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 June 30, 1998
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Commission file number 33-31797
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RELM WIRELESS CORPORATION
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(Exchange name of registrant as specified in its charter)
Nevada 04-2225121
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(State or other jurisdiction of I.R.S. Employer Identification Number
Incorporation or organization)
7505 Technology Drive, West Melbourne, Florida 32904
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(Address of principal executive officers) (Zip Codes)
(407) 984-1414
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(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
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date of June 30, 1998.
5,043,604 shares of Common Stock, par value $.60 per share
<PAGE>
PART I- FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RELM WIRELESS CORPORATION
Condensed Consolidated Balance Sheets
(In thousands except share data)
June 30, 1998 December 31,
(Unaudited) 1997
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 593 $ 213
Accounts receivable, net 4,751 5,379
Inventories 11,137 11,504
Investment securities-trading 1,038 881
Notes receivable -- 400
Real estate investments held for sale 1,661 1,833
Prepaid expenses and other current 225 288
------- -------
Total Current Assets 19,405 20,498
Property, Plant and Equipment, net 8,728 8,805
Notes Receivable 2,200 2,200
Other Assets 62 162
------- -------
Total Assets $30,395 $31,665
======= =======
See notes to condensed consolidated financial statements
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
RELM WIRELESS CORPORATION
Condensed Consolidated Balance Sheets
(In thousands except share data)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
(Unaudited)
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term liabilities: $ 1,134 $ 1,584
Accounts payable 2,317 1,935
Accrued expenses 4,292 3,773
Accrued restructuring liability 657 1,872
Accrued research costs 599 1,027
-------- -------
Total Current Liabilities 8,999 10,191
Long-Term Liabilities
Loans, notes and mortgages 6,562 5,405
Capital lease obligations 1,620 2,035
-------- -------
Total Long-Term Liabilities 8,182 7,440
Stockholders' equity:
Common; $.60 par value: 10,000,000 authorized
shares: issued and outstanding shares
5,043,604 at June 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) (10,023) (9,172)
-------- -------
Total stockholders' equity 13,214 14,034
-------- -------
Total Liabilities and Stockholders' Equity $ 30,395 $31,665
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
RELM WIRELESS CORPORATION
Consolidated Statements of Operations
(In thousands except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30 June 30
---------------------------- ----------------------------
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 7,067 $ 14,648 $ 14,782 $ 24,597
Expenses:
Cost of sales 5,460 11,148 11,594 18,634
Selling, general & administrative 2,239 3,322 3,933 5,982
-------- -------- -------- --------
7,699 14,470 15,527 24,616
-------- -------- -------- --------
Operating income (loss) (632) 178 (745) (19)
Other income (expense):
Interest expense (200) (311) (401) (632)
Net gains (losses) on investments 51 (58) 157 (109)
Other income 131 -- 138 95
-------- -------- -------- --------
Loss from continuing operations
before income taxes (650) (191) (851) (665)
Income tax benefit -- (38) -- (199)
-------- -------- -------- --------
Loss from continuing operations (650) (153) (851) (466)
Discontinued operations:
Loss from discontinued operations net of
income taxes -- (250) -- (266)
Loss on sale of discontinued operations
net of income taxes -- (2,570) -- (2,570)
-------- -------- -------- --------
Net loss $ (650) $ (2,973) $ (851) $ (3,302)
======== ======== ======== ========
Earnings (loss) per share-basic and diluted:
Continuing operations $ (0.13) $ (0.03) $ (0.17) $ (0.09)
Discontinued operations $ -- $ (0.55) -- $ (0.56)
-------- -------- -------- --------
Net loss $ (0.13) $ (0.58) $ (0.17) $ (0.65)
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
RELM WIRELESS CORPORATION
Condensed Consolidated Statement of Cash Flow
(In thousands)
SIX MONTHS ENDED
JUNE 30
--------------------------
1998 1997
(Unaudited) (Unaudited)
----------- ----------
Cash (used) provided by operations $ 562 $ (525)
Investing activities:
Property, plant and equipment purchases (518) (1,267)
Proceeds from sale of segments 7,693
Other 337
------- -------
Cash provided (used) by investing activities (518) 6,763
Financing activities:
Proceeds from debt -- 3,289
Changes in lines of credit 1,026 (9,526)
Capital lease, Mortgage (721) (616)
Sale (purchase) of stock 31 (40)
------- -------
Cash provided (used) by financing activities 336 (6,893)
------- -------
Increase (decrease) in cash 380 (655)
Cash and cash equivalent at beginning of period 213 599
------- -------
Cash and cash equivalent at end of period
(over draft) $ 593 $ (56)
======= =======
Supplemental disclosure
Interest paid 401 632
See notes to condensed consolidated financial statements.
4
<PAGE>
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands except share data)
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of June 30, 1998, the condensed
consolidated statements of operations for the three months and six months ended
June 30, 1998 and 1997, and the condensed consolidated statements of cash flows
for six months ended June 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 June 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 June 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:
June 30, December 31,
1998 1997
-------- ------------
Inventories consisted of:
Raw Material $ 5,128 $ 4,139
Work in Process 1,710 2,245
Finished Goods 4,299 5,120
-------- --------
$ 11,137 $ 11,504
======== ========
5
<PAGE>
3. Stockholders' Equity
The consolidated changes in stockholders' equity for the six months ended June
30, 1998 are follows:
<TABLE>
<CAPTION>
Additional Retained Common Stock Paid-In Earnings
----------------------------------------------------------------------
Shares Amount Capital (Deficit) Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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 -- -- -- (851) (851)
--------- --------- --------- --------- ---------
Balance June 30, 1998 5,043,604 $ 3,026 $ 20,211 $ (10,023) $ 13,214
========= ========= ========= ========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- --------------------------
June 30 June 30 June 30 June 30
1998 1997 1998 1997
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Numerator
Net loss (numerator for basic and diluted
earnings (loss) per share) $ (650) $ (153) $ (851) $ (466)
----------- ----------- ---------- -----------
Denominator
Denominator for basic earnings per share-
weighted average shares 5,041,034 5,109,449 5,042,319 5,113,338
Effect of dilutive securities:
Options -- -- -- --
----------- ----------- ---------- -----------
Dilutive potential shares -- -- -- --
----------- ----------- ---------- -----------
Denominator for diluted earnings (loss) per
share-adjusted weighted average shares 5,04l,034 5,109 449 5,042,319 5,l13,338
=========== =========== ========== ===========
Basic earnings (loss) per share $ (0.13) $ (0.03) $ (0.17) $ (0.09)
=========== =========== ========== ===========
Diluted earnings (loss) per share $ (0.13) $ (0.03) $ (0.17) $ (0.09)
=========== =========== ========== ===========
</TABLE>
Shares related to options are not included in the computation of earnings (loss)
per share because too so would have been anti-dilutive for the periods
presented.
6
<PAGE>
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30 June 30
------------------------------- -------------------------------
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 382 $ 550 $ 740 $ 1,039
Cost of sales 395 569 747 1,023
Selling, general & administrative 33 150 93 265
------- ------- ------- -------
Operating Loss $ (46) $ (169) $ (100) $ (249)
======= ======= ======= =======
</TABLE>
The statements of operations for the three and six months ended June
30, 1997 have been restated to properly reflect discontinued operations.
7
<PAGE>
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- ---------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales (77.3%) (76.1%) (78.4%) (75.8%)
----- ----- ----- -----
Gross margin 22.7% 23.9% 21.6% 24.2%
Selling, general and administrative expenses (31.7%) (22.7%) (26.6%) (24.3%)
Interest expense (2.8%) (2.1%) (2.7%) (2.6%)
Other income (expense) 2.6% (0.4%) 1.9% --
----- ----- ----- -----
Loss from continuing
operations before income tax benefit (9.2%) (1.3%) (5.8%) (2.7%)
Income tax benefit -- (0.3%) -- (0.8%)
----- ----- ----- -----
Net loss from continuing operations (9.2%) (1.0%) (5.8%) (1.9%)
Loss from discontinued operations -- (1.7%) -- (1.1%)
Loss on sale of discontinued operations -- (17.5%) -- (10.4%)
----- ----- ----- -----
Net loss (9.2%) (20.2%) (5.8%) (13.4%)
----- ----- ----- -----
</TABLE>
Net Sales
Net sales for the three months and six months ended June 30, 1998 decreased
$7,581,000 (51.8%) and $9,815,000 (39.9%) 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.
As previously announced, the Company discontinued products and businesses that
were inadequately profitable or do not fit the Company's strategic focus in land
mobile radios. Consistent with that Strategy, lower sales have been realized in
Demand Side Management and component products as well as in the commercial real
estate business.
In order to achieve sales growth in both existing and exciting new product
offerings, sales and marketing efforts are being restructured under the
direction of a new Senior Vice-President.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITIONS -- CONTINUED.
Cost of Sales
Cost of sales as a percentage of net sales for the three months and six months
ended June 30, 1998 increased 1.2% to 77.3% and 2.6% to 78.4%, respectively,
compared to the same periods in 1997.
Manufacturing volumes were lower in the first six months of 1998 as a result of
the aforementioned sales decreases, resulting in the under-absorption of
manufacturing overhead costs. The Company responded by dramatically reducing
staff and expenses to levels that are consistent with present revenue run-rates.
Reductions were initially implemented at the end of February 1998. Further
reductions were implemented in July 1998.
Under the direction of a new Executive Vice President and Chief Operating
Officer, the Company is focused on manufacturing improvements that will yield
lower material costs and increased labor efficiencies.
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 ended June 30, 1998 increased from 22.7% to 31.7% compared to the
same period in 1997. SG&A expenses for the six months ended June 30, 1998
increased from 24.3% to 26.6% compared to the same period in 1997.
SG&A expenses in all areas have been reduced as a result of the Company's
restructuring program with the exception of new product development. The Company
is continuing to invest in three aggressive new product initiatives. These
initiatives will yield the new products that are necessary to fuel sales growth
in 1999 and beyond. This highly-compressed development effort will be largely
completed in 1998. Subsequently, R&D expenses and overall SG&A expenses will
return to levels that are consistent with the Company's revenues.
Interest Expense
Interest expense for the three months and six months ended June 30, 1998
decreased $111,000 and $231,000 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 and second quarters of
1998.
9
<PAGE>
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 six months ended
June 30, 1998.
Liquidity and Capital Resources
As of June 30, 1998 the Company had working capital of $10,406,000 compared with
$10,307,000 as of December 31, 1997. As of June 30, 1998, the Company has
available credit of $4 million under a revolving line of credit.
The increase in cash of $380,000 during the six months ended June 30,1998 is a
combination of cash from operations of $562,000, a net increase in debt of
$305,000 and capital expenditures of $518,000. Capital expenditures for the
comparable period in 1997 were $1,267,000.
Discontinued Operations
There were no discontinued operations for the three months and six months ended
June 30, 1998. For the same periods in 1997, the Company reported losses from
discontinued operations of $250,000 and $266,000, respectively. 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 June 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
<PAGE>
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
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. Many existing software products were designed to
accommodate only a two-digit date position that represents the year. As a
result, the year 1999 could be the maximum date value that the systems will be
able to process.
RELM installed a new enterprise-wide software package in 1997. This software is
able to process the year 2000. Consequently, management does not expect to incur
additional costs to resolve the year 2000 issue.
ITEM 6. Exhibits and Reports of Form 8-K
b.) Reports on Form 8-K
The Registrant was not required to file reports on Form 8K during the quarter
ended June 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
Date: August 13, 1998 Vice President - Finance
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 593
<SECURITIES> 1,038
<RECEIVABLES> 4,900
<ALLOWANCES> (149)
<INVENTORY> 11,137
<CURRENT-ASSETS> 19,405
<PP&E> 13,922
<DEPRECIATION> (5,194)
<TOTAL-ASSETS> 30,395
<CURRENT-LIABILITIES> 8,999
<BONDS> 0
0
0
<COMMON> 3,026
<OTHER-SE> 10,188
<TOTAL-LIABILITY-AND-EQUITY> 30,395
<SALES> 7,067
<TOTAL-REVENUES> 7,067
<CGS> 5,460
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,239
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 200
<INCOME-PRETAX> (650)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (650)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
