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 March 31, 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
- ------------------------------- ------------------------------
(State or other jurisdiction of I.R.S. Employer Identification
Incorporation or organization) Number
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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date of March 31, 1998.
5,043,604 shares of Common Stock, par value $.60 per M 10-Q
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<PAGE>
PART I- FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RELM WIRELESS CORPORATION
Condensed Consolidated Balance Sheets
(In thousands except share data)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 541 $ 213
Accounts receivable, net 5,406 5,379
Inventories 11,530 11,504
Investment securities-trading 987 881
Notes receivable 400 400
Real estate investments held for sale 1,707 1,833
Prepaid expenses and other current 214 288
------- -------
Total Current Assets 20,785 20,498
Property, Plant and Equipment, net 8,950 8,805
Notes Receivable 2,200 2,200
Other Assets 81 162
------- -------
Total Assets $32,016 $31,665
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
RELM WIRELESS CORPORATION
Condensed Consolidated Balance Sheets
(In thousands except share data)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of
long-term liabilities: $ 1,195 $ 1,584
Accounts payable 2,437 1,935
Accrued expenses 3,686 3,773
Accrued restructing liability 1,182 1,872
Accrued research costs 599 1,027
-------- --------
Total Current Liabilities 9,099 10,191
-------- --------
Long-Term Liabilities:
Loans, notes and mortgages 7,239 5,405
Capital lease obligations 1,814 2,035
-------- --------
Total Long-Term Liabilities 9,053 7,440
-------- --------
Stockholder's equity:
Common stock; $.60 par value: 10,000,000
authorized shares: issued and outstanding shares
5,043,604 at March 31, 1998 and 5,035,779
at December 31, 1997 3,026 3,021
Additional paid-in capital 20,211 20,185
Retained earnings (deficit) (9,373) (9,172)
-------- --------
Total stockholder's equity 13,864 14,034
-------- --------
Total Liabilities and Stockholders Equity $ 32,016 $ 31,665
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
RELM WIRELESS CORPORATION
Condensed Consolidated Statements of Operations
(In thousands except share data)
FOR THE THREE MONTHS ENDED
--------------------------
MARCH 31,
1998 1997
---- ----
(Unaudited) (Unauditied)
Income
Sales $ 7,715 $ 9,949
Investment income (loss) 106 (51)
Other 7 95
-------- --------
7,828 9,993
Costs and expenses
Cost of sales 6,134 7,486
Selling, general & administrative 1,694 2,660
Interest 201 321
-------- --------
8,029 10,467
Loss from continuing
operations before income taxes (201) (474)
Income tax benefit -- (161)
-------- --------
Net loss from continuing
operations (201) (313)
Loss from discontinued
operations net of taxes -- (16)
Net loss $ (201) $ (329)
======== ========
Earnings (loss) per share-basic and diluted:
Continuing operations $ (.04) $ (.05)
Discontinued operations -- (.01)
-------- --------
Net income (loss) $ (.04) $ (.06)
======== ========
See notes to condensed consolidated financial statements.
4
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
RELM WIRELESS CORPORATION
Condensed Consolidated Statements of Cash Flow
(In thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
MARCH 31
1998 1997
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash (used) provided by operations $ (513) $ 304
Investing activities:
Property, plant and equipment purchases (414) (675)
Investing activities of discontinued segment -- (25)
------- -------
Cash used by investing activities (414) (700)
Financing activities:
Proceeds from debt -- 2,132
Repayment of debt and capital
lease obligations (402) --
Changes in lines of credit 1,626 (142)
Purchase of stock 31 (1,120)
------- -------
Cash provided by financing activities 1,255 870
------- -------
Increase in cash 328 474
Cash at beginning of period 213 502
------- -------
Cash at end of period $ 541 $ 976
======= =======
Supplemental disclosure
Interest paid $ 201 $ 321
</TABLE>
See notes to condensed consolidated financial statements.
5
<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 March 31, 1998, the condensed
consolidated statements of operations for the three months ended March 31, 1998
and 1997 and the condensed consolidated statements of cash flows for the three
months ended March 31, 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 March 31, 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 March 31,
1998 are not necessarily indicative of the operating results for a full year.
As of January 1, 1998, the company adopted 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 shareholders' equity
for 1998, or 1997.
2. Inventories March 31, December 31,
1998 1997
--------- ------------
Inventories consisted of:
Raw Material $ 5,173 $ 4,139
Work in Process 2,023 2,245
Finished goods 4,334 5,120
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$11,530 $11,504
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<PAGE>
3. Stockholders' Equity
The consolidated changes in stockholders' equity for the three months ended
March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Common Stock Additional Retained
-------------------- paid-in Earnings
Shares Amount Capital (Deficit) Total
------ ------ ---------- -------- -----
<S> <C> <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 -- -- -- (201) (201)
--------- --------- --------- --------- ---------
Balance March 31, 1998 5,043,604 $ 3,026 $ 20,211 $ (9,373) $ 13,864
========= ========= ========= ========= =========
</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>
FOR THE THREE MONTHS ENDED
MARCH 31
--------------------------
1998 1997
---- ----
<S> <C> <C>
Numerator:
Net loss (numerator for basic and diluted
earnings (loss) per share) $ (201) $ (329)
----------- -----------
Denominator:
Denominator for basic earnings per share-
weighted average shares 5,081,693 5,117,227
Effect of dilutive securities:
Options -- --
Dilutive potential shares -- --
----------- -----------
Denominator for diluted earnings (loss) per
share-adjusted weighted average shares 5,081,693 5,117,227
=========== ===========
Basic earnings (loss) per share $ (.04) $ (.05)
=========== ===========
Diluted earnings (loss) per share $ (.04) $ (.05)
=========== ===========
</TABLE>
Shares related to options are not included in the computation of earnings (loss)
per share because to do so would have been anti-dilutive for the periods
presented.
7
<PAGE>
6. Reclassification
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:
FOR THE THREE MONTHS ENDED
MARCH 31
--------------------------
1998 1997
---- ----
Sales $ 358 $ 489
Cost of sales 352 454
Selling, general and administrative expenses 60 115
----- -----
Operating loss $ (54) $ (80)
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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 statement of operations expressed as a
percentage of net sales:
Percentage of Sales
Quarter Ended
March 31,
-------------------
1998 1997
---- ----
Sales 100.0% 100.0%
Cost of sales 79.5 75.2
----- -----
Gross margin 20.5 24.8
Selling, general and
administrative (22.0) (26.7)
Interest expense (2.6) (3.2)
Other income 1.5 .4
Loss from continuing
operations before income taxes (2.6) (4.7)
Income taxes (1.6)
----- -----
Net loss from continuing operations (2.6) (3.1)
Discontinued operations (.2)
----- -----
Net loss (2.6%) (3.3%)
===== =====
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<PAGE>
Net Sales
Net sales for the three months ended March 31, 1998 decreased $2,234,000 or
22.5% compared to sales for the same period in 1997. This decrease is the result
of reduced radio requirements for the U.S. Army during the current quarter.
Shipments on the company's contract with the Army are expected to resume in the
third quarter. Conversely, international sales increased $564,000 or 33% from
the same period in 1997 due to strong performance in the Brazilian market.
Cost of Sales
Cost of sales as a percentage of net sales increased 4.3% to 79.5% for the three
months ended March 31, 1998 compared to 75.2% for the same period in 1997. Due
to the reduced requirements of the U.S. Army, manufacturing volumes were lower
in the current quarter resulting in an under-absorption of manufacturing
overhead costs. The Company has responded to lower volumes by reducing staff and
soft costs. These reductions were implemented in February 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) consist of marketing, sales,
commissions, sustaining engineering, product development, management information
systems, accounting and headquarters. For the three months ended March 31, 1998,
SG&A expenses totaled $1,694,000 or 21.9% compared to $2,660,000 or 26.7% for
the same period in 1997. The decrease in SG&A expenses is the result of the
company's restructuring plans that were implemented in 1997. Expenses in all
SG&A areas were reduced. The most significant reduction, however, was associated
with closing the Indiana engineering center and re-establishing its operations
in Florida, as the Company concentrates its focus on two key development
initiatives.
Interest Expense
For the three months ended March 31, 1998 interest expense totaled $201,000 or
2.6% compared with $321,000 or 3.2% for the same period in 1997. During the
second half of 1997, debt levels were reduced using cash flow from continuing
operations and from the sales of discontinued operations.
9
<PAGE>
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 ended March 31, 1998.
Liquidity and Capital Resources
As of March 31, 1998 the Company had working capital of $11,686,000 compared
with $10,307,000 as of December 31, 1997. As of March 31, 1998, the Company has
available credit of $4 million under a revolving line of credit.
Capital expenditures for the three months ended March 31, 1998 were $414,000
compared with $675,000 for the same period in 1997. These expenditures were to
replace obsolete manufacturing test equipment.
Inflation and Changing Prices
Inflation and changing prices for the quarters March 31, 1998 and 1997 have
contributed to increases in wages, facilities, and raw material costs. Effects
of 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.
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
10
<PAGE>
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.
Discontinued Operations
For the three months ended March 31, 1998 there were no discontinued operations.
For the same period in 1997 the Company reported a loss from discontinued
operations of $16,000. During 1997, the Company's specialty manufacturing and
recycled paper manufacturing subsidiaries were sold. These operations have been
reported as discontinued operations for the first quarter of the prior year.
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 8-K during the
quarter ended March 31, 1998.
11
<PAGE>
Pursuant to the requirements of Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned there
unto duly authorized.
RELM WIRELESS CORPORATION
-------------------------
William P. Kelly
Chief Financial Officer and
Vice President - Finance
Date: May 5, 1998
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 541
<SECURITIES> 987
<RECEIVABLES> 5,533
<ALLOWANCES> (127)
<INVENTORY> 11,530
<CURRENT-ASSETS> 20,785
<PP&E> 13,817
<DEPRECIATION> (4,867)
<TOTAL-ASSETS> 32,016
<CURRENT-LIABILITIES> 9,099
<BONDS> 0
0
0
<COMMON> 3,026
<OTHER-SE> 10,838
<TOTAL-LIABILITY-AND-EQUITY> 32,016
<SALES> 7,715
<TOTAL-REVENUES> 7,828
<CGS> 6,134
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201
<INCOME-PRETAX> (201)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (201)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
