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 MARCH 31, 2000
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.)
7100 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 -- 5,090,405 shares
outstanding as of May 4, 2000
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RELM WIRELESS CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
March 31 December 31,
2000 1999
----------- ------------
(Unaudited) (see note 1)
ASSETS
Current Assets:
Cash and cash equivalents $ 185 $ 1
Accounts receivable, net 2,051 1,966
Inventories 11,627 10,211
Notes receivable 400 400
Prepaid expenses and other current 654 501
Investment securities - trading -- 1
------- -------
Total Current Assets 14,917 13,080
Property and equipment, net 4,119 8,024
Notes Receivable 1,291 1,295
Debt issuance costs, net 752 --
Other Assets 446 454
------- -------
Total Assets $21,525 $22,853
======= =======
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>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited) (see note 1)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term liabilities $ 1,546 $ 1,807
Accounts payable 3,084 4,447
Accrued compensation and related taxes 421 514
Accrued expenses and other current liabilities 1,004 636
Common stock and common stock warrants payable 1,059 --
------- -------
Total Current Liabilities 7,114 7,404
Long-Term Liabilities:
Loans, notes and mortgages 3,733 8,281
Convertible subordinate notes 3,250 --
Capital lease obligations 660 791
------- -------
7,643 9,072
Stockholders' equity:
Common; $.60 par value: 10,000,000 authorized
shares: 5,046,406 issued and outstanding shares 3,053 3,053
Additional paid-in capital 20,195 20,195
Accumulated deficit (16,480) (16,871)
------- -------
Total stockholders' equity 6,768 6,377
------- -------
Total Liabilities and sockholders' equity $21,525 $22,853
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
RELM WIRELESS CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
March 31, March 31,
2000 1999
-------- --------
<S> <C> <C>
Sales $4,596 $6,465
Expenses:
Cost of sales 3,609 4,518
Selling, general & administrative 1,526 1,771
------ ------
5,135 6,289
------ ------
Operating income (loss) 539 176
Other income (expense):
Interest expense (298) (249)
Gain on sale of facility 1,165 --
Net gains on investments -- 48
Other income 63 80
------ ------
Net income $ 391 $ 55
====== ======
Earnings per share-basic $ 0.08 $ 0.01
Earnings per share-diluted $ 0.07 $ 0.01
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
RELM WIRELESS CORPORATION
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
March 31, March 31,
2000 1999
-------- --------
<S> <C> <C>
Cash used by operations $(1,040) $(2,314)
Investing activities:
Cash paid for Uniden product line (2,016) --
Property and equipment purchases (94) (246)
Proceeds from disposals of assets 5,208 --
Proceeds from sale of marketable securities -- 748
Other 4 (55)
------- ------
Cash provided by investing activities 3,102 447
Financing activities:
Net changes in lines of credit (1,141) 627
Proceeds from long term debt 3,250 1,065
Payment of long term debt (3,799) (260)
Payment of debt issuance costs (188) --
------- ------
Cash provided (used) by financing activities (1,878) 1,432
Increase (decrease) in cash 184 (435)
Cash and cash equivalents at beginning of period 1 464
------- ------
Cash and cash equivalents at end of period $ 185 $ 29
======= ======
Supplemental disclosure:
Interest paid $ 298 $ 249
======= ======
Non-cash transactions:
Common stock and common stock warrants payable
for debt issuance and acquisition costs $ 1,059 $ --
======= ======
</TABLE>
See notes to condensed consolidated financial statements.
<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, 2000, the condensed
consolidated statements of operations for the three months ended March 31, 2000
and 1999 and the condensed consolidated statements of cash flows for the three
months ended March 31, 2000 and 1999 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, 1999 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, 1999 Annual
Report to Stockholders. The results of operations for the three month period
ended March 31, 2000 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 March 31, 2000 for the first quarter
of fiscal 2000. The quarter began on January 1, 2000. Certain prior period
amounts have been reclassified to correspond to the current period presentation.
2. SIGNIFICANT TRANSACTIONS
ACQUISITION OF PRODUCT LINE
On March 13, 2000, the Company completed the acquisition of certain private
radio communications products from Uniden America Corporation (Uniden) for
$1,864 which included assumption of certain liabilities related to the product
line. Additionally, the Company incurred acquisition costs of $639. The entire
purchase price of $2,853 was preliminarily allocated to inventory and tooling
based on their estimated fair values, pending final determination of certain
acquired balances. Uniden will continue to provide manufacturing support for
certain Uniden land mobile radio products, which will be marketed by the
Company.
Acquisition costs included grants of 150,000 shares at $3.25 per share of the
Company's common stock valued at $487. The grants are subject to the approval of
the Company's stockholders. If not approved, the grants are to be paid in cash
equivalent. Accordingly, the Company has recorded the common stock grants as
payable at March 31, 2000.
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
SIGNIFICANT TRANSACTIONS - Continued
PRIVATE PLACEMENT
On March 16, 2000, the Company completed the private placement of $3,250 of
convertible subordinated notes. The notes earn interest at 8% per annum, are
convertible at $3.25 per share, and are due on December 31, 2004. Additionally,
the Company incurred approximately $759 in costs related to the private
placement. These costs are currently being amortized on a straight line basis
over the life of the notes.
The debt issuance costs included grants of 50,000 shares at $3.25 per share of
the Company's common stock valued at $163 and warrants to purchase 300,000
shares at $3.25 per share of the Company's common stock valued at $409. The
warrants have a five year term and an exercise price of $3.25 per share. The
grants are subject to the approval of the Company's stockholders. If not
approved, the grants are payable in cash equivalent. Accordingly, the Company
has recorded the common stock and common stock warrant grants as payable at
March 31, 2000.
Although the Company anticipates filing a registration statement for the common
stock shares underlying the convertible notes during the second quarter of 2000,
they currently have not been registered under securities laws and may not be
sold in the U.S. absent registration or an exemption. Registration rights have
been granted to the note holders. Portions of the proceeds from this private
placement were used to acquire the Uniden land mobile radio products.
SALE OF WEST MELBOURNE, FLORIDA FACILITY AND COMPLETION
OF MANUFACTURING AGREEMENT
On March 24, 2000, the Company completed the sale of its 144 square foot
facility located in West Melbourne, Florida for $5,600. The gain of
approximately $1,165 is reflected in the statements of income for the period
ended March 31, 2000. Additionally, the Company has secured a lease for a nearby
facility for approximately 54 square feet in size.
The Company has entered into a contract manufacturing agreement for the
manufacture of certain land mobile radio subassemblies. Under this agreement,
the contract manufacturer employed approximately sixty-eight of the Company's
direct manufacturing workforce and agreed to purchase certain existing
inventories from the Company as needed, based on material requirements indicated
by purchase orders for finished product from the Company.
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
3. INVENTORIES
The components of inventory consist of the following:
March 31 December 31
2000 1999
---- ----
Finished goods $ 7,073 $ 5,065
Work in process 1,318 1,645
Raw materials 3,236 3,501
------- -------
$11,627 $10,211
------- -------
4. STOCKHOLDERS' EQUITY
The consolidated changes in stockholders' equity for the three months ended
March 31, 2000 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, 1999 5,090,405 $3,053 $20,195 $(16,871) $6,377
Net income 391 $ 391
--------- ------ ------- -------- ------
Balance at March 31, 2000 5,090,405 $3,053 $20,195 $(16,480) $6,768
--------- ------ ------- -------- ------
</TABLE>
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended
--------------------------
March 31 March 31
2000 1999
---- ----
Numerator:
Net income (numerator for basic earnings per
share) $ 391 $ 55
Effect of dilutive securities:
8% convertible notes 11 --
---------- ----------
Net income (numerator for dilutive earnings
per share) 402 $ 55
---------- ----------
Denominator:
Denominator for basic earnings per share-weighted
average shares 5,090,405 5,046,416
Effect of dilutive securities:
8% convertible notes 166,667 --
Options 341,297 --
Denominator for diluted earnings per share -
adjusted weighted average shares 5,598,369 5,046,416
========== ==========
Basic earnings per share $ 0.08 $ 0.01
========== ==========
Diluted earnings per share $ 0.07 $ 0.01
---------- ----------
6. COMPREHENSIVE INCOME
Total comprehensive income for the three months ended March 31, 2000 was $391
compared to $55 for the same period in the previous year.
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - Continued
7. REAL ESTATE ASSETS HELD FOR SALE
The Company's remaining property held for sale was sold during the second
quarter of 1999. The real estate operations produced sales of $798; selling,
general and administrative expenses of $75; and operating income of $723 for the
three months ended March 31, 1999.
<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:
Percentage of Sales
-----------------------------
Three Months Ended
March 31 March 31
2000 1999
---- ----
Sales 100.0% 100.0%
Cost of sales 78.5 69.9
----- -----
Gross margin 21.5 30.1
Selling, general and
administrative expenses (33.2) (27.4)
Interest expense (6.5) (3.8)
Other income 26.7 0.2
----- -----
Net income 8.5% 0.9%
----- -----
NET SALES
Net sales for the three months ended March 31, 2000 decreased approximately $1.9
million (28.9%) compared to the same period for the prior year. Revenues for the
Company's core land mobile radio (LMR) products increased approximately $208,000
(4.9%) due to stronger sales in the Company's government and public safety
markets. Non-LMR revenues decreased $2.1 million (93.1%) as the Company exited
businesses and discontinued products that performed poorly or did not fit its
strategic focus in wireless communications.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS-Continued
GROSS MARGIN
Cost of sales as a percentage of net sales increased 8.6%, from 69.9% to 78.5%
for the three months ended March 31, 2000 compared to the same period for the
prior year. The cost of sales percentage for the prior year was favorably
impacted by the sale of commercial real estate totaling $798,000. The book value
of the real estate was significantly reduced in periods prior to 1999 as the
Company had increased related valuation allowances to reflect current market
projections at the time. Excluding this sale, cost of sales for the prior year
was 79.7%.
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 March
31, 2000, SG&A expenses totaled $1,526,000 or 33.2% of sales compared to
$1,771,000 or $27.4% of sales for the same period in 1999. The decrease in SG&A
expenses reflects the Company's actions to reduce spending on SG&A support as it
exits certain businesses and discontinues poorly performing products.
Furthermore, several new product development projects are largely completed,
resulting in lower engineering and R&D expenses. Marketing and selling expenses,
which are included in SG&A expenses, increased approximately 10% compared to the
same period in 1999 as the Company started selling its new line of commercial
products that were acquired in March 2000.
INTEREST EXPENSE
For the three months ended March 31, 2000 interest expense totaled $298,000 or
6.5% of sales compared with $249,000 or 3.8% of sales for the same period in
1999. The Company increased the utilization of its revolving credit facility to
fund working capital requirements. Also, in March 2000, the Company completed
the private placement of 8% convertible notes.
OTHER INCOME
On March 24, 2000, the Company completed the sale of its 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 approximately $1.6 million
in cash after related expenses and the satisfaction of the mortgage on the
property. The Company has lease approximately 54,000 square feet of comparable
space at a nearby location.
<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 months ended March 31, 2000
or 1999 as the Company has net operating loss carryforward benefits totaling
approximately $12 million at March 31, 2000. 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 three months ended March 31, 2000 and 1999
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
The Company completed year 2000 readiness procedures during 1999. The Company
has not experienced any material adverse impact from any issue related to the
year 2000. Total aggregate costs to complete the year 2000 readiness was
approximately $25,000.
INTERNAL COMPANY SYSTEMS
The Company implemented a new enterprise-wide information system in 1997. The
current release of this software is year 2000 compliant. The Company implemented
the current release. Costs associated with the upgrade were approximately
$20,000 and were recognized as they were incurred. 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 were impacted by the upgrade.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS-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. The Company determined the state of
readiness of material third parties through the use of questionnaires. 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 was less than $5,000. The Company has not experienced any
material adverse impact from supplier or customer issues related to the year
2000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had working capital of $7.8 million compared
with $5.7 million as of December 31, 1999. This increase was primarily the
result of 1) new product inventory that was part of the Company's acquisition of
Uniden America's private radio communications product lines, 2) the successful
private placement of $3.25 million in subordinated convertible notes, and 3) the
sale of the Company's 144,000 square foot facility in West Melbourne, Florida.
Please see the notes to the condensed consolidated financial statements for
further information.
The Company has a $7 million revolving line of credit. As of March 31, 2000, the
available credit on this line was approximately $1.3 million.
Capital expenditures for property and equipment for the three months ended March
31, 2000 were $94,000 compared to $246,000 for the same period in 1999.
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 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
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITIONS-Continued
FORWARD-LOOKING STATEMENTS - Continued
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 those forward-looking statements or to update the reasons
why actual results could differ form 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
None.
<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
------ -------
4(ii) 8% Convertible Subordinate Promissory Note*
10(e) Amendment to Security and Loan Agreement*
10(f) 2nd Amendment to Security and Loan Agreement*
10(g) 3rd Amendment to Security and Loan Agreement*
10(h) Simmonds Agreement*
10(i) Contract for Sale of West Melbourne FL. Real Estate*
10(j) Sub Lease Agreement*
10(k) Uniden Asset Purchase Agreement*
10(l) OEM Uniden Purchase Agreement*
10(m) Uniden ESAS Technology Agreement*
10(n) Manufacturing Agreement*
10(o) Transaction Agreement for Real Estate Sale and Contract
Manufacturing*
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 March 31, 2000.
* Incorporated by reference from the Company's report on form 10K for the
year ended December 31, 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
May 15, 2000 Vice President - Finance
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 185
<SECURITIES> 0
<RECEIVABLES> 3,739
<ALLOWANCES> (1,688)
<INVENTORY> 11,627
<CURRENT-ASSETS> 14,917
<PP&E> 11,156
<DEPRECIATION> (7,037)
<TOTAL-ASSETS> 21,525
<CURRENT-LIABILITIES> 7,114
<BONDS> 0
0
0
<COMMON> 3,053
<OTHER-SE> 3,715
<TOTAL-LIABILITY-AND-EQUITY> 21,525
<SALES> 4,596
<TOTAL-REVENUES> 5,824
<CGS> 3,609
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,526
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 298
<INCOME-PRETAX> 391
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 391
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.07
</TABLE>
