL CONDITIONS
--------------------
Results of Operations
---------------------
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:
Percentage of Sales Percentage of Sales
------------------------------- -------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
September 30 September 30 September 30 September 30
2001 2000 2001 2000
-------------- -------------- -------------- --------------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales
69.0 71.9 71.3 73.7
------------ ------------ ------------ ------------
Gross margin 31.0% 28.1 28.7 26.3
Selling, general and
administrative expenses (24.6) (32.0) (25.6) (33.8)
Interest expense (2.4) (3.5) (2.6) (4.7)
Other income (expense) (0.6) 1.9 (0.1) 9.1
------------ ------------ ------------ ------------
Net income (loss) 3.4% (5.5)% 0.4% (3.1)%
============ ============ ============ ============
Net Sales
Net sales for the three months ended September 30, 2001 increased
approximately $0.3 million (4.4%) compared to the same period for the prior
year. This increase was the result of strong demand for BK Radio-branded
products in the government and public safety sectors, including sales to
the U.S. Forest Service and the Communications Electronics Command of the
U.S. Army. Additionally, we continued to make progress in the business and
industrial market segment through increased sales of our Uniden-branded
products and ESAS systems. Sales of these products increased $0.7 million
(339.5%) to $0.9 million, compared to the same period for the prior year.
The complete Uniden product line was not yet available for sale during the
third quarter of the prior year. Sales of our RELM-branded products
decreased $0.7 million (77.2%) to $0.2 million compared to the same period
for the prior year. This reflects the introduction of Uniden models to the
business and industrial market. These models have more modern designs and
feature sets.
Net sales for the nine months ended September 30, 2001 increased
approximately $1.4 million (9.0%) to $17.1 million, compared to the same
period for the prior year. This increase was primarily due to BK Radio
product sales, particularly our new GMH mobile radio. Strong demand from
the U.S. Forest service was also a
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
-----------------------------------------------------------------
FINANCIAL CONDITIONS-continued
------------------------------
Net Sales-continued
contributing factor. Additionally, sales of Uniden-branded products
increased by $1.6 million (148.4%) to $2.4 million, 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.
Cost of Sales and Gross Margin
Cost of sales as a percentage of net sales for the three months ended
September 30, 2001 was 69.0% compared to 71.9% for the same period in the
prior year. For the nine months ended September 30, 2001, cost of sales as
a percentage of net sales was 71.3% compared to 73.7% for the previous
year. The overall improvement in cost of sales and gross margins was the
result of reductions in manufacturing staff and expenses that were
implemented starting in the fourth quarter 2000, combined with increased
manufacturing volumes, which allowed for more effective use of
manufacturing overhead resources.
We have also realized cost improvements by employing a strategy to
outsource certain manufacturing operations and products. In March 2000 we
entered into a contract manufacturing agreement with Solectron 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. Although the contract expired in September 2001,
Uniden has continued to manufacture and provide products in accordance with
its terms and conditions.
In September 2001, we entered into a contract with Shenzhen Hyt Science &
Technology, LTD (HYT) for the manufacture of a new family of portable
two-way radios. Under the agreement, HYT will manufacture for RELM, four
models of VHF and UHF portable two-way radio transceivers, and we will have
exclusive distribution rights for these products in North, Central, and
South America. The agreement is for a term of five years and may be
expanded to include additional products. Certain models are expected to be
available for sale in the fourth quarter 2001, while the remaining models
are expected to be available in the first quarter 2002.
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.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
-----------------------------------------------------------------
FINANCIAL CONDITIONS-continued
------------------------------
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 September 30, 2001, expenses totaled approximately $1.5
million compared to $1.9 million for the same period last year. For the
nine months ended September 30, 2001 SG&A expenses totaled $4.4 million
compared to $5.3 million for the same period during the prior year.
These decreases are driven by reduced selling and marketing expenses,
particularly for our Uniden products. Also, general and administrative
staff and expenses in Finance, Human Resources, MIS, and headquarters have
all been reduced from the prior year. Compared to the same period last
year, engineering expenses increased approximately $40,000 (12.9%) and
$144,000 (17.0%) for the three and nine months ended September 30, 2001,
respectively. 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 September 30, 2001 interest expense totaled
$149,000 compared to $213,000 for the same period during the prior year.
For the nine months ended September 30, 2001 interest expense totaled
$452,000 compared to $735,000 for the same period during the prior year.
Revenue growth and expense reductions have generated working capital and,
combined with a portion of the proceeds from our private placement of
convertible subordinated notes, enabled us to reduce the amount outstanding
on our revolving line of credit. Additionally, last year we satisfied the
mortgage on our facility in connection with its sale and satisfied
obligations under capital leases associated with certain manufacturing and
computer equipment.
Gain on sale of facility and equipment
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.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
-----------------------------------------------------------------
FINANCIAL CONDITIONS-continued
------------------------------
Income Taxes
No income tax provision was provided for the three or nine months ended
September 30, 2001 or 2000 as we have net operating loss carryforward
benefits totaling approximately $30 million at September 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.
Significant Customers
---------------------
Sales to the United States government represented approximately 34.6% and
38.9% of our total sales for the three months and nine months ended
September 30, 2001, respectively, compared to 45.0% for the year ended
December 31, 2000. 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 24.7% and 27.9% of
total sales for the three months and nine months ended September 30, 2001,
respectively. Sales to the CECOM represented approximately 9.9% and 11.0%
of total sales for the three months and nine months ended September 30,
2001, respectively.
In 1998, we were awarded portions of the current USFS contract. This
contract expired in September 2001. Earlier this year, bids for a new
contact were solicited and we were awarded the contract for portable
radios, base stations, and repeaters. The contact is for a period of one
year with options for three additional years, and does not specify a
minimum purchase. Although the contract for mobile radios has not yet been
awarded, we do not believe that RELM will receive the award.
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.
Inflation and Changing Prices
-----------------------------
Inflation and changing prices for the three and nine months ended September
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.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
-----------------------------------------------------------------
FINANCIAL CONDITIONS-continued
------------------------------
Liquidity and Capital Resources
-------------------------------
As of September 30, 2001, we had working capital of $8.9 million compared
with $7.7 million as of December 31, 2000. This increase was primarily the
result of reductions in accounts payable and other current liabilities,
enabled by revenue growth and expense reductions.
We have a $7 million revolving line of credit. As of September 30, 2001,
the formula under the terms of the agreement supported a borrowing base
totaling approximately $5.3 million, of which approximately $2.1 million
was available.
Capital expenditures for property and equipment for the nine months ended
September 30, 2001 were $64,000 compared to $217,000 for the same period in
2000. Capital expenditures for the fourth quarter 2001 are anticipated to
remain consistent with the levels experienced in the first three quarters
of this year.
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.
16
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
-----------------
None
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.
----------------------------------------------------
None
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.
17
ITEM 6. EXHIBITS AND REPORTS FORM 8-K
-----------------------------
(a) The following documents are filed as part of this report:
10.2 OEM Shenzhen Hyt Science & Technology Company, LTD
Manufacturing Agreement
10.3 Certificate of Amendment to the Articles of Incorporation
of RELM WIRELESS CORPORATION
(b) Reports on Form 8-K during the fiscal quarter ended September 30, 2001.
None
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: November 1, 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)
18
EX-10.2
3
dex102.txt
OEM MANUFACTURING AGREEMENT
Exhibit 10.2
OEM Manufacturing Agreement
THIS OEM MANUFACTURING AGREEMENT ("Agreement") is made and entered into as
---------
of September 11, 2001, by and between Shenzhen Hyt Science & Technology Company,
LTD., ("HYT"), and RELM Wireless Corporation, a Nevada corporation ("RELM").
--- ----
RECITALS
--------
RELM may desire from time to time during the term hereof to purchase
Products (as defined herein) from HYT and HYT may desire to sell Products to
RELM, upon the terms and conditions set forth herein below.
NOW THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which is hereby acknowledged, the parties agree as follows:
1. Definitions. As used herein, the following capitalized terms shall
-----------
have the following means:
(a) "Affiliate" of any Person means any other Person Controlling,
Controlled by or under common Control with such Person.
(b) "Control" and all derivations thereof means the ability to either
(i) vote, directly or indirectly, fifty (50%) percent or more of the voting
interests in any Person or (ii) direct the affairs of another, whether through
voting power, contract or otherwise.
(c) "Person" means any natural person, any governmental authority or
agency and any entity, including corporations, partnerships, joint ventures,
limited liability companies, joint stock companies, trusts, estates, companies
and associations, whether organized for profit or otherwise.
(d) "Product" shall mean the products described in Exhibit A, and any
---------
additional products that the parties may agree to include under this Agreement
pursuant to Section 2.1(a).
--------------
(e) "Specifications" shall mean the design, performance, and features
of the respective Products as initially set forth on Exhibit A, and such other
---------
or modified Specifications as may be agreed to by HYT and RELM from time to
time.
2. Product, Price and Ordering. RELM shall have the exclusive right to
---------------------------
acquire Products from HYT pursuant to the terms and conditions set forth in this
Agreement, and HYT shall not sell Products, or any derivations thereof, to any
other Person in the Americas (North, Central, and South).
2.1. Product Models. The initial Product models available hereunder
are set forth on Exhibit A. Additional Product models may be agreed to by the
---------
parties in writing by
execution of a New Model Addendum, substantially in the form of Exhibit B. Hyt
---------
hereby represents and warrants that the Products, and any additional Products,
do not and shall not infringe on the products or intellectual property of any
third party. Product documentation, including owners manuals and service
manuals, in forms acceptable to RELM, shall be delivered with the Products
ordered hereunder.
2.2. Price. The price for the Product models is as specified on
Exhibit A, or as otherwise agreed to by HYT and RELM. Pricing for any additional
---------
Product models shall be specified on the New Model Addendum for that model, or
as otherwise agreed to by HYT and RELM. Except as set forth in Section 2.3,
available accessories and parts shall be offered to RELM at HYT's regular
wholesale prices for such accessories and parts. All transaction shall be valued
and executed in United States dollars.
2.3. Ordering Procedure. RELM shall order its desired quantities
of Products, accessories or spare parts/units to be provided by HYT under this
Agreement by means of purchase orders (the "Purchase Orders"). Purchase Orders
---------------
shall be in writing and specify the Product, accessories and/or spare parts, as
well as the applicable price, quantity, and requested delivery schedule. RELM
shall provide to HYT a twelve (12) month forecast of requirements for products.
A forecast will be considered firm within two months of the scheduled delivery
date. RELM agrees to issue purchase orders for firm forecast requirements.
2.4. Spare parts shall be included with Purchase Orders at no
additional cost to RELM. The value of such spare parts will not exceed five (5%)
percent of the value of the Purchase Order, except for catastrophic failures as
provided in Section 7.1. Such spare parts will be specified by RELM on the
-----------
purchase order.
3. Delivery, Title And Risk Of Loss
--------------------------------
3.1. HYT shall deliver the Products purchased hereunder FOB to
the location designated by RELM. HYT shall arrange the shipping method, shipping
carrier and insurance applicable to each shipment for delivery to a location
specified by RELM. Title to the Product and risk of loss or damage for the
Product shall pass from HYT to RELM upon delivery at the location designated by
RELM. HYT is responsible for importation and all duties and taxes. HYT shall
provide RELM with an estimated delivery and shipment schedule for each Purchase
Order.
3.2. RELM may, within fourteen (14) days of receipt of any
ordered Product units at its ship-to destination, notify HYT in writing of
rejection of any Product units which do not comply with the Specifications. RELM
may return such rejected units to HYT at HYT's expense and risk.
4. Distributorship. In addition to the right to acquire Products
---------------
hereunder, HYT hereby grants to RELM the exclusive right to sell the products
specified in EXHIBIT A throughout the territories of North America, Central
America, and South America. HYT will sell its products to RELM at the prices
specified in EXHIBIT A. RELM shall pay HYT for the
-2-
products in accordance with the payment terms specified in section 5 of this
agreement. RELM may resell the products at such prices and on such terms as RELM
shall determine.
5. Payment. Twenty (20%) percent of the purchase price for each
-------
Purchase Order shall be paid by wire transfer to HYT upon issuance of the
Purchase Order by RELM and the remaining eighty (80%) percent of the purchase
price shall be paid by wire transfer to HYT upon acceptance of the Products
pursuant to Section 3.2.
-----------
6. Quality Assurance. HYT will perform such inspections and tests
-----------------
of each Product unit at least comparable to the level of quality assurance that
HYT implements for other products.
7. Product Protection
------------------
7.1. Catastrophic Failure. A catastrophic failure is a material
failure of a Product due to a single cause or any material, component or part
therefore in an amount exceeding ten percent (10%) of the total units shipped
under this Agreement. In case of catastrophic failure, HYT shall repair affected
units of Product at its expense. RELM shall inform HYT in writing of all
catastrophic failures.
7.2. Indemnity. HYT shall be responsible for and agrees to
indemnify RELM and hold RELM harmless from and against all third party claims,
demands and causes of action (including claims relating to compliance with all
applicable labor laws of the jurisdiction in which the Product is manufactured)
for direct damages (including reasonable legal fees and expenses) for personal
injuries or damage to tangible property (other than Product) directly resulting
from the willful misconduct or negligent acts or omissions of HYT in the
manufacturing of the Product or from any and all claims that the Products
infringe on the products or intellectual property of any third party. RELM
agrees to notify HYT as soon as practical of any third party claim, demand or
cause of action for which RELM will request indemnification from HYT. RELM will
provide HYT with the information and assistance reasonably requested by HYT to
defend such claim, demand or cause of action.
8. Confidentiality.
---------------
8.1. The information supplied by one party to the other under
this Agreement which is marked or otherwise designated in writing to be of a
proprietary or confidential nature ("Confidential Information") shall be kept
confidential by the receiving party for a period of two (2) years following
expiration of this Agreement. Except as otherwise specified in writing, the
receiving party shall: (a) treat and protect the terms and provisions of this
Agreement and all information, documentation, and know-how received as
Confidential Information; (b) not reproduce (except in a manner and purpose
consistent with the purpose of this Agreement) Confidential Information in whole
or in part; and, (c) use Confidential Information only in conjunction with its
performance hereunder or its use of the Products.
8.2 Neither party shall forward or disclose any Confidential
Information of the other party to any third party without the prior written
consent of the other party, except that
-3-
nothing herein shall preclude a party from disclosing such information to any
Affiliate of such party with a need to know such information. Notwithstanding
the foregoing, neither party shall have any obligation with respect to any
information of the other party which: (a) was previously known by or is
independently and demonstrably developed at any time by the receiving party
without any connection with the information received; (b) at any time becomes a
matter of public knowledge or literature without any act or negligence by the
receiving party; or (b) is at any time lawfully received by the receiving party
from a third Person under circumstances permitting its disclosure to others.
8.3 Each party shall take the same actions and utilize the same
precautions in preventing unauthorized disclosure of the other party's
Confidential Information as it uses with regard to its own Confidential
Information, which shall in no event be less than reasonable care.
8.4 In the event of termination of this Agreement for any
reason, both parties shall return or destroy and certify to the other party the
return or destruction of all Confidential Information and reproductions thereof.
Notwithstanding the foregoing, RELM may retain certain confidential or
proprietary information for an agreed period of time for the sole purpose of
servicing the Product after which time RELM shall then return such information
to HYT.
9. Term and Termination.
--------------------
9.1 This Agreement shall be for a term commencing on the date of
this Agreement and ending five years thereafter, unless extended by the HYT and
RELM in writing.
9.2 Either party may by written notice to the other party
terminate this Agreement with immediate effect if the other party has committed
a substantial and material breach of this Agreement and, after receipt of
written notice from the other party specifying the breach, the breach is not
rectified within a time period which shall be reasonable taking into account
previous technical and other relevant conditions; provided, however, that such
time period shall not be less than fifteen (15) days for corrective actions
involving the payment of money and thirty (30) days for all other purposes.
9.3 The acceptance of any Purchase Order from, or the sale of
any Product to, RELM after the termination or expiration of this Agreement shall
not be construed as a renewal or extension thereof, nor as a waiver of
termination but, in the absence of a new fully executed written agreement, all
such transactions shall be governed by provisions identical with the provisions
of this Agreement.
10. Notices. Notices and other communications between the parties
-------
shall be transmitted by facsimile or in writing to the other parties at the
addresses indicated below and shall be deemed effective upon confirmed receipt.
Either party may change its address by giving notice in writing thereof to the
other party.
HYT: Shenzhen Hyt Science & Technology Company, LTD.
At R2-A 1/F Shenzhen High-Tech Industrial Park
Shennan Road
-4-
Shenzhen, China 518057
Attention: Chen Quing Zhou - President
Phone: 0755-6972-999
Fax: 0755-6970-899
RELM: RELM WIRELESS CORPORATION
at 7100 Technology Drive
West Melbourne, Florida 32904
Attention: President & Chief Executive Officer or
Vice President & Chief Financial Officer
Phone: (321) 984-1414
Fax: (321) 984-0168
11. Partial Invalidity. The invalidity, in whole or part, of any
------------------
section or paragraph of these terms shall not affect the validity of the
remainder of such section or paragraph, or of these terms. Section headings are
inserted for convenience only and shall not be used in any way to define the
meaning of these terms.
12. Assignment. Either party may assign its rights or obligations
----------
under this Agreement to any Affiliate of such party. Otherwise, neither party
shall transfer or assign its rights or obligations under this Agreement.
13. Party Relationship. This Agreement does not create any agency,
------------------
joint venture or partnership between RELM and HYT. Neither party shall impose or
create any obligation or responsibility, express or implied, or make any
promises, representations or warranties on behalf of the other party or other
than as expressly provided herein.
14. Governing Law and Controversies.
-------------------------------
14.1 The validity, performances and all matters relating to the
interpretation and effect of these terms and the Agreement and any
amendment thereto shall be governed by the laws of the State of
Florida without reference to its rules with respect to conflict of
laws. The parties agree to the exclusive venue and jurisdiction of
the state and federal courts located in Brevard County, Florida.
14.2 If any controversies or disputes arise out of or relating
to this Agreement, the parties shall first make efforts to resolve
and settle the same through a good faith negotiation initiated within
ten (10) days of receipt of written request for same by either party
to the other. If no resolution of such controversy or dispute is
reached within sixty (60) days of the original request (or by such
other date as the parties may agree in writing), then either party may
such controversy or dispute in binding arbitration.
14.3 The parties irrevocably agree that all disputes arising
out of or in connection with this Agreement shall be referred to final
and binding arbitration, before a single arbitrator, under the
commercial arbitration rules of the American Arbitration
-5-
Association ("AAA") in Brevard County, Florida. The parties agree to
use the "special expedited procedures" of the AAA. The arbitrator
shall be selected by the parties, but if the parties are unable to
reach agreement on selection of the arbitrator within seven (7) days
after the date on which the notice of arbitration is sent to the
parties to the arbitration, then the arbitrator will be selected in
accordance with the rules of the American Arbitration Association.
Judgment upon the award rendered by the arbitrator shall be final,
binding and conclusive upon the parties and their respective
administrators, executors, legal representatives, heirs, successors
and permitted assigns, and may be entered in any court of competent
jurisdiction. All questions as to the meaning of the provisions of
this paragraph, or as to the ability to arbitrate any dispute under
this paragraph shall be resolved by the arbitrators, shall be
absolutely binding, and not subject to judicial review. The costs and
expenses of arbitration shall be borne by the non-prevailing party.
15. Successors And Assigns. The terms and provisions of this
----------------------
Agreement shall inure to the benefit and be binding upon the successors and
permitted assigns of either RELM or HYT.
16. Entire Agreement. This Agreement constitutes the entire
----------------
understanding between the RELM and the HYT concerning the subject matter hereof,
and any representation, promise, understanding, proposal, agreement, warranty,
course of dealing or trade usage not expressly contained or referenced herein
shall not be binding on HYT. No modifications, amendment, rescission, waiver or
other change shall be binding on either party unless accepted in writing by that
party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their duty authorized representatives as of the dates set
forth below.
Shenzhen HYT Science & Technology, LTD. RELM Wireless Corporation
By: /s/Chen Quing Zhou By: /s/David P. Storey
--------------------------------- --------------------------------
Name: Chen Quing Zhou Name: David P. Storey
Title: President & Owner Title: President & CEO
Date: September 11, 2001 Date: September 11, 2001
Witness: ____________________________ Witness: ___________________________
Witness Name: _______________________ Witness Name: ______________________
-6-
EX-10.3
4
dex103.txt
CERTIFICATE OF AMENDMENT
Exhibit 10.3
FILED #C2378497
--------
SEP 20 2001
IN THE OFFICE OF
/s/ Dean Heller
DEAN HELLER SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
RELM WIRELESS CORPORATION
RELM WIRELESS CORPORATION, a corporation organized and existing under the
Nevada General Corporation Law (the "Corporation"), does hereby certify as
follows:
1. The Articles of Incorporation of the Corporation are hereby amended by
deleting Article Fifth in its entirety and substituting the following in lieu
thereof:
FIFTH:
The aggregate number of shares which the corporation
shall have authority to issue is 20,000,000 shares of
common stock, par value $0.60 per share, and 1,000,000
shares of preferred stock, par value $1.00 per share. Any
and all shares of stock may be issued, reissued, transferred
or granted by the board of directors, as the case may be, to
persons, corporations, and associations, and for such lawful
consideration, and on such terms, as the board of directors
shall have the authority to issue pursuant to the Nevada
Revised Statutes and the Bylaws of the corporation. The
board of directors shall have the authority to set, by
resolution, the particular designations, preferences and the
relative, participating, optional, voting or other rights
and qualifications, limitations or restrictions of any class
of stock or any series of stock within any class of stock
issued by this corporation.
No holder of any of the shares of any class of the
corporation shall be entitled as of right to subscribe for,
purchase, or otherwise acquire any shares of any class of
the corporation which the corporation proposes to issue or
any rights or options which the corporation proposes to
grant for the purchase of any shares of any class of the
corporation or for the purchase of any shares, bonds,
securities, or obligations of the corporation which are
convertible into or exchangeable for, or which carry any
rights, to subscribe for, purchase, or otherwise acquire
shares of any class of
the corporation; and any and all of such rights and options may be
granted by the board of directors to such persons, firms,
corporations, and associations, and for such lawful consideration, and
on such terms, as the board of directors in its discretion may
determine, without first offering the same, or any thereof, to any
said holder.
2. This amendment to the Articles of Incorporation was duly adopted in
accordance with the provisions of Section 78.390 of the Nevada General
Corporation Law. The amendment was approved by the stockholders, the number of
votes cast was sufficient for approval.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed and attested by its duly authorized officers, this 22 day of August,
2001.
RELM WIRELESS CORPORATION
By /s/ David P. Storey
-----------------------------
David P. Storey, President and
Chief Executive Officer
ATTEST:
/s/ W.P. Kelly
------------------------------
William P. Kelly, Secretary
[CORPORATE SEAL]
STATE OF NEVADA
Secretary of State
I hereby certified that this is a true and
complete copy of the document as filed
in this office
SEP 21 2001
By /s/ Dean Heller
---------------------------------------