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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, 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
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(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 - 5,290,405 shares outstanding as of July 20, 2000
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PART I- FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RELM WIRELESS CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
June 30 December 31
2000 1999
----------- ------------
(Unaudited) (see note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 110 $ 1
Accounts receivable, net 2,846 1,966
Inventories 10,137 10,211
Notes receivable 802 400
Prepaid expenses and other current 568 501
Investment securities - trading -- 1
------- -------
Total current assets 14,463 13,080
Property and equipment, net 4,263 8,024
Notes receivable 895 1,295
Debt issuance costs, net 730 --
Other assets 584 454
------- -------
Total assets $20,935 $22,853
======= =======
See notes to condensed consolidated financial statements.
<PAGE>
RELM WIRELESS CORPORATION
Condensed Consolidated Balance Sheets
(In thousands except share data)
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
----------- ------------
(Unaudited) (see note 1)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term liabilities $ 1,585 $ 1,807
Accounts payable 2,557 4,447
Accrued compensation and related taxes 364 514
Accrued expenses and other current liabilities 908 636
-------- --------
Total current liabilities 5,414 7,404
Long-term liabilities:
Loan, notes and mortgages 4,300 8,281
Convertible subordinated notes 3,250 --
Capital lease obligations 459 791
-------- --------
8,009 9,072
Stockholders' equity:
Common stock; $.60 par value; 10,000,000 authorized shares:
5,290,405 and 5,090,405 issued and outstanding shares at
June 30, 2000 and December 31, 1999, respectively 3,174 3,053
Additional paid-in capital 21,360 20,195
Accumulated deficit (17,022) (16,871)
-------- --------
Total stockholders' equity 7,512 6,377
-------- --------
Total liabilities and stockholders' equity $ 20,935 $ 22,853
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
RELM WIRELESS CORPORATION
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
June 30 June 30 June 30 June 30
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 5,158 $ 7,125 $ 9,754 $ 13,590
Expenses
Cost of sales 3,680 5,061 7,289 9,579
Selling, general & administrative 1,886 1,876 3,405 3,647
-------- -------- -------- --------
5,566 6,937 10,694 13,226
-------- -------- -------- --------
Operating income (loss) (408) 188 (940) 364
Other income (expense):
Interest expense (217) (279) (522) (528)
Gain on sale of facility -- -- 1,165 --
Net gains on investments -- -- -- 48
Other income 83 168 146 248
-------- -------- -------- --------
Net income (loss) $ (542) $ 77 $ (151) $ 132
======== ======== ======== ========
Earnings (loss) per share-basic $ (0.10) $ 0.02 $ (0.03) $ 0.03
======== ======== ======== ========
Earnings (loss) per share-diluted $ (0.10) $ 0.02 $ (0.03) $ 0.03
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
June 30 June 30
2000 1999
------- -------
<S> <C> <C>
Cash used by operations $(1,526) $(3,430)
Investing activities:
Cash paid for Uniden product line (2,016) --
Property and equipment purchases (184) (402)
Proceeds from disposals of assets 5,246 --
Proceeds from sale of marketable securities -- 748
Collections on note receivable 400
Other 4 (56)
------- -------
Cash provided by investing activities 3,050 690
Financing activities:
Net change in line of credit (121) 1,820
Proceeds from long term debt 3,250 1,692
Payment of long term debt (4,338) (1,149)
Payment of debt issuance costs (206) --
------- -------
Cash provided (used) by financing activities (1,415) 2,363
Increase (decrease) in cash 109 (377)
Cash and cash equivalents at beginning of period 1 464
------- -------
Cash and cash equivalents at end of period $ 110 $ 87
======= =======
Supplemental disclosure:
Interest paid $ 522 $ 528
======= =======
Non-cash transactions:
Common stock and common stock warrants
payable for debt issuance and acquisition costs $ 1,059 $ --
======= =======
Warrants issued for consulting services $ 226 $ --
======= =======
</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 June 30, 2000, the condensed
consolidated statements of operations for the three and six months ended June
30, 2000 and 1999 and the condensed consolidated statement of cash flows for the
six months ended June 30, 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 and six month
period ended June 30, 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 June 30, 2000 for the second quarter
of fiscal 2000. The quarter began on April 1, 2000. Certain prior period amounts
have been reclassified to correspond to the current period presentation.
2. Significant Events and Transactions
Acquisition of Product Line
On March 13, 2000, the Company completed the acquisition of certain private
radio communication products from Uniden America Corporation (Uniden) for $1,864
which included assumption of certain liabilities related to the product line.
Additionally, we incurred acquisition costs of $639. The entire purchase price
was allocated to tooling and inventory 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 $488.
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
Significant Events and 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 $778 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 to Simmonds Capital Limited 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 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 registration of the common stock shares underlying the convertible
notes was effective on June 16, 2000. 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 144,000 square foot
facility located in West Melbourne, Florida for $5,600. The gain of
approximately $1,165 is reflected in the statement of operations for the period
ended June 30, 2000. Additionally, the Company secured a lease for a nearby
facility that is approximately 54,000 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 sixty-eight of the Company's direct
manufacturing workforce and agreed to purchase certain existing raw material
inventories from the Company as needed, based on material requirements indicated
by purchase orders for finished product placed by the Company. Revenues are
recognized as the contract manufacturer uses these inventories. Until that time,
they are treated as an asset of the Company and are included in the Company's
inventory reserve analysis.
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
Significant Events and Transactions - Continued
Investment Banking Services
The Company has engaged Janney Montgomery Scott (JMS) to provide certain
investment banking services. In connection with the engagement, the Company
granted warrants to JMS valued at $226 to purchase 166,153 shares of the
Company's common stock at an aggregate purchase price of one hundred dollars. In
August, the Company expanded the scope of the engagement to act as financial
advisor in executing a program to enhance shareholder value. This engagement
stipulates a cash fee, calculated as a percentage of the transaction value, to
be paid by RELM to JMS upon closing a transaction.
Note Receivable
On June 16, 2000, the owner of a former RELM subsidiary defaulted on its
obligations under a secured promissory note dated May 12, 1997. The principal
amount outstanding on the note is $1,600. Under the note, principal payments of
$400 each, together with all accrued and unpaid interest were to be paid to RELM
on June 16, 2000 and 2001, with a final installment due on June 16, 2002. The
note is secured pursuant to a security agreement under which the former
subsidiary has granted the Company a lien and security interest in certain
collateral. The Company's security interest is subordinated to a security
interest granted to the former subsidiary's senior lender. Also, a principal of
the former subsidiary has guaranteed the prompt and complete payment of the
note.
3. Inventories
The components of inventory, net of reserves totaling $1,934, consist of the
following:
June 30 December 31
2000 1999
------- -----------
Finished goods $ 5,622 $ 5,065
Work in process 1,260 1,645
Raw materials 3,255 3,501
------- -------
$10,137 $10,211
------- -------
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
4. Stockholders' Equity
The consolidated changes in stockholders' equity for the six months ended
June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 5,090,405 $ 3,053 $ 20,195 $ (16,871) $ 6,377
Common stock issued 200,000 121 530 651
Common stock warrants issued 635 635
Net loss (151) (151)
--------------------------------------------------------------------
Balance at June 30, 2000 5,290,405 $ 3,174 $ 21,360 $ (17,022) $ 7,512
====================================================================
</TABLE>
5. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -----------------------------
June 30 June 30 June 30 June 30
2000 1999 2000 1999
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) (numerator for basic and
diluted earnings (loss) per share) $ (542) $ 77 $ (151) $ 132
--------- --------- --------- -------------
Denominator:
Denominator for basic and diluted earnings
per share-weighted average shares 5,184,910 5,046,416 5,137,658 5,046,416
--------- --------- --------- -------------
Basic earnings (loss) per share $ (0.10) $ 0.02 $ (0.03) $ 0.03
========= ========= ========= =============
Diluted earnings (loss) per share $ (0.10) $ 0.02 $ (0.03) $ 0.03
========= ========= ========= =============
</TABLE>
The effect of dilutive securities is not included in the computation for the
three and six months ended June 30, 2000, because to do so would be
antidilutive.
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
6. Comprehensive Income (Loss)
The total comprehensive income (loss) for the three and six months ended June
30, 2000 was ($542) and ($151), respectively, compared to $77 and $132 for the
same periods in the previous year.
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 $110 and $908;
selling, general and administrative expenses of $43 and $118; and operating
income of $67 and $790 for the three and six months ended June 30, 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:
<TABLE>
<CAPTION>
Percentage of Sales Percentage of Sales
------------------------- -------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
June 30 June 30 June 30 June 30
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 71.3 71.0 74.7 70.5
----- ----- ----- -----
Gross margin 28.7 29.0 25.3 29.5
Selling, general and
administrative expenses (36.6) (26.3) (34.9) (26.8)
Interest expense (4.2) (3.9) (5.3) (3.9)
Other income 1.6 2.3 13.4 2.2
----- ----- ----- -----
Net income (loss) (10.5)% 1.1% (1.5)% 1.0%
===== ===== ===== =====
</TABLE>
Net Sales
Net sales for the three months ended June 30, 2000 decreased approximately $2.0
million compared to the same period for the prior year. Revenues for our core
land mobile radio (LMR) products decreased $1.3 million (21.3%) for the same
period. During the second quarter of the prior year, we sold approximately $1.2
million of LMR products to the U.S. Army. There were no sales to the Army during
the current period. However, during the current period, we received an order
from the Army totaling approximately $2 million. Shipments on this order will
commence in the fourth quarter of 2000. Non-LMR revenues decreased $0.7 million
as we exited businesses and products that performed poorly or did not fit our
strategic focus in wireless communications.
Net sales for the six months ended June 30, 2000 decreased approximately $3.8
million compared to the same period for the prior year. Revenues for our core
LMR products decreased $1.9 million (16.8%), primarily due to the absence of
product sales to the Army previously described. Non-LMR revenues also decreased
$1.9 million as we exited businesses and products that performed poorly or did
not fit our strategic focus in wireless communications.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS-continued
Cost of Sales and Gross Margin
Cost of sales as a percentage of net sales for the three months ended June 30,
2000 was 71.3% compared to 71.0% for the same period in the prior year. During
the second quarter, all of our operations were moved to a smaller, lower cost
facility and our workforce was reduced by 68 employees. We believe that these
actions will continue to help improve our margin performance in the future.
For the six months ended June 30, 2000, cost of sales as a percentage of sales
was 74.7% compared to 70.5% for the previous year. The percentage for the prior
year was favorably impacted by the sale of commercial real estate totaling
$908,000. The book value of the real estate was significantly reduced in periods
prior to 1999 as we increased valuation allowances to reflect current market
conditions at the time. Excluding this sale, cost of sales for the prior year
was 75.5%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) consist of marketing, sales,
engineering, research and development, information systems, accounting and
headquarters expenses. For the three months ended June 30, 2000 SG&A expenses
totaled $1,886,000 compared to $1,876,000 for the same period during the prior
year and $1,519,000 for the first quarter 2000. During the period, we expanded
our sales and marketing efforts as a result of the acquisition of the Uniden PRC
product line. Also, we incurred transaction expenses related to the Uniden
acquisition and our financing initiatives.
For the six months ended June 30, 2000 SG&A expenses totaled $3,405,000 compared
to $3,647,000 for the same period during the prior year. This decrease reflects
our actions to reduce expenses as we exit certain businesses and discontinue
product lines. Also, certain new product initiatives are largely completed,
resulting in lower R&D expenses.
Interest Expense
For the three months ended June 30, 2000 interest expense totaled $217,000
compared to $279,000 for the same period during the prior year. For the six
months ended June 30, 2000 interest expense totaled $522,000 compared to
$528,000 for the same period during the prior year.
In March, we sold our West Melbourne, Florida facility and satisfied the related
note and mortgage, which totaled approximately $3.6 million. We also issued
$3.25 million in 8% subordinated convertible notes. Primarily due to these
transactions, we reduced the utilization of our revolving credit facility by
approximately $1.1 million as of June 30, 2000 compared to June 30, 1999.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS-continued
Other Income
On March 24, 2000, we completed the sale of our 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 provided approximately $1.6 million in
cash after related expenses and the satisfaction of the mortgage on the
property. We have leased approximately 54,000 square feet of comparable space at
a nearby location.
Income Taxes
No income tax provision was provided for the three or six months ended June 30,
2000 as we have net operating loss carryforward benefits totaling approximately
$12 million at June 30, 2000. We have evaluated our tax position in accordance
with the requirements of SFAS No. 109, Accounting for Income Taxes, and do not
believe that we meet the more-likely-than-not criteria for recognizing a
deferred tax asset and have provided valuation allowances against net deferred
tax assets.
Inflation and Changing Prices
Inflation and changing prices for the three and six months ended June 30, 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. We believe that we will be able to pass on most of our
future inflationary increases to our customers. We are also subject to changing
foreign currency exchange rates in the purchase of some raw materials. We employ
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
We completed year 2000 readiness procedures during 1999. We have not experienced
any material adverse impact from any issue related to the year 2000. Total
aggregate costs to complete the year 2000 readiness were approximately $25,000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS-continued
Liquidity and Capital Resources
As of June 30, 2000, we had working capital of $9.0 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 our 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 our
144,000 square foot facility in West Melbourne, Florida. Please see the notes to
the condensed consolidated financial statements for further information.
On June 16, 2000, the owner of a former RELM subsidiary defaulted on its
obligations under a secured promissory note dated May 12, 1997. (see Notes To
Condensed Consolidated Financial Statements). Under the note, a principal
payment of $400,000, together with accrued interest was to be paid on June 16,
2000. We believe that all sums due will be recovered. Our working capital
requirements will be funded from operations and the revolving line of credit.
We have a $7 million asset-based revolving line of credit. As of June 30, 2000,
the formula under the terms of the agreement supported a borrowing base totaling
approximately $5.4 million, of which, approximately $209,000 was available. As
of July 31, 2000 the borrowing base totaled approximately $5.8 million, of
which, $950,000 was available. This improvement is the result of improved LMR
revenues in the Company's government and public safety markets. We are currently
evaluating additional financing alternatives to fund our working capital
requirements, including working capital necessary for the completion of our
digital product development.
Capital expenditures for property and equipment for the six months ended June
30, 2000 were $184,000 compared to $402,000 for the same period during the prior
year. The expenditures during the prior year related to new product development
projects that are now largely completed.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS - 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 our operations, economic performance and
financial condition. Such statements involve known risks, uncertainties and
other factors that may cause our actual results, performance or achievements, 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; our indebtedness; quality of management, business abilities and
judgment of our 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", "should" 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 we assume 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 5. Annual Meeting Date and Deadline for Shareholder Proposals
RELM's 2000 Annual Meeting of Shareholders will be held on September 7, 2000.
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
------ ---------
10(p) Janney Montgomery Scott Investment Banking Services
Agreement
10(q) Warrant Certificate - Janney Montgomery Scott
10(r) Warrant Certificate - Simmonds Capital Limited
10(s) Janney Montgomery Scott Financial Advisory Services
Agreement
10(t) Addendum to Janney Montgomery Scott Financial Advisory
Services Agreement
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, 2000.
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
/s/ William P. Kelly
-----------------------------
William P. Kelly
Chief Financial Officer and
August 11, 2000 Vice President - Finance
