As filed with the Securities and Exchange Commission on June 7th, 2000
Registration No. 333-
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-1 REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
RELM WIRELESS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Nevada 3600 04-2225121
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
7100 Technology Drive, West Melbourne, Florida 32904
(321) 984-1414
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-----------------
Richard K. Laird, President and Chief Executive Officer
7100 Technology Drive, West Melbourne, Florida 32904
(321) 984-1414
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
-----------------
Copies of communications to:
Denise Gordon Reeder, Esq.
Greenberg Traurig, P.A.
777 South Flagler Drive, Suite 300E
West Palm Beach, FL 33401
------------------
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. | |
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. | |
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. | |
-------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================================================
Proposed Proposed Maximum Amount of
Title of Each Class of Securities Amount to Maximum Offering Aggregate Registration
to be Registered be Registered Price per Security Offering Price Fee
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.60 per share 1,000,000(1) $2.375(2) $2,375,000.00(2) $627.00
Warrants (3) 466,153 $3.25(4) $1,514,999.25(4) $399.96
Common Stock, par value $0.60 per share 466,153(5) (6) (6) (6)
-------
Total Registration Fee $1,026.96
================================================================================================================================
</TABLE>
(1) This number represents the shares of our common stock that we may issue from
time to time upon conversion of our 8% Convertible Subordinated Notes due
December 1, 2004 at a price of $3.25 per share.
(2) Pursuant to Rule 457(c) under the Securities Act, this per share amount is
based on the average high and low prices of our common stock on May 31, 2000
as reported on the NASDAQ National Market. Estimated solely for the purpose
of calculating the registration fee.
(3) To be offered by selling securityholders, at their discretion, after the
effective date of this registration statement, at prevailing market prices
at time of sale.
(4) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(g) under the Securities Act, the proposed maximum
offering price with respect to the warrants being registered is based upon
$3.25 per share, the price at which the warrants may be exercised.
(5) This number represents the shares of our common stock that we may issue from
time to time upon exercise of the warrants.
(6) No registration fee is required pursuant to Rule 457(g) under the
Securities Act.
================================================================================
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
The information in this prospectus is not complete and may be changed. The
selling securityholders identified in this prospectus may not sell these
securities until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE ___, 2000
PROSPECTUS
RELM WIRELESS CORPORATION
Warrants
Common Stock
------------------------
This prospectus relates to the resale of the following securities of RELM
Wireless Corporation, a Nevada corporation, by the present holders of such
securities:
-- up to 466,153 warrants to purchase a like number of shares of our
common stock; and
-- up to 1,466,153 shares of our common stock issuable upon
conversion of our 8% Convertible Subordinated Promissory Notes due
December 1, 2004 and upon exercise of our warrants.
The warrants and the shares of our common stock will be offered and sold by
their present holders. See "Selling Securityholders." Each of these selling
securityholders intends to sell the warrants or common stock offered hereby from
time to time for their own account in the open market at the prices prevailing
therein, or in individually negotiated transactions at prices that may be agreed
upon.
Our common stock is listed for trading on The NASDAQ Stock Market's
National Market under the symbol "RELM." On May 31, 2000, the last reported
sales price for our common stock on the National Market was $2.50 per share.
Each of the selling securityholders will pay all expenses with respect to the
offering of these securities by them except the cost of registration under the
Securities Act of 1933, and the cost of preparing and printing this prospectus.
We will not receive any proceeds from any resale by the selling securityholders.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS TO READ ABOUT
IMPORTANT FACTORS YOU SHOULD CONSIDER BEFORE BUYING THE WARRANTS OR OUR COMMON
STOCK.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
The date of this prospectus is June ___, 2000.
<PAGE>
You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. This prospectus may be used only where it is
legal to sell these securities. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the securities.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SUMMARY OF THE PROSPECTUS........................................................................1
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA..................................................2
RISK FACTORS.....................................................................................4
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS................................................16
USE OF PROCEEDS.................................................................................17
PRICE RANGE OF COMMON STOCK.....................................................................17
DIVIDEND POLICY.................................................................................18
CAPITALIZATION..................................................................................19
SELECTED CONSOLIDATED FINANCIAL DATA............................................................19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........21
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.....................................29
BUSINESS........................................................................................30
MANAGEMENT......................................................................................41
PRINCIPAL STOCKHOLDERS..........................................................................47
DESCRIPTION OF CAPITAL STOCK....................................................................50
DESCRIPTION OF WARRANTS.........................................................................54
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.........................................57
SELLING SECURITYHOLDERS.........................................................................63
PLAN OF DISTRIBUTION............................................................................66
NOTICE TO CANADIAN RESIDENTS....................................................................68
LEGAL MATTERS...................................................................................69
EXPERTS.........................................................................................69
WHERE YOU CAN FIND ADDITIONAL INFORMATION.......................................................69
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.....................................................F-1
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)..............................F-23
</TABLE>
ii
<PAGE>
SUMMARY OF THE PROSPECTUS
You should read the following summary together with the more detailed
information regarding our company and the common stock and warrants being sold
in this offering and our consolidated financial statements and related notes
appearing elsewhere in this prospectus. Because this is only a summary, you
should read the rest of this prospectus before you invest in our common stock
and warrants. Read the entire prospectus carefully, especially the risks
described under "Risk Factors."
RELM Wireless Corporation
We design and manufacture wireless communication products sold to the land
mobile radio (LMR) markets which consist of two distinct markets;
-- the government and public safety market which includes fire,
rescue, law enforcement and emergency medical personnel as well as
the military and various agencies of the federal, state, and local
government; and
-- the business, industrial and commercial market which includes
schools, churches, hotels, construction companies, taxicab
companies and airlines.
Our principal executive offices are located at 7100 Technology Drive, West
Melbourne, Florida 32904 and our telephone number is (321) 984-1414.
You can find more information about us and our products through the
Internet at RELM.com. The information provided on our website is not
incorporated into this prospectus.
The Offering
This prospectus relates to the resale of the following securities of RELM
Wireless Corporation by the present holders of such securities:
-- up to 466,153 warrants to purchase a like number of shares of our
common stock; and
-- up to 1,466,153 shares of our common stock issuable upon
conversion of our 8% Convertible Subordinated Promissory Notes due
December 1, 2004 and upon exercise of our warrants.
The warrants and the shares of our common stock will be offered and sold by
their present holders. See "Selling Securityholders." Each of these selling
securityholders intends to sell the warrants or common stock offered hereby from
time to time for their own account in the open market at the prices prevailing
therein, or in individually negotiated transactions at prices that may be agreed
upon.
1
<PAGE>
Use of Proceeds
The selling securityholders will receive all of the proceeds from the sale
of the securities sold pursuant to this prospectus. We will not receive any of
the proceeds from sales by the selling securityholders of the offered
securities.
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
----------------- -------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations DATA
Net Sales $4,596 $6,465 $22,404 $29,530 $ 45,376 $47,646 $45,266
Income (Loss) From Continuing 391 55 (2,294) (4,907) (11,974) (1,347) (533)
Operations
Income (Loss) From _ _ _
Discontinued Operations (725) (2,836) (2,679) 1,645
Extraordinary Gain _ _ _ 227 _ _ _
-----------------------------------------------------------------------------
Net Income (Loss) $391 $55 $(2,294) $(5,405) $(14,810) $(4,026) $1,112
====== ====== ======== ======= ======== ======= =======
Earning (Loss) Per Share From
Continuing Operations (1) $0.07 $0.01 $(0.45) $(0.97) $(2.36) $(0.26) $(0.10)
Earnings (Loss) Per Share From _ _ _
Discontinued Operations (1) (0.15) (0.56) (0.52) 0.32
Earnings Per Share From _ _ _ _ _ _
Extraordinary Item (1) 0.05
------ ------ -------- ------- -------- ------- -------
Net Earnings (Loss) Per Share (1) $0.07 $0.01 $(0.45) $(1.07) $(2.92) $(0.78) $0.22
====== ====== ======== ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
----------------- -------------------------------------------------------
BALANCE SHEET DATA 2000 1999 1999 1998 1997 1996 1995
------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Working Capital $7,803 $8,285 $5,676 $6,573 $10,307 $27,008 $29,904
Total Assets 21,525 26,889 22,853 26,827 31,665 54,028 64,916
Long-Term Debt 7,643 10,187 9,072 8,755 7,440 15,554 14,906
Total Stockholders' Equity $6,768 $8,726 $6,377 $8,671 $14,034 $29,214 $32,620
</TABLE>
2
<PAGE>
-------------------
(1) Basic and diluted net earnings (loss) per share are the same for all
periods presented, except for the three months ended March 31, 2000. Basic
earnings per share from continuing operations and basic net earnings per
share for the three months ended March 31, 2000 is $0.08.
3
<PAGE>
RISK FACTORS
Investing in our securities involves a high degree of risk. You should
carefully consider the risks and uncertainties described below and the other
information in this prospectus before deciding whether to invest in the warrants
or shares of our common stock issuable upon conversion of our convertible
subordinated notes or upon exercise of the warrants. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair our business operations.
If any of the following risks actually occur, our business, financial
condition or operating results could be materially adversely affected. In such
case, the trading price of our common stock could decline and the value of the
warrants could decline, and you may lose part or all of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including the risks faced by us which are described below and elsewhere in this
prospectus. See "Information Regarding Forward-Looking Statements."
We have a history of substantial and continuing losses. We have incurred
substantial losses, including losses of $2,294,000, $5,405,000, and $14,810,000
for the fiscal years ended December 31, 1999, 1998, and 1997, respectively. For
the quarter ended March 31, 2000, we reported a profit of $391,000, which
includes a gain of $1,165,000 related to the sale of our building. As of March
31, 2000, we had an accumulated deficit of approximately $16,480,000.
Because of our recent shift in emphasis to the LMR products, we have a
limited relevant operating history that investors may use to evaluate our future
prospects. Since 1997, we have been working to shift our focus exclusively to
the LMR business by selling or discontinuing our non-LMR products as well as LMR
products that were performing poorly. Accordingly, we have only a limited
operating history on which investors can evaluate our potential performance and
prospects for success. Because of our limited relevant operating history, our
historical financial information is of limited value in projecting our future
results.
In light of the nature of our LMR products and our limited operating
history, our operating results are difficult to forecast. In view of our recent
shift in emphasis to the LMR business, we have had little experience forecasting
our revenues. In addition, we find sales and operating results in the LMR
business difficult to forecast, because they generally depend on the volume and
timing of the orders we receive. As a result, we may be unable to adjust our
expenses in a timely manner to compensate for any unexpected revenue shortfall.
A shortfall in revenues will significantly harm our business and operating
results. In addition, we are and will continue to be subject to numerous risks,
uncertainties, expenses, delays, and difficulties in our attempt to concentrate
our efforts on the LMR business in a highly competitive industry.
4
<PAGE>
Our quarterly revenues and operating results have fluctuated significantly
in the past and we expect that they will continue to fluctuate in the future.
Our quarterly revenues and operating results have fluctuated significantly in
the past as we have shifted our focus exclusively to the LMR products. Future
fluctuations may result from a variety of factors including the following:
- Availability of products;
- Our dependence upon orders placed by our four largest customers;
- The timing and amount of orders we receive from our customers, which may
be tied to seasonal demand;
- Cancellations or delays of customer product orders, or the loss of a
significant customer;
- Reductions in consumer demand for our customers' products generally or
for our products in particular;
- A reduction in the average selling price for our products as a result
of competitive factors;
- The timing and amount of research and development expenditures;
- General business conditions in our markets;
- Any new product introductions, or delays in product introductions, by
us or our competitors;
- Increased costs charged by our suppliers or changes in the delivery of
products to us; and
- Increased competition or reductions in the prices that we are able to
charge.
As a result of these and other factors, we believe that period-to-period
comparisons of our historical results of operations may not be a good predictor
of our future performance.
We will continue to need significant capital to fund our operations and
finance our growth, and we may not be able to obtain it on terms acceptable to
us or at all. We are not currently generating enough revenue from operations to
meet our working capital requirements. In addition, our capital requirements in
connection with the development, marketing and sale of our LMR products (as well
as certain acquisition activities) are, and will continue to be, significant. In
addition, as of March 31, 2000, we had payables which were over 90 days past due
of approximately $900,000.
5
<PAGE>
During the first quarter of 2000, we completed the following initiatives:
- sold our convertible subordinated notes;
- completed the sale of our facility in West Melbourne, Florida which
generated approximately $1,600,000 in cash;
- leased a smaller facility in West Melbourne; and
- executed a manufacturing services agreement under which we hope to
realize significant costs savings as well as to sell approximately
$2,300,000 of raw materials to a contract manufacturer during
2000. See "Business-Products-Manufacturing."
We believe, based upon our current plans and assumptions relating to our
operations, that our existing reserves and expected cash receipts will provide
the funds necessary to satisfy our cash requirements through the end of 2000.
Our manufacturing agreement with Uniden requires us to open a letter of credit a
minimum of 120 days prior to scheduled shipment of product (120 days for the
initial order of any product). Under this arrangement, working capital will be
required in an amount equal to the value of four months' (five months initially)
of product orders from Uniden. Therefore, we must seek additional financing or
pursue other initiatives to fund operations and acquisitions after the end of
2000. We are currently developing a financing plan with Janney Montgomery Scott
LLC, our financial advisors. There can be no assurance that additional funds
will be available when needed or, if available, will be available on terms that
are acceptable to us. Further, if we issue equity securities, the new equity
securities may have rights, preferences or privileges senior to those of
existing stockholders, and the ownership percentage of our stockholders would be
reduced. If we are not able to obtain adequate capital, we may be forced to
curtail or even cease operations.
We are highly leveraged and the significant amount of our indebtedness
could adversely affect our financial health. We have a significant amount of
indebtedness. At March 31, 2000, our total debt was approximately $14,757,000
and stockholders' equity was approximately $6,768,000. The issuance of our
convertible subordinated notes in the first quarter of 2000 increased our
indebtedness, which was offset by satisfying the mortgage on our facility that
was sold. The notes require quarterly interest payments. No principal payments
are due on the notes until they mature. The following chart shows certain
important statistics, after the issuance of the notes as of March 31, 2000 and
after applying the proceeds as intended.
Long-term debt and capital lease obligations
(excluding current portion).............................. $7,643,000
Stockholders' equity........................................ $6,768,000
Debt to equity ratio........................................ 1.13
Our leverage could have important consequences to you. For example, it could:
6
<PAGE>
- make it more difficult for us to satisfy our obligations with respect to
our indebtedness;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future working capital, capital expenditures,
acquisitions and other general corporate requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to repaying indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, acquisitions and other general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and industry; and
- limit our ability to borrow additional funds.
In addition, we may incur additional indebtedness under our Summit/Gibraltar
loan agreement. Any additional borrowings would further increase the amount of
our leverage and the associated risks.
We will require a significant amount of cash to service our indebtedness.
Our ability to make principal and interest payments on our indebtedness will
depend on our ability to generate cash in the future through sales of our LMR
products. We cannot assure you that our available liquidity will be sufficient
to service our indebtedness. Without sufficient funds to service our
indebtedness, we would have serious liquidity constraints and would need to seek
additional financing from other sources, but we may not be able to do so on
commercially reasonable terms, or at all.
Acquisitions and other business transactions may disrupt or otherwise have
a negative impact on our business and results of operations. During the first
quarter of 2000, we purchased from Uniden America Corporation its LMR product
line. The completion of the Uniden asset purchase as well as other contemplated
business transactions could result in substantial changes in our operations and
financial condition. Specifically, purchases of Uniden products have a five
month lead time and require a letter of credit at the time the order is placed,
which may require additional borrowings. There can be no assurance that we will
complete any additional asset purchases or other business transactions or that
any such transactions which are completed will prove favorable to our business.
We do not intend to seek stockholder approval for any such transactions unless
required by applicable law or regulation.
We hope to grow rapidly, and the failure to manage our growth could
adversely affect our business. Our business plan contemplates, among other
things, continued development of our LMR product lines through internal
development as well as acquisitions, and, as a result, significant growth in our
customer base. This growth and continued
7
<PAGE>
development, if it materializes, could place a significant strain on our
management, employees, operations and financial capabilities. In the event of
this expansion, we have to continue to implement and improve our operating
systems and to expand, train and manage our employee base. If we are unable to
manage and integrate our expanding operations effectively, our business, results
of operations and financial condition will be materially and adversely affected.
We currently depend solely on our LMR products and do not have multiple
sources of revenue. Since 1997, we have worked to shift our focus exclusively to
the development and sale of the LMR product line and our strategy is to derive
substantially all of our revenue from the LMR products. A decline in the price
of or demand for LMR products as a result of competition, technological change,
the introduction of new products by us or others, a failure to manage product
transitions successfully, or for other reasons, would cause our business,
financial condition and results of operations to suffer. In addition, our future
success will depend on the successful introduction and sale of our LMR products
families currently under development, which include an FM portable series radio
product, an analog product that operates over a wide frequency of bandwidth, and
a companion product, the GMH mobile radio. We have not yet demonstrated that we
will be able to successfully develop these products on a timely basis and in a
cost-effective manner, or at all. Even if we successfully develop these
products, we cannot guarantee that they will achieve market acceptance.
Our business will suffer if we are unable to keep pace with rapid
technological changes and product development in our industry. The market for
our LMR products is characterized by ongoing technological development, evolving
industry standards and frequent product introductions. The LMR industry is
experiencing a transition from analog LMR products to digital LMR products. In
addition, new standards for LMR compatibility (the APCO 25 Standards) have been
adopted and the market demand for APCO 25 compliant products is growing. Our
success and prospects for growth will depend upon our ability to enhance current
products and to introduce new products which address these and other
technological and market developments and satisfy the increasingly sophisticated
needs of customers, all in a timely manner. Digital and APCO 25 compliant
products are already being brought to the market by several of our competitors.
We are engaged in significant research and development activities through our
joint efforts with RACAL Communications, Inc. We have not yet offered a digital
product or products which are compatible with the APCO 25 standards. RACAL has
introduced an APCO 25 compliant product which they are marketing to the high-end
government sector. Under our manufacturing and licensing agreement with RACAL,
we are permitted to use RACAL's APCO 25 technology which will accelerate our
APCO 25 product development. We are at least four months away from bringing the
APCO 25 compliant products to market and this development will be funded
primarily from operations. Bringing such products to market and achieving a
significant share of the market for these products will continue to require
substantial expenditure of funds to complete research and development and
extensive marketing to achieve market penetration. There can be no assurance
that we will be successful in developing and/or acquiring and marketing, on a
timely basis, fully functional product enhancements or new products that respond
to these and other technological advances by others, or that our new products
will be accepted by customers. An inability to successfully develop products
could have a material adverse effect on our business, results of operations and
financial condition.
8
<PAGE>
Failure to comply with government regulations applicable to our business
could result in penalties. Our LMR products are regulated by the Federal
Communications Commission. We believe that we are in substantial compliance with
all applicable federal regulations governing our operations and we believe that
we have obtained all licenses necessary for the operation of our business.
Failure to comply with these requirements and regulations or to respond to
changes in these requirements and regulations could result in penalties on us
such as fines, restrictions on operations or a temporary or permanent closure of
our facility. These penalties could harm our operating results and cause a
decline of our stock price. In addition, there can be no assurance that we will
not be materially adversely affected by existing or new regulatory requirements
or interpretations.
We face intense competition from other LMR manufacturers, and the failure
to compete effectively could adversely affect our market share and results of
operations. We face intense competition from several companies currently
offering LMR product lines. The largest producer of LMR products in the world,
Motorola, currently is estimated to have in excess of 80% of the market for LMR
products. This producer, as well as other of our competitors such as Ericsson,
are significantly larger and have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we have and they have established
reputations for success in developing and producing LMR products. These
advantages may allow them:
- to respond more quickly to new or emerging technologies and changes in
customer requirements which may render our products obsolete or less
marketable;
- to engage in more extensive research and development;
- undertake more far-reaching marketing campaigns;
- more readily able to take advantage of acquisitions and other
opportunities;
- adopt more aggressive pricing policies; and
- make more attractive offers to potential employees, strategic partners
and advertisers.
Many of our competitors have established extensive networks of retail locations
and multiple distribution channels, and so enjoy a competitive advantage over us
in these areas as well. We may not be able to compete successfully and
competitive pressures may materially and adversely affect our business, results
of operations and financial condition. See the discussion in "Business --
Competition" for a more complete discussion of competitive factors in our
industry.
We depend on contract and offshore manufacturing. We contract with
manufacturers to produce our products and our dependence on a limited number of
contract manufacturers exposes us to certain risks, including shortages of
manufacturing capacity, reduced control over delivery schedules, quality
assurance, production yield and costs. Although we are seeking
9
<PAGE>
additional manufacturing sources, Uniden America Corporation is currently the
sole manufacturer of the family of LMR products which we acquired from Uniden.
Johnson Matthey Electronic Assembly Services, Inc. produces a significant
portion of our other LMR products. Although we have a five year contract with
Johnson Matthey and an eighteen month contract with Uniden, if either
manufacturer terminates production or cannot meet our production requirements,
we may have to rely on other contract manufacturing sources or identify and
qualify new contract manufacturers. The lead time required to qualify a new
manufacturer could range from approximately two to six months. Despite efforts
to do so, we may not be able to identify or qualify new contract manufacturers
in a timely manner and these new manufacturers may not allocate sufficient
capacity to us in order to meet our requirements. Any significant delay in our
ability to obtain adequate quantities of our products from our current or
alternative contract manufacturers could cause our business, financial condition
and results of operations to suffer.
We do not have contracts with our suppliers and we have a limited number of
suppliers of key components. We do not have contracts with our suppliers. We
place purchase orders with our suppliers and have no guaranteed supply
arrangements. In addition, our dependence on limited and sole source suppliers
of components involves several risks, including a potential inability to obtain
an adequate supply of components, price increases, late deliveries and poor
component quality. Disruption or termination of the supply of these components
could delay shipments of our products. The lead time required for orders of some
of our components is as much as six months. In addition, the lead time required
to qualify new suppliers for our components is as much as six months. If we are
unable to accurately predict our component needs, or if our component supply is
disrupted, we may miss market opportunities by not being able to meet the demand
for our products. This may damage our relationships with current and prospective
customers.
Our large quantities of inventory may be difficult for us to sell. Although
Johnson Matthey has agreed, as part of its manufacturing contract, to purchase
$2.3 million of our raw material inventory over time, we will continue to carry
a significant amount of finished goods inventory which may be difficult for us
to dispose of over a reasonable period of time. If we are unable to do so, we
may be required to take inventory markdowns in the future, which could reduce
our net sales and gross margins. In addition, it is critical to our success that
we accurately predict trends in consumer demand, including seasonal
fluctuations, in the future and do not overstock unpopular products or fail to
sufficiently stock popular products. Both scenarios could harm our operating
results.
Loss of one or more of our largest customers could hurt our business by
reducing our revenues and earnings. Sales to a small number of customers
generate a disproportionate amount of our revenue. In the year ended December
31, 1999 and in the quarter ended March 31, 2000, our four largest customers
accounted for approximately 32% and 31%, respectively, of our net sales, one of
which includes several agencies and departments of the federal government. As is
customary in our industry, we generally do not have contracts with our customers
which require them to purchase any specified amount of products from us.
Therefore, we cannot be sure that these customers will continue to purchase our
products at current levels. Significant
10
<PAGE>
declines in the level of purchases by one or more of these customers, or the
loss of one or more of these customers through industry consolidation, could
cause our sales to decline. This could seriously harm our operating results and
cause the price of our stock to decline. An adverse change in the financial
condition or bankruptcy of any of these customers could result in significant
declines in their levels of purchases or the loss of any of these customers, as
well as lower margins and difficulty collecting our accounts receivable.
We depend on large orders with lengthy sales cycles for a significant
portion of our revenues. Our quarterly revenues could fluctuate significantly
based on whether a large order is closed near the end of a quarter or delayed
until the next quarter. Customer orders can range in value from a few thousand
to a few million dollars. The length of time between initial contact with a
potential customer and sale of a product, or our sales cycle, outside the retail
channel is typically complex and lengthy, so it can last from three to nine
months. These direct sales also represent our largest orders. Therefore, our
revenues for a period are likely to be affected by the timing of larger orders,
which makes those revenues difficult to predict. Our revenues for a quarter
could be reduced if large orders forecasted for a certain quarter are delayed or
are not realized. The cycle factors that could delay or defer an order, include:
- time needed for technical evaluations of our products by customers;
- customer budget restrictions; and
- customer product testing.
We are subject to risks associated with our reliance on sales to the U.S.
Government. For the quarters ended March 31, 2000 and December 31, 1999,
approximately 26% and 22%, respectively, of our LMR sales were to agencies and
departments of the federal government. There can be no assurance that we will be
able to maintain this government business. Our ability to maintain our
government business will depend on many factors outside of our control,
including competitive factors, changes in government personnel making contract
decisions, and political factors. The loss or non-renewal of sales to the U.S.
government could have a material adverse effect upon us.
We depend upon proprietary information. Our success is dependent upon our
proprietary information and technology. We rely on a combination of patent,
contract, copyright, trademark and trade secret laws and other measures to
protect our proprietary information and technology. We have federal trademark
registrations for the names "Wilson," "Utili-com," "Citicom," "Mini-com,"
"Regency Electronics" and "Force Communications." In addition, we have
world-wide nonexclusive licenses to use the federal trademarks "Uniden" and
"ESAS." We currently own 18 United States patents with expiration dates out to
the year 2001. As part of our confidentiality procedures, we generally enter
into nondisclosure agreements with our employees, distributors and customers,
and limit access to and distribution of our proprietary information. Although we
believe that our patent rights and trademark protection should prevent another
party from manufacturing and selling competing products, there can be no
assurance that the steps we have taken to protect our technology will be
successful. The patents issued to us may not be
11
<PAGE>
adequate to protect our proprietary rights, to deter misappropriation or to
prevent an unauthorized third party from copying our technology, designing
around the patents we own or otherwise obtaining and using our products, designs
or other information. These patents also expire within the next eighteen months.
In addition, patents may not issue under future patent applications, and the
patents issued under such patent applications could be invalidated, circumvented
or challenged. It may also be particularly difficult to protect our products and
intellectual property under the laws of certain countries in which our products
are or may be manufactured or sold.
Although we believe our products and technology do not infringe on any
proprietary rights of others, as the number of competing products available in
the market increases and the functions of those products further overlap,
infringement claims may increase. Any such claims, with or without merit, could
result in costly litigation or might require us to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to us or at all. Any successful infringement
claim could have a material adverse effect upon our business, results of
operations and financial condition.
We currently have indemnification obligations to others. Certain of our
agreements, including the agreements pursuant to which we bought the LMR
products from Uniden America Corporation, require us to indemnify them for any
damages they may suffer if third party claims give rise to losses. While, to
date, we have not received indemnification claims, we cannot guarantee that
there will not be future claims. Any such claim may require us to pay
substantial damages, which could cause our business, financial condition and
results of operations to suffer.
Our executive officers and key personnel are critical to our business, and
these officers and personnel may not remain with us in the future. Our success
is largely dependent on the personal efforts of Richard K. Laird, our President
and Chief Executive Officer, David P. Storey, our Executive Vice-President and
Chief Operating Officer, William Kelly, our Chief Financial Officer, and Russell
Scott Henderson and Thomas L. Morrow, our Senior Vice Presidents. We do not have
employment agreements with these individuals, and we cannot be sure that we will
retain their services. The loss of any of their services could have a material
adverse effect on our operations. In addition, we have not obtained key-person
life insurance on any of our executive officers or key employees.
Our success is also dependent upon our ability to hire and retain qualified
operations, development and other personnel. Competition for qualified personnel
in our industry is intense, and we are further hindered in our recruiting
efforts by the lack of a readily available pool of candidates in West Melbourne,
Florida, where we are headquartered. There can be no assurance that we will be
able to hire or retain necessary personnel. The inability to attract and retain
qualified personnel could cause our business, financial condition and results of
operations to suffer.
Our fluctuating operating results could cause our stock price to fluctuate.
We expect that our quarterly operating results will continue to fluctuate
significantly from quarter to quarter and may be below the expectations of
public market analysts and investors. As a result of these fluctuations and the
fact that we have low volume in the trading of our common stock, the market
price for our common stock is volatile and has fluctuated significantly to date.
The
12
<PAGE>
market price of our common stock is likely to continue to be highly volatile
and subject to wide fluctuations in response to factors including the following:
- actual or anticipated variations in our quarterly operating results;
- future announcements concerning us or our competitors;
- the announcement or introduction of technological innovations or new
products by us or our competitors;
- changes in product pricing policies by us or our competitors;
- changes in earnings estimates of us or our competitors by securities
analysts;
- additions or departures of key personnel; and
- sales of our common stock.
In addition, the securities markets have experienced extreme price and volume
volatility in recent years. This volatility has had a substantial effect on the
market prices of securities of many smaller public companies for reasons
frequently unrelated to the operating performance of the specific companies.
These broad market fluctuations may adversely affect the market price of our
common stock. You may be unable to resell the shares issuable upon exercise of
the warrants at or above prices favorable to you.
We could be subject to class action litigation due to stock price
volatility, which, if it occurs, will distract management, result in substantial
costs and harm our business. In the past, securities class action litigation has
often been brought against public companies following periods of volatility in
the market price of their securities. We may be the target of similar litigation
in the future. Securities litigation could result in substantial costs and
divert management's attention and resources, which could cause serious harm to
our business, financial condition and results of operations.
Our Summit/Gibraltar Loan Agreement imposes various restrictions which
affect our operations and limit our ability to pay dividends. Our
Summit/Gibralter loan agreement contains numerous financial and operating
covenants. These covenants place significant restrictions on our ability to
incur additional indebtedness, to pay dividends and other distributions, to
repay other obligations, to create liens or other encumbrances, to make
investments, to engage in transactions with affiliates, to sell or otherwise
dispose of assets and to merge or consolidate with other entities, and will
otherwise restrict our corporate activities.
Defaults under our Summit/Gibraltar loan covenants could cause acceleration
of our loan. We cannot give any assurances that defaults will not occur under
the Summit/Gibraltar loan agreement or that Summit/Gibraltar will waive defaults
if they occur. Our failure to comply with any of the ratios and tests contained
in the Summit/Gibraltar loan
13
<PAGE>
agreement in the future could result in acceleration of the maturity of the
indebtedness under our Summit/Gibraltar loan as well as the maturity of other
outstanding debt. To secure our obligations under the Summit/Gibraltar loan
agreement, we have granted a first priority pledge of, and security interest in,
substantially all of our assets to Summit/Gibralter. If the maturity of our
indebtedness were accelerated, we might not have sufficient assets to repay such
indebtedness in full.
If we are not able to borrow funds under our Summit/Gibraltar Loan
Agreement, we may have to curtail our operations. Our principal capital
requirements are to fund our inventory and other working capital needs to
support our growth. We had negative cash flow from operations of $1,040,000 for
the quarter ended March 31, 2000, and negative cash flow from operations of
$2,319,000 and $14,000 for the years ended December 31, 1999 and 1998. At March
31, 2000, we had approximately $3,500,000 aggregate principal amount outstanding
and up to approximately $1,300,000 of additional funds available to us under our
Summit/Gibraltar loan agreement. At May 10, 2000, our borrowing availability
under Summit/Gibralter loan agreement was approximately $700,000. Our borrowing
availability under the Summit/Gibraltar loan agreement depends primarily upon
our levels of inventory and receivables. Borrowings under our Summit/Gibraltar
loan agreement are subject to the satisfaction of various conditions, including
the absence of a material adverse change in our business. When our
Summit/Gibraltar loan agreement expires in February 2002, we will need to
refinance our loan and/or raise additional funds from new sources. If we are
unable to borrow sufficient amounts under the Summit/Gibraltar loan agreement or
unable to refinance it, we may be required to significantly curtail or even
cease our operations.
Our involvement in costly litigation could have an adverse affect upon our
financial condition. In February 1999, we filed a criminal and civil action in
Sao Paulo, Brazil against our dealer located in Brazil for failure to pay for
product shipments totaling approximately $1.4 million United States dollars. In
1998, we established a $1.4 million allowance for related accounts receivable.
We will continue to pursue all reasonable actions to collect this outstanding
debt. In December 1999, the Brazilian dealer filed a civil complaint against us
in Miami, Florida. The Brazilian dealer seeks damages of approximately $8
million United States dollars and has alleged, among other claims, that its
business was damaged as a result of our withholding product shipments. We have
retained counsel to defend this action and believe that we have meritorious
defenses. However, the outcome of this action cannot presently be determined. An
adverse outcome could have an adverse affect upon our financial condition.
Control by our primary stockholders will limit your ability to influence
the outcome of matters requiring stockholder approval and could discourage
potential acquisitions of our company by third parties. As of April 30, 2000,
our officers and directors beneficially owned approximately 33.3% of our
outstanding common stock, including stock owned by Donald F. U. Goebert, our
founder and a current director, who beneficially owns 27.7% of our outstanding
common stock. Assuming conversion of our convertible subordinated notes and
exercise of the warrants at the $3.25 price, management will beneficially own
approximately 27.2% of the outstanding common stock. Accordingly, our
management, individually in the case of Goebert, or acting together, may be able
to exercise significant influence with respect to the
14
<PAGE>
election of our directors, offers to acquire us and other matters submitted to a
vote of the stockholders.
Our articles of incorporation could discourage or prevent potential
acquisitions of our company that stockholders may consider favorable. Our
articles of incorporation authorize the issuance of 20,000 shares of "blank
check" preferred stock with such designations, rights and preferences as may be
determined from time by our board of directors. Accordingly, our board of
directors is empowered, without stockholder approval, to issue shares of
preferred stock with dividend, liquidation, conversion, voting or other rights
that could adversely affect the value, voting power or other rights of the
holders of our common stock. In addition, preferred stock could be issued, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of our company which could be beneficial to our stockholders.
No shares of preferred stock are outstanding as of the date of this prospectus.
Although our board of directors has no present intention to issue any shares of
preferred stock, there can be no assurance that it will not do so in the future.
In addition, certain provisions of Nevada corporate law could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. See "Description of Capital Stock."
Outstanding stock options, warrants and convertible notes may cause
dilution to existing stockholders and limit our ability to raise capital. As of
March 31, 2000, we had outstanding stock options to purchase an aggregate of
901,666 shares of our common stock at exercise prices ranging from $1.50 to
$8.13 per share, 771,666 of which have exercise prices below $4.625 per share
(the closing price of our common stock on March 31, 2000). As of March 31, 2000,
options to purchase 169,166 shares were vested. If these options are exercised
at a time when we otherwise could obtain a price for the sale of shares of our
common stock which is higher than the option exercise price per share, then
existing shareholders would suffer dilution in the value of their shares of
common stock. In addition, we have issued to Simmonds Capital Limited and Janney
Montgomery Scott LLC the warrants to purchase 466,153 shares of common stock at
a price of $3.25 per share, subject to adjustment. See "Description of
Warrants." During the first quarter of 2000, we issued $3,250,000 principal
amount of our convertible subordinated notes which may be converted at a price
of $3.25 per share, subject to adjustment. The exercise of the options and
warrants and/or the conversion of the notes, or the possibility of such exercise
or conversion, may impede our ability to seek financing in the future through
the sale of additional securities. The exercise of the warrants and options
and/or the conversion of the notes will cause substantial dilution to the
existing stockholders.
A large number of our shares are or will be eligible for future sale which
could depress our stock price. Sales of substantial amounts of common stock, or
the perception that a large number of shares will be sold, could depress the
market price of our common stock. Such sales also might make it more difficult
for us to sell equity or equity-related securities in the future at a time and
price that we deem appropriate. As of March 31, 2000, there were 5,090,405
shares of our common stock outstanding (excluding shares issuable upon
conversion of the notes and share issuable upon exercise of the warrants and
outstanding options). 901,666 shares of our common stock issuable upon exercise
of outstanding options are currently registered with the SEC and eligible for
sale in the public market. Once the registration statement of which this
15
<PAGE>
prospectus is a part becomes effective, 1,000,000 shares issuable upon
conversion of our convertible subordinated notes will be eligible for sale in
the public market. In addition, 466,153 shares issuable upon exercise of the
warrants will be eligible for sale in the public market once the warrants become
exercisable. See "Description of Warrants." We are unable to predict the effect
that sales of our common stock in the public market may have on the then
prevailing market prices of our common stock.
There is no public market for our warrants and you cannot be sure that an
active trading market will develop. There is no public market for our warrants.
We do not intend to apply for a listing of the warrants on any securities
exchange. We do not know if a public market will develop for the warrants or, if
one does develop, that it will be maintained. Accordingly, your investment in
the warrants may be an illiquid investment.
Listing of our common stock on the NASDAQ national market requires
continued compliance with listing standards. Our common stock trades on the
NASDAQ National Market System. Such trading is conditioned upon our meeting
certain standards relating to assets, stock price, stockholder base and market
value, as well as certain non-quantitative maintenance criteria established by
the NASDAQ National Market System. These eligibility requirements are subject to
change from time to time. While we have not yet received any communication from
NASDAQ that we are not in compliance with the applicable eligibility tests set
forth by the NASDAQ National Market System, if we continue to sustain
substantial operating losses and are unable to raise sufficient new capital, our
common stock could be delisted from trading on the NASDAQ National Market
System. At that time, we might be able to list our common stock on the less
liquid NASDAQ SmallCap Market if we meet the criteria of such market. The
effects of delisting from the NASDAQ National Market System would include, among
other things, less coverage by investment bankers and institutions, the limited
release of the market price of the common stock and limited news coverage of our
company. These effects could materially adversely affect the trading market,
liquidity and prices for our common stock, as well as our ability to issue
additional securities or to secure additional financing.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "Forward-Looking Statements" within the meaning of
Section 27a of the securities act and Section 21e of the Exchange Act. All
statements other than statements of historical fact are "Forward-Looking
Statements." In some cases, these forward-looking statements can be identified
by the use of terms and phrases such as "may," "will," "expects," "plans,"
"anticipates," "estimates," "potential," or "continue" or the negative thereof
or other comparable terminology. These statements are contained in sections
entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business" and
other sections of this prospectus.
The forward looking statements in this prospectus, including statements
concerning projections of our future results, operating profits and earnings,
statements of the plans and objectives of our management for future operations,
and statements concerning our proposed new
16
<PAGE>
products, are based on current expectations and are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied by those statements.
The risks and uncertainties are more specifically described in "Risk Factors."
Our forward-looking statements and reasons why results may differ included
in this prospectus are made as of the date hereof. We undertake no obligation to
update forward-looking statements or the reasons why actual results may differ.
USE OF PROCEEDS
The selling securityholders will receive all of the proceeds from the sale
of the securities sold pursuant to this prospectus. We will not receive any of
the proceeds from sales by the selling securityholders of the offered
securities.
PRICE RANGE OF COMMON STOCK
Our common stock trades on The NASDAQ National Market. Formerly the symbol
was "ADGE." Effective January 20, 1998, it was changed to "RELM." The following
table sets forth high and low bid information for our common stock for the
periods indicated, as reported by The NASDAQ National Market. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
17
<PAGE>
1998 Quarter Ended High Low
------------------ ------ ------
March 31, 1998 $7.500 $5.750
June 30, 1998 5.750 3.063
September 30, 1998 4.500 1.000
December 31, 1998 2.875 1.125
1999 Quarter Ended High Low
------------------ ------ ------
March 31, 1999 $2.375 $1.406
June 30, 1999 4.000 1.750
September 30, 1999 4.500 1.938
December 31, 1999 5.688 2.000
2000 Quarter Ended High Low
------------------ ------ ------
March 31, 2000 $8.125 $2.875
On May 31, 2000, the reported last sale price of our common stock on The
NASDAQ National Market was $2.50 per share. As of May 22, 2000, there were
approximately 1,381 shareholders of record of our common stock.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future. In addition, our loan agreement with
Summit/Gibraltar prohibits us from paying dividends on our common stock.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
(In thousands except
share data)
Debt:
Current maturities of long-term debt $ 1,546
Long-term debt, less current maturities 7,643
-----
Total debt 9,189
Stockholders' equity:
Preferred Stock, $1.00 par value; 20,000 shares
authorized; no shares issued and outstanding
Common Stock, $0.60 par value; 10,000,000 shares
authorized; 5,090,405 shares issued and
outstanding 23,248
Accumulated deficit (16,480)
-------
Total stockholders' equity 6,768
-------
Total capitalization $15,957
=======
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
The following selected financial data as of and for each of the five years
ended December 31, 1999, have been derived from RELM's audited consolidated
financial statements. The selected financial data of RELM as of and for the
three months ended March 31, 2000 and 1999, have been derived from unaudited
consolidated financial statements included elsewhere in this prospectus and
contain all adjustments, consisting only of normal recurring accruals, which
RELM believes are necessary for a fair statement of RELM's financial position
and results of operations for such periods. The financial information for the
three months ended March 31, 2000 may not be indicative of the results that may
be expected for the entire fiscal year ending December 31, 2000. The following
selected financial data should be read in conjunction with the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and notes beginning on page F-1 of this
prospectus.
19
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
----------------- -------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net Sales $4,596 $6,465 $22,404 $29,530 $45,376 $47,646 $45,266
Income (Loss) From Continuing 391 55 (2,294) (4,907) (11,974) (1,347) (533)
Operations
Income (Loss) From _ _ _
Discontinued Operations (725) (2,836) (2,679) 1,645
Extraordinary Gain _ _ _ 227 _ _ _
-----------------------------------------------------------------------------
Net Income (Loss) $ 391 $ 55 $(2,294) $(5,405) $(14,810) $(4,026) $ 1,112
====== ====== ======= ======= ======= ======= =======
Earning (Loss) Per Share From
Continuing Operations (1) $0.07 $0.01 $ (0.45) $ (0.97) $(2.36) $(0.26) $ (0.10)
Earnings (Loss) Per Share From _ _ _
Discontinued Operations (1) (0.15) (0.56) (0.52) 0.32
Earnings Per Share From _ _ _ _ _ _
Extraordinary Item (1) 0.05
-----------------------------------------------------------------------------
Net Earnings (Loss) Per Share (1) $ 0.07 $ 0.01 $ (0.45) $( 1.07) $ (2.92) $ (0.78) $ 0.22
====== ====== ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
----------------- -------------------------------------------------------
BALANCE SHEET DATA 2000 1999 1999 1998 1997 1996 1995
------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Working Capital $7,803 $8,285 $5,676 $6,573 $10,307 $27,008 $29,904
Total Assets 21,525 26,889 22,853 26,827 31,665 54,028 64,916
Long-Term Debt 7,643 10,187 9,072 8,755 7,440 15,554 14,906
Total Stockholders' Equity $6,768 $8,726 $6,377 $8,671 $14,034 $29,214 $32,620
</TABLE>
-----------------
(1) Basic and diluted net earnings (loss) per share are the same for all
periods presented, except for the three months ended March 31, 2000. Basic
earnings per share from continuing operations and basic net earnings per
share for the three months ended March 31, 2000 is $0.08.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with our financial statements and the notes
to those statements included elsewhere in this prospectus. This discussion
contains forward-looking statements that are subject to business risks and
uncertainties, and our actual results of operations may differ materially from
those contained in the forward-looking statements. For a more detailed
discussion of these business risks and uncertainties, please see "Risk Factors."
General
During the past two years, we have been working to shift our focus
exclusively to wireless communications and the LMR markets. In 1999, these
actions were largely completed with the sale of all of our remaining commercial
real estate holdings as well as our electronic components product line.
The restructuring actions reduced our revenue base in both 1998 and 1999.
In response, we have reduced operating and employment expenses. As a result, the
gross profit margin percentage has improved significantly from 1998 to 1999, and
operating expenses have declined by 28%. Interest expense increased 35% from the
previous year because we utilized our revolving credit facility for operating
cash requirements.
In March 2000, we completed aggressive initiatives for revenue growth and
to further reduce manufacturing overhead. For revenue growth, we completed the
acquisition of certain private radio communications products from Uniden America
Corporation. In addition, we have organized into two distinct business units and
recruited two seasoned and successful LMR executives to lead aggressive growth
campaigns in each. Tom Morrow, Senior Vice President of sales and marketing will
be in charge of the government and public safety business. Scott Henderson will
lead the industrial and commercial business.
To further reduce manufacturing overhead and improve margins, we executed
an agreement to out-source a portion of our manufacturing activities to a
contract manufacturer. Under this agreement, the contract manufacturer employed
approximately 69 of our direct manufacturing workforce and will purchase
approximately $2.3 million of our related raw material inventory over time.
Also, we have sold our 144,000 square foot facility in West Melbourne, Florida.
We have leased reduced square footage nearby at a substantially lower cost.
Research and development spending in 1999 was reduced from the previous
year as our new product initiatives were largely completed. Our development of
digital products that are compliant with the APCO 25 standard is continuing and
is expected to be completed during 2000.
21
<PAGE>
Results of Operations
As an aid to understanding our operating results, the following tables show
items from the consolidated statement of operations expressed as a percent of
net sales:
<TABLE>
<CAPTION>
Percent of Net Sales for Year Ended December 31,
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of Sales 74.2 77.4 86.0
----- ----- -----
Gross Margin 25.8 22.6 14.0
Selling, General, and
Administrative Expenses (33.5) (33.4) (26.7)
Restructuring Charge - - (4.1)
Impairment Loss - (3.3) -
Interest Expense (4.8) (2.7) (2.0)
Other Income 2.3 .2 .9
----- ----- -----
Pretax Loss
From Continuing Operations (10.2) (16.6) (17.9)
Income Tax Expense - - (8.5)
----- ----- -----
Loss From Continuing Operations (10.2%) (16.6%) (26.4%)
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Percent of Net Sales for
Three Months Ended December 31,
2000 1999
---- ----
<S> <C> <C>
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%
====== =====
</TABLE>
Quarter Ended March 31, 2000 Compared With Quarter Ended March 31, 1999
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 our core land mobile radio (LMR) products increased approximately $208,000
(4.9%) due to stronger sales in our government and public safety markets.
Non-LMR revenues decreased $2.1 million (93.1%)
22
<PAGE>
as we exited businesses and discontinued products that performed poorly or did
not fit our strategic focus in wireless communications.
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 we 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 executive office 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 our actions to reduce spending on SG&A
support as we exit certain businesses and discontinue poorly performing
products. Furthermore, several new product development projects are largely
completed, resulting in lower engineering and research and development (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 we started
selling our new line of commercial products that were acquired from Uniden
America Corporation 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. We increased our borrowing under our revolving credit facility
with Summit/Gibraltar to fund working capital requirements. Also, in March 2000,
we completed the private placement of our 8% convertible subordinated notes.
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 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.
23
<PAGE>
Income Taxes
No income tax provision was provided for the three months ended March 31,
2000 or 1999 as we have net operating loss carryforward benefits totaling
approximately $12 million at March 31, 2000. We have evaluated our tax position
versus the requirements of SFAS No. 109, Accounting for Income Taxes, and do not
believe that we have met the more-likely-than-not criteria for recognizing a
deferred tax asset and have provided valuation allowances against net deferred
tax assets.
Fiscal Year 1999 Compared With Fiscal Year 1998
Net Sales
Net Sales for the year ended December 31, 1999 decreased $7.1 million or
24.1% from the prior year. Of the total decrease, $2.3 million is attributed to
LMR products, while $4.8 million is attributed to businesses and product lines
that have been sold or discontinued.
The decreases reflect our strategy to focus on wireless businesses and to
exit or discontinue products and businesses that do not fit this focus or that
perform poorly. Specifically, in 1999, we sold our electronic components
business and the remainder of our commercial real estate holdings. Furthermore,
we completed our exit from the consumer products and access controls businesses.
Sales of our Bendix King products in 1999 increased $1.3 million (11.2%)
compared to the previous year. This increase was due primarily to the resumption
of shipments to the U.S. Army. During 1998, the Army did not take any product
shipments from us because of its high product inventory levels at that time.
Sales of our RELM brand products decreased $3.6 million (45.2%) compared to
the previous year. This decrease was due in large part to the default of our
Brazilian dealer on amounts due to us totaling $1.4 million. As a result of the
default, we discontinued shipments to this dealer. See "Business-Litigation."
Shipments to this dealer in the previous year totaled approximately $2.1
million. The decline in sales of RELM brand products are also indicative of our
aging product designs in this segment. Our strategy is to modernize and broaden
our product offerings through acquisitions and alliances.
Cost of Sales
Cost of sales as a percentage of net sales for the year ended December 31,
1999 decreased to 74.2% from 77.4% in the prior year. This decrease was
primarily the result of our focus on higher margin LMR products and our
discontinuing other less profitable products and product lines.
Furthermore, a larger percentage of our total LMR net sales were in higher
margin Bendix King products. Additionally, we have negotiated more favorable
pricing and terms from major suppliers, particularly those in the Pacific Rim.
Also, 1999 was the our first full year of
24
<PAGE>
operations after the implementation of a company-wide quality program. This
program has been instrumental in first-pass yield improvements and cost
reductions.
In continuing to respond to the lower shipments and manufacturing volumes,
employment and manufacturing support expenses were significantly reduced during
the year. The number of employees decreased by 31 during 1999, while
approximately $912,000 of expenses was trimmed.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses include commissions,
marketing, sales, sustaining engineering, product development, management
information, accounting, and executive offices. For the year ended December 31,
1999, SG&A expenses totaled $7.5 million or 33.5% of net sales compared with
$9.9 million or 33.4% for the prior year. As a result of our restructuring and
the sale or discontinuation of certain businesses and product lines, 16
employees and approximately $1.2 million in expenses were eliminated from the
SG&A cost structure. R&D spending was reduced $794,000 compared to the prior
year as our major R&D project was largely completed.
Legal expenses increased during 1999 as a result of defending litigation
that was brought against us. Costs for these actions will likely continue in
2000.
Interest Expense
Interest expense increased $282,000 for the year ended December 31, 1999 to
approximately $1,079,000 from approximately $797,000 for the year ended December
31, 1998. Due to reduced revenues, we increased our borrowing under our
revolving credit facility with Summit/Gibraltar.
Income Taxes
Income taxes represented effective tax rates of 0% for the years ended
December 31, 1999 and 1998. These rates are made up primarily of a 34% effective
federal tax rate, the respective state tax rates where we do business, and
changes in valuation allowances related to deferred tax assets. Because we
believe that we have not met the more-likely-than-not criteria of SFAS No. 109,
no tax benefit has been recognized for 1999. We have established valuation
allowances against net deferred tax assets.
Fiscal Year 1998 Compared With Fiscal Year 1997
Net Sales
Net sales for the year ended December 31, 1998 decreased $15.8 million or
34.9% from the prior year. Of the total decrease, $11.0 million is attributed to
LMR products, $2.2 million to
25
<PAGE>
commercial real estate, $1.5 million to digital data communications, $1.0
million to access controls, and $0.1 million to electronic components.
The decreases reflect our strategy to exit non-LMR businesses and to
discontinue products and lines that were inadequately profitable. Specifically,
we sold our digital data communications business and exited from the access
controls and consumer electronics businesses. LMR sales were impacted by the
lack of shipments to the United States Army. Throughout the year, the United
States Army had inventory quantities that were sufficient to meet its users'
requirements. Its inventory was depleted to reorder points late in the year.
In the fourth quarter of 1998, we introduced our new Bendix King "Gold
Series" radio. This radio has been favorably reviewed by our customers, which
are primarily public safety and government entities such as the United States
Forestry Service.
During the prior year, as we continued our strategy to exit the commercial
real estate business, most of our remaining real estate holdings were sold.
Several additional holdings were sold in 1998, although substantially less than
in 1997. The selling price of the real estate was approximately the same as its
book value.
Cost of Sales
Cost of sales as a percent of net sales for the year ended December 31,
1998 decreased to 77.4% from 86.0% in the prior year. This decrease was
primarily the result of our focus on higher margin LMR products and
discontinuing other less profitable products and product lines. Additionally,
under the direction of David Storey, Executive Vice President and Chief
Operating Officer, we negotiated more favorable pricing and terms from major
suppliers, particularly those in the Pacific Rim. Additionally, Mr. Storey
spearheaded the implementation of a comprehensive, company-wide quality program
that has resulted in first-pass yield improvements and cost reductions.
In responding to the lower manufacturing volumes, employment and
manufacturing support expenses were significantly reduced during the year. The
number of employees decreased by 69, while $1.5 million of expenses was trimmed.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses include commissions,
marketing, sales, sustaining engineering, product development, management
information, accounting, and executive offices. For the year ended December 31,
1998, SG&A expenses totaled $9.9 million or 33.4% of net sales compared with
$12.1 million or 26.7% for the prior year. As a result of our restructuring, 37
employees and $3.8 million in expenses were eliminated from the SG&A cost
structure. R&D spending, however, was approximately $1.5 million higher than
normal levels in order to complete critical product development projects. Also
impacting SG&A expenses was a $1.4 million allowance for doubtful accounts for
the amounts that are owed to us from Chatral, our Brazilian dealer.
26
<PAGE>
Interest Expense
Interest expense decreased $135,000 for the year ended December 31, 1998 to
approximately $797,000 from approximately $932,000 during the prior year. Cash
flows from the previous sales of discontinued operations resulted in overall
lower debt levels during the year.
Income Taxes
Income taxes represented effective tax rates of 0% and 47.8% for the years
ended December 31, 1998 and 1997, respectively. These rates are made up
primarily of a 34% effective federal tax rate, the respective state tax rates
where we do business, and changes in valuation allowances related to deferred
tax assets. Because we believe that we have not met the more-likely-than-not
criteria of SFAS No. 109, no tax benefit provision was recognized for 1998. We
have established valuation allowances against net deferred tax assets.
Discontinued Operations
We recognized a loss of $725,000 for worker's compensation and product
liability claims related to the sale of our former recycled paper manufacturing
and specialty manufacturing subsidiaries. As part of the sales of these
subsidiaries in 1997, we commissioned various insurance professionals to
estimate the related liabilities and established reserves accordingly during the
prior year.
In 1998, with the guidance of risk management consultants, we analyzed all
remaining liabilities and negotiated a contract under which the insurance
carrier assumes all of the remaining worker's compensation liabilities. In
connection with the analysis and contract, we recognized an additional $725,000
of expenses.
27
<PAGE>
Quarterly Results of Operations
<TABLE>
<CAPTION>
SELECTED QUARTERLY RESULTS OF OPERATIONS
QUARTER ENDED
-----------------------------------------------------------------------------------------
March 31, Dec. 31, Sep. 30, June 30, March 31, Dec. 31, Sep. 30, June 30, March 31,
---------- -------- -------- -------- --------- -------- -------- -------- ---------
2000 1999 1999 1999 1999 1998 1998 1998 1998
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $4,596 $3,694 $5,120 $7,125 $6,465 $7,520 $7,228 $7,067 $7,715
Cost Of Sales 3,609 3,277 3,762 5,061 4,518 5,872 5,398 5,460 6,134
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross Profit 987 417 1,358 2,064 1,947 1,648 1,830 1,607 1,581
Selling, General & Administrative Expenses 1,526 2,206 1,655 1,876 1,771 4,912 1,987 2,239 1,694
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating Income (Loss) (539) (1,789) (297) 188 176 (3,264) (157) (632) 113
Other Income (Expense) 930 (339) (1) (111) (121) (196) (439) (18) (88)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net Income (Loss) From Continuing Ops. 391 (2,128) (298) 77 55 (3,460) (596) (650) (201)
Loss From Discontinued Ops. 0 0 0 0 0 (725) 0 0 0
Extraordinary Gain 0 0 0 0 0 227 0 0 0
-- -- -- -- -- ---- -- -- --
Net Income (Loss) From Continuing Ops. $ 391 ($2,128) ($298) $ 77 $ 55 ($3,958) ($596) ($650) ($201)
====== ======= ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
March 31, Dec. 31, Sep. 30, June 30, March 31, Dec. 31, Sep. 30, June 30, March 31,
---------- -------- -------- -------- --------- -------- ------- -------- ---------
2000 1999 1999 1999 1999 1998 1998 1998 1998
------ ----- ----- ------ ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost Of Sales 78.5% 88.7% 73.5% 71.0% 69.9% 78.1% 74.7% 77.3% 79.5%
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross Profit 21.5% 11.3% 26.5% 29.0% 30.1% 21.9% 25.3% 22.7% 20.5%
Selling, General & Administrative Expenses 33.2% 59.7% 32.3% 26.3% 27.4% 65.3% 27.5% 31.7% 22.0%
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating Income (Loss) (11.7%) (48.4%) (5.8%) 2.7% 2.7% (43.4%) (2.2%) (9.0%) 1.5%
Other Income (Expense) 20.2% (9.2%) 0.0% (1.6%) (1.9%) (2.6%) (6.1%) (0.3%) (1.1%)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net Income (Loss) From Continuing Ops. 8.5% (57.6%) (5.8%) 1.1% 0.8% (46.0%) (8.3%) (9.3%) (2.6%)
Loss From Discontinued Ops. 0.0% 0.0% 0.0% 0.0% 0.0% (9.6%) 0.0% 0.0% 0.0%
Extraordinary Gain 0.0% 0.0% 0.0% 0.0% 0.0% 3.0% 0.0% 0.0% 0.0%
----- ----- ----- ----- ----- ----- ----- ----- -----
Net Income (Loss) From Continuing Ops. 8.5% (57.6%) (5.8%) 1.1% 0.8% (52.6%) (8.3%) (9.3%) (2.6%)
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Liquidity and Capital Resources
As of March 31, 2000, we had a working capital of $7.8 million compared
with $5.7 million as of December 31, 1999. This increase was primarily the
result of (i) new product inventory that was part of our acquisition of Uniden's
private radio communications product lines, (ii) the successful private
placement of $3.25 million aggregate principal amount of our convertible
subordinated notes, and (iii) 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.
28
<PAGE>
We have a $7 million revolving line of credit with Summit/Gibraltar. Our
Summit/Gibraltar loan agreement requires us to meet various financial ratios and
tests. Due to our losses during the fiscal year ended December 31, 1999, we were
not in compliance with the financial covenants of this loan agreement at
December 31, 1999. Summit/Gibraltar amended the covenants to cure the violations
effective as of December 31, 1999. In addition, in the first quarter of 2000, we
entered into an amendment to the Summit/Gibraltar loan agreement which amended
the financial ratios and tests and, on March 31, 2000, we were in compliance
with those amended financial ratios and tests. As of March 31, 2000, there was
approximately $3,500,000 aggregate principal amount outstanding under the
Summit/Gibraltar loan agreement. As of March 31, 2000, our borrowing
availability on this line was approximately $1.3 million. As of May 10, 2000,
our borrowing availability was approximately $700,000.
Capital expenditures for the year ended December 31, 1999 were $681,000.
These expenditures were primarily for tooling required to manufacture new
products and for manufacturing and test equipment. Capital expenditures for 2000
are expected to be approximately $1.0 million. These expenditures will support
the manufacturing of our two new product families and will upgrade old, obsolete
equipment. As a result of out-sourcing a portion of our manufacturing
activities, equipment with a net book value of approximately $1.1 million will
be sold. The current Summit/Gibraltar credit line agreement contains capital
expenditure restrictions. We believe that the restrictions will not impact the
execution of our capital investment plans. We anticipate that capital
expenditures will be funded through operating cash flow and financing sources.
On March 16, 2000, we completed the private placement of $3.25 million of
our 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. The notes 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 private radio communications product line from Uniden America and to
satisfy our delinquent obligation under the mortgage on our West Melbourne,
Florida facility. Remaining proceeds were utilized for working capital
requirements.
Inflation and Changing Prices
Inflation and changing prices have contributed to increases in wage,
facility, and raw material costs. Effects of these inflationary related
increases 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
our 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.
29
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS
During 1999, we were subject to the risk of fluctuating interest rates in
the ordinary course of business for borrowings under our mortgage of our West
Melbourne facility. We had entered into an interest rate swap to reduce our
exposure to such fluctuations. Under this arrangement, we converted the variable
LIBOR-rate into a fixed rate of 8.85%. As of December 31, 1999, the amount
outstanding on the mortgage was approximately $3.7 million. In March 2000, we
completed the sale of our West Melbourne facility and satisfied our obligations
under the terms of the mortgage and the related interest rate swap contract.
BUSINESS
General
We design and manufacture wireless communication products sold to the LMR
markets which consist of two distinct markets;
- the government and public safety market which includes fire,
rescue, law enforcement and emergency medical personnel as well as
the military and various agencies of the federal, state, and local
government; and
- the business and industrial and commercial market which includes
schools, churches, hotels, construction companies, taxicab
companies and airlines.
Prior to 1999, we had been engaged in various business activities in
addition to the LMR manufacturing and distribution business, including the
manufacture of electronic components, digital data communications equipment, and
commercial real estate. Over the last several years, we have worked to sell or
otherwise discontinue our activities in these areas. During 1999, we completed
our exit from businesses and products that were outside of our focus on wireless
communications. All of the remaining properties owned by our commercial real
estate subsidiary were sold during the first and second quarters of 1999. Also,
during the third quarter of 1999, we sold RXD, Inc., one of our subsidiaries,
which was a distributor of electronics components. We now focus exclusively on
the LMR business. See "Business - Discontinued Products and Product Lines."
You can find more information about us and our products through the
Internet at RELM.com. The information provided on our website is not
incorporated into this prospectus.
History - Merger of Adage, Inc. into RELM Wireless Corporation
RELM Wireless Corporation is the resulting corporation from the January 30,
1998 merger of Adage, Inc., a Pennsylvania corporation, into RELM, its wholly
owned subsidiary. In light with the relocation of the business activities of
Adage out of Pennsylvania to a new headquarters in Florida and the shift of
Adage's resources and management to the manufacturing and sale of wireless
communications equipment, the board of directors recommended approval of the
merger to change the company's state of incorporation and recommended to change
its corporate name to a name which is closely identified with wireless
communications products. The merger was approved by the shareholders of Adage at
its annual meeting held on December 8, 1997.
30
<PAGE>
Also as a result of the merger, each share of Adage common stock
outstanding immediately prior to the merger was converted, effective as of
January 30, 1998, into one share of RELM common stock and the trading symbol for
the shares was changed from "ADGE" to "RELM."
Industry Overview
General
LMR communications were initially used by police departments and then their
use was later expanded into other government and public service areas. Over
time, advances in technology decreased the cost of LMR products and additional
spectrum was allocated for LMR use. Accordingly, commercial enterprises also
began recognizing the benefits of and using LMR communications. This industry
today is, by some estimates, as large as $7 billion and is dominated by
Motorola.
LMR systems serving commercial users are either conventional or trunked.
Conventional systems use a single channel to transmit and receive information.
Trunked systems combine multiple channels in such a way that an open channel is
selected by the system when a user begins transmitting. Commercial users include
hotels, taxis, construction companies, and farms.
Public safety and government uses include law enforcement, fire, and
emergency medical services. While many of these agencies use conventional LMR
systems, others are using or planning to use equipment that complies with a
specification standard established by the Association of Public Communications
Officials (APCO). APCO has established a new standard called Project 25. This
standard has been adopted by the U.S. Government. Although agencies are not yet
required to purchase Project 25 compliant equipment. We believe that offering
Project 25 equipment will be a key to successfully competing in the government
and public safety markets.
Competition in the Industry
We face intense competition from several companies both domestic and
foreign which are currently offering LMR product lines. The largest producer of
LMR products in the world, Motorola, currently is estimated to have in excess of
80% of the market for LMR products. Motorola, as well as other of our
competitors such as Ericsson, are significantly larger and have longer operating
histories, greater name recognition, larger customer bases and significantly
greater financial, technical and marketing resources than we have and they have
established reputations for success in developing and producing LMR products.
Product Evolution
The LMR industry is currently experiencing a transition from analog
products to digital products. In addition, as discussed above, the Project 25
standards for LMR compatibility have
31
<PAGE>
been adopted and the market demand for APCO 25 compliant products is growing
rapidly. Digital and APCO 25 compliant products are already being brought to the
market by several of our competitors. Although we have several digital products
currently in development, the products we are currently selling are analog
products.
Competitive developments are having and will continue to have a significant
impact on our business. First, several digital LMR products which have been
introduced by our competitors are causing our existing products to become
obsolete. Second, several of our competitors have already introduced APCO 25
compliant products.
We compete in these markets by capitalizing on our strengths, including
quality, speed, and customer responsiveness. We believe that we are competitive
with regard to these factors.
Description of our Market
Government and Public Safety
The government and public safety market includes the fire rescue, law
enforcement, emergency medical personnel, as well as various agencies of
federal, state, and local government. Most of our sales in this market are made
directly to the end-users.
We offer products to this market under the Bendix King brand name. This
product line consists of higher-specification land mobile radios with more
complex features and capabilities tailored for professional radio users. The
products include mobile radios for mounting in vehicles, portable (hand-held)
radios, base stations, and repeaters that enable two-way radios to operate over
a wider area. We also manufacture and sell base station components and
subsystems which are installed at radio transmitter sites to improve performance
by reducing or eliminating signal interference and to enable the use of one
antenna for both transmission and reception. Our products and systems for this
market use conventional analog technology. There is an increasing demand in this
market for digital LMR equipment and systems that are compliant with the APCO 25
specifications. We are currently developing products that are compliant with
these specifications and are at least four months away from bringing our APCO 25
compliant products to market.
Business, Industrial and Commercial
The business, industrial and commercial market includes businesses of all
sizes that require fast, push-to-talk communication among a defined group of
users such as hotels, construction companies, schools, taxicab and limousine
companies, and airlines. Most of our sales in this market are to original
equipment manufacturers and dealers who then resell the products to end-users.
We offer products to this market under both the RELM and Bendix King brand
names. The products include mobile radios, portable radios, base stations, and
repeaters. During 1999, we continued design efforts to expand the offerings of
our Bendix King line of radios, including
32
<PAGE>
our new Aurora family of analog products. The initial manufacturing pilot run of
these radios is currently underway.
In March 2000, we purchased the private radio communications product
inventory from Uniden America Corporation. These products primarily serve the
business, industrial and commercial segments of the LMR market and will
significantly broaden and modernize our product offerings in this market. It is
anticipated that these products will be sold under both the RELM and Bendix King
radio brand names.
Discontinued Products and Product Lines
Electronic Components Until September 1999, we marketed electronic
components, primarily crystals and clock oscillators to electronic component
distributors and original equipment manufacturers through our subsidiary, RXD,
Inc. These components were used in various electronic products including
computers, scales, keyboards, and toys. We sold this product line in September
1999.
Digital Data Communications Equipment Until August 1998, we manufactured
load management systems for sale to electric utility companies, dealers, and
jobbers. A load management system enables its user to limit usage of electricity
during peak demand periods. We sold this product line to our former product line
manager in August 1998.
Redgo Properties, Inc. Redgo Properties, Inc. is a one of our wholly owned
subsidiaries. Redgo was engaged in developing and managing commercial real
estate. In 1995, we decided to discontinue this segment, and in the first and
second quarters of 1999, Redgo sold its last two remaining properties.
Sales Information
The following table summarizes sales information by our major product lines
and industries and illustrates our efforts to focus exclusively on our LMR
business:
<TABLE>
<CAPTION>
$In Millions
------------------------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
LMR - Gov. & Public Safety $13.5 $12.3 $22.4
LMR - Bus/Indus/Comm 7.0 10.9 11.8
Digital Data Communications - 1.6 3.1
Access Controls .1 1.3 2.3
Electronic Components .9 1.7 1.8
----- ----- -----
Total Wireless Communications Equipment 21.5 27.8 41.4
Commercial Real Estate .9 1.7 4.0
----- ----- -----
Total $22.4 $29.5 $45.4
===== ===== =====
</TABLE>
33
<PAGE>
Significant Customers
In 1996, we were awarded a contract to provide land mobile radios to the
United States Army. This contract does not have any specified minimum purchase
requirements. We commenced shipping products to the Army in 1997 which totaled
$10.4 million, representing 22.9% of total sales for that year. The Army
suspended shipments in 1998 because it had inventory that was sufficient to meet
its requirements throughout the year. In 1999, we shipped to the Army products
which totaled $1.8 million.
Sales to the U.S. Forestry totaled $3.0 million in 1999 representing
approximately 13.4% of our total product revenues.
Combined sales to all U.S. Government agencies, including the U.S.
Forestry, exceeded $5.0 million in 1999 representing in excess of 26% of our
total product revenues.
Backlog
Our order backlog was approximately $1.4 million and $2.5 million as of
March 31, 2000 and March 31, 1999, respectively. This included only the current
portion of the U.S. Army contract.
Information Relating to Domestic and Export Sales
The following table summarizes our sales of LMR wireless communications
equipment by location of its customers:
$In Millions
----------------------------------------------
1999 1998 1997
----- ----- -----
United States $20.7 $24.9 $36.9
South America - 2.1 2.1
Europe .7 .6 1.7
Other International .1 .2 .7
----- ----- -----
Total $21.5 $27.8 $41.4
===== ===== =====
Sales and Marketing and Strategic Relationships
Sales and Marketing. Our sales and marketing efforts are organized under
the direction of two seasoned and successful LMR sales executives to address our
two distinct markets. Tom Morrow oversees our sales and marketing initiatives in
the government and public safety segment. Scott Henderson overseas sales and
marketing in our commercial, business and industrial segment.
Strategic Relationships. An important element of our business strategy is
to develop strategic relationships with industry players that can assist us in
the development of new
34
<PAGE>
products, provide us with access to leading-edge manufacturing capabilities and
market and distribute our products globally. This approach allows us to
concentrate our resources on our core competencies of product design and
development, reduces our capital requirements and generally provides a high
degree of operating leverage. We evaluate potential collaborative arrangements
on an ongoing basis and intend to continue to pursue additional strategic
relationships.
The following table illustrates the nature of our strategic relationships:
<TABLE>
<CAPTION>
Type of Strategic Relationship
------------------------------------------------------------------------------------------
Cooperative Technology
Strategic Partner Investor Development Licensor Supplier Manufacturer Customer
----------------- -------- ----------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Uniden America X X X X X
Corporation
Johnson Matthey X X X
RACAL X X X
</TABLE>
In March 2000, we formally retained Simmonds Capital Limited to act as our
strategic advisor for continued development of our LMR business. In May 2000, we
formally retained Janney Montgomery Scott LLC to act as our financial advisor.
Products
Research and Development
Our product design and development activities are conducted in West
Melbourne, Florida. Our West Melbourne team is primarily responsible for our
core research and development activities, including product conceptualization,
technical writing, printed circuit board layouts and mechanical engineering. Our
engineers and other research and development employees also develop design
specifications based on customer requirements and supervise our quality
assurance activities. Our research and development team actively assists in the
implementation of our product designs, with primary responsibility for applied
engineering, production engineering and the supervision of our contract
manufacturers. Our team also plays a principal role in coordinating our
development activities with our strategic partners. Other activities include
debugging and quality assurance. As of May 10, 2000, we employed 12 people who
devote all or a substantial portion of their time to research, development and
engineering.
For 1997, 1998, 1999, and the first three months of 2000, our research,
development and engineering expenditures were approximately $5.5 million, $2.3
million, $1.5 million and $0.2 million, respectively. We anticipate that we will
spend approximately the same amount in 2000 on research and development as we
spent in 1999.
Manufacturing
In the first quarter of 2000, we completed the final phases of our recent
strategy to outsource certain aspects of our manufacturing by selling our West
Melbourne manufacturing
35
<PAGE>
facility and by entering into a requirements contract with Johnson Matthey
Electronic Assembly Services, Inc. ("JMEASI"), a division of Honeywell
International, for the manufacture of certain LMR subassemblies. This agreement
has a five year term and is automatically renewed for one year terms unless
either party gives notice of termination. Under this agreement, JMEASI agreed to
purchase during the year 2000 approximately $2.0 million of our related raw
material inventories. This represented approximately 69% of our raw materials
inventory at May 10, 2000. Also, JMEASI will purchase the raw materials related
to the manufacturing of these subassemblies directly from suppliers. We will
continue to perform certain manufacturing functions including final testing and
assembly.
Also, in connection with the acquisition of the Uniden LMR product line, we
entered into a manufacturing contract with Uniden America Corporation under
which Uniden will continue to manufacture that product line. The Uniden contract
has an eighteen month term, and production by Uniden began in April 2000.
We plan to continue to outsource manufacturing for the foreseeable future.
This strategy will allow us to focus on our core technological competencies of
research, product design and development, and to reduce the substantial capital
investment required to manufacture our products. We also believe that our use of
experienced, high-volume manufacturers will provide us with greater
manufacturing specialization and expertise, higher levels of flexibility and
responsiveness, and faster delivery of product than in-house manufacturing. In
addition, we hope to seek the advice of our experienced manufacturers with
respect to design changes that reduce manufacturing costs or lead times or
increase the manufacturing yields and the quality of our finished products.
Our current dependence on a limited number of manufacturers exposes us to
certain risks, including shortages of manufacturing capacity, reduced control
over delivery schedules, quality assurance, production yields and costs. See
"Risk Factors--We depend on contract and offshore manufacturing."
To ensure that products manufactured by others meet our standards, our West
Melbourne production and engineering team will work closely with our contract
manufacturers in all key aspects of the production process. We will establish
product specifications, select the components to be used to produce our
products, select the suppliers, and negotiate the prices for most of these
components. We also will work with our contract manufacturers to improve process
control and product design, and conduct periodic, on-site inspections of our
manufacturers. In addition, our West Melbourne team will conduct monthly review
meetings with our manufacturers to discuss sales forecasts and the procurement
of long lead-time parts, production capacities and facilities.
Sources of Supply
We rely upon a limited number of both domestic and foreign suppliers of
several key products and components used in our products. JK Communications and
Eugenia Technologies, the primary foreign suppliers, are located in the
Pacific-Rim. We place purchase orders from
36
<PAGE>
time to time with these suppliers and have no guaranteed supply arrangements.
Our reliance on limited source suppliers involves several risks, including a
potential inability to obtain an adequate supply of required components, price
increases, timely delivery and component quality. In addition, we obtain certain
components from a single source. The amount of these components is not material
relative to total component and raw material purchases. During the years ended
December 31, 1999, 1998, and 1997, our operations have not been impaired due to
delays from single source suppliers. However, the absence of a single source
component may delay the manufacture of finished products. We manage the risk of
such delays by securing second sources and redesigning products in response to
component shortages or obsolescence. See "Risk Factors--We do not have contracts
with our suppliers and we have a limited number of suppliers of key components."
Distribution
Our products sold to the business, industrial and commercial markets are
sold primarily to dealers and distributors who resell to end-users. We generally
enter into contracts with our dealers and distributors. Our products sold to the
government and public safety sectors are sold directly to the end-users.
Intellectual Property
RELM holds patents and patent licenses covering various land-mobile radio
products that are currently marketed. We currently own 18 United States patents.
Our patents and patent applications cover various aspects of our technology.
These patents have various expiration dates out to the year 2001. It is
difficult to precisely assess the importance of the patents and licenses;
however, we believe that they enhance our competitive position. In addition, we
rely on a combination of contract, copyright, trade secret, and trademark law to
protect our intellectual property.
We have federal trademark registrations for the names "Wilson,"
"Utili-com," "Citicom," "Mini-com," "Regency Electronics," and "Force
Communications." In addition, we have world-wide nonexclusive licenses to use
the federal trademarks "Uniden" and "ESAS." See "Risk Factors - We depend upon
proprietary information."
As part of our confidentiality procedures, we generally enter into
nondisclosure agreements with our employees, distributors and customers, and
limit access to and distribution of our proprietary information. There can be no
assurance that the steps we have taken in this regard will be adequate to deter
misappropriation of our proprietary rights or that third parties will not
independently develop substantially similar products and technology.
Employees
Under agreements executed simultaneously with the JMEASI manufacturing
contract, Johnson agreed to employ, effective upon execution of the agreement on
March 24, 2000, approximately 69 members of our direct manufacturing workforce.
This represented approximately 39% of our workforce at that time. Accordingly,
as of May 5, 2000, we had 102
37
<PAGE>
full-time employees employed primarily at our West Melbourne, Florida facility,
including 12 employees engaged in research and development, 15 engaged in sales,
marketing and order entry and 15 engaged in general and administrative
activities.
Our employees are not represented by any collective bargaining agreements,
and we have never experienced a work stoppage. We believe our employee relations
are good.
Seasonality
Demand for our Bendix King LMR products is typically strongest in the
summer season because of the increased forest fire activity during that time.
Properties
Our corporate and technical headquarters are located in West Melbourne,
Florida. In March 2000, we sold our 144,000 square foot office and industrial
facility in West Melbourne, Florida. This building was utilized for
manufacturing our wireless communications equipment as well as for research and
development, engineering and executive offices. Simultaneously with the sale, we
entered into a lease with JMEASI for a new facility which is approximately
54,000 square feet of comparable space at a nearby location for all company
functions. We completed our move to the new facility at the end of May 2000. The
lease has a five year term. Estimated rental, maintenance and tax payments
during fiscal year 2000 will be approximately $291,000.
We also lease a 37,600 square foot facility located in Indianapolis,
Indiana that had been used primarily for engineering. In April 1998, we closed
this office and move our engineering operations to our West Melbourne, Florida
facility. Our efforts to sublease the Indiana facility have been unsuccessful.
We will terminate the lease in 2000. A reserve was established in 1997 for the
present value of the lease commitment.
We believe that our existing facilities are adequate to support our
existing operations and that, if needed, we will be able to obtain suitable
additional facilities on commercially reasonable terms.
Litigation
On February 14, 1996, the Insurance Commissioner of the Commonwealth of
Pennsylvania, in her capacity as statutory liquidator for Corporate Life
Insurance Company, filed a complaint against multiple defendants in the
Commonwealth Court of Pennsylvania, including RELM and Donald F.U. Goebert (in
his capacity as an officer and a director of RELM). The specific claims alleged
against RELM and Mr. Goebert are for a preferential transfer, conspiracy and
common law fraud arising from a 1987 transaction between RELM and Corporate
Investment Company, the parent Company of Corporate Life, pursuant to which RELM
and CIC exchanged promissory notes in the amount of $1,700,000. In connection
with this transaction, CIC pledged to RELM as security for its note payment
obligation its shares of stock of Corporate Life. CIC subsequently defaulted on
its note. In 1991, at the demand of the Insurance Commissioner, CIC sold
Corporate Life to American Homestead, Inc. and, in connection with
38
<PAGE>
such sale, RELM assigned its note receivable from CIC along with the collateral
to American. As consideration for this assignment, American agreed to assume
RELM's obligations under its note to CIC in the amount of $1,700,000.
Accordingly, although the complaint alleges a claim for a preferential transfer,
RELM received no payment of funds from CIC. The conspiracy claims are
non-specific but pertain to the sale of Corporate Life to American in 1991. Mr.
Goebert was an officer and a director of CIC.
In one of two related actions, in 1994, the Trustee and statutory
liquidator of CIC, in connection with the current bankruptcy proceedings of CIC,
brought an adversarial proceeding in the United States District Court for the
Eastern District of Pennsylvania against RELM, Mr. Goebert and other individuals
and entities that were involved in the sale of Corporate Life to American.
This adversarial proceeding alleges the same claims as in the action
brought by the Insurance Commissioner in connection with the note transaction
and the sale of Corporate Life. In the other related action, in 1993, two
individual creditors of CIC filed a complaint against, among others, RELM and
Mr. Goebert in the United States District Court for the Southern District of New
York. The specific claims alleged against RELM and Mr. Goebert in the complaint
are for fraud, fraudulent conveyance, securities fraud and RICO in connection
with the Note Transaction, the sale of Corporate Life and other investments made
by CIC in an effort to raise capital for Corporate Life. Each of the
above-related matters is in civil suspense. We believe that an adjudication of
the action brought by the Insurance Commissioner will in effect resolve both of
the related matters on the legal principles of collateral estoppel and/or issue
preclusion. We believe that there will be no material adverse effect on our
financial position as a result of these actions.
There are approximately four pending claims against us for personal injury
and or property damages alleged to have resulted from the malfunction of a
garage door or gate operator. We maintain product liability insurance with
coverage of $2,000,000, subject to deductibles ranging from $75,000 to $500,000.
During the times that such claims were made, we maintained umbrella coverage
extending our insurance coverage for various periods by $3,000,000 to
$10,000,000. Additionally, we have established reserves totaling $104,000 at
March 31, 2000 for the estimated uninsured liability associated with these
claims.
On February 12, 1999, we initiated criminal and civil proceedings in Sao
Paulo, Brazil against our Brazilian dealer, Chatral, for failure to pay for
product shipments totaling $1.4 million. Exhaustive negotiations were conducted
by our executive management team, resulting in multiple proposals to satisfy the
debt. One proposal was accepted by Chatral's principals, including a signed debt
confession and promissory notes. As economic conditions in Brazil deteriorated
in the next several days, additional disputes arose and Chatral defaulted on the
terms of these documents. Subsequent attempts to negotiate were unsuccessful. We
are vigorously pursuing all avenues to collect the outstanding balance.
Currently, the amount of recovery, if any, is uncertain. Accordingly in 1998, we
established a $1.4 million allowance for doubtful accounts. On December 8, 1999,
Chatral filed a counterclaim against us that alleges damages totaling $8 million
as a result of our discontinuation of shipments to Chatral. We have retained
39
<PAGE>
counsel to represent us in these actions. Although we believe that we have
defenses of merit, the outcome of this action is uncertain. An unfavorable
outcome could have a material adverse effect on our financial condition.
40
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard K. Laird 52 President and Chief Executive Officer and Director
William P. Kelly 43 Vice President Finance and Chief Financial Officer
David P. Storey 47 Executive Vice President and Chief Operating Officer
Donald F. U. Goebert 63 Chairman of the Board
Buck Scott (1) 70 Director
Robert L. MacDonald (1) 72 Director
Ralph R. Whitney Jr. (1) 65 Director
James C. Gale (1)(2) 50 Director
George N. Benjamin, III (2) 62 Director
</TABLE>
-------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
Each director holds his office until the next annual meeting of the
shareholders unless he resigns or is removed or disqualified. Officers are
elected by the board of directors and any number of offices may be held by the
same person.
The business experience of our executive officers and directors is set
forth below:
RICHARD K. LAIRD has been our President and Chief Executive Officer and a
director since December 1997. From January 1994 to December 1996, he was the
Executive Vice President and Chief Operating Officer of Antec Corp.
(communications electronics). From 1983 to 1994, he was Chairman and CEO of
Keptel Inc. (communications electronics).
WILLIAM P. KELLY has been our Vice President - Finance and Chief Financial
Officer since July 1997. From October 1995 to June 1997, he was Vice President -
Finance and Chief Financial Officer of our subsidiary, RELM Communications, Inc.
From January 1993 to October 1995, he was the Financial Director of Harris Corp.
Semiconductor Sector (semiconductor manufacturer).
DAVID P. STOREY has been our Executive Vice President and Chief Operating
Officer since June 1998. From January 1994 to June 1998, he was Senior Vice
President of Manufacturing of Antec Corp. (communications electronics).
DONALD F. U. GOEBERT has been our Chairman of the Board (and a director of
our predecessor) since March 1968. He was the President of our predecessor from
March 1968 to October 1988, and our President and Chief Executive Officer from
April 1993 to December 1997. He has been President of Chester County Fund, Inc.
since 1968. Mr. Goebert is a director of Investors Insurance Group, Inc.
41
<PAGE>
BUCK SCOTT has been a director (and a director of our predecessor) since
1980. Mr. Scott has been a private investor since January 1995. Mr. Scott was
the President of Electrical Energy Enterprises, Inc. from 1991 through 1994.
ROBERT L. MACDONALD has been a director since February 1991. He is retired.
From 1953 to 1993, he was a director of Financial Aid Wharton Graduate Division
and Lecturer in Management, Wharton School, University of Pennsylvania.
RALPH R. WHITNEY JR. has been a director since January 1992. Since January
1971, Mr. Whitney has been the President and Chief Executive Officer of Hammond
Kennedy Whitney & Co., Inc. (private investor). Mr. Whitney holds a directorship
in IFR Systems, Inc., Excel Industries, Inc., Baldwin Technology Co., Inc.,
Control Devices, Inc., and Selas Corp. of America.
JAMES C. GALE has been a director since October 1993. Since September 1998,
Mr. Gale has been the Managing Director of Sanders, Morris and Mundy. From 1991
to 1998, Mr. Gale was the Managing Director of Gruntal & Co., LLC (investment
banking and management). Mr. Gale is a director of Latshaw Enterprises, Inc.,
and Premium Research Worldwide Ltd.
GEORGE N. BENJAMIN, III has been a director since January 1996. President
and CEO of BICC Cables Corp. since September 1998; President, BICC Brand-Rex Co.
and Vice President, BICC Cables Corp. since June 1997; Management Consultant and
Partner in Trig Systems, LLC since July 1987; President and CEO of Tie
Communications, Inc. from April 1992 to November 1995; Group Vice President of
The Marmon Group, Inc. prior to April 1992.
Key Employees
Other key personnel and their ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Thomas L. Morrow 49 Senior Vice President/Director - Government and
Public Safety Sales and Marketing
Russell Scott Henderson 49 Senior Vice President - Commercial, Business and
Industrial Sales and Marketing
</TABLE>
RUSSELL SCOTT HENDERSON has been our Senior Vice President - Commercial,
Business and Industrial Sales and Marketing since December 1999. From July 1998
to December 1999, he was a principal at Bottom Line Results (a management
consulting company). From April 1997 to July 1998, Mr. Henderson was Vice
President of Sales and Marketing at Intek Global Corp. (an electronics
manufacturing company). From May 1996 to April 1997, he was Vice President
International Sales at EF Johnson Company (a LMR manufacturing company). From
May 1995 through May 1996, Mr. Henderson was Vice President of Sales and
Marketing at Uniden America Corporation and from October 1978 to May 1995, he
was Senior Vice President of Sales and Marketing for Midland International
Corporation.
42
<PAGE>
THOMAS L. MORROW has been our Senior Vice President and Director -
Government and Public Safety Sales and Marketing since December 1999. From 1997
to December 1999, he was the owner of Tomorrow Sales and Marketing Alternatives.
From 1996 to 1997, he was Vice President World Wide Systems at E.F. Johnson
Company. From 1995 to 1996, he was Senior Vice President North America
Operations at Stanilite Pacific, LTD. From 1993 to 1995, he was Territory
Manager at Motorola, Inc.
Board of Directors and Committees
Pursuant to our articles of incorporation and by-laws, and in accordance
with the Nevada General Corporation Law, our board of directors consists of
seven directors or such greater or lesser number as may be fixed from time to
time by the board of directors.
Our board of directors has a compensation committee and an audit committee.
We do not have an executive committee or nominating committee. Our board of
directors held five meetings in fiscal 1999 and each of the directors attended
at least 75 percent of the aggregate number of meetings of the board of
directors and committees (if any) on which he served.
Messrs. Gale and Benjamin served as members of the compensation committee
during 1999. The primary function of the compensation committee is to review and
determine compensation for our principal executive officers. The compensation
committee also administers our 1996 Stock Option Plan for Non-Employee Directors
and our 1997 Stock Option Plan and grants option awards under those plans. The
compensation committee did not hold any meetings during 1999.
Messrs. Scott, MacDonald, Whitney and Gale served as members of the audit
committee during 1999. The primary function of the audit committee is to review
the scope and results of the annual audit, to monitor internal accounting
procedures and to address certain other questions of accounting policy. The
audit committee held two meetings during 1999.
Director Compensation
During 1999, we paid to each of our non-employee directors meeting fees of
$1,000 for attendance at each board meeting and $500 for attendance at each
meeting of any committee of the board of directors which is not held in
conjunction with a meeting of the board. Beginning with the 1997 fiscal year, as
a result of approval by the shareholders of the 1996 Non-Employee Director Stock
Option Plan, compensation for non-employee directors was modified to provide for
the grant of stock options in lieu of a quarterly retainer for service as a
director. Also, pursuant to the terms of the plan, beginning in 1997, a grant of
a stock option for the purchase of 5,000 shares is made to each non-employee
director on the date of each annual meeting of shareholders at which that person
is elected or reelected as a director (or if the annual meeting has not been
held by June 30 of that year the grant is made as of June 30th of that year to
each of the persons qualifying and who has been a non-employee director for at
least three months). Those options are granted at an exercise price equal to the
fair market value of our common stock
43
<PAGE>
on the date of grant, become fully exercisable eleven months after the date of
grant or, if earlier, upon a change of control as defined in the 1996 Director
Plan and expire five years from the date of grant or earlier in the event
service as a director ceases. Options were granted to our non-employee directors
as of June 30, 1998 at an exercise price of $3.06 per share and as of June 14,
1999 at an exercise price of $2.88 per share.
Compensation Committee Interlocks and Insider Participation
During 1999, the compensation committee of our board of directors was
composed of independent, outside directors, Messrs. Gale (Chairman) and
Benjamin. As noted above, our compensation program for our executives is
administered by the board of directors with the advice and counsel of the
compensation committee. As a result, Mr. Laird provides input to the
deliberations by the committee and the Board concerning executive compensation.
Mr. Laird did not vote as a member of the Board in the Board action which
affected his compensation.
Neither of the compensation committee members is or has been an officer or
employee of us or any of our subsidiaries. In addition, neither Gale nor
Benjamin has, or has had, any relationship with us which is required to be
disclosed under "Certain Relationships and Related Transactions." No RELM
executive officer currently serves on the compensation committee or any similar
committee of another public company.
Executive Compensation
The following table sets forth the annual and long term compensation during
each of the last three years paid by us to Messrs. Laird, Storey and Kelly, who
served as our President and Chief Executive Officer, Executive Vice President
and Chief Operating Officer, and Vice President - Finance and Chief Financial
Officer, respectively, during 1999. No other executive officer was paid salary
and bonus compensation by us which exceeded $100,000 during 1999.
44
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
---------------------------------------------------------------------------------------
Other Annual Securities All Other
Name and Salary Bonus Compensation Underlying Compensation
Principal Position Year ($) ($) ($)(1) Options(#) ($)(2)
------------------- ---- -------- --- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard K. Laird 1999 $200,000 - - 150,000 5,000
President and Chief 1998 232,692 - - 100,000 2,500
Executive Officer(3) 1997 11,538 - - 100,000 -
-
William David P. Storey 1999 $227,770 - - 145,000 1,957
Executive Vice 1998 98,904 - - 100,000 -
President and 1997 - - - - -
Chief Operating Officer
William P. Kelly 1999 $117,200 - - 75,000 3,000
Vice President - 1998 115,535 - - - 3,000
Finance and Chief 1997 96,746 - - - 2,400
Financial Officer
</TABLE>
------------------
(1) The named executive officers did not receive any other annual compensation
not categorized as salary or bonus except for perquisites and other
personal benefits which in the aggregate did not exceed the lesser of
$50,000 or 10% of the total annual salary and bonus reported for such named
executive officer.
(2) The amounts shown include employer contributions to RELM's 401(k) plan.
(3) Under the terms of Mr. Laird's employment, he was granted options under our
1997 Stock Option Plan for the purchase of 100,000 shares of common stock
upon the commencement of his employment and is to be granted options for
additional increments of 50,000 shares six months, twelve months, eighteen
months and twenty-four months thereafter. Such options will be granted at
the then current market value of the shares. The options granted and to be
granted will become exercisable in increments of 25% of the option on the
first, second, third and fourth year anniversaries of the date of the
grant. In the event of a change in control, as defined in the option
agreements, 50% of any otherwise unvested options shall become vested and
exercisable. Mr. Laird shall also be eligible to receive a bonus of up to
50% of his salary upon attaining earnings per share and/or share price
goals or other performance criteria to be mutually agreed upon with the
board of directors.
45
<PAGE>
Stock Option Grants
The following table contains information concerning the grant of stock
options under our 1997 Stock Option Plan to the executive officers named in the
Summary Compensation Table above during 1999. In addition, the table shows the
hypothetical gains or "option spreads" that would exist for the respective
options. These gains are based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the options were granted over the full
option term.
Option Grants in 1999
Individual Grants
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Number of Rates of Stock Price
Securities Percent of Appreciation for Option
Underlying Options Total Options Exercise or Term (3)
Granted to Employees Base Price Expiration -----------------------
Name (#) (1) in 1999 ($/Sh) Date (2) 5%($) 10%($)
---- ------------------ -------------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard K. Laird 50,000 13.5% $3.00 03/15/09 $ 42,000 $ 92,000
50,000 13.5% $2.63 06/01/09 $ 37,000 $ 81,000
50,000 13.5% $4.25 12/01/09 $ 59,000 $131,000
David P. Storey 145,000 39.2% $3.13 08/09/09 $124,000 $278,000
William P. Kelly 75,000 20.3% $3.13 08/09/09 $64,000 $144,000
</TABLE>
----------------
(1) These are options granted under the 1997 Stock Option Plan. Options with
respect to 64,000 shares are incentive stock options ("ISOs") under ss.422
of the Internal Revenue Code of 1986, as amended, and options with respect
to 36,000 shares are non-qualified stock options. The options are
exercisable with respect to increments of 25% of the optioned shares
(prorated among the ISOs and the non-qualified options) as of the first,
second, third, and fourth anniversaries of the option grant date. These
options were granted at fair market value on the date of the grant.
(2) The term of the options is ten (10) years from the date of grant unless
terminated earlier due to termination of employment, disability or death.
(3) The potential realizable value of the options granted in 1999 was
calculated by multiplying those options by the excess of (a) the assumed
market value of common stock, if the market value of common stock were to
increase 5% or 10% in each year of the options' 5-year term over (b) the
base price shown. This calculation does not take into account any taxes or
other expenses which might be owed. The 5% and 10% appreciation rates are
set forth in the Securities and Exchange Commission rules and no
representation is made that the common stock will appreciate at these
assumed rates or at all.
We do not currently have (and have not previously had) any plan pursuant to
which any stock appreciation rights ("SARs") may be granted.
Stock Option Exercises and Holdings
The following table sets forth information relating to options exercised
during 1999 by each of the executive officers named in the Summary Compensation
Table above and the number and value of options held on December 31, 1999 by
each of them.
46
<PAGE>
Aggregate Option Exercises in Fiscal Year Ended December 31, 1999
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Value Options at Dec. 31, 1999 (#) Dec. 31, 1999 ($)(1)
Acquired on Realized ----------------------------- -----------------------------
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard K. Laird (2) 0 0 75,000 275,000 $20,313 $92,188
David P. Storey (2) 0 0 25,000 220,000 $ 1,625 $ 4,875
William P. Kelly 0 0 2,500(3) 75,000(2) 0 0
</TABLE>
------------------
(1) Total value of unexercised options is based upon the difference between the
last sales price of our common stock on the NASDAQ on December 31, 1999,
which was $3.125 per share, and the exercise price of the options,
multiplied by the number of option shares.
(2) Options granted under our 1997 Stock Option Plan.
(3) Options granted under our 1988 Stock Plan.
Employment Agreements
We do not have any employment agreements with any of our officers or
employees.
PRINCIPAL STOCKHOLDERS
Security Ownership of Certain Beneficial Owners and Management.
The table below sets forth certain information as of April 30, 2000
regarding the beneficial ownership, as defined in regulations of the Securities
and Exchange Commission, of our common stock of (i) each person who is known to
us to be the beneficial owner of more than 5% of the outstanding shares of our
common stock, (ii) each director of RELM and each of the executive officers
named in the Summary Compensation Table above, and (iii) all directors and
executive officers as a group. Unless otherwise specified, the named beneficial
owner has sole voting and investment power.
47
<PAGE>
Beneficial Ownership of Common Stock
<TABLE>
<CAPTION>
Name of Beneficial Owner Number of Shares Percent of Class (1)
------------------------ ----------------- --------------------
<S> <C> <C>
Dimensional Fund Advisors Inc. 300,933(2) 5.9%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Special Situations Private Equity Fund, L.P., 523,077(3) 7.9%
MG Advisers L.L.C., Austin W. Marxe, and
David Greenhouse
153 East 53 Street, New York, NY 10022
Donald F.U. Goebert 1,411,412(4)(5) 27.7%
400 Willowbrook Lane
West Chester, PA 19382
Richard K. Laird 153,270(6)(7) 2.9%
Ralph R. Whitney, Jr. 45,469(6) *
Buck Scott. 35,000(6) *
James C. Gale 35,000(6) *
George N. Benjamin, III 22,266(6) *
Robert L. MacDonald 15,000(6) *
David P. Storey 25,000(6) *
William P. Kelly 2,500(6) *
All executive officers and directors as a 1,744,917(4)(5)(7)(8) 33.3%
group (10 persons)
</TABLE>
-----------------
* Less than 1%
(1) Based upon 5,090,405 outstanding shares as of April 30, 2000, and, with
respect to each holder of options exercisable, or notes convertible, within
60 days of April 30, 2000, the shares issuable under such instruments.
(2) According to the Schedule 13G filed by Dimensional Fund Advisors Inc. (the
"Reporting Person") dated February 9, 2000, the Reporting Person had sole
voting power and sole investment power with respect to all of the reported
shares, and all of the reported shares were owned by advisory clients of
the Reporting Person. The Reporting Person disclaims beneficial ownership
of the reported shares.
(3) Special Situations Private Equity Fund, L.P. (SSPEF), and MG Advisers
L.L.C. ("MG"), its general partner, are deemed to have sole power to vote
or to direct the vote and to dispose or to direct the disposition of
523,077. Austin W. Marxe ("Marxe") and David Greenhouse ("Greenhouse") are
deemed to have shared power to vote or dispose of the shares by virtue of
being executive officers of MG. A Schedule 13G filed by SSPEF, MG, Marxe
and Greenhouse with the Securities and Exchange Commission on April 11,
2000 is the source of this information.
(4) Includes 90,942 shares owned by Chester County Fund, Inc., the majority
shareholder of which is Mr. Goebert, and 60,000 shares owned by a
partnership controlled by Mr. Goebert.
48
<PAGE>
(5) Includes 23,366 shares held in a custodial account for RELM's Employee
Stock Purchase Program, of which Mr. Goebert is a custodian, and 789 shares
held in a Trust under RELM's 401(k) plan, of which Mr. Goebert is a
Trustee.
(6) Share ownership of the following persons includes shares subject to
immediately exercisable options or options exercisable within 60 days of
April 30, 2000, as follows: for Mr. Laird -112,500 shares; for Mr. Whitney
-15,000 shares; for Mr. Scott -15,000 shares; for Mr. Gale -15,000 shares;
for Mr. Benjamin -19,166 shares; for Mr. MacDonald -15,000 shares; for Mr.
Storey -25,000 shares; and for Mr. Kelly -2,500 shares.
(7) Includes 15,385 shares of RELM common stock issuable upon conversion of
$50,000 principal amount of convertible subordinated promissory notes which
are beneficially owned by Mr. Laird.
(8) Includes an aggregate of 219,166 shares subject to immediately exercisable
options or options exercisable within 60 days of April 30, 2000 held by
executive officers and directors as a group.
Certain Relationships and Related Transactions
None
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital stock consists of 10,000,000 shares of common stock,
$0.60 par value, and 20,000 shares of preferred stock, $1.00 par value. The
following description of our capital stock is not complete and is qualified in
its entirety by our articles of incorporation and by-laws, both of which are
included as exhibits to the registration statement of which this prospectus
forms a part, and by applicable Nevada law.
Common Stock
As of May 31, 2000, there were 5,090,405 shares of common stock outstanding
that were held of record by approximately 1,381 stockholders.
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to any preferential rights
of preferred stockholders, the holders of our common stock are entitled to
receive dividends on a pro rata basis, if any, declared from time to time by the
board of directors out of legally available funds. We have never paid dividends
in the past and do not intend to do so in the future. In the event of our
liquidation, dissolution or winding up, subject to any preferential rights of
preferred stockholders, the holders of our common stock are entitled to share on
a pro rata basis in all assets remaining after payment of liabilities. Holders
of our common stock have no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of our common stock are,
and the shares of our common stock to be issued upon conversion of the notes and
exercise of the warrants will be, fully paid and nonassessable.
Preferred Stock
Our board of directors has the authority, without further action by the
stockholders, to issue up to 20,000 shares of our preferred stock in one or more
series and to fix the rights and privileges of each series. These rights may
include dividend rights, dividend rates, conversion rights, voting rights, terms
of redemption, redemption prices, and liquidation preferences. The privileges
and rights of preferred stock may be greater that those of our common stock. The
issuance of preferred stock may have the effect of delaying, deterring or
preventing a change in control of our company without further action by the
stockholders and may adversely affect the voting and other rights of the holders
of common stock. The issuance of preferred stock with voting and conversion
rights may adversely affect the voting power of the holders of common stock,
including the loss of voting control to others. We have no plans to issue any
preferred stock.
50
<PAGE>
Antitakeover Effects of Various Provisions of Nevada Law and our Articles of
Incorporation and By-Laws
We are incorporated under the laws of the State of Nevada and are therefore
subject to various provisions of the Nevada corporation laws which may have the
effect of delaying or deterring a change in the control or management of RELM.
Nevada Law
Nevada's "Combination with Interested Stockholders Statute," Nevada Revised
Statutes 78.411-78.444, which applies to Nevada corporations like us having at
least 200 stockholders, prohibits an "interested stockholder" from entering into
a "combination" with the corporation, unless specific conditions are met. A
"combination" includes:
- any merger with an "interested stockholder," or any other corporation
which is or after the merger would be, an affiliate or associate of the
interested stockholder;
- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets, in one transaction or a series of transactions,
to an "interested stockholder," having:
- an aggregate market value equal to 5% or more of the aggregate
market value of the corporation's assets,
- an aggregate market value equal to 5% or more of the aggregate
market value of all outstanding shares of the corporation, or
- representing 10% or more of the earning power or net income of the
corporation;
- any issuance or transfer of shares of the corporation or its
subsidiaries, to the "interested stockholder," having an aggregate
market value equal to 5% or more of the aggregate market value of
all the outstanding shares of the corporation;
- the adoption of any plan or proposal for the liquidation or dissolution
of the corporation proposed by the "interested stockholder;" and
- transactions which would have the effect of increasing the
proportionate share of outstanding shares of the corporation owned
by the "interested stockholder," or the receipt of benefits,
except proportionately as a stockholder, of any loans, advances or
other financial benefits by an "interested stockholder."
An "interested stockholder" is a person who
- directly or indirectly owns 10% or more of the voting power of the
outstanding voting shares of the corporation;
51
<PAGE>
- an affiliate or associate of the corporation which at any time
within three years before the date in question was the beneficial
owner, directly or indirectly, of 10% or more of the voting power
of the then outstanding shares of the corporation.
A corporation to which the statute applies may not engage in a "combination"
within three years after the interested stockholder acquired its shares, unless
the combination or the interested stockholder's acquisition of shares was
approved by the board of directors before the interested stockholder acquired
the shares. If this approval was not obtained, then after the three-year period
expires, the combination may be consummated if all the requirements in the
articles of incorporation are met and either:
- the board of directors of the corporation approves, prior to such
person becoming an "interested stockholder," the combination or the
purchase of shares by the "interested stockholder";
- the combination is approved by the affirmative vote of holders of
a majority of voting power not beneficially owned by the
"interested stockholder" at a meeting called no earlier than three
years after the date the "interested stockholder" became such; or
- the aggregate amount of cash and the market value of consideration
other than cash to be received by holders of common shares and
holders of any other class or series of shares meets the minimum
requirements set forth in Sections 78.411 through 78.443,
inclusive, and prior to the consummation of the combination,
except in limited circumstances, the "interested stockholder" will
not have become the beneficial owner of additional voting shares
of the corporation.
Nevada's "Control Share Acquisition Statute," Nevada Revised Statute
Sections 78.378-78.379, prohibits an acquiror, under some circumstances, from
voting shares of a target corporation's stock after crossing threshold ownership
percentages, unless the acquiror obtains the approval of the target
corporation's stockholders. The Control Share Acquisition Statute only applies
to Nevada corporations with at least 200 stockholders, including at least 100
record stockholders who are Nevada residents, and which do business directly or
indirectly in Nevada. While we do not currently exceed these thresholds, we may
well do so in the near future. In addition, although we do not presently "do
business" in Nevada within the meaning of the Control Share Acquisition Statute,
we may do so in the future. Therefore, it is likely that the Control Share
Acquisition Statute will apply to us in the future. The statute specifies three
thresholds: at least one-fifth but less than one-third, at least one-third but
less than a majority, and a majority or more, of all the outstanding voting
power. Once an acquiror crosses one of the above thresholds, shares which it
acquired in the transaction taking it over the threshold or within ninety days
become "Control Shares" which are deprived of the right to vote until a majority
of the disinterested stockholders restore that right. A special stockholders'
meeting may be called at the request of the acquiror to consider the voting
rights of the acquiror's shares no more than 50 days, unless the acquiror agrees
to a later date, after the delivery by the acquiror to the corporation of an
information statement which sets forth the range of voting
52
<PAGE>
power that the acquiror has acquired or proposes to acquire and other
information concerning the acquiror and the proposed control share acquisition.
If no such request for a stockholders' meeting is made, consideration of the
voting rights of the acquiror's shares must be taken at the next special or
annual stockholders' meeting. If the stockholders fail to restore voting rights
to the acquiror or if the acquiror fails to timely deliver an information
statement to the corporation, then the corporation may, if so provided in its
articles of incorporation or by-laws, call some of the acquiror's shares for
redemption. Our articles of incorporation and by-laws do not currently permit us
to call an acquiror's shares for redemption under these circumstances. The
Control Share Acquisition Statute also provides that the stockholders who do not
vote in favor of restoring voting rights to the Control Shares may demand
payment for the "fair value" of their shares. This amount is generally equal to
the highest price paid in the transaction subjecting the stockholder to the
statute.
Articles of Incorporation
Our articles of incorporation authorize the issuance of 20,000 shares of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time by our board of directors. Accordingly, the board of
directors is empowered, without stockholder approval, to issue shares of
preferred stock with dividend, liquidation, conversion, voting or other rights
that could adversely affect the value, voting power or other rights of the
holders of our common stock. In addition, issuance of the preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of RELM which could be beneficial to our
stockholders. None of these shares of preferred stock are outstanding as of the
date of this prospectus. Although our board of directors has no present
intention to issue any shares of preferred stock, there can be no assurance that
it will not do so in the future.
By-Laws
Provisions of our by-laws which are summarized below may affect potential
changes in control of RELM.
The by-laws provide the number of directors of RELM shall be established by
the board of directors, but shall be no less than one. Between stockholder
meetings, the board of directors may appoint new directors to fill vacancies or
newly created directorships.
Our by-laws further provide that stockholder action may be taken at a
meeting of stockholders. Under Nevada law, action may be effected by a consent
in writing if such consent is signed by the holders of the majority of
outstanding shares, unless Nevada law requires a greater percentage.
These provisions of our by-laws could discourage potential acquisition
proposals and could delay or prevent a change in the control or management of
RELM. These provisions are intended to enhance the likelihood of continuity and
stability in the composition of our board of directors and in the policies
formulated by our board of directors and to discourage certain types
53
<PAGE>
of transactions that may involve an actual or threatened change of control of
RELM. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal. The provisions also are intended to discourage
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for our shares or
proxy fights and, as a consequence, they also may inhibit fluctuations in the
market price of our shares that could result from actual or rumored takeover
attempts. Such provisions also may have the effect of preventing changes in our
management.
We are not aware of any proposed takeover attempt or any proposed attempt
to acquire a large block of our common stock.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is American Stock
Transfer & Trust Company.
DESCRIPTION OF WARRANTS
General
In May 2000, we issued to Janney Montgomery Scott LLC warrants for 166,153
shares of common stock at a per share exercise price of $3.25, subject to
adjustment under certain circumstances. Also in May 2000, we issued to Simmonds
Capital Limited warrants for 300,000 shares of common stock at a per share
exercise price of $3.25, subject to adjustment under certain circumstances. The
warrants are exercisable on the earlier to occur of (a) the approval by our
stockholders of a financing plan developed by RELM and Janney, or (b) September
16, 2000. The warrants have a five year term which commences from the date the
warrants become exercisable. Warrants that are not exercised prior to the
expiration of their term expire.
The warrants were issued for investment banking and other advisory services
provided and to be provided by Janney and Simmonds to RELM.
We issued the warrants pursuant to two separate warrant agreements.
Although Janney and Simmonds entered into separate warrant agreements with RELM,
the terms and conditions of each warrant agreement are substantially the same.
Therefore, any reference to a warrant agreement herein shall mean both the
Janney and Simmonds warrant agreement.
We are registering our warrants for resale under the registration statement
of which this prospectus forms a part. The following description is a summary of
material provisions of our warrants. This summary is not complete and we qualify
it in its entirety by reference to the form of warrant agreement and form of
warrant certificate attached to the warrant agreement. We urge you to read the
form of warrant agreement and the form of warrant certificate because they, and
not this description, define the rights of a holder of our warrants. We have
filed copies of the form of warrant agreement and the form of warrant
certificate as exhibits to the registration statement of which this prospectus
is a part.
54
<PAGE>
Exercise Rights
In order to exercise all or any of the warrants represented by a warrant
certificate, the holder thereof is required to surrender to us the warrant
certificate, a duly executed copy of a subscription form and payment in full of
the exercise price for each share of common stock or other security as to which
a warrant is being exercised. The warrant agreement also contains provisions
permitting a cashless exercise of the warrants. Upon the exercise of any warrant
in accordance with the terms of the warrant agreement, we will transfer promptly
to the holder of such warrant, or such other person as directed in writing by
the holder of the warrant, appropriate evidence of ownership of our common stock
which such holder or person is entitled, including, any cash payable to adjust
for fractional interests issuable upon such exercise. Holders of warrants will
be able to exercise their warrants only if a registration statement relating to
the underlying common stock is then effective under, or the exercise of such
warrants is exempt from the registration requirements of, the Securities Act.
See "Registration Rights."
If the following events occur prior to exercise of the warrants or their
expiration date:
- our issuance of shares of common stock as a dividend or distribution on
our common stock;
- our subdivision or reclassification of our outstanding common stock;
- our transfer of our property as an entirety or substantially as an
entirety to any other company or entity; or
- our distribution of our assets of our common stock holders as a
liquidation or partial liquidation dividend or by way of return of
capital;
then, upon the subsequent exercise of our warrants, the holders will receive, in
addition to or in substitution for the shares of common stock they would
otherwise have received, additional shares of stock, or reclassified shares of
stock, or the other securities or property of RELM that they would have been
entitled to receive if they had exercised prior to the happening of any of those
events.
Adjustment to Exercise Price and Number of Shares Purchasable
In the event that, prior to the exercise of the warrants, we sell our
common stock at a price less than the then exercise price, the exercise price
and the number of shares purchasable upon the exercise of the warrant shall be
adjusted to limit the dilutive effect on the holders of the warrants.
Notwithstanding the foregoing, we will not adjust the conversion price in the
following instances:
- grants of our common stock under our employee stock option or benefit
plans;
- grants of our common stock to hire or retain officers, directors or key
employees;
55
<PAGE>
- grants of our common stock pursuant to the types of transactions
described in the immediately preceding paragraph.
We are not required to adjust the exercise price until the cumulative
adjustments require an increase or decrease of at least $0.15 in the exercise
price.
If we make an adjustment to the exercise price, then you may face a
constructive distribution taxable as a dividend. See "Certain United States
Federal Income Tax Considerations."
No Rights as Stockholders.
The holders of unexercised warrants are not entitled, as such, to receive
dividends or other distributions with respect to our common stock, receive
notice of any meeting of our stockholders, consent to any action of our
stockholders, or to any other rights as stockholders of RELM.
Reservation of Shares
We have authorized and reserved for issuance the number of shares of our
common stock which shall be issuable upon the exercise of all the warrants.
These shares of our common stock, when paid for and issued, will be duly and
validly issued, fully paid and non-assessable, free of preemptive rights and
free from all taxes, liens, charges and security interests with respect to the
issue thereof.
Registration Rights
We have agreed with the initial purchasers of the warrants to register for
resale under the Securities Act, at our expense, the warrants and the shares of
our common stock into which the warrants are convertible. We also agreed to
provide customary indemnification to the warrant holders in connection with the
registration. We will use our reasonable efforts to keep the registration
statement effective until the earliest of:
- May 12, 2002 (two years after the date the warrants were issued); or
- the date when all the applicable securities have been registered under
the Securities Act and disposed of.
If you hold securities and sell them under the registration statement of
which this prospectus forms a part, you will be required to provide certain
information with respect to yourself and the specifics of the sale. You will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and be bound by the provisions of the registration
rights agreement which are applicable to you (including certain indemnification
obligations). At least five business days prior to any intended resale you must
notify us of such intention and provide us with such information with respect to
such holder and
56
<PAGE>
the intended distribution as may be reasonably required to amend the shelf
registration statement or supplement the prospectus.
We may suspend the use of this prospectus for limited periods under certain
circumstances relating to pending corporate developments, public filings with
the Securities and Exchange Commission and similar events. We will pay all
expenses of the registration statement of which this prospectus forms a part and
provide each holder that is selling hereunder copies of this prospectus and take
certain other actions as are required to permit, subject to the foregoing,
unrestricted resales of the applicable securities. The selling stockholders will
pay all underwriting discounts and selling commissions applicable to the sale of
the securities. See "Plan of Distribution."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a general discussion of certain U.S. federal income tax
considerations to holders of our common stock and warrants. We have based this
discussion upon the Internal Revenue Code of 1986, as amended ("Code"), Treasury
Regulations, Internal Revenue Service rulings, notices and announcements and
judicial decisions now in effect, all of which are subject to change (possibly
with retroactive effect) or different interpretations. We cannot assure that the
IRS will not challenge one or more of the tax consequences described herein. We
have not obtained a ruling from the IRS, nor have we obtained an opinion of
counsel, with respect to the U.S. federal income tax consequences of acquiring
or holding our common stock or warrants.
This discussion does not deal with all aspects of U.S. federal income
taxation that may be important to you as a holder of our warrants or common
stock. This discussion does not deal with tax consequences arising under the
laws of any foreign, state or local jurisdiction. This discussion is for general
information purposes only, and does not purport to address all tax consequences
that may be important to you in light of your personal circumstances (for
example, persons subject to the alternative minimum tax provisions of the Code).
This discussion also does not purport to address all the tax consequences that
may be important to you if you are subject to special rules such as those
applicable to:
- certain financial institutions;
- insurance companies;
- tax exempt entities;
- dealers in securities;
- persons who hold our common stock as part of a hedging or conversion
transaction or straddle; or
57
<PAGE>
- persons deemed to sell any of our warrants or common stock under the
constructive sale provisions of the Code.
This discussion assumes that you hold our warrants or common stock as
capital assets under Section 1221 of the Code.
For the purpose of this discussion, a "U.S. Holder" refers to any holder of
warrants or common stock that is a U.S. person, and a "Non U.S. Holder" refers
to any holder of warrants or common stock that is not a U.S. person. The term
"U.S. person" means any of the following:
- a citizen or resident of the United States;
- a corporation, partnership (or other entity treated as a corporation or a
partnership for U.S. federal income tax purposes) created or organized in
the United States or any state thereof or the District of Columbia;
- an estate the income of which is includible in income for U.S. federal
income tax purposes regardless of its source; or
- a trust subject to primary supervision by a court in the United States
and control by one or more U.S. persons.
WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING THE FEDERAL STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF OWNERSHIP AND DISPOSITION OF OUR COMMON
STOCK AND WARRANTS, INCLUDING EXERCISE OF OUR WARRANTS, AND THE EFFECT THAT YOUR
PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
Our Common Stock
Any distribution paid to you with respect to our common stock after an
exercise of any of our warrants will constitute ordinary income (subject to a
possible dividends received deduction if you are a corporate holder) to the
extent made from our current and/or accumulated earnings and profits. The amount
of gain or loss you realize on the sale or exchange of common stock will equal:
(1) the amount you realize on such sale or exchange; minus
(2) your adjusted tax basis in such common stock.
Such gain or loss will generally be long term capital gain or loss if you have
held or are deemed to have held the common stock for more than one year.
However, special rules may apply if you originally purchased our warrants at a
market discount. In addition, special rules may apply in the case of Non-U.S.
Holders. See "--Certain Federal Income Tax Considerations Applicable to Non-U.S.
Holders of Common Stock."
58
<PAGE>
Ownership of the Warrants
Exercise. You will not recognize gain or loss for federal income tax
purposes upon exercise of a warrant (except that you will recognize gain to the
extent cash is received in lieu of fractional shares). Your initial tax basis in
a warrant will be equal to the price you paid for the warrant. Your tax basis in
shares of our common stock you acquire upon exercise of a warrant will be equal
to the sum of (i) your tax basis in the warrant and (ii) the exercise price. The
holding period of the common stock you acquire upon exercise of the warrant will
begin on the date you exercise the warrant, unless the warrant is treated as
stock for federal income tax purposes. In the event the warrant is treated as
stock, the holding period of the common stock you acquire upon exercise will
include the period during which you held the warrants.
Disposition. Your sale, exchange or other taxable disposition of your
warrant will result in gain or loss to you in an amount equal to the difference
between the amount you realized on such sale, exchange or other disposition and
your tax basis in the warrant. The gain or loss generally will be long-term
capital gain or loss if you have held the warrant for more than one year at the
time of the disposition and the common stock issuable upon your exercise of the
warrant would have been a capital asset if acquired by you. In the event the
warrants are treated as stock for federal income tax purposes, the sale of
warrants to RELM should be governed by the stock redemption provisions of
Section 302 of the Code. In such a case, a redemption of warrants by RELM would
be treated as a dividend and taxed as ordinary income to the extent of RELM's
current and accumulated earnings and profits, unless, taking into account
certain constructive ownership rules, the holder terminated his entire equity
interest in RELM or the redemption was "not essentially equivalent to a
dividend." In a published ruling, the IRS has indicated that a holder whose
actual and constructive stock ownership in an issuer was minimal and who
exercised no control over corporate affairs was generally entitled to capital
gain or loss treatment upon the redemption of his, her, or its stock so long as
his, her, or its percentage stock ownership was thereby reduced.
Expiration. The expiration of a warrant should generally result in a
long-term capital loss to the holder equal to the holder's tax basis in the
warrant if the warrant is held by the holder for more than one year at the time
of the expiration and the common stock issuable upon exercise of the warrant
would have been a capital asset if acquired by him, her, or it.
Adjustments to Exercise Ratio. Adjustments made to the number of shares
that may be acquired upon the exercise of a warrant, or the failure to make such
adjustments, may result in a taxable distribution to the holders of warrants
pursuant to Section 305 of the Code.
Adjustments to Exercise Price. The exercise price of our warrants may
change under certain circumstances. In such a case, Section 305 of the Code and
the Treasury Regulations issued thereunder may treat you as having received a
constructive distribution from us whether or not you ever exercise your
conversion privilege. If, and to the extent that, the adjustment in the exercise
price increases your proportionate interest in the fully diluted common stock,
the constructive distribution will be taxed as ordinary income (subject to a
possible dividends
59
<PAGE>
received deduction if you are a corporate holder) to the extent of our current
and/or accumulated earnings and profits. Moreover, common stock holders
themselves will generally be treated as having received a constructive
distribution if there is not a full adjustment to the exercise price of our
warrants to reflect a stock dividend or other event increasing the proportionate
interest of the common stock holders in our assets or earnings and profits. In
such an event, the constructive distribution will be taxable as ordinary income
(subject to a possible dividends received deduction if you are a corporate
holder) to the extent of our current and/or accumulated earnings and profits.
Certain Federal Income Tax Considerations Applicable to Non-U.S. Holders of
Common Stock
Sale, Exchange or Redemption of Shares of Common Stock. A Non-U.S. Holder
generally will not be subject to U.S. federal income tax on gain recognized upon
the sale or other disposition of shares of our common stock unless:
(1) the gain is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder; or
(2) the Non-U.S. Holder:
(A) is a nonresident alien individual;
(B) holds the common stock as a capital asset; and
(C) is present in the United States for 183 or more days in the taxable
year.
However, a Non-U.S. Holder may be subject to federal income tax with
respect to gain realized on the disposition of warrants or shares of common
stock if RELM were to become a "United States real property holding corporation"
under the Code. In that case, such Non-U.S. Holder can credit any withholding
tax withheld pursuant to the rules applicable to dispositions of a "United
States real property interest" against such Non-U.S. Holder's U.S. federal
income tax liability, and such Non-U.S. Holder may be entitled to a refund upon
furnishing required information to the IRS.
Dividends on Shares of Common Stock. Generally, any distribution on shares
of our common stock to a Non-U.S. Holder will be subject to U.S. federal income
tax withholding at a rate of 30% unless:
(1) the dividend is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder; or
(2) an applicable income tax treaty provides for a lower rate of, or
exemption from, withholding tax.
60
<PAGE>
If the dividend is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder, the dividend will be
subject to:
(A) the U.S. federal income tax on net income that applies to U.S. persons
generally; and
(B) with respect to corporate Non-U.S. Holders under certain
circumstances, the branch profits tax.
A Non-U.S. Holder may be required to satisfy certain certification
requirements in order to claim a reduction of or exemption from withholding
under the foregoing rules.
Information Reporting and Backup Withholding
U.S. Holders. Information reporting and backup withholding may apply to
payments of principal, interest or dividends on, or the proceeds from the sale
or other disposition of, our warrants or common stock with respect to certain
non-corporate U.S. Holders. If you are such a U.S. Holder, then you generally
will be subject to backup withholding at a rate of 31% unless, among other
conditions, you supply a taxpayer identification number and certain other
information, certified under penalties of perjury, to the payer or you otherwise
establish an exemption from backup withholding. Any amount withheld under backup
withholding is allowable as a credit against the U.S. Holder's federal income
tax liability.
Non-U.S. Holders. Generally, information reporting will apply to payments
of interest on our dividends on our common stock, and backup withholding at a
rate of 31% will apply unless the payee certifies that he, she, or it is not a
U.S. person or otherwise establishes an exemption. The 31% backup withholding
tax will not apply, however, to interest or dividends subject to the 30%
withholding tax described above.
The payment of the proceeds from the disposition of any of our common stock
to or through the U.S. office of a U.S. or foreign broker will be subject to
information reporting and possible backup withholding, unless the Non-U.S.
Holder certifies as to its Non-U.S. Holder status or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied. The proceeds of the disposition by a Non-U.S. Holder of our
common stock to or through a foreign office of a broker generally will not be
subject to information reporting or backup withholding. However, if the broker
is either:
(1) a U.S. person;
(2) a controlled foreign corporation for U.S. tax purposes; or
(3) a foreign person 50% or more of whose gross income from all sources
for certain periods is from activities that are effectively connected
with a U.S. trade or business, information reporting generally will
apply
61
<PAGE>
unless the broker has documentary evidence in its files of the
Non-U.S. Holder's foreign status and has no actual knowledge to the
contrary.
New Withholding Regulations
The recently finalized withholding rules referred to above (the "New
Regulations") make certain modifications to the withholding and information
reporting rules described above. The New Regulations attempt to unify
certification requirements and modify reliance standards. The New Regulations
generally will be effective for payments made after December 31, 2000, subject
to certain transition rules. We urge you to consult your own tax advisors
regarding the New Regulations.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
YOU SHOULD CONSULT YOUR OWN TAX ADVISER AS TO PARTICULAR TAX CONSEQUENCES TO IT
OF PURCHASING, HOLDING AND DISPOSING OF OUR WARRANTS AND OUR COMMON STOCK,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS OR REGULATIONS.
62
<PAGE>
SELLING SECURITYHOLDERS
Common Stock Issuable Upon Conversion of Notes
The table below sets forth, as of May 31, 2000, the respective
principal amount of our 8% convertible subordinated notes beneficially owned by
each selling securityholder, the percentage of notes outstanding held by each
selling stockholder, and the common stock issuable upon conversion of the notes
which may be sold from time to time by selling securityholders pursuant to this
prospectus. This information has been obtained from the selling securityholders.
<TABLE>
<CAPTION>
Percent of Shares of Common Percent
Principal Amount of Total Stock Issuable upon of Total
Notes Beneficially Outstanding Conversion of the Outstanding
Name Owned Notes Notes (1) Shares (2)
---- ------------------- ------------ ------------------- ------------
<S> <C> <C> <C> <C>
William J. Barrett $15,000 .46% 4,615 *
Lorraine DiPaolo $25,000 .77% 7,692 *
Stephen Dulmage $50,000 1.54% 15,385
Herbert M. Gardner $25,000 .77% 7,692 *
Mary K. Gardner $10,000 .30% 3,077 *
Russell Scott Henderson $100,000 3.08% 30,769 *
Steven D. Howard $100,000 3.08% 30,769 *
JMS LLC Custodian fbo $50,000 1.54% 15,385 *
William J. Barrett Keogh
Richard K. Laird $50,000 1.54% 15,385 *
Ted Markowitz $50,000 1.54% 15,385 *
Stuart McGregor $50,000 1.54% 15,385 *
Omro Investments Ltd. $150,000 4.62% 46,154 *
Moisha Schwimmer $100,000 3.08% 30,769 *
Simmonds Capital Limited $200,000 6.15% 61,538 1.19%
Special Situations Private $1,700,000 52.3% 523,077 9.32%
Equity Fund, L.P.
Tropical Cave (Bahamas) $500,000 15.38% 153,846 2.93%
Limited
Brian Usher-Jones $50,000 1.54% 15,385 *
Richard L. Zorn $25,000 .77% 7,692 *
</TABLE>
---------------
*Less than 1%
(1) Assumes conversion of the full amount of the convertible subordinated notes
held by the holder at the initial conversion price of $3.25 per share.
(2) Based upon shares of our common stock outstanding as of May 31, 2000 of
5,090,405 shares. Excludes the 1,000,000 shares of our common stock
issuable upon conversion of the notes and 466,153 shares of our common
stock issuable upon exercise of the warrants. For purposes of computing the
percentage of outstanding shares of common stock held by each person, any
security which such person or group of person has the right to acquire
within 60 days is deemed to be outstanding for the purpose of computing the
percentage ownership for such person, but not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person.
63
<PAGE>
None of the selling securityholders listed above has, or within the past
three years has had, any position, office or other material relationship with us
or any of our predecessors or affiliates, except that (i) Janney Montgomery
Scott LLC was retained by us in May 2000 to provide investment banking services
and William J. Barrett and Herbert M. Gardner are Senior Vice Presidents of
Janney; (ii) Richard K. Laird is our President and Chief Executive Officer; and
(iii) Russell Scott Henderson is our Senior Vice President Commercial, Business
& Industrial Sales and Marketing. In addition, in March 2000 Janney assisted in
the placement of approximately $1,800,000 of our notes and received a placement
fee equal to 5% of the principal amount thereof.
Because the selling securityholders may offer all or some portion of the
above-referenced securities pursuant to this prospectus or otherwise, no
estimate can be given as to the amount or percentage of such securities that
will be held by the selling securityholders upon termination of this offering.
In addition, the selling securityholders identified above may have sold,
transferred or otherwise disposed of all or a portion of such securities since
the date of our offering in transactions exempt from the registration
requirements of the Securities Act. The selling securityholders may sell all,
part or none of the securities listed above.
None of the selling securityholders have beneficial ownership of any shares
of our common stock prior to the date of our offering, other than those shares
of our common stock issuable upon conversion of the notes as set forth in the
table, and other than Richard K. Laird, our President and Chief Executive
Officer, who has beneficial ownership of 153,270 shares of our common stock. See
"Security Ownership of Certain Beneficial Owners and Management."
Generally, only selling securityholders identified in the foregoing table
who beneficially own the securities set forth opposite their respective names
may sell the securities pursuant to the registration statement of which this
prospectus forms a part. We may from time to time include additional selling
securityholders in supplements to this prospectus.
Warrants and Common Stock Issuable Upon Exercise of the Warrants
The table below sets forth, as of May 31, 2000, the respective amount of
warrants beneficially owned and offered hereby by each selling securityholder,
the percentage of warrants outstanding held by each selling stockholder, and the
common stock issuable upon exercise of the warrants which may be sold from time
to time by selling securityholders pursuant to this prospectus. This information
has been obtained from the selling securityholders.
64
<PAGE>
<TABLE>
<CAPTION>
Warrants Percent of Shares of Common Stock Percent
Beneficially Total Issuable upon Exercise of Total
Owned and Outstanding of the Warrants and Outstanding
Name Offered Hereby Warrants Offered Hereby(1) Shares(2)
---- -------------- ----------- ---------------------- -----------
<S> <C> <C> <C> <C>
Janney Montgomery Scott LLC 166,153 36% 166,153 3.26%
Simmonds Capital Limited 300,000 64% 300,000 5.89%
</TABLE>
-----------------
(1) Assumes exercise of the full amount of the warrants held by the holder.
(2) Based upon shares of our common stock outstanding as of May 31, 2000 of
5,090,405 shares. Excludes 466,153 shares of our common stock issuable upon
exercise of the warrants and 1,000,000 shares of our common stock issuable
upon conversation of the notes. For purposes of computing the percentage of
outstanding shares of common stock held by each person, any security which
such person or group of person has the right to acquire within 60 days is
deemed to be outstanding for the purpose of computing the percentage
ownership for such person, but not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person.
None of the selling securityholders listed above has, or within the past
three years has had, any position, office or other material relationship with us
or any of our predecessors or affiliates, except that Janney was retained by us
in May 2000 to provide investment banking services, and Simmonds Capital Limited
has been providing advisory services relating the development of our LMR
business since December 1999 and was formally retained by us in March 2000. In
addition, in March 2000, Janney assisted in the placement of approximately
$1,700,000 of our convertible subordinated notes and received a placement fee
equal to 5% of the principal amount thereof.
Because the selling securityholders may offer all or some portion of the
above-referenced securities pursuant to this prospectus or otherwise, no
estimate can be given as to the amount or percentage of such securities that
will be held by the selling securityholders upon termination of this offering.
In addition, the selling securityholders identified above may have sold,
transferred or otherwise disposed of all or a portion of such securities since
the date of our offering in transactions exempt from the registration
requirements of the Securities Act. The selling securityholders may sell all,
part or none of the securities listed above.
None of the selling securityholders have beneficial ownership of any shares
of our common stock prior to the date of our offering, other than those shares
of our common stock issuable upon exercise of the warrants as set forth in the
table.
Generally, only selling securityholders identified in the foregoing table
who beneficially own the securities set forth opposite their respective names
may sell the securities pursuant to the
65
<PAGE>
registration statement of which this prospectus forms a part. We may from time
to time include additional selling securityholders in supplements to this
prospectus.
PLAN OF DISTRIBUTION
We are registering the warrants and the shares of common stock issuable
upon conversion of the notes and upon exercise of the warrants to permit public
secondary trading of these securities by their holders from time to time after
the date of this prospectus. We will not receive any of the proceeds from the
sale by the selling securityholders of the securities. We will pay all fees and
expenses incident to our obligation to register the securities. The selling
securityholders may sell all or a portion of the securities beneficially owned
by them and offered hereby from time to time directly through one or more
underwriters, broker-dealers or agents. If the securities are sold through
underwriters or broker-dealers, the selling securityholder will be responsible
for underwriting discounts or commissions or agent's commissions.
The securities may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of the sale, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected in
transactions (which may involve crosses or block transactions):
- on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale,
- in the over-the-counter market,
- in transactions otherwise than on these exchanges or systems or in the
over-the-counter market,
- through the writing of options (whether such options are listed on an
options exchange or otherwise), or
- through the settlement of short sales.
In connection with sales of the securities or otherwise, the selling
securityholder may enter into hedging transactions with broker-dealers, which
may in turn engage in short sales of the securities in the course of hedging in
positions they assume. The selling securityholder may also sell securities short
and deliver securities to close out short positions, or loan or pledge
securities to broker-dealers that in turn may sell such securities. If the
selling securityholders effect such transactions by selling securities to or
through underwriters, broker-dealers or agents, such underwriters,
brokers-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling securityholders or commissions from
purchasers of securities for whom they may act as agent or to whom they may sell
as principal (which discounts, concessions or commissions as to particular
underwriters, brokers-dealers or agents may be in excess of those customary in
the types of transactions involved).
66
<PAGE>
The outstanding common stock is listed for trading on The NASDAQ National
Market under the symbol "RELM." We do not intend to apply for listing of the
warrants on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation System. Accordingly, no
assurance can be given as to the development of liquidity or any trading market
for the warrants. For more details, see the section "Risk Factors" under the
heading "There is no public market for our warrants and you cannot be sure that
an active trading market will develop."
The selling securityholders and any broker-dealer participating in the
distribution of the securities may be deemed to be "underwriters" within the
meaning of the Securities Act, and any commissions paid, or any discounts or
concessions allowed to any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act. At the time a particular
offering of the common shares is made, a prospectus supplement, if required,
will be distributed which will set forth the aggregate amount of common shares
being offered and the terms of the offering, including the name or names of any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling shareholders and any discounts,
commissions or concessions allowed or reallowed or paid to broker-dealers. In
addition, upon our being notified by a named selling shareholder that a donee or
a pledgee intends to sell more than 500 shares, a supplement to this prospectus
will be filed.
Under the securities laws of certain states, the securities may be sold in
such states only through registered or licensed brokers or dealers. In addition,
in certain states the securities may not be sold unless the securities have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with. There can be no assurance
that any selling securityholder will sell any or all of the securities
registered pursuant to the shelf registration statement of which this prospectus
forms a part. In addition, any securities covered by this prospectus that
qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be
sold under Rule 144 or Rule 144A rather than pursuant to this prospectus. The
selling securityholders and any other person participating in such distribution
will be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Regulation M of the
Exchange Act, which may limit the timing of purchases and sales of any of the
securities by the selling securityholders and any other participating person.
Regulation M may also restrict the ability of any person engaged in the
distribution of the securities to engage in market-making activities with
respect to the particular securities being distributed.
All of the foregoing may affect the marketability of the securities and the
ability of any person or entity to engage in market-making activities with
respect to the securities. We will pay all expenses of the registration of the
warrants and common stock, including, without limitation, Securities and
Exchange Commission filing fees and expenses of compliance with state securities
or "blue sky" laws; provided, however, that the selling securityholders will pay
all underwriting discounts and selling commissions, if any.
We will indemnify the selling securityholders who own warrants against
civil liabilities, including certain liabilities under the Securities Act, in
accordance with the warrant agreement or
67
<PAGE>
the selling securityholders will be entitled to contribution. We will be
indemnified by the selling securityholders who own warrants against civil
liabilities, including liabilities under the Securities Act, in accordance with
the warrant agreement or will be entitled to contribution.
Once sold under the shelf registration statement, of which this prospectus
forms a part, the securities will be freely tradable in the hands of persons
other than our affiliates.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the warrants and common stock in Canada is being made
only on a private placement basis exempt from the requirement that RELM and the
selling stockholders prepare and file a prospectus with the securities
regulatory authorities in each province where trades of these securities are
effected. Accordingly, any resale of these securities in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of these securities.
Representations of Purchasers
Each purchaser of these securities in Canada who receives a purchase
confirmation will be deemed to represent to RELM, the selling stockholders and
the dealer from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities law to purchase
these securities without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on their
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions of
the United States federal securities laws.
Enforcement of Legal Rights
All of our directors and officers as well as the experts and the selling
stockholders named in this prospectus may be located outside of Canada, and, as
a result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon RELM or such persons. All or a substantial portion of
the assets of RELM and such persons may be located outside of
68
<PAGE>
Canada and, as a result, it may not be possible to satisfy a judgment against
RELM or such persons in Canada or to enforce a judgment obtained in Canadian
courts against RELM or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any of
the securities acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17 a copy of which may be obtained from RELM. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of these securities should consult their own legal and
tax advisors with respect to the tax consequences of an investment in these
securities in their particular circumstances and with respect to the eligibility
of these securities for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
RELM by Greenberg Traurig, P.A., West Palm Beach, Florida.
EXPERTS
Ernst & Young LLP, independent certified public accountants, have audited
our consolidated financial statements at December 31, 1999 and 1998 and for each
of the three years in the period ended December 31, 1999, as set forth in their
report. We have included our consolidated financial statements in this
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the securities offered hereby. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules to the registration statement. For further information with respect to
RELM and the securities offered hereby, refer to the registration statement and
the exhibits and schedules filed as a part of the registration statement.
Statements contained in this prospectus concerning the contents of any contract
or any other document referred to are not necessarily complete; refer in each
instance to the copy of such contract or document filed as an
69
<PAGE>
exhibit to the registration statement. Each such statement is qualified in all
respects by such reference to such exhibit. You may inspect a copy of the
registration statement without charge at the Securities and Exchange
Commission's principal office in Washington, D.C. and obtain copies of all or
any part thereof upon payment of certain fees from the Public Reference Room of
the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, or at the Securities and Exchange Commission's regional offices in
New York, located at 7 World Trade Center, Suite 1300, New York, New York 10048,
or in Chicago, located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. You may obtain information on the operation of the Public Reference Room
by calling the Securities and Exchange Commission at 1-800-SEC-0330. The
Securities and Exchange Commission maintains an Internet site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission. The Securities and Exchange Commission's World Wide Web address is
www.sec.gov.
We intend to furnish holders of our common stock with copies of our annual
reports containing, among other information, audited financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited condensed financial information for the first three
quarters of each fiscal year. We intend to furnish such other reports as we may
determine or as may be required by law.
70
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
RELM Wireless Corporation
<TABLE>
<CAPTION>
Consolidated Financial Statements for the Years ended December 31, 1999, 1998 and 1997
<S> <C>
Report of Independent Certified Public Accountants..................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998........................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1999,
1998 and 1997...................................................................... F-5
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997............................................. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997................................................... F-7
Notes to Consolidated Financial Statements............................................. F-8
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
RELM Wireless Corporation
We have audited the accompanying consolidated balance sheets of RELM Wireless
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of RELM
Wireless Corporation at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Orlando, Florida
February 18, 2000 except for notes 4 and 16
as to which the date is March 24, 2000
F-2
<PAGE>
RELM Wireless Corporation
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
December 31
---------------------
1999 1998
------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1 $ 464
Accounts receivable (net of allowance for doubtful accounts of
$1,672 in 1999 and $1,565 in 1998 1,966 3,498
Inventories 10,211 10,566
Notes receivable 400 400
Prepaid expenses and other current assets 501 239
Investment securities--trading 1 749
Real estate investments held for sale -- 58
------- -------
Total current assets 13,080 15,974
Property, plant and equipment:
Land 233 233
Buildings and improvements 4,183 4,183
Machinery and equipment 10,358 9,736
Accumulated depreciation (6,750) (5,323)
------- -------
8,024 8,829
Notes receivable, less current portion 1,295 1,695
Other assets 454 329
------- -------
Total assets $22,853 $26,827
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
RELM Wireless Corporation
Consolidated Balance Sheets (continued)
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31
---------------------
1999 1998
------- -------
<S> <C> <C>
Liabilities and stockholders' equity Current liabilities:
Current maturities of long-term liabilities $ 1,807 $ 1,355
Accounts payable 4,447 4,617
Accrued compensation and related taxes 514 2,547
Accrued expenses and other current liabilities 636 704
Accrued restructuring liability -- 178
------- -------
Total current liabilities 7,404 9,401
Long-term liabilities, less amounts classified as current liabilities:
Loans, notes and mortgages 8,281 7,313
Capital lease obligations 791 1,442
------- -------
9,072 8,755
Commitments and contingencies
Stockholders' equity:
Common stock; $.60 par value; 10,000,000 authorized shares: issued and
outstanding shares 5,090,405 at December 31, 1999 and 5,046,416 at
December 31, 1998 3,053 3,027
Additional paid-in capital 20,195 20,221
Accumulated deficit (16,871) (14,577)
------- -------
Total stockholders' equity 6,377 8,671
------- -------
Total liabilities and stockholders' equity $22,853 $26,827
======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
RELM Wireless Corporation
Consolidated Statements of Operations
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Sales $22,404 $29,530 $ 45,376
Expenses:
Cost of products 16,618 22,864 39,003
Selling, general and administrative 7,508 9,871 12,099
Impairment loss -- 961 --
Restructuring charge -- -- 1,872
------- ------- --------
24,126 33,696 52,974
------- ------- --------
Operating loss (1,722) (4,166) (7,598)
Other income (expense):
Interest expense (1,079) (797) (932)
Net gains (losses) on investments 49 (132) 158
Other income 458 188 268
------- ------- --------
Total other expense (572) (741) (506)
------- ------- --------
Loss from continuing operations before income taxes (2,294) (4,907) (8,104)
Income tax expense -- -- 3,870
------- ------- --------
Loss from continuing operations (2,294) (4,907) (11,974)
Discontinued operations:
Loss from discontinued operations net of taxes -- (725) (266)
Loss on disposal of discontinued segments net of taxes -- -- (2,570)
------- ------- --------
Loss on discontinued operations -- (725) (2,836)
Extraordinary: -- 227 --
Gain on debt forgiveness
------- ------- --------
Net loss $(2,294) $(5,405) $(14,810)
======= ======= ========
Earnings (loss) per share--basic and diluted:
Continuing operations $ (.45) $ (.97) $ (2.36)
Discontinued operations -- (.15) (.56)
Extraordinary -- .05 --
------- ------- --------
Net loss $ (.45) $ (1.07) $ (2.92)
======= ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
RELM Wireless Corporation
Consolidated Statements of Stockholders' Equity
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
--------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1997 5,129,150 $3,076 $20,500 $ 5,638 $ 29,214
Purchase of common stock (93,371) (55) (315) -- (370)
Net loss -- -- -- (14,810) (14,810)
--------- ------ ------- -------- --------
Balances at December 31, 1997 5,035,779 3,021 20,185 (9,172) 14,034
Sale of common stock 10,637 6 36 -- 42
Net loss -- -- -- (5,405) (5,405)
--------- ------ ------- -------- --------
Balances at December 31, 1998 5,046,416 3,027 20,221 (14,577) 8,671
Other 43,989 26 (26) -- --
Net loss -- -- -- (2,294) (2,294)
--------- ------ ------- -------- --------
Balances at December 31, 1999 5,090,405 $3,053 $20,195 $(16,871) $ 6,377
========= ====== ======= ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
RELM Wireless Corporation
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(2,294) $(5,405) $(14,810)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,497 1,344 1,796
Net (gain) loss on investment securities (49) 132 (158)
Valuation allowance on real estate -- 961 --
(Gain) loss on disposal of assets (142) -- 2,570
Deferred income taxes -- -- 3,870
Other -- -- 39
Changes in current assets and liabilities:
Accounts receivable 1,346 1,881 3,327
Inventories 100 938 3,508
Accounts payable (170) 2,682 (2,049)
Other current assets and liabilities (2,665) (3,361) 1,898
Real estate investments held for sale 58 814 2,677
Discontinued segments - working capital charges --
-- 545
------- ------- --------
Cash provided by (used in) operating activities (2,319) (14) 3,213
Cash flows from investing activities
Purchases of property and equipment (681) (1,368) (2,694)
Collections on notes receivable 400 600 --
Loans and advances -- (95) --
Net cash from sale of subsidiaries 525 -- 7,643
Proceeds from disposals of assets 46 -- --
Proceeds from sale of investment securities 797 -- --
------- ------- --------
Cash provided by (used in) investing activities 1,087 (863) 4,949
Cash flows from financing activities
Repayment of debt and capital lease obligations (1,973) (1,184) (2,248)
Proceeds from debt 1,880 -- 4,802
Net increase (decrease) in revolving credit lines 862 2,270 (11,071)
Proceeds from issuance of common stock -- 42 --
Retirement of stock -- -- (31)
------- ------- --------
Cash provided by (used in) financing activities 769 1,128 (8,548)
------- ------- --------
Increase (decrease) in cash (463) 251 (386)
Cash and cash equivalents, beginning of year 464 213 599
------- ------- --------
Cash and cash equivalents, end of year $ 1 $ 464 $ 213
======= ======= ========
Supplemental disclosure
Interest paid $ 1,079 $ 797 $ 1,266
Income taxes paid -- 29 12
Capital lease additions -- -- 1,755
</TABLE>
See accompanying notes
F-7
<PAGE>
RELM Wireless Corporation
Notes to Consolidated Financial Statements
December 31, 1999
(In Thousands, Except Share Data)
1. Summary of Significant Accounting Policies
Description of Business
The Company's primary business is the designing, manufacturing, and marketing of
wireless communications equipment consisting of land mobile radios, utility load
management systems, and base station components and subsystems.
Principles of Consolidation
The accounts of the Company and its subsidiaries have been included in the
consolidated financial statements. All significant intercompany balances and
transactions have been eliminated.
Inventory
Inventories are stated at the lower of cost or market, determined by the average
cost method.
Investment Securities
Investments that are purchased and held principally for the purpose of selling
them in the near term are classified as "trading securities" and carried at fair
value, with unrealized gains and losses included in earnings. Realized gains and
losses are computed by the specific identification method on a trade-date basis.
The classification of investment securities is determined by management at the
date of purchase. When the Company subsequently changes its purpose for holding
the security, it is transferred among classifications at the fair value at the
date reclassified.
Property and Equipment
Property and equipment is carried at cost. Expenditures for maintenance, repairs
and minor renewals are expensed as incurred. When properties are retired or
otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts and the resulting gain or loss is reflected in
operations for the period.
Depreciation is generally computed on the straight-line method using lives of 3
to 20 years on machinery and equipment and 5 to 30 years on buildings and
improvements.
F-8
<PAGE>
Depreciation and amortization expense on property, plant, and equipment for
1999, 1998 and 1997 was $1,497, $1,344 and $1,220, respectively.
Impairment of Long-Lived Assets
In the event that facts and circumstances indicate that the cost of assets may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset's carrying amount to determine if
a write-down to market value or discounted cash flow value is required.
Cash Equivalents
Cash and cash equivalents includes time deposits, certificates of deposit and
highly liquid marketable securities with original maturities of less than three
months.
Revenue Recognition
Sales revenue is recognized as goods are shipped.
Income Taxes
The Company files a consolidated federal income tax return with its subsidiaries
in which it owns 80% or more of the outstanding capital stock. The Company
follows the liability method of accounting for income taxes.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist primarily of cash and cash equivalents, accounts
receivables and investments. The Company places its cash, cash equivalents, and
investments in accounts with major financial institutions. Concentrations of
credit risk with respect to accounts receivable are generally diversified due to
the large number of customers comprising the Company's customer base.
Accordingly, the Company believes that its accounts receivable credit risk
exposure is limited.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-9
<PAGE>
Fair Value of Financial Instruments
The Company's management believes the carry amounts of cash and cash
equivalents, accounts receivable, accounts payable and other accrued liabilities
approximates fair value because of the short-term nature of these financial
instruments. The fair value of notes receivable and short-term and long-term
debt approximates market, as the interest rates on these financial instruments
are market rates. The Company has entered into an interest rate swap to reduce
exposure to interest rate fluctuations on its long-term mortgage debt. The
interest differential from the swap is recorded as interest expense as incurred.
Advertising Costs
The cost for advertising is expensed as incurred. The total advertising expense
for 1999, 1998 and 1997 was $133, $241 and $456, respectively.
Research and Development Costs
Included in selling, general and administrative expenses for 1999, 1998 and 1997
are research and development costs of $1,483, $2,277 and $5,466, respectively.
Stock Based Compensation
The Company follows APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock-based
compensation plans.
Earnings (Loss) Per Share
Earnings (loss) per share amounts are computed and presented for all periods in
accordance with SFAS No. 128, Earnings per Share.
Comprehensive Income
Pursuant to SFAS No. 130, Reporting Comprehensive Income, the Company is
required to report comprehensive income and its components in its financial
statements. The Company does not have any significant components of other
comprehensive income to be reported under SFAS No. 130. Total comprehensive
income (loss) is equal to the net income (loss) reported in the financial
statements.
Business Segments
The Company follows SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, in reporting segment information and information about
products and services, geographic areas, and major customers. The Company has
only one reportable business segment.
F-10
<PAGE>
Impact of Recently Issued Accounting Standard
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company will be required to implement
SFAS No. 133 for the year ending December 31, 2001. SFAS No. 133 will require
the Company to recognize all derivatives on the balance sheet at fair value. The
Company does not anticipate that the adoption of SFAS 133 will have a
significant effect on its operations or financial position.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. Inventories
Inventory, which is presented net of an allowance for obsolete and slow moving
inventory, consists of the following:
December 31
-------------------------
1999 1998
-------- -------
Finished goods $ 5,065 $ 4,641
Work in process 1,645 1,945
Raw materials 3,501 3,980
------- -------
$10,211 $10,566
------- -------
The allowance for obsolete and slow moving inventory is as follows:
Year ended December 31
----------------------------------
1999 1998 1997
------ ------ ------
Balance, beginning of year $1,985 $2,805 $ 850
Charged to cost of sales (12) 137 2,572
Disposal of inventory (39) (957) (617)
------ ------ ------
Balance, end of year $1,934 $1,985 $2,805
====== ====== ======
F-11
<PAGE>
3. Allowance for Doubtful Accounts
The allowance for doubtful accounts is composed of the following:
Year ended December 31
-------------------------
1999 1998 1997
------ ------ ----
Balance, beginning of period $1,565 $ 133 $165
Provision for doubtful accounts 176 1,514 140
Uncollectible accounts written off (69) (82) (147)
Discontinued operations -- -- (25)
------ ------ ----
Balance, end of period $1,672 $1,565 $133
====== ====== ====
4. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
December 31
--------------------
1999 1998
------- -------
<S> <C> <C>
Line of credit $ 4,632 $ 3,770
Note payable to bank, secured by real estate, with monthly
payments of $24 plus interest at 8.85% through August 2012
This note was paid in full on March 24, 2000. See Note 16 3,666 3,905
Notes payable to finance company, secured by surety bond,
with monthly payments of $61 including interest at 6.04%
through July 2001
1,048 --
Notes payable to a third party -- 400
------- -------
Total debt 9,346 8,075
Amounts classified as current liabilities (1,065) (762)
------- -------
Long-term debt $ 8,281 $ 7,313
======= =======
</TABLE>
On February 26, 1999, the Company refinanced its revolving credit. The new
credit agreement, which was amended for the second time on March 10, 2000,
provides for a maximum line of credit of $7,000 reduced by outstanding letters
of credit. Included in the $7,000 line is a $500 term loan with monthly
principal payments of $8 which commenced on April 1, 1999. The term loan has a
balance of $425 at December 31, 1999. Interest on the unpaid principal balance
accrues at the prime rate (8.50% at December 31, 1999) plus 1.25%. There is an
annual fee of .25% on the line. The credit agreement requires, among other
things, maintenance of financial ratios and limits certain expenditures. The
line of credit is secured by substantially all of the Company's non-real estate
assets and expires on February 26, 2002. At December 31, 1999 and 1998, the
Company had $2,368 and $3,230 of availability on the revolving credit facility.
F-12
<PAGE>
The Company has entered into an interest rate swap related to its $3,666 note to
reduce exposure to interest rate fluctuations. Under this arrangement, the
Company converted the variable LIBOR-rate debt into 8.85% fixed-rate debt.
On November 17, 1998, an agreement was reached with the third party debtor
whereby principal and interest of $227 was forgiven and a new agreement for $500
was signed. The agreement required interest free monthly payments of $50. This
debt was paid in full in 1999. The gain on debt forgiveness is classified as an
extraordinary item in the 1998 statement of operations.
Maturities of long-term debt for years succeeding December 31, 1999 are as
follows:
2000 $1,065
2001 807
2002 4,719
2003 288
2004 288
Thereafter 2,179
------
$9,346
======
5. Leases
The Company occupied certain properties under long-term operating leases, which
expire at various dates. Certain of these operating leases were assumed by the
buyers of the Company's paper and specialty manufacturing businesses, which were
sold in 1997. The Company recorded charges of $345 in 1997 related to the
abandonment of certain leases and the write-off of leasehold improvements. Total
rental expenses for all operating leases for 1999, 1998 and 1997 were $280, $220
and $397, respectively.
Property, plant and equipment includes equipment purchased under capital leases
at December 31 as follows:
1999 1998
------- -------
Cost $ 3,672 $ 3,672
Accumulated depreciation (2,197) (1,671)
------- -------
$ 1,475 $ 2,001
======= =======
Amortization of equipment under capital leases is included in depreciation
expense.
F-13
<PAGE>
At December 31, 1999, the future minimum payments for the capital leases are as
follows:
2000 $ 873
2001 593
2002 249
------
Total minimum lease payments 1,715
Less amounts representing interest (182)
------
Present value of net minimum lease payments 1,533
Less current maturities (742)
------
Long-term obligations under capital-leases $ 791
======
6. Income Taxes
The provision for income taxes consists of the following:
1999 1998 1997
------ ------ ------
Current:
Federal $ -- $ -- $ --
State -- -- --
------ ------ ------
------ ------ ------
Deferred:
Federal -- -- 3,309
State -- -- 561
------ ------ ------
-- -- 3,870
------ ------ ------
$ -- $ -- $3,870
====== ====== ======
The components of consolidated income taxes (benefit) for the years ended
December 31 are as follows:
1999 1998 1997
----- ----- -----
Federal income taxes (benefit) at
statutory rates (34.0)% (34.0)% (34.0)%
State income taxes (benefit) net of
federal income tax benefit (3.6) (3.6) (3.5)
Change in valuation allowance 37.2 37.6 86.0
Permanent differences and other 0.4 -- (0.7)
----- ----- -----
Effective income tax rate --% --% 47.8%
===== ===== =====
F-14
<PAGE>
The deferred tax effect of temporary differences between financial and tax
reporting at December 31 is as follows:
1999 1998
-------- --------
Deferred tax assets:
Operating loss carryovers $ 12,042 $ 9,589
Tax credits 49 49
Asset reserves:
Bad debts 629 589
Inventory reserve 737 940
Inventory capitalization 128 128
Real estate sales -- 740
Accrued expenses:
Compensated absences 100 100
Health insurance claims -- 707
Restructuring accrual 21 67
All other 87 105
Valuation allowances (13,066) (12,212)
-------- --------
727 802
Deferred tax liabilities:
Depreciation (727) (727)
Unrealized capital gain -- (75)
-------- --------
Net deferred tax assets $ -- $ --
======== ========
In accordance with SFAS Statement No. 109, Accounting for Income Taxes,
valuation allowances are provided against deferred tax assets if, based on the
weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. The Company has evaluated the
realizability of the deferred tax assets on its balance sheet and does not
believe it has met the more likely than not criteria; therefore, the Company has
established a valuation allowance in the amount of $13,066 in 1999 and $12,212
in 1998 against its net deferred tax assets.
Part of the federal loss carryforward is attributed to the prior operation of
the wireless electronic subsidiary. This loss carryforward is limited to a tax
benefit of approximately $320 per year. If unused, the federal and state tax
loss carryforward benefit (at current rates) expires in the following years:
2004--$1,177; 2005--$1,436; 2006--$363; 2009--$5; 2010--$81; 2011--$459;
2012--$2,667; 2018--$3,401; 2019--$2,453.
F-15
<PAGE>
7. Earnings (Loss) Per Share
The following table sets the computation of basic and diluted earnings (loss)
per share from continuing operations:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Net loss (numerator for basic and diluted
earnings per share) $ (2,294) $ (4,907) $ (11,974)
---------- ---------- ----------
Denominator:
Denominator for basic and diluted earnings
per share-weighted average shares 5,090,405 5,045,459 5,076,438
========== ========== ==========
Basic earnings (loss) per share $ (.45) $ (.97) $ (2.36)
========== ========== ==========
Diluted earnings (loss) per share $ (.45) $ (.97) $ (2.36)
========== ========== ==========
</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.
8. Stock Option and Other Stock Plans
The Company has two plans whereby eligible officers, directors and employees can
be granted options for future purchases of Company common stock at the market
price on the grant date. The options, if not exercised within five-year or
ten-year periods, expire. Other conditions and terms apply to stock option
plans.
The following is a summary of all stock option plans:
<TABLE>
<CAPTION>
Shares Option Weighted
Under Price Average
Option Per Share Exercise Price
-------- ----------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1996 277,658 $3.61-$6.88 $4.90
Options granted 130,000 4.06- 6.25 5.74
Options expired or terminated (114,135) 3.61- 6.88 4.97
--------
Balance at December 31, 1997 293,523 4.00- 6.88 5.28
Options granted 190,000 3.06- 3.50 3.20
Options exercised (10,637) 4.00 4.00
Options expired or terminated (44,907) 3.06- 6.88 5.94
--------
Balance at December 31, 1998 427,979 3.06- 6.88 4.46
Options granted 495,000 1.50- 4.25 3.08
Options expired or terminated (171,313) 3.50- 6.88 4.34
-------- -----------
Balance at December 31, 1999 751,666 $1.50-$6.25 3.54
======== ===========
Exercisable at December 31, 1999 155,000 $1.50-$6.25 4.23
======== ===========
</TABLE>
F-16
<PAGE>
The weighted average contractual life of stock options outstanding was 8.5 and
2.7 years at December 31, 1999 and 1998, respectively.
At December 31, 1999, 948,334 of unissued options were available under the two
plans.
Pro forma information regarding net income or loss is required by SFAS No. 123,
Accounting for Stock-Based Compensation, and has been determined as if the
Company had accounted for its employee stock options under the fair value method
of that Statement. The fair values for these options were estimated at the date
of grant using the Black-Scholes option-pricing model minimum value method with
the following weighted-average assumptions for 1999, 1998 and 1997: expected
volatility of 90% (1999), 59% (1998) and 44% (1997); risk-free interest rate of
6%; dividend yield of 0%; and a weighted-average expected life of the options of
3.5 years.
For purposes of pro forma disclosures, the estimated fair value is amortized to
expense over the options' vesting period. The Company's pro forma net loss for
1999, 1998 and 1997 was $2,545, $5,520 and $14,835, respectively, or $50, $1.09
and $2.92, respectively, per share. The proforma net loss reflects only options
granted after December 31, 1994. Therefore, the full impact of calculating
compensation cost for stock options under SFAS Statement No. 123 is not
reflected in the proforma net loss amounts because compensation cost is
reflected over the vesting periods and compensation cost for options granted
prior to January 1, 1995 is not considered. The weighted average fair value of
options granted during 1999, 1998 and 1997 was $2.08, $1.63 and $2.41,
respectively. The option price equaled the market price on the date of grant for
all options granted in 1999, 1998 and 1997.
9. Significant Customers
Sales to the United States government and to foreign markets as a percentage of
the Company's total sales were as follows:
1999 1998 1997
---- ---- ----
U.S. government 26% 24% 32%
Foreign markets 1 9 10
10. Pension Plans
The Company sponsors a participant contributory retirement (401k) plan, which is
available to all employees. The Company's contributions to the plan is either a
percentage of the participants
F-17
<PAGE>
salary (50% of the participants' contributions up to a maximum of 6%) or a
discretionary amount. Total contributions made by the Company were $109, $137
and $248 for 1999, 1998 and 1997, respectively.
The Company participated in a multi-employer pension plan through June 16, 1997,
the date of sale of its paper manufacturing business. The plan provides defined
benefits for those employees covered by two collective bargaining agreements.
Contributions for employees are based on hours worked at rates set in the
bargaining agreements. If the Company curtailed employment or withdrew from the
multi-employer plans, a withdraw liability may be incurred. The buyer of the
paper manufacturing business agreed to assume such withdrawal liability, if any.
The Company agreed to be secondarily liable if the buyer withdraws from the plan
through June 16, 2002. The amount of such liability, if any, cannot presently be
determined. Total amounts charged to pension expense and contributed to the
multi-employer plan were $70 for 1997.
11. Related Party Transactions
The specialty-manufacturing subsidiary leased its manufacturing and office
facility from a corporation controlled by an officer of the Company. This
subsidiary was sold on June 4, 1997. Rental payments under this lease were
approximately $88 for the period January 1, 1997 through the sale date.
During 1997, the Company's commercial real estate subsidiary sold real estate to
an entity that was controlled by the Company's principal shareholder for $1,733.
As part of the sale, unsecured notes receivables were established totaling $200.
These notes plus interest at 7% were paid in 1998. During 1998, the Company's
commercial real estate subsidiary sold real estate to an entity that was
controlled by the Company's principal shareholder for $1,056 cash.
12. Restructuring
In 1997, the Company recorded a $1,872 charge related to restructuring. The
restructuring consisted of consolidating operations and reducing operating
expenses. In consolidating operations, the Company accrued $446 related to the
closing of a research and development facility in Indiana and $1,426 relating to
the termination of both factory and support employees in Indiana and Florida. In
1998, the Company reduced the liability by $1,694 for lease and severance
payments. The remaining liability of $178 at December 31, 1998 related to the
remaining lease payments on the Indiana facility. During 1999, the Company
completed its transactions related to the restructuring and reduced the
liability to zero.
13. Real Estate Assets Held for Sale
The Company sold its remaining real estate assets that were being held for sale
during the first and second quarters of 1999. The real estate assets included
subdivided units of commercial land, completed residential properties, and
commercial properties, and were presented net of valuation allowances of $1,966
at December 31, 1998. The real estate valuation allowance was composed of the
following:
F-18
<PAGE>
Year ended December 31
---------------------------------
1999 1998 1997
------- ------ -------
Balances, beginning of period $ 1,966 $1,005 $ 2,920
Provision for impairment loses -- 961 --
Reduction due to sales (1,966) -- (1,915)
------- ------ -------
Balance, end of period $ 0 $1,966 $ 1,005
======= ====== =======
The summarized results of operations of the real estate business are as follows:
Year ended December 31
-------------------------------
1999 1998 1997
------ ------ -------
Sales $ 908 $1,805 $ 3,937
Cost of sales (58) (851) (4,006)
Impairment loss -- (961) --
Selling, general and administrative
expenses (60) (100) (522)
----- ------ -------
Operating income (loss) $(790) $ (107) $ (591)
===== ====== =======
14. Discontinued Operations
Paper Manufacturing
On June 16, 1997, the Company sold the assets and certain liabilities of its
paper manufacturing business, Fort Orange Paper Co., Inc. (Fort Orange), to the
former president of Fort Orange. The purchase price totaled $8,619 and consisted
of cash of $6,219 and a note for $2,400. A loss of $2,084 was recorded on the
transaction. The note, which totaled $1,600 and $2,000 at December 31, 1999 and
1998, respectively, is receivable over five years in annual payments of $400 for
the first four years and $800 in the final year and is secured by the assets of
Fort Orange. Interest at 11.5% is receivable quarterly. Summarized results of
Fort Orange's discontinued operations for 1997 were as follows:
Net revenues $10,335
Operating loss (415)
Net income from discontinued operations 335
Specialty Manufacturing
In December 1996, the Company agreed in principal to sell its specialty
manufacturing business, Allister Manufacturing Company, Inc. (Allister), to an
officer and director of the Company. The sale, which was conditional upon the
buyer obtaining the necessary financing, was finalized on
F-19
<PAGE>
June 4, 1997 for a total purchase price of approximately $1,946 including cash
of $1,592 and the assignment of approximately 83,000 shares of common stock of
the Company. The book value of the net assets sold were $2,432 at the date of
sale. A loss on the sale of $1,832 was recorded in 1996 and an additional loss
on sale of $486 was recorded in 1997. Summarized results of Allister's
discontinued operations for 1997 were as follows:
Net revenues $4,332
Operating profit 69
Net income from discontinued operations 69
RXD, Inc.
During the third quarter of 1999, the Company sold the assets associated with
its subsidiary, RXD, Inc. (RXD), for $525. The assets sold included accounts
receivable and inventory valued at $186 and $255, respectively. The gain
recorded from the sale is $84 and is included in other income in the statement
of operations. The Company's sales for 1999, 1998 and 1997 includes
approximately $910, $1,710 and $1,420 of sales generated by RXD.
15. Contingent Liabilities
From time to time, the Company may become liable with respect to pending and
threatened litigation, tax, environmental, and other matters.
General Insurance
Under the Company's insurance programs, coverage is obtained for catastrophic
exposures as well as those risks required to be insured by law or contract. It
is the policy of the Company to retain a significant portion of certain expected
losses related primarily to workers' compensation, physical loss to property,
business interruption resulting from such loss and comprehensive general,
product, and vehicle liability. Provisions for losses expected under these
programs are recorded based upon the Company's estimates of the aggregate
liability for claims incurred. Such estimates utilize certain actuarial
assumptions followed in the insurance industry and are included in accrued
expenses. The amounts accrued are included in accrued compensation and related
taxes in the balance sheets.
Former Affiliate
In 1993, a civil action was brought against the Company by a plaintiff to
recover losses sustained on notes of a former affiliate. The plaintiff alleges
violations of federal security and other laws by the Company in collateral
arrangements with the former affiliate. In response, the Company filed a motion
to dismiss the complaint in the fall of 1993, which the court has yet to rule.
In February 1994, the plaintiff executed and circulated for signature, a
stipulation of voluntary dismissal. After the stipulation was executed the
plaintiff refused to file the stipulation with the court. Subsequently the
Company and others named in the complaint filed a motion to enforce their
agreement with the plaintiff. The court has also yet to rule on that motion.
F-20
<PAGE>
In a second related action, an adversarial action in connection with the
bankruptcy proceedings of the former affiliate has been filed. In response to
that complaint the Company filed a motion to dismiss for failure to state a
cause of action. Although the motion for dismissal was filed during 1995, the
bankruptcy court has not yet ruled on the motion. The range of potential loss,
if any, as a result of these actions cannot be presently determined.
In February 1986, the liquidator of the former affiliate filed a complaint
claiming intentional and negligent conduct by the Company and others named in
the complaint caused the former affiliate to suffer millions of dollars of
losses leading to its ultimate failure. The complaint does not specify damages
but an unfavorable outcome could have a material adverse impact on the Company's
financial position. The range of potential loss, if any, cannot be presently
determined.
Management, with the advice of counsel, believes the Company has meritorious
defenses and the likelihood of an unfavorable outcome in each of these actions
is remote.
Counter Claims
In February 1999, the Company initiated collection and legal proceedings against
its Brazilian dealer, Chatral, for failure to pay for 1998 product shipments
totaling $1,400. On December 8, 1999, Chatral filed a counter claim against the
Company that alleges damages totaling $8,000 as a result of the Company's
discontinuation of shipments to Chatral.
In June 1999, the Company initiated collection and legal proceedings against TAD
Radio Inc. (TAD) for failure to pay for product shipments totaling $108. On
December 30, 1999, TAD filed a claim against the Company for damages estimated
to be $400. Generally, the plaintiff contends unfair and malicious conduct in
product sales and warranty claim matters. As a result, the plaintiff alleges
loss of profits, goodwill, and market share.
Although the Company and its counsel believe the Company has defenses of merit,
the outcome of these actions are uncertain. An unfavorable outcome could have a
material adverse effect on the financial position of the Company.
16. Subsequent Events
Acquisition of Uniden Land Mobile Radio Product Lines
On March 13, 2000, the Company completed the acquisition of certain private
radio communications products from Uniden America Corporation (Uniden) for
approximately $1,800. Under the terms of the transaction, the Company acquired
certain land mobile radio inventory, certain non-exclusive intellectual property
rights, and assumed responsibility for service and technical support. Uniden
will continue to provide manufacturing support for certain Uniden land mobile
radio products, which will be marketed by the Company.
F-21
<PAGE>
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. The notes 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. The remaining proceeds will be
used for working capital purposes and developing new 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 transaction will
result in a gain of approximately $1,200 and will provide approximately $1,600
in cash after related expenses and after payoff of the mortgage on the property.
The Company will lease approximately 54 square feet of comparable space at a
nearby location.
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-nine of the Company's
direct manufacturing workforce and purchased approximately $2,400 of the
Company's raw materials inventory.
F-22
<PAGE>
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Financial Statements for the Three Months Ended March 31,
2000 and 1999 (Unaudited)
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets as of March 30, 2000 and December 31, 1999... F-24
Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 2000 and 1999....................................................... F-26
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999....................................................... F-27
Notes to Condensed Consolidated Financial Statements............................... F-28
</TABLE>
F-23
<PAGE>
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
------- -------
14,917 13,080
Total current assets
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
F-24
<PAGE>
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:
Loan, notes and mortgages 3,733 8,281
Convertible subordinate notes 3,250 --
Capital lease obligations 660 791
-------- --------
7,643 9,072
Stockholders' equity:
Common stock; $.60 par value; 10,000,000 authorized shares
5,090,405 issued and outstanding shares
Additional paid-in capital 3,053 3,053
Accumulated deficit 20,195 20,195
(16,480) (16,871)
-------- --------
Total stockholders' equity 6,768 6,377
-------- --------
Total liabilities and stockholders' equity $ 21,525 $ 22,853
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-25
<PAGE>
RELM WIRELESS CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 31, 2000 March 31, 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.
F-26
<PAGE>
RELM WIRELESS CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
March 31, 2000 March 31, 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 change in line 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
F-27
<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.
F-28
<PAGE>
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.
F-29
<PAGE>
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>
5. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
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 5,598,369 5,046,416
average shares
========== ==========
Basic earnings per share $ 0.08 $ 0.01
========== ==========
Diluted earnings per share $ 0.07 $ 0.01
---------- ----------
</TABLE>
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.
F-30
<PAGE>
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.
F-31
<PAGE>
[RELM LOGO]
UNTIL __________, 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated fees and expenses payable by
us in connection with the resale and distribution of the securities being
registered hereby.
Securities and Exchange Commission registration fee................. $ 1,027
NASDAQ National Market listing fee.................................. 10,000
Accounting fees and expenses........................................ 20,000
Legal fees and expenses............................................. 25,000
Blue Sky fees and expenses.......................................... 3,000
-------
TOTAL............................................................ $59,027
=======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION OF LIABILITY.
Our officers and directors are indemnified as provided under the Nevada
Revised Statutes and our articles of incorporation and by-laws.
Unless specifically limited by a corporation's articles of incorporation,
the Nevada Revised Statutes automatically provides directors with immunity from
monetary liabilities. Our articles of incorporation do not contain any such
limiting language. Excepted from this immunity are: (i) a willful failure to
deal fairly with the corporation or its shareholders in connection with a matter
in which the director has a material conflict of interest; (ii) a violation of
criminal law unless the director had reasonable cause to believe that his or her
conduct was lawful or no reasonable cause to believe that his or her conduct was
unlawful; (iii) a transaction from which the director derived an improper
personal profit; and (iv) willful misconduct.
Our articles of incorporation provide that we will indemnify, to the
fullest extent permitted by Nevada law, all persons whom we have the power to
indemnify under Nevada law, and that such indemnification shall not be the
exclusive indemnification available to such persons.
Our by-laws provide that we will indemnify each of our directors and
officers if he or she acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interest of RELM and, with respect to any
criminal proceedings, had no reasonable cause to believe his or her conduct was
unlawful. In addition, we will indemnify our directors and officers in any
action by or in the right of the corporation if he or she acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, the
best interest of RELM; provided, that no indemnification shall be made in
respect of a claim as to which the person has been adjudged to be liable to RELM
unless and only to the extent that a court of competent
II-1
<PAGE>
jurisdiction determines that, despite the adjudication of liability but in view
of the circumstances of the case, the person is fairly and reasonably entitled
to indemnity for the expenses that such court deems proper.
Our by-laws provide that no indemnification shall be provided by us to an
person unless it is determined that indemnification is proper because the person
has met the applicable standard of conduct. Such determination shall be made:
- by the board of directors by a majority vote of a quorum consisting of
directors who are not parties to the action or proceeding, or
- if such quorum is not obtainable, or if obtainable and a majority vote
of a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or
- by the shareholders, or
- in such other manner, if any, as shall be permitted under Nevada law.
Our by-laws provide that expenses incurred in defending any action or
proceeding to which indemnification may be available may be advanced by RELM
upon receipt of any undertaking by or on behalf of the person claiming
indemnification to repay these amount if it should be determined ultimately that
he is not entitled to be indemnified by RELM.
In addition, our articles of incorporation eliminate the personal liability
of RELM's directors to the fullest extent permitted by Nevada law, as the same
may be amended and supplemented.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of RELM, RELM
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy and is, therefore, unenforceable.
We intend to enter into indemnity agreements with each of our directors and
executive officers to give them additional contractual assurances regarding the
scope of the indemnification described above and to provide additional
procedural protections. In addition, we have obtained directors' and officers'
insurance providing indemnification for our directors, officers and certain
employees for certain liabilities. We believe that these indemnification
provisions and agreements are necessary to attract and retain qualified
directors and officers. The limitation of liability and indemnification
provisions in our articles of incorporation and by-laws may discourage
shareholders from bringing a lawsuit against directors for breach of their
fiduciary duty. They may also reduce the likelihood of derivative litigation
against directors and officers, even though such an action, if successful, might
otherwise benefit our shareholders and us. Furthermore, a stockholder's
investment may be adversely affected to the extent we pay the costs of
settlement and damage awards against directors and officers under these
indemnification provisions.
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 16, 2000, we completed the private placement of $3.25 million
aggregate principal amount of our convertible subordinated notes. The notes were
sold to the selling securityholders listed under "Selling Securityholders--
Common Stock Issuable Upon Conversion of Notes."
The proceeds from this offering were used to purchase the LMR assets of
Uniden America Corporation and to satisfy our delinquent mortgage obligation.
Remaining proceeds will be utilized for working capital requirements. A
commission of $90,000 was paid to Janney Montgomery Scott LLC for the placement
of $1.8 million of the notes.
The sale of the above securities was deemed to be exempt from registration
under the Securities Act in reliance upon Rule 506 of Regulation D promulgated
under the Securities Act as transactions by an issuer not involving any public
offering. The recipients of securities in each such transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof, and appropriate
legends were affixed to the share certificates issued in such transactions. All
recipients had adequate access, through their relationships with RELM, to
information about RELM.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
Exhibit Exhibits
------- --------
3(a) Articles of Incorporation(2)
3(b) By-Laws(2)
4(a) Form of 8% Convertible Subordinated Promissory Note(5)
4(b) Warrant Agreement between RELM Wireless Corporation and Janney
Montgomery Scott LLC dated May 12, 2000
4(c) Warrant Certificate No. W-100 issued to Janney Montgomery Scott
LLC dated May 12, 2000
4(d) Warrant Agreement between RELM Wireless Corporation and Simmonds
Capital Limited day May 12, 2000
4(e) Warrant Certificate No. W-100 issued to Simmonds Capital Limited
dated May 12, 2000
5 Opinion of Greenberg Traurig, P.A.(6)
10(a) 1996 Stock Option Plan for Non-Employee Directors (1)
10(b) 1997 Stock Option Plan (2)
10(c) Loan and Security Agreement with Summit Commercial/Gibraltar Corp.
dated February 26, 1999(3)
10(d) Workers Compensation Close Out Agreement dated December 21,
1998(3)
10(e) Amendment to Security and Loan Agreement with Summit
Commercial/Gibraltar Corp. dated December 1999(4)
10(f) Second Amendment to Security and Loan Agreement with Summit
Commercial/Gibraltar Corp. dated March 10, 2000(4)
II-3
<PAGE>
Exhibit Exhibits
------- --------
10(g) Third Amendment to Security and Loan Agreement with Summit
Commercial/Gibraltar Corp. dated March 24, 2000(4)
10(h) Letter Agreement with Simmonds Capital Limited dated March 23,
2000(4)
10(i) Exclusive Right of Sale Listing Agreement effective October 25,
1999(5)
10(j) Sublease by and between Johnson Matthey Electronic Assembly
Services, Inc. and RELM Wireless Corporation dated March 24,
2000(4)
10(k) Asset Purchase Agreement with Uniden America Corporation dated
March 13, 2000(5)
10(l) OEM Manufacturing Contract between RELM Wireless Corporation and
Uniden Corporation dated March 13, 2000(5)
10(m) Trademark License Agreement between Uniden America Corporation and
RELM Wireless Corporation for the mark "ESAS" dated March 13,
2000(5)
10(n) Manufacturing Agreement between Johnson Matthey Electronic
Assembly Services, Inc. and RELM Wireless Corporation dated March
24, 2000(4)
10(o) Transaction Agreement between Johnson Matthey Electronic Assembly
Services, Inc. and RELM Wireless Corporation dated March 24,
2000(4)
10(p) Letter Agreement between RELM Wireless Corporation and Janney
Montgomery Scott LLC dated May 12, 2000
21 Subsidiaries of Registrant (7)
23(a) Consent of Greenberg Traurig, P.A. (included in Exhibit 5.1) (6)
23(b) Consent of Ernst & Young LLP
25 Power of Attorney (included on the signature page)
------------------
(1) Incorporated by reference from the Adage, Inc. (predecessor to RELM
Wireless Corporation) Form 10-K for the fiscal year ended December 31,
1996. File No. 0-7336.
(2) Incorporated by reference from the Company's Form 10-K for the fiscal
year ended December 31, 1997. File No. 0-7336.
(3) Incorporated by reference from the Company's Form 10-Q for the quarter
ended March 31, 1999. File No. 0-7336.
(4) Incorporated by reference from the Company's Form 10-K for the fiscal
year ended December 31, 1999. File No. 0-7336.
(5) Incorporated by reference from Amendment #1 to the Company's Form 10-K
for the fiscal year ended December 31, 1999. File No. 0-7336.
(6) To be filed by amendment.
(7) Incorporated by reference from the Company's Form 10-K for the fiscal
year ended December 31, 1998.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of West Melbourne, State of
Florida, on this 6th day of June, 2000.
RELM WIRELESS CORPORATION
By: /s/ Richard K. Laird
-----------------------------------
Richard K. Laird, President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Richard
K. Laird and William Kelly, or any one of them, as his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for him or her in his or her name, place and stead in any and all capacities to
execute in the name of each such person who is then an officer or director of
the registrant and on his or her behalf (i) any and all amendments (including
post-effective amendments), supplements and additions to this registration
statement and (ii) any and all registration statements relating to an offering
contemplated pursuant to Rule 415 under the Securities Act of 1933, as amended,
of the RELM Wireless Corporation warrants dated May 12, 2000, and the RELM
Wireless Corporation common stock, par value $0.60 per share, into which RELM
Wireless Corporation's 8% Convertible Subordinated Promissory Notes due December
1, 2004 and the warrants are convertible and any and all amendments (including
post-effective amendments), supplements and additions thereto, and to file each
of the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing required or necessary to be done in and about the
foregoing, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or each of them or their or his substitute or substitutes may lawfully do
or cause to be done by virtue hereof. Such attorneys-in-fact and agents shall
have, and may exercise, all of the powers hereby conferred.
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald F. U. Goebert Chairman June 5, 2000
---------------------------
Donald F. U. Goebert
/s/ Richard K. Laird President and Chief Executive Officer and June 5, 2000
--------------------------- Director
Richard K. Laird
/s/ William P. Kelly Secretary, Vice President - Finance, and June 5, 2000
--------------------------- Chief Financial Officer
William P. Kelly
/s/ David P. Storey Executive Vice President and June 5, 2000
--------------------------- Chief Operating Officer
David P. Storey
/s/ Buck Scott Director June 5, 2000
---------------------------
Buck Scott
/s/ James C. Gale Director June 5, 2000
---------------------------
James C. Gale
/s/ Robert L. MacDonald Director June 5, 2000
---------------------------
Robert L. MacDonald
/s/ Ralph R. Whitney Jr. Director June 5, 2000
---------------------------
Ralph R. Whitney Jr.
/s/ George N. Benjamin, III Director June 5, 2000
---------------------------
George N. Benjamin, III
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
Exhibit Exhibits
------- --------
3(a) Articles of Incorporation(2)
3(b) By-Laws(2)
4(a) Form of 8% Convertible Subordinated Promissory Note(5)
4(b) Warrant Agreement between RELM Wireless Corporation and Janney
Montgomery Scott LLC dated May 12, 2000
4(c) Warrant Certificate No. W-100 issued to Janney Montgomery Scott
LLC dated May 12, 2000
4(d) Warrant Agreement between RELM Wireless Corporation and Simmonds
Capital Limited day May 12, 2000
4(e) Warrant Certificate No. W-100 issued to Simmonds Capital Limited
dated May 12, 2000
5 Opinion of Greenberg Traurig, P.A.(6)
10(a) 1996 Stock Option Plan for Non-Employee Directors(1)
10(b) 1997 Stock Option Plan (2)
10(c) Loan and Security Agreement with Summit Commercial/Gibraltar Corp.
dated February 26, 1999(3)
10(d) Workers Compensation Close Out Agreement dated December 21,
1998(3)
10(e) Amendment to Security and Loan Agreement with Summit
Commercial/Gibraltar Corp. dated December 1999(4)
10(f) Second Amendment to Security and Loan Agreement with Summit
Commercial/Gibraltar Corp. dated March 10, 2000(4)
10(g) Third Amendment to Security and Loan Agreement with Summit
Commercial/Gibraltar Corp. dated March 24, 2000(4)
10(h) Letter Agreement with Simmonds Capital Limited dated March 23,
2000(4)
10(i) Exclusive Right of Sale Listing Agreement effective October 25,
1999(5)
10(j) Sublease by and between Johnson Matthey Electronic Assembly
Services, Inc. and RELM Wireless Corporation dated March 24,
2000(4)
10(k) Asset Purchase Agreement with Uniden America Corporation dated
March 13, 2000(5)
10(l) OEM Manufacturing Contract between RELM Wireless Corporation and
Uniden Corporation dated March 13, 2000(5)
10(m) Trademark License Agreement between Uniden America Corporation and
RELM Wireless Corporation for the mark "ESAS" dated March 13,
2000(5)
10(n) Manufacturing Agreement between Johnson Matthey Electronic
Assembly Services, Inc. and RELM Wireless Corporation dated
March 24, 2000(4)
10(o) Transaction Agreement between Johnson Matthey Electronic Assembly
Services, Inc. and RELM Wireless Corporation dated March 24,
2000(4)
10(p) Letter Agreement between RELM Wireless Corporation and Janney
Montgomery Scott LLC dated May 12, 2000
21 Subsidiaries of Registrant (7)
23(a) Consent of Greenberg Traurig, P.A. (included in Exhibit 5.1) (6)
23(b) Consent of Ernst & Young LLP
25 Power of Attorney (included on the signature page)
II-8
<PAGE>
------------------
(1) Incorporated by reference from the Adage, Inc. (predecessor to RELM
Wireless Corporation) Form 10-K for the fiscal year ended December 31,
1996. File No. 0-7336.
(2) Incorporated by reference from the Company's Form 10-K for the fiscal year
ended December 31, 1997. File No. 0-7336.
(3) Incorporated by reference from the Company's Form 10-Q for the quarter
ended March 31, 1999. File No. 0-7336.
(4) Incorporated by reference from the Company's Form 10-K for the fiscal year
ended December 31, 1999. File No. 0-7336.
(5) Incorporated by reference from Amendment #1 to the Company's Form 10-K for
the fiscal year ended December 31, 1999. File No. 0-7336.
(6) To be filed by amendment.
Incorporated by reference from the Company's Form 10-K for the fiscal year ended
December 31, 1998.
II-9
