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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED June 30, 1999
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
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RELM WIRELESS CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 04-2225121
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7505 Technology Drive
West Melbourne, Florida
----------------------------------------
(Address of principal executive offices)
32904
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(Zip Code)
Registrant's telephone number, including area code: (407) 984-1414
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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 -- 5,046,156 shares outstanding as of July 2, 1999
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RELM WIRELESS CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
June 30, December 31,
1999 1998
----------- ------------
(Unaudited) (See Note 1
ASSETS
Current Assets:
Cash and cash equivalents ..................... $ 87 $ 464
Accounts receivable, net ...................... 4,853 3,498
Inventories ................................... 10,762 10,566
Investment securities - trading ............... 1 749
Notes receivable .............................. 400 400
Real estate investments held for sale ......... -- 58
Prepaid expenses and other current ............ 255 239
------- -------
Total Current Assets ............................ 16,358 15,974
Property, Plant and Equipment, net .............. 8,520 8,829
Notes Receivable ................................ 1,295 1,695
Other Assets .................................... 485 329
------- -------
Total Assets .................................... $26,658 $26,827
======= =======
See notes to condensed consolidated financial statements.
1
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
RELM WIRELESS CORPORATION
Condensed Consolidated Balance Sheets
(In thousands except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited) (See Note 1
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term liabilities............ $ 1,488 $ 1,355
Accounts payable....................................... 3,909 4,617
Accrued expenses....................................... 1,381 3,251
Accrued restructuring liability ....................... 93 178
------- -------
Total Current Liabilities................................ 6,871 9,401
Long-Term Liabilities:
Loans, notes and mortgages............................. 9,831 7,313
Capital lease obligations.............................. 1,153 1,442
------- -------
Total Long-Term Liabilities.............................. 10,984 8,755
Stockholders' equity:
Common; $.60 par value: 10,000,000 authorized
shares: 5,046,406 issued and outstanding shares ..... 3,027 3,027
Additional paid-in capital ............................ 20,221 20,221
Accumulated deficit ................................... (14,445) (14,577)
------- -------
Total stockholders' equity .............................. 8,803 8,671
------- -------
Total Liabilities and Stockholders' Equity .............. $26,658 $26,827
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
RELM WIRELESS CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales .......................................... $7,125 $7,067 $13,590 $14,782
Expenses:
Cost of sales ................................ 5,061 5,460 9,579 11,594
Selling, general & administrative ............ 1,876 2,239 3,647 3,933
------ ------ ------- -------
6,937 7,699 13,226 15,527
------ ------ ------- -------
Operating income (loss)......................... 188 (632) 364 (745)
Other income (expense):
Interest expense.............................. (279) (200) (528) (401)
Net gains on investments...................... -- 51 48 157
Other income.................................. 168 131 248 138
------ ------ ------- -------
Net income (loss)............................... $ 77 $ (650) $ 132 $ (851)
====== ====== ======= =======
Earnings (loss) per share - basic and diluted... $ 0.02 $(0.13) $ 0.03 $ (0.17)
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
RELM WIRELESS CORPORATION
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
June 30, June 30,
1999 1998
-------- --------
<S> <C> <C>
Cash provided (used) by operations ........................ $(3,430) $ 562
Investing activities:
Property, plant and equipment purchases ................. (402) (518)
Proceeds from sale of marketable securities.............. 748 --
Collections on note receivable........................... 400 --
Other ................................................... (56) --
------- ------
Cash provided (used) by investing activities............. 690 (518)
Financing activities:
Net changes in lines of credit........................... 1,820 1,026
Proceeds from long term debt............................. 1,692 --
Payment of long term ebt and capital lease obligations... (1,149) (721)
Sale of stock............................................ -- 31
------- ------
Cash provided by financing activities...................... 2,363 336
Increase (decrease) in cash................................ (377) 380
Cash and cash equivalent at beginning of period............ 464 213
------- ------
Cash and cash equivalent at end of period.................. $ 87 $ 593
======= ======
Supplemental disclosure
Interest paid............................................ $ 528 $ 401
======= ======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
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, 1999, the condensed
consolidated statements of operations for the three months and six months ended
June 30, 1999 and 1998 and the condensed consolidated statements of cash flows
for the six months ended June 30, 1999 and 1998 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, 1998 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, 1998 Annual
Report to Shareholders. The results of operations for the three and six month
period ended June 30, 1999 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 July 2, 1999 for the second quarter of
fiscal 1999. However, for convenience, the financial statements are dated as of
June 30, 1999. The quarter began on April 3, 1999.
2. Inventories
The components of inventory consist of the following:
June 30, December 31,
1999 1998
-------- ------------
Finixhed Goods ................... $ 4,146 $ 4,641
Work in Process................... 2,218 1,945
Raw Materials..................... 4,398 3,980
------- -------
$10,762 $10,566
======= =======
5
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
3. Stockholders' Equity
The consolidated changes in stockholders' equity for the six months ended June
30, 1999 are as follows:
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
--------- ------ ---------- ----------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998.......... 5,046,416 $3,027 $20,221 $(14,577) $8,671
Net income............................ -- -- -- 132 132
--------- ------ ------- -------- ------
Balance June 30, 1999................. 5,046,416 $3,027 $20,221 $(14,445) $8,803
========= ====== ======= ======== ======
</TABLE>
4. Earnings Per Share
The following table sets forth the computation of basic and diluted earning
(loss) per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- --------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) (numerator for basic and
diluted earnings (loss) per share) ............. $ 77 $ (650) $ 132 $ (851)
---------- ---------- ---------- ----------
Denominator:
Denominator for basic earnings (loss)
per share - weighted average shares ............ 5,046,416 5,041,034 5,046,416 5,113,338
Effect of dilutive securities:
Options ...................................... -- -- -- --
---------- ---------- ---------- ----------
Denominator for diluted earnings (loss)
per share - adjusted weighted average shares.... 5,046,416 5,041,034 5,046,416 5,113,338
========== ========== ========== ==========
Basic earnings (loss) per share .................. $ 0.02 $ (0.13) $ 0.03 $ (0.17)
========== ========== ========== ==========
Diluted earnings (loss) per share ................ $ 0.02 $ (0.13) $ 0.03 $ (0.17)
========== ========== ========== ==========
</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.
6
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
5. Comprehensive Income
Total comprehensive income for the three months and six months ended June 30,
1999 was $77 and $132, respectively, compared to losses of $650 and $851,
respectively, for the same periods in the previous year.
6. Real Estate Assets Held for Sale
The summarized results of operations of the real estate business for the six
months ended June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- --------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Sales ...................................... $110 $ 24 $908 $ 382
Expenses:
Cost of sales ............................ (58) (43) (58) (395)
Selling, general & administrative ........ 15 27 (60) (33)
---- ---- ---- -----
Operating gain (loss) ...................... $ 67 $ 8 $790 $ (46)
==== ==== ==== =====
</TABLE>
All of the remaining property held for sale was sold during the second quarter.
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 statement of operations expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
Percentage of Sales Percentage of Sales
----------------------- -----------------------
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales ...................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales .............................. 71.0 77.3 70.5 78.4
----- ----- ----- -----
Gross margin ............................... 29.0 22.7 29.5 21.6
Selling, general & administrative ........ (26.3) (31.7) (26.8) (26.6)
Interest expense ........................... (3.9) (2.8) (3.9) (2.7)
Other income ............................... 2.5 2.6 2.2 1.9
----- ----- ----- -----
Net income (loss) .......................... 1.1% (9.2)% 1.0% (5.8)%
===== ===== ===== =====
</TABLE>
Net Sales
Net sales for the three months ended June 30, 1999 increased approximately
$58,000 compared to the same period for the prior year. Revenues for the
Company's core Land Mobile Radio Products (LMR) increased $1,155,000 (16.4%) for
the same period. This increase is the result of product shipments to the U.S.
Army. Conversely, Non-LMR product revenues decreased $1,097,000 (15.4%) as the
Company discontinued business and products that were inadequately profitable or
that did not fit its focus in LMR products. Also during the quarter, the Company
completed its exit from the commercial real estate business by selling its
remaining holdings for approximately $110,000.
Net sales for the six months ended June 30, 1999 decreased $1,192,000 (8.1%)
compared to the same period for the prior year. This decrease is the result of
discontinuing businesses and products that were inadequately profitable or that
did not fit the Company's focus in LMR products.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS - Continued
Gross Margin
Gross margin as a percentage of net sales increased 6.3% to 29.0% for the three
months ended June 30, 1999 compared to the same period for the prior year. This
increase was the result of the Company's restructuring, which significantly
reduced manufacturing support expenses, and eliminated poorly performing
products and busineses. Improved product mix, volumes, and pricing also
contributed to the margin increase.
Gross margin as a percentage of net sales increased 7.9% to 29.5% for the six
months ended June 30, 1999 compared to the same period for the prior year.
During the six months, in addition to the aforementioned factors, commercial
real estate sales totaling approximately $908,000 improved the overall gross
margin percentage. The book value of the real estate had been significantly
reduced in prior periods as the Company increased valuation allowances to
reflect current market projections. The Company completed its exit from this
business in the second quarter.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses consist of marketing, sales,
commissions, engineering, research and development, management information
systems, accounting, and headquarters expenses. For the three months ended June
30, 1999, SG&A expenses totaled $1,876,000 or 26.3% of sales compared to
$2,239,000 or 31.7% of sales for the same period in 1998. For the six months
ended June 30, 1999 SG&A expenses totaled $3,647,000 or 26.8% of sales compared
to $3,933,000 or 26.6% of sales for the same period in 1998. These decreases
reflect lower research and development expenses in the current year related to
new product initiatives that were largely completed during 1998.
Interest Expense
For the three months ended June 30, 1999 interest expense totaled $279,000 or
3.9% compared with $202,000 or 2.8% for the same period in 1998. This increase
is primarily due to increased debt levels on the Company's revolving line of
credit and the financing arrangement associated with the Company's workers'
compensation liabilities. Under this arrangement, the insurance carrier assume
all of the remaining workers' compensation liabilities.
9
<PAGE>
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 six months ended June 30,
1999 as the Company has net operating loss carryforward benefits totaling
approximately $9.4 million at June 30, 1999. 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.
Inflation and Changing Prices
Inflation and changing prices for the quarters and six months ended June 30,
1999 and 1998 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 LMR markets are subject to similar fluctuations.
Year 2000 Discussion
General
As the year 2000 approaches, an issue has emerged with many companies regarding
how existing application software programs and operating systems will
accommodate this date value. Accordingly, 1999 could be the maximum date value
that these systems will be able to process. Although the extent of the potential
impact of this problem is not precisely known, estimates indicate that it could
affect the global economy. The Company has addressed or is in the process of
addressing year 2000 related exposures.
Internal Company Systems
The Company implemented a new enterprise-wide information system in 1997. The
current release of this software, which is year 2000 compliant, was implemented
by the Company in July 1999. Costs associated with the upgrade were
approximately $20,000 and have been recognized in operating expenses. It is the
Company's policy to utilize the most current releases of software. The
aforementioned upgrade would have been performed regardless of the year 2000
issue. No other information technology projects are impacted by the upgrade.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
Year 2000 Discussion - Continued
Third Party Relationships
The Company has material relationships with certain suppliers and customers.
Generally, suppliers provide components that are necessary to manufacture a
finished product. The Company's products are sold primarily to dealers and
distributors who resell to end-users. If these suppliers and/or customers were
unable to conduct business as a result of year 2000 issues, the potential impact
to the Company's business could be significant. The amount of potential impact
cannot be estimated at this time.
The Company will determine the state of readiness of material third parties
through the use of questionnaires. The questionnaire program began in the third
quarter of 1999. As a contingency plan and as is its normal practice, the
Company in most cases has or will have secondary sources for purchases. Other
than the U. S. Government, no single customer represents a significant portion
(greater than 10%) of the Company's sales. The cost of administering the
questionnaire program is estimated to be less than $5,000.
Liquidity and Capital Resources
As of June 30, 1999, the Company had working capital of $9,487,000 compared with
$6,573,000 as of December 31, 1998. The increase is primarily related to a
$1,870,000 decrease in accrued expenses and a $1,355,000 increase in accounts
receivable. The Company entered into a new agreement for a revolving line of
credit on February 26, 1999. This agreement provides a $7 million line of credit
for a term of three years. The terms and conditions are comparable to the
previous agreement. The line of credit is secured by substantially all of the
Company's non-real estate assets. As of June 30, 1999, the outstanding balance
on the line was approximately $5.6 million.
Capital expenditures for the three months and six months ended June 30, 1999
were approximately $156,000 and $402,000 respectively, compared with $104,000
and $518,000 respectively, for the same periods in 1998. These expenditures are
related to tooling for the manufacture of new products.
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
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
Forward-Looking Statements - Continued
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 words "believe", "estimate", "expect", "intend", "anticipate",
"will", "may", and similar expressions and variations thereof identify certain
of such forward-looking statements. 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. Readers are
cautioned not to place undue reliance on these forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the ordinary
course of business for borrowings under a mortgage of its primary operating
facility. The Company has entered into an interest rate swap to reduce its
exposure to such fluctuations. Under this arrangement, the Company converted its
variable LIBOR -rate mortgage into a mortgage with a fixed rate of 8.85%. As of
June 30, 1999 the amount outstanding on the mortgage was approximately $3.8
million. The Company does not expect changes in the fair market value of this
swap to have a significant effect on its operations, cash flow, or financial
position.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
a) The following documents are filed as part of this report:
3. exhibits: The exhibits listed below are filed as a part of, or
incorporated by reference int this report:
Number Exhibit
------ -------
27 Financial Data Schedule
b) Reports on Form 8-K
The Registrant was not required to file reports on Form 8K during the quarter
ended June 30, 1999.
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
August 5, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-02-1999
<CASH> 87
<SECURITIES> 1
<RECEIVABLES> 6,419
<ALLOWANCES> (1,566)
<INVENTORY> 10,762
<CURRENT-ASSETS> 16,358
<PP&E> 14,533
<DEPRECIATION> (6,013)
<TOTAL-ASSETS> 26,658
<CURRENT-LIABILITIES> 6,871
<BONDS> 0
0
0
<COMMON> 3,027
<OTHER-SE> 5,776
<TOTAL-LIABILITY-AND-EQUITY> 26,658
<SALES> 13,590
<TOTAL-REVENUES> 13,886
<CGS> 9,579
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,647
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 528
<INCOME-PRETAX> 132
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
