================================================================================
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, 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
RELM WIRELESS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 04-2225121
- ------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7505 Technology Drive
West Melbourne, Florida
----------------------------------------
(Address of principal executive offices)
32904
----------
(Zip Code)
Registrant's telephone number, including area code: (407) 984-1414
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Common Stock, $.60 Par Value -- 5,046,156 shares
outstanding as of October 1, 1999
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<PAGE>
PART I- FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RELM WIRELESS CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
September 30, December 31,
1999 1998
------------ ------------
(Unaudited) (see note 1)
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 68 $ 464
Accounts receivable, net 4,236 3,498
Inventories 10,643 10,566
Investment securities-trading 1 749
Notes receivable 400 400
Real estate investments held for sale -- 58
Prepaid expenses and other current 268 239
-------- --------
Total Current Assets 15,616 15,974
Property, Plant and Equipment, net 8,382 8 829
Notes Receivable 1,295 1,695
Other Assets 474 329
-------- --------
Total Assets $ 25,767 $ 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)
September 30, December 31,
1999 1998
------------ ------------
(Unaudited) (see note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current maturities of long-term liabilities $ 1,215 $ 1,355
Accounts payable 4,139 4,617
Accrued expenses 1,157 3,251
Accrued restructuring liability 51 178
------- -------
Total Current Liabiliites 6,562 9,401
Long-Term Liabilities
Loans, notes and mortgages 9,740 7,313
Capital lease obligations 959 1,442
--------- --------
Total Long-Term Liabilities 10,699 8,755
Stockholders' Equity:
Common; $.60 par value: 10,000,000 authorized
shares: 5,046,406 issued and outstanding shares 3,027 3,027
Additonal paid-in capital 20,221 20,221
Accumulated deficit (14,742) (14,577)
--------- --------
Total Stockholders' Equity 8,506 8,671
--------- --------
Total Liabilities and Stockholders' Equity $ 25,767 $ 26,827
========= ========
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 per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- ------------------------
September September September September
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 5,120 $ 7,228 $ 18,710 $ 22,010
Expenses:
Cost of sales 3,762 5,398 13,342 16,992
Selling, general & administrative 1,655 1,987 5,301 5,920
------- ------- -------- --------
5,417 7,385 18,643 22,912
------- ------- -------- --------
Operating income (loss) (297) (157) 67 (902)
Other income (expense):
Interest expense (282) (202) (810) (605)
Net gains on investments -- (249) 48 (143)
Other income 281 12 530 201
------- ------- -------- --------
Net loss $ (298) $ (596) $ (165) $ (1,449)
======= ======= ======== ========
Earnings (loss) per share-basic and diluted $ (0.06) $ (0.12) $ (0.03) $ (0.29)
======= ======= ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ITEM I - FINANCIAL STATEMENTS - continued
RELM WIRELESS CORPORATION
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
September 30, September 30,
1999 1998
------------ -------------
<S> <C> <C>
Cash used by operations $(2,807) $(1,525)
Investing activities:
Property, plant and equipment purchases (634) (1,257)
Proceeds from sale of marketable securities 748 872
Collections on note receivable 400 --
Other (47) --
------- -------
Cash provided (used) by investing activities 467 (385)
Financing activities:
Net changes in lines of credit 1,644 2,016
Proceeds from long term debt 1,849 400
Payment of long term debt and capital lease obligations (1,549) (603)
Sale of stock -- 31
------- -------
Cash provided by financing activities 1,944 1,844
Decrease in cash (396) (66)
Cash and cash equivalent at beginning of period 464 213
------- -------
Cash and cash equivalent at end of period $ 68 $ 147
======= =======
Supplemental disclosure
Interest paid $ 810 $ 605
======= =======
</TABLE>
See notes to condensed consoliidated 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 September 30, 1999, the condensed
consolidated statements of operations for the three months and nine months ended
September 30, 1999 and 1998 and the condensed consolidated statements of cash
flows for the nine months ended September 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 nine month
period ended September 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 October 1, 1999 for the third quarter
of fiscal 1999. However, for convenience, the financial statements are dated as
of September 30, 1999. The quarter began on July 3, 1999. Certain prior period
accounts have been reclassified to correspond to the current period
presentation.
2. Inventories
The components of inventory consist of the following:
September 30, December 31,
1999 1998
------------- ------------
Finished Goods $ 4,454 $ 4,641
Work in Process 1,912 1,945
Raw Materials 4,277 3,980
------- -------
$10,643 $10,566
======= =======
5
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
3. Stockholders' Equity
The consolidated changes in stockholders' equity for the nine months ended
September 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 loss -- -- -- (165) (165)
--------- ------- -------- --------- -------
Balance September 30, 1999 5,046,416 $ 3,027 $ 20,221 $ (14,741) $ 8,506
========= ======= ======== ========= =======
</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 NINE MONTHS ENDED
--------------------------- ------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Numerator
Net loss (numerator for basic and diluted
loss per share) $ (298) $ (596) $ (165) $ (1,449)
---------- ---------- ---------- ---------
Denominator:
Denominator for basic loss per share-
weighted average shares 5,046,416 5,043,604 5,046,416 5,042,749
Effect of dilutive securities:
Options -- -- -- --
---------- ---------- ---------- ---------
Denominator for diluted loss per
share-adjusted weighted average shares 5,046,416 5,043,604 5,046,416 5,042,749
========== ========== ========== =========
Basic loss per share $ (0.06) $ (0.12) $ (0.03) $ (0.29)
========== ========== ========== =========
Diluted earrings loss per share $ (0.06) $ (0.12) $ (0.03) $ (0.29)
========== ========== ========== =========
</TABLE>
Shares related to options are not included in the computation of loss per share
because to do so would have been anti-dilutive for the periods presented.
7
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
5. Comprehensive Income
Total comprehensive loss for the three months and nine months ended September
30, 1999 was $298 and $165, respectively compared to losses of $596 and $1,449,
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 nine
months ended September 30, 1999 are as follows:
Nine Months Ended
-------------------------------
September 30, September 30,
1999 1998
------------- -------------
Sales $908 $ 740
Expenses:
Cost of sales (58) (747)
Selling, general & administrative (60) (93)
---- -----
Operating gain (loss) $790 $(100)
All of the remaining property held for sale was sold during the second quarter.
There were no operations for the real estate business for the three months ended
September 30, 1999 or 1998.
8
<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 Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 73.5 74.7 71.3 77.2
----- ----- ----- -----
Gross margin 26.5 25.3 28.7 22.8
Selling, general and
administrative (32.3) (27.5) (28.3) (26.9)
Interest expense (5.5) (2.8) (4.3) (2.7)
Other income 5.5 (3.3) 3.1 0.3
----- ----- ----- -----
Net income (loss) (5.8) (8.3)% (.8)% (6.5)%
===== ===== ===== =====
</TABLE>
Net Sales
Net sales for the three months and nine months ended September 30, 1999
decreased approximately $2,108,000 (29.2%) and $3,300,000 (15.0%) respectively,
compared to the same period for the prior year. Revenues for the Company's core
Land Mobile Radio (LMR) products decreased $1,139,000 (15.8%) and $791,000
(3.6%) respectively, for the three months and nine months ended September 30,
1999 compared to the same period for the prior year. This decline is the result
of diminished international sales. More specifically, no product shipments have
been made in 1999 to the Company's former distributor in Brazil due to its
default in paying amounts that are owed to the Company (refer to disclosures in
the Company's 1998 10-K filing). During the prior year, shipments to this
customer totaled $2.1 million.
Non-LMR product revenues for the three months and nine months ended September
30, 1999 decreased $959,000 (13.3%) and $2,489,000 (11.3%) respectively, as the
Company discontinued businesses and products that performed poorly or that did
not fit its focus in LMR products.
9
<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 1.2% to 26.5% for the three
months ended September 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. Additionally, the Company negotiated more favorable
pricing from key suppliers.
Gross margin as a percentage of net sales increased 5.9% to 28.7% for the nine
months ended September 30, 1999 compared to the same period for the prior year.
During the nine months ended September 30 1999, 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
September 30, 1999, SG&A expenses totaled $1,655,000 or 32.3% of sales compared
to $1,987,000 or 27.5% of sales for the same period in 1998. For the nine months
ended September 30, 1999 SG&A expenses totaled $5,301,000 or 28.3% of sales
compared to $5,920,000 or 26.9% of sales for the same period in 1998. The
dollars reflect lower research and development expenses in the current year
related to new product initiatives that were largely completed during 1998.
Furthermore, payroll and other expenses in all SG&A areas were significantly
reduced as a result of the Company's restructuring. The percentage increase to
prior year is a result of decreased sales.
Interest Expense
For the three months ended September 30, 1999, interest expense totaled $282,000
or 5.5% compared with $202,000 or 2.8% for the same period in 1998. For the nine
months ended September 30, 1999 interest expense totaled $810,000 or 4.3%
compared to $605,000 or 2.7% for the same period in 1998. These increase's are
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.
10
<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 nine months ended
September 30, 1999 or 1998 as the Company has net operating loss carryforward
benefits totaling approximately $9.4 million at September 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 nine months ended September
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, some 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.
11
<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 is determining the state of readiness of material third parties
through the use of questionnaires. The questionnaire program began in the third
quarter of 1999. No Y2K issues with material customers or suppliers have been
indicated by the responses to-date. 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 September 30, 1999, the Company had working capital of $9,054,000 compared
with $6,573,000 as of December 31, 1998. The increase is primarily related to a
$1,879,000 reduction in accrued expenses. Specifically, in February 1999 the
Company executed a contract under which its insurance carrier assumed all
remaining workers compensation liabilities through the June 30, 1997 plan year.
The cost os this arrangement was financed for a period of 30 months.
Accordingly, portions of these costs are now reported as long-term liabilities.
Additionally, accounts receivable increase by $894,000, while investment
securities trading and accounts payable decreased by $748,000 and $478,000
respectively.
Capital expenditures for the three months and nine months ended September 30,
1999 were approximately $232,000 and $738,000 respectively, compared with
$843,000 and $1,257,000 respectively, for the same periods in 1998. These
expenditures are related primarily to tooling for the manufacture of new
products, most of which was incurred in 1998.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Continued
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 theCompany, 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
September 30, 1999 the amount outstanding on the mortgage was approximately $3.7
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.
13
<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 in 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 September 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
November 9, 1999 Vice President - Finance
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> OCT-01-1999
<CASH> 68
<SECURITIES> 1
<RECEIVABLES> 5,810
<ALLOWANCES> (1,574)
<INVENTORY> 10,643
<CURRENT-ASSETS> 15,616
<PP&E> 14,727
<DEPRECIATION> (6,345)
<TOTAL-ASSETS> 25,757
<CURRENT-LIABILITIES> 6,562
<BONDS> 0
0
0
<COMMON> 3,027
<OTHER-SE> 5,479
<TOTAL-LIABILITY-AND-EQUITY> 25,767
<SALES> 18,710
<TOTAL-REVENUES> 19,288
<CGS> 13,342
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 810
<INCOME-PRETAX> (165)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (165)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
