UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
July 31, 1997 0-22920
- --------------------- ----------------------
NUMEREX CORP.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 11-2948749
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2360 Maryland Road
Willow Grove, PA 19090
----------------------
(Address of principal executive offices)
(Zip Code)
(610) 892-0316
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
---- ----
As of the close of the period covered by this report, an aggregate of 10,937,592
shares of the registrant's Class A Common Stock no par value (being the
registrant's only class of common stock outstanding), were outstanding.
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NUMEREX CORP. AND SUBSIDIARIES
INDEX
Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at July 31,
1997 (unaudited) and October 31, 1996 4
Condensed Consolidated Statements of Operations (unaudited)
for the three months and the nine months ended July 31, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months and the nine months ended July 31, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
3
<PAGE>
NUMEREX CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS POUNDS STERLING)
July 31,
1997 October 31,
(UNAUDITED) 1996
---------- -----------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents 14,993 18,459
Accounts Receivable, net 3,557 5,397
Note Receivable 2,301 --
Inventory 2,622 2,838
Prepaid Expenses 1,718 175
------ ------
25,191 26,869
PROPERTY AND EQUIPMENT, NET 1,081 773
GOODWILL, NET 3,653 612
INTANGIBLE AND OTHER ASSETS, NET 3,148 1,728
------ -----
TOTAL ASSETS 33,073 29,982
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt 22 --
Accounts Payable 1,499 1,425
Income Taxes 820 243
Other Current Liabilities 1,358 2,014
------ ------
TOTAL CURRENT LIABILITIES 3,699 3,682
------ ------
LONG-TERM DEBT 2,742 --
------ ------
TOTAL LIABILITIES 6,441 3,682
------ ------
SHAREHOLDERS' EQUITY
Class A, Common Stock - no par value;
authorized 30,000,000; issued 11,597 ,492 18,321 18,321
Treasury Stock, at cost, 659,900 shares at July 31,
1997 and 310,000 shares at October 31, 1996 (1,834) (848)
Accumulated Translation Adjustment (162) 72
Retained Earnings 10,307 8,755
------ ------
26,632 26,300
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 33,073 29,982
======= ======
See Accompanying Notes to Condensed Consolidated Financial Statements
-4-
<PAGE>
NUMEREX CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS POUNDS STERLING,
EXCEPT PER SHARE AMOUNTS)
<TABLE>
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FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
JULY 31, JULY 31,
1997 1997
---- 1996 ---- 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales 4,075 4,698 13,363 14,211
Cost of Sales 1,819 2,367 6,655 7,595
Inventory Oblolescence Charge -- 927 -- 927
------ ------ ------ ------
GROSS PROFIT 2,256 1,404 6,708 5,689
Selling, General, Administrative
and Other Expenses 1,646 2,137 5,426 5,862
Special Charges -- 1,151 -- 1,151
------ ------ ------ ------
OPERATING INCOME (LOSS) 610 (1,884) 1,282 (1,324)
Interest and Other Income (Net) 708 285 1,091 843
------ ------ ------ ------
INCOME LOSS BEFORE
INCOME TAXES 1,318 (1,599) 2,373 (481)
Provision for Income Taxes 461 54 820 435
------ ------ ------ ------
NET INCOME (LOSS) 857 (1,653) 1,553 (916)
====== ====== ====== ======
EARNINGS (LOSS) PER SHARE .08 (.14) .14 (.08)
====== ====== ====== ======
WEIGHTED AVERAGE SHARES OUTSTANDING 11,002 11,584 11,137 11,593
====== ====== ====== ======
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
-5-
<PAGE>
NUMEREX CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS POUNDS STERLING)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
JULY 31,
------------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 1,553 (916)
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and Amortization 978 1,107
Inventory Obsolescence & Special Charges -- 2,078
Gain on Disposition of Business (474) --
Changes in current assets and liabilities which
provided (used) cash:
Accounts Receivable 488 64
Inventory (277) 720
Prepaid Expenses (1,529) (249)
Accounts Payable 868 (313)
Other Current Liabilities (200) (178)
------ -----
Net Cash Provided by Operating Activities 1,407 2,313
------ -----
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Fixed Assets (261) (411)
Increase in Intangible Assets (795) (1,238)
Acquisition of Business, Net of Cash (3,547) --
Investment in Business (1,260) --
------ -----
Net Cash Used in Investing Activities (5,863) (1,649)
------ -----
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of Short -Term Debt (391) --
Proceeds from Long-Term Debt 2,742 --
Purchase of Treasury Stock (986) (419)
Dividends Paid -- (753)
------ -----
Net Cash Provided by (Used in) Financing
Activities 1,365 (1,172)
------ -----
EFFECT OF EXCHANGE DIFFERENCES ON
CASH AND CASH EQUIVALENTS (375) 336
------ -----
Net Increase (Decrease) in cash and cash equivalents (3,466) (172)
CASH AND CASH EQUIVALENTS, BEGINNING 18,459 22,271
------ ------
CASH AND CASH EQUIVALENTS, ENDING 14,993 22,099
====== ======
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
-6-
<PAGE>
NUMEREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the nine
month period ended July 31, 1997 may not be indicative of the results
that may be expected for the year ending October 31, 1997. For
further information, reference is also made to the Company's Annual
Report on Form 10-K for the year ended October 31, 1996 and the
consolidated financial statements contained therein.
On February 28, 1997, the Company completed its acquisition of 100%
of the outstanding common stock of Broadband Networks, Inc. ("BNI")
for approximately (Pounds Sterling) 3,477,000 ($5,600,000). The
acquisition was accounted for using the purchase method of
accounting. In addition, the Company invested (Pounds Sterling)
1,031,000 ($1,675,000) directly into BNI for working capital
purposes. Certain employees of BNI will continue to hold BNI
incentive stock options which, upon exercise, would entitle them to
own approximately 18% of BNI's then outstanding common shares.
The purchase price of BNI was allocated to the assets purchased and
the liabilities assumed based upon their fair values at the date of
acquisition. The excess of the purchase price over the fair values of
the net assets acquired was recorded as goodwill, which will be
amortized on a straight-line basis over 20 years.
On May 7, 1997, the Company sold all of the stock of its wholly-owned
subsidiary, DA Systems Ltd. (DA), to Detection Systems, Inc. (DSI) of
Rochester, NY (NASDAQ: DETC). In exchange for the stock of DA,
NumereX, subject to post closing adjustments, has received 226,168
shares of DSI common stock valued at $17.00 per share. In addition,
NumereX retained 1.4 (Pounds Sterling) ($2.3) million of DA cash.
With respect to the DSI common stock, NumereX has been granted
registration rights and can require DSI to repurchase the shares on
July 1, 1998 for (Pounds Sterling) 2.3 ($3.8) million plus interest.
Accordingly, the Company has recorded a (Pounds Sterling) 2.3 ($3.8)
million note receivable. In a companion transaction, a subsidiary of
NumereX entered into a License Agreement with DSI whereby DSI may
manufacture and supply certain products in return for royalty
payments.
-7-
<PAGE>
On July 17, 1997, the Company invested (Pounds Sterling) 609,385
($1,000,000) in return for 19.5% of the common stock of Uplink
Security, Inc. Due to the Company's inability to exert control or
significant influence over the operations of Uplink, the Company
accounted for the investment in Uplink using the cost method of
accounting. In addition, the Company has extended Uplink a $5,000,000
Line of Credit which can be drawn against a defined set of milestones
over a 24 month period. Various options contained in the agreements
provide the Company a means of acquiring a controlling interest in
Uplink.
2. Inventory.
July 31, October
l997 l996
------- -------
(000's omitted)
(IN THOUSANDS POUNDS STERLING)
Raw materials 1,085 1,051
Work-in-progress 288 730
Finished goods 1,249 1,057
----- -----
2,622 2,838
===== =====
The inventory obsolescence charge of (Pounds Sterling)927,000 in the
third quarter of 1996 was the result of determining certain inventory
items to be obsolete due to market conditions.
3. Revolving Credit Facility
The Company has a revolving credit facility which provides for
maximum borrowings of $10.0 (Pounds Sterling 6.1) million and
includes the option to convert, at maturity, the outstanding balance
to an amortizing term loan payable over a maximum period of up to
three years, with a maximum five year amortization. Interest is
charged at the bank's prime lending rate less .25% or LIBOR plus
1.25%.
On July 31, 1997, there were outstanding borrowings of approximately
(Pounds Sterling)2.7 ($4.5) million at an interest rate of 6.875%. In
addition, there was (Pounds Sterling) 0.03 million outstanding
short-term debt related to borrowings of an acquired business.
4. Special Charges
During the third quarter of 1996, the Company recorded pre-tax
special charges of 1.2 million primarily relating to asset
write-downs and accruals for certain obsolete products.
-8-
<PAGE>
5. New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per
Share ("SFAS No. 128"). SFAS No. 128 specifies the computation,
presentation, and disclosure requirements of earnings per share and
supersedes Accounting Principles Board Opinion No. 15, Earnings Per
Share. SFAS No. 128 requires a dual presentation of basic and diluted
earnings per share on the face of the Company's consolidated
statement of income and a reconciliation of the computation of basic
earnings per share to diluted earnings per share. Basic earnings per
share, which replaces primary earnings per share, excludes the
dilutive impact of common stock equivalents and is computed by
dividing net income by the weighted-average number of shares of
common stock outstanding for the period.
Diluted earnings per share will include the effect of potential
dilution from the exercise of outstanding common stock equivalents
into common stock using the treasury stock method at an average
market price for the Company's common stock.
SFAS No. 128 is effective for financial statements for both interim
and annual periods ending after December 15, 1997 and early adoption
is not permitted. When adopted by the Company for the first quarter
of fiscal 1998 ending January 31, 1998, all prior quarters' earnings
per share information will be required to be restated.
Assuming that SFAS No. 128 had been implemented, the pro forma
amounts of basic earnings per share and diluted earnings per share
would not have differed from earnings per share disclosed in the
accompanying unaudited condensed consolidated statements of
operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which establishes standards for reporting
and disclosure of comprehensive income, is effective for interim and
annual periods beginning after December 15, 1997, although earlier
adoption is permitted. Reclassification of financial information for
earlier periods presented for comparative purposes is required under
SFAS No. 130. As this statement only requires additional disclosures
in the Company's consolidated financial statements, its adoption will
not have any impact on the Company's consolidated financial position
or results of operations. The Company expects to adopt SFAS No. 130
effective November 1, 1998.
-9-
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement,
which establishes standards for the reporting of information about
operating segments and requires the reporting of selected information
about operating segments in interim financial statements, is
effective for fiscal years beginning after December 15, 1997,
although earlier application is permitted. Reclassification of
segment information for earlier periods presented for comparative
purposes is required under SFAS No. 131. The Company is evaluating
whether the adoption of this statement will result in any changes to
its presentation of financial data. The Company expects to adopt SFAS
No. 131 effective November 1, 1998.
6. Investment Considerations
In analyzing whether to make, or continue, an investment in the
Company, investors should consider, among other factors, certain
investment considerations more particularly described in the
Company's Annual Report on Form 10-K for the year ended October 31,
1996, a copy of which can be obtained from Charles L. McNew, Chief
Financial Officer, NumereX Corp., 2360 Maryland Road, Willow Grove,
Pennsylvania 19090.
7. Forward-looking Statements
The information contained in the Quarterly Report on Form 10-Q for
the quarter ended July 31, 1997 contains forward-looking statements
(as such term is defined in the Securities Exchange Act of 1934 and
the regulations thereunder), including without limitation, statements
as to trends or management's beliefs, expectations or opinions, which
are based upon a number of assumptions concerning future conditions
that ultimately may prove to be inaccurate.
Such forward-looking statements are subject to risks and
uncertainties and may be affected by various factors which may cause
actual results to differ materially from those in the forward-looking
statements. Certain of these risks, uncertainties and other factors,
are discussed in the Company's Annual Report on Form 10-K for the
year ended October 31, 1996.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
General
The following table sets forth, for the periods indicated, the percentage of net
sales represented by selected items in the Company's Consolidated Statements of
Income.
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Three Months Ended Nine Months Ended
July 31, July 31,
------------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales:
Derived Channel Systems............................ 61.2% 72.3% 59.1% 73.1%
Intrusion alarm, broadband and network
products (1)..................................... 38.8 27.7 40.9 26.9
----- ----- ----- -----
Total net sales................................ 100.0 100.0 100.0 100.0
Cost of sales - Normal............................... 44.6 50.4 49.8 53.4
Non-recurring........................ -- 19.7 -- 6.5
----- ----- ----- -----
Total Cost of Sales.................................. 44.6 70.1 49.8 59.9
----- ----- ----- -----
Gross profit......................................... 55.4 29.9 50.2 40.1
Selling, general, administrative and other:
Normal.............................. 40.4 45.5 40.6 41.2
Non-recurring....................... -- 24.5 -- 8.1
----- ----- ----- -----
Total Selling, general, & administrative............. 40.4 70.0 40.6 49.3
----- ----- ----- -----
Operating income..................................... 15.0 (40.1) 9.6 (9.2)
===== ===== ===== =====
Net income........................................... 21.0% (35.2%) 11.6% (6.4%)
===== ===== ===== =====
</TABLE>
1] The Company acquired BNI in March 1997 and sold DA in May 1997. The above
table includes sales of broadband products only for the quarters ended April
30 and July 31, 1997 and intrusion alarm products for all periods through
April 30, 1997. Accordingly, future results of operations will include
broadband product sales, but will not include any intrusion alarm product
sales.
Results of Operations
Net sales decreased 13.3% to (Pounds Sterling)4.1 million for the quarter ended
July 31, 1997 as compared to (Pounds Sterling)4.7 million for the comparable
period in 1996. For the nine months ended July 31, 1997, net sales decreased
6.0% to (Pounds Sterling)13.4 million as compared to 14.2 million for the
comparable period in 1996. For both the quarter and nine month period ended July
31, 1997, there was a reduction in sales principally due to the elimination of
DA Systems Ltd.'s net sales as a result of the sale of DA, effective May, 1997.
These reductions in sales were partially offset by the inclusion of royalty
revenue for the right to manufacture certain intrusion alarm products through a
license agreement with the acquirer of DA, a modest improvement in sales of
network management products, as well as the inclusion of sales of broadband
products and services (from BNI which was acquired in March, 1997).
-11-
<PAGE>
Total cost of sales decreased 44.8% to (Pounds Sterling)1.8 million for the
quarter ended July 31, 1997 and decreased 21.9% to (Pounds Sterling)6.7 million
for the nine months ended July 31, 1997 as compared to (Pounds Sterling)3.3
million and (Pounds Sterling)8.4 million, respectively, for the comparable
period in 1996. The inventory obsolescence charge of (Pounds Sterling)0.9
million was a pre-tax charge recorded in the third quarter of 1996 as a result
of determining certain inventory items to be obsolete due to market conditions
relating primarily to network management and, to a lesser extent, intrusion
alarm products. Gross profit as a percentage of net sales increased to 55.4% and
50.2%, respectively, for the three and nine month periods ended July 31, 1997 as
compared to 29.9% and 40.0%, respectively, for the comparable periods in 1996.
The increase in the gross profit margin was primarily due to a shift in sales
mix to higher margin products principally due to the elimination of DA Systems,
Ltd., and its intrusion alarm product line and the absence of an inventory
obsolescence charge in the current quarter and nine month period.
Total selling, general, administrative and other expenses decreased 49.9% and
22.6%, respectively, to (Pounds Sterling)1.6 million and (Pounds Sterling)5.4
million, respectively, for the three and nine months ended July 31, 1997 as
compared to (Pounds Sterling)3.3 million and (Pounds Sterling)7.1 million,
respectively, for the comparable periods in 1996. The decrease was principally
related to the elimination of underperforming product lines and a decrease in
legal and other expenses. In addition, special charges of (Pounds Sterling)1.2
million were recorded in the quarter ended July 31, 1996. These special charges
related principally to asset write-downs and accruals for certain obsolete
products. There were no special charges for the three and nine months ended July
31, 1997.
Operating income increased 132.4% and 196.8%, respectively, to (Pounds
Sterling)0.6 million and (Pounds Sterling)1.3 million, respectively, for the
three and nine month periods ended July 31, 1997 as compared to operating losses
of (Pounds Sterling)1.9 million and 1.3 million, respectively, for the
comparable periods in 1996. The increases in operating income were due to the
increases in gross profit margins coupled with the decrease in selling, general,
administrative and other expenses, and the absence of inventory obsolescence and
special charges which occurred during 1996.
Other income and expenses increased 148.4% and 29.4%, respectively, to (Pounds
Sterling)0.7 million and (Pounds Sterling)1.1 million, respectively, for the
three and nine month periods ended July 31, 1997 as compared to (Pounds
Sterling)0.3 million and (Pounds Sterling)0.8 million, respectively, for the
comparable periods in 1996. The increases were principally related to the
recognition of a gain on the sale of DA which was partially offset by a decline
in interest income generated from temporary cash investments and the inclusion
of interest expense on the Revolving Credit Facility which was used in
conjunction with the BNI acquisition.
The effective income tax rates were 35.0% and 34.6%, respectively, for the three
and nine months ended July 31, 1997. For the three and nine months ended July
31, 1996 the Company reported pre-tax losses. Tax provisions and liabilities
were recorded for both periods in 1996 despite the pre-tax losses. The
provisions were necessary because of the present uncertainty that the United
States portion of the pre-tax losses will result in tax benefits. The losses may
be recovered against earnings (if any) in future periods.
-12-
<PAGE>
The increase in the Company's gross profit margins, and the decrease in selling,
general, administrative and other expenses and the absence of inventory
obsolescence and special charges resulted in net income of (Pounds Sterling)0.9
million and (Pounds Sterling)1.6 million, respectively, for the three and the
nine month periods ended July 31, 1997, as compared to net losses of (Pounds
Sterling)1.7 million and (Pounds Sterling)0.9 million, respectively, for the
comparable periods in 1996.
As a result of the Company's stock buyback program, weighted average shares
outstanding declined to 11.0 million and 11.1 million shares, respectively, for
the three and nine month periods ended July 31, 1997 as compared to 11.6 million
shares for both comparable periods in 1996.
Liquidity and Capital Resources of the Company
The Company is presently able to fund its operations and working capital
requirements from cash flow generated by operations and the proceeds from a
public offering completed in April 1995. Net cash provided by operating
activities was (Pounds Sterling)1.4 million for the nine months ended July 31,
1997 as compared to (Pounds Sterling)2.3 million for the comparable period in
1996. The decrease from 1996 was primarily due to a settlement payment in
conjunction with a shareholder litigation matter, payment of tax obligations and
the absence of inventory obsolescence and special charges.
Net cash used in investing activities increased to (Pounds Sterling)5.9 million
for the nine months ended July 31, 1997 as compared to (Pounds Sterling)1.7
million for the comparable period in 1996. The increase was primarily due to the
acquisition of BNI and investment in Uplink.
Net cash provided by financing activities increased to (Pounds Sterling)1.4
million for the nine months ended July 31, 1997 as compared to cash used of
(Pounds Sterling)1.2 million for the comparable period in 1996, principally due
to the borrowings under the Revolving Credit Facility and the discontinuation of
a cash dividend. The increase was partially offset by the increased purchases of
treasury stock.
The Company had working capital balances of (Pounds Sterling)21.5 million and
(Pounds Sterling)23.2 million as of July 31, 1997 and October 31, 1996,
respectively.
The Company's business has not been capital intensive and, accordingly, capital
expenditures have not been material. To date, the Company has funded all capital
expenditures from working capital and cash provided by operating activities. In
order to fund an expansion of its Derived Channel System business (including an
effort to increase market penetration in North America, Western Europe, and the
Pacific Rim and expand into other parts of the world), the Company may require
significantly greater capital investments than it has in the past.
Presently, the Company has no material commitments for capital expenditures.
-13-
<PAGE>
The Company believes that its anticipated cash flow from operations, together
with its available cash, including the proceeds of its public offering completed
in April 1995, and funds available under its Revolving Credit Facility, will be
sufficient to finance its operating and capital requirements at least through
the fiscal year ending October 31, 1997. From these sources, the Company has
used approximately (Pounds Sterling)3.5 million to complete the purchase of BNI.
Cash requirements for future expansion of the Company's operations will be
evaluated on an as-needed basis. The Company does not expect that such
expansion, should it occur, will have a materially negative impact on the
Company's ability to fund its existing operations.
Foreign Currency
Currently, the Company's functional and reporting currency is British Pounds
sterling because a substantial majority of the Company's net sales are presently
generated in the United Kingdom. Although the Company does not have an ongoing
currency hedging program in place, it occasionally hedges its operations
selectively against fluctuations in foreign currency as needed. This occasional
hedging is done primarily because a portion of the Company's production costs
associated with its off-shore contract manufacturing are denominated in U.S.
dollars while the bulk of its net sales are in British Pounds sterling. The
Company uses forward U.S. dollar contracts which have a maximum term of six
months and which are not material to the Company. The Company anticipates that
it may utilize additional foreign currency contracts as needed to hedge against
fluctuations in the exchange rate between the U.S. dollar and the British Pounds
sterling. Fluctuations in foreign currency exchange rates are not expected to
have a material impact on the Company's results of operations or liquidity.
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None - not applicable.
Item 2. Changes in Securities.
None - not applicable.
Item 3. Defaults Upon Senior Securities.
None - not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None - not applicable.
Item 5. Other Information.
None - not applicable.
Item 6. Exhibits and Reports on Form 8-K.
1. Form 8-K - Date of Report (May 7, 1997) - Item 2.
Acquisition or Disposition of Assets - regarding sale of DA
Systems Ltd. to Detection Systems, Inc.
2. Form 8-K - Date of Report (July 16, 1997) - Item 5
Other events - regarding stock purchase agreement between Uplink
Security, Inc. and the Company.
-15-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NUMEREX CORP.
-------------
(Registrant)
Date: September 15, 1997 By: /s/ John J. Reis
----------------------------- ---------------------
JOHN J. REIS
President and
Chief Executive Officer
Date: September 15, 1997 By: /s/ Charles L. McNew
----------------------------- -------------------------
CHARLES L. McNEW
Chief Financial Officer and
Chief Accounting Officer
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> BRITISH POUNDS STERLING
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JUL-31-1997
<EXCHANGE-RATE> 1.641
<CASH> 14,993
<SECURITIES> 0
<RECEIVABLES> 3,557
<ALLOWANCES> 0
<INVENTORY> 2,622
<CURRENT-ASSETS> 25,191
<PP&E> 1,081
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,073
<CURRENT-LIABILITIES> 3,699
<BONDS> 0
0
0
<COMMON> 18,321
<OTHER-SE> 8,311
<TOTAL-LIABILITY-AND-EQUITY> 33,073
<SALES> 13,363
<TOTAL-REVENUES> 0
<CGS> 6,655
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,426
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,373
<INCOME-TAX> 820
<INCOME-CONTINUING> 1,553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,553
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
