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
July 31, 1998 0-22920
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For the Quarter Ended Commission File Number
NUMEREX CORP.
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 11-2948749
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Four Falls Corporate Center, Suite 407
West Conshohocken, PA 19428-2961
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(Address of principal executive offices)
(Zip Code)
(610) 941-2844
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(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 10,803,592
shares of the registrant's Class A Common Stock no par value (being the
registrant's only class of common stock outstanding), were outstanding.
<PAGE>
NUMEREX CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at July 31,
1998 (unaudited) and October 31, 1997 4
Condensed Consolidated Statements of Operations (unaudited)
for the three months and the nine months ended July 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended July 31, 1998 and 1997 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
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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<PAGE>
NUMEREX CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS POUNDS STERLING)
<TABLE>
<CAPTION>
July 31, October 31,
1998 1997
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(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents Pound 13,166 Pound 15,626
Accounts Receivable, net 4,185 3,690
Inventory 3,911 2,929
Prepaid Taxes 1,250 1,250
Prepaid Expenses 355 251
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TOTAL CURRENT ASSETS 22,867 23,746
PROPERTY AND EQUIPMENT, NET 1,700 1,092
GOODWILL, NET 5,373 3,599
INTANGIBLE ASSETS, NET 7,745 1,892
OTHER ASSETS 1,416 2,180
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TOTAL ASSETS Pound 39,101 Pound 32,509
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable Pound 1,284 Pound 1,518
Income Taxes 606 430
Other Current Liabilities 1,454 839
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TOTAL CURRENT LIABILITIES 3,344 2,787
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LONG-TERM DEBT 3,674 2,688
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MINORITY INTEREST 6,155 --
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SHAREHOLDERS' EQUITY
Class A, Common Stock - no par value;
authorized 30,000,000; issued 11,609,492 18,362 18,321
Treasury Stock, at cost, 803,900 shares at July 31,
1998 and 684,000 shares at October 31, 1997 (2,250) (1,921)
Accumulated Translation Adjustment (264) (308)
Retained Earnings 10,080 10,942
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25,928 27,034
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY Pound 39,101 Pound 32,509
======== =======
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
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<PAGE>
NUMEREX CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS POUNDS STERLING,
EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
JULY 31, JULY 31,
------------------------------- ------------------------------
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
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<S> <C> <C> <C> <C>
Net Sales Pound 4,383 Pound 4,075 Pound 11,905 Pound 13,363
Cost of Sales 1,973 1,819 5,579 6,655
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GROSS PROFIT 2,410 2,256 6,326 6,708
Selling, General, Administrative
and Other Expenses 2,915 1,646 7,110 5,426
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OPERATING INCOME (LOSS) (505) 610 (784) 1,282
Interest and Other Income (Net) 139 708 540 1,091
Equity in Net Losses of Affiliate (19) -- (255) --
Minority Interest 181 -- 181 --
------- ------- ------- -------
INCOME (LOSS) BEFORE
INCOME TAXES (204) 1,318 (318) 2,373
Provision for Income Taxes 291 461 544 820
------- ------- ------- -------
NET INCOME (LOSS) Pound (495) Pound 857 Pound (862) Pound 1,553
======= ======= ======= =======
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE Pound (.05) Pound .08 Pound (.08) Pound .14
======= ======= ======= =======
NUMBER OF SHARES USED IN
PER SHARE CALCULATION:
BASIC 10,822 11,002 10,873 11,137
======= ======= ======= =======
DILUTED 10,877 11,066 11,008 11,146
======= ======= ======= =======
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
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<PAGE>
NUMEREX CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS POUNDS STERLING)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
JULY 31,
-------------------------------
1998 1997
(UNAUDITED) (UNAUDITED)
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) Pound (862) Pound 1,553
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and Amortization 1,234 978
Minority Interest (181) --
Equity in Net Losses of Affiliate 255 --
Gain on Disposition of Business -- (474)
Changes in current assets and liabilities
which provided (used) cash:
Accounts Receivable (2) 488
Inventory (892) (277)
Prepaid Expenses (104) (1,529)
Accounts Payable (778) 868
Other Current Liabilities 778 (200)
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Net Cash Provided by (Used In) Operating Activities (552) 1,407
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CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Fixed Assets (95) (261)
Increase in Intangible Assets (287) (795)
Acquisition of Business, Net of Cash (1,539) (3,547)
Investment in Business (132) (1,260)
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Net Cash Used in Investing Activities (2,053) (5,863)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Exercise of Stock Options 42 --
Payment of Short-Term Debt -- (391)
Proceeds from Long-Term Debt 919 2,742
Purchase of Treasury Stock (329) (986)
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Net Cash Provided by Financing
Activities 632 1,365
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EFFECT OF EXCHANGE DIFFERENCES ON
CASH AND CASH EQUIVALENTS (487) (375)
------- -------
Net Increase (Decrease) in cash and cash
equivalents (2,460) (3,466)
CASH AND CASH EQUIVALENTS, BEGINNING 15,626 18,459
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CASH AND CASH EQUIVALENTS, ENDING Pound 13,166 Pound 14,993
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</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
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<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, 1998 may not be indicative of the
results that may be expected for the year ending October 31, 1998. For
further information, reference is also made to the Company's Annual Report
on Form 10-K for the year ended October 31, 1997 and the consolidated
financial statements contained therein.
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 supercedes Accounting Principles
Board Opinion No. 15, Earnings Per Share. SFAS No. 128 requires
presentation of basic and diluted earnings per share on the face of the
Company's consolidated statement of operations.
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 includes 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. Effective with the first quarter ended January 31,
1998, the Company adopted SFAS No. 128. The Company has computed its
earnings per share in accordance with SFAS No. 128 for both the three
months and nine months ended July 31, 1998 and has restated 1997 earnings
per share information on a comparable basis.
During the quarter ended January 31, 1998, the Company began shipments
under a significant contract in which it records revenue when product is
delivered to the customer. Payment for the receivables under the contract
will be made through a revenue sharing arrangement with the customer
wherein full payment of the receivables is anticipated within a three-year
period. Accordingly, the receivables at July 31, 1998 have been recorded as
non-current and discounted to its present value assuming a three-year term.
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<PAGE>
2. Investments
On July 17, 1997, the Company invested (pound sterling)598,000 ($1,000,000)
in return for 19.5% of the common stock of Uplink Security, Inc. In
addition, the Company extended Uplink a $5,000,000 Line of Credit that
could 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. On May 18, 1998, the Company
acquired an additional 78,795 shares of Uplink Security, Inc. from certain
existing shareholders for approximately (pound sterling)750,000
($1,225,000) plus 89,763 NumereX common stock warrants with a strike price
of $6.00. This stock purchase increased the Company's ownership interest in
Uplink to 85%. The allocation of the purchase price relating to the net
assets acquired is preliminary pending a final appraisal.
As a result of the acquisition of a controlling interest in Uplink, the
Company is required under generally accepted accounting principles to
restate its investment in Uplink from the cost method to the equity method
in the two previous quarters for the fiscal year ending October 31, 1998.
The effect of the restatement, which is included in the line item equity in
net losses of affiliate in the Consolidated Statement of Operations for the
nine months ended July 31, 1998, was (pound sterling)236,000 ($386,000).
The financial statement effect of the change in method on periods prior to
fiscal 1998 was not significant.
On May 15, 1998, NumereX Corporation ("NumereX"), BellSouth Wireless, Inc.
("BellSouth Wireless") and BellSouth Corporation completed a transaction
whereby Cellemetry LLC, a joint venture between NumereX and BellSouth
Wireless, was effectuated. Cellemetry LLC, a Delaware limited liability
company, is owned 60% by NumereX and 40% by BellSouth Wireless. The parties
have entered into an operating agreement (the "Operating Agreement") which
deals with, among other things, the conduct of the business of Cellemetry
LLC. Pursuant to the Operating Agreement, NumereX will make initial in-kind
and cash contributions valued at $7.5 million as well as additional cash
contributions of up to $15.5 million during the first three years of
Cellemetry LLC's operations. NumereX's initial contributions may be
represented by, with the consent of BellSouth Wireless, (i) various
interests it has in Uplink Security, Inc., including a 19.5 equity interest
in Uplink, or (ii) certain business plan attainment levels (as well as a
cash component if certain levels are not attained). The initial
contribution by NumereX also included a license from Europlex Research
Limited relating to gateway router and radio module technologies. BellSouth
Wireless has made an initial in-kind capital contribution of all the assets
related to its Cellemetry Technology, initially valued at $15.3 million.
During the first three years of Cellemetry LLC's operations, no additional
capital contributions are required to be made by BellSouth Wireless.
Pursuant to the Operating Agreement, each party has made warranties,
representations and indemnifications to the other parties. Cellemetry LLC
has five board members, three of whom were appointed by NumereX and two by
BellSouth Wireless. The Operating Agreement requires that certain actions
of the board of directors require the approval by at least one of the
BellSouth Wireless appointees. In addition, the Operating Agreement
provides certain restrictions on the right to transfer ownership interests
in Cellemetry LLC. In the event certain goals established by the business
plan for Cellemetry LLC are not achieved, in certain circumstances, at
NumereX's election, it may require either that BellSouth put its interest
to NumereX for $15.33 million, plus interest at a 13% annual compound rate,
-8-
<PAGE>
or take various actions whereby certain property and other rights belonging
to Cellemetry LLC (including cellemetry technology) would be transferred to
BellSouth. The Operating Agreement also addresses various rights of the
parties in the event of dissolution, liquidation and termination.
Cellemetry LLC has elected to be taxed as a partnership for federal, state
and foreign income tax purposes. The Company accounted for the Cellemetry
LLC joint venture under the purchase method and Cellemetry LLC was
consolidated with the company effective May 15, 1998. The allocation of the
purchase price relating to the net assets acquired is preliminary pending a
final appraisal.
3. Inventory.
July 31, October 31,
1998 1997
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(Pound 000's omitted)
Raw materials Pound 1,037 Pound 1,129
Work-in-progress 508 411
Finished goods 2,366 1,389
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Pound 3,911 Pound 2,929
===== =====
4. Revolving Credit Facility
The Company has a revolving credit facility which provides for maximum
borrowings of $10.0 (Pound 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, 1998, there were outstanding borrowings of approximately Pound
3.7 ($6.0) million at an interest rate of approximately 6.92%.
The Company is currently in technical violation of certain financial
performance loan covenants, however, the Company is currently discussing
term modifications with its lender.
5. New Accounting Pronouncements
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, 1997, a copy of which can be
obtained from Charles L. McNew, Chief Financial Officer, NumereX Corp., 100
Four Falls Corporate Center, Suite 407, West Conshohocken, PA 19428-2961.
7. Forward-looking Statements
The information contained in the Quarterly Report on Form 10-Q for the
quarter ended July 31, 1998 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, 1997.
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<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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------- --------------------
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net Sales:
Derived Channel Systems 48.6% 61.2% 57.5% 50.7%
Intrusion alarm, broadband and
network products (1) 44.5 38.8 40.0 49.3
Wireless Products 6.9 -- 2.5 --
----- ----- ----- -----
Total net sales 100.0 100.0 100.0 100.0
Cost of sales 45.0 44.6 46.9 49.8
Gross profit 55.0 55.4 53.1 50.2
Selling, general, administrative
and other 66.5 40.4 59.7 40.6
----- ----- ----- -----
Operating income (Loss) (11.5) 15.0 (6.6) 9.6
===== ===== ===== =====
Net income (Loss) (11.3) 21.0 (7.2) 11.6
===== ===== ===== =====
</TABLE>
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(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 nine months ended
July 31 and the five months ended July 31, 1997. The table also includes
sales of intrusion alarm products only for the six months ended April 30,
1997.
Results of Operations
Net sales increased 7.6% to Pound 4.4 million for the quarter ended July 31,
1998 as compared to Pound 4.1 million for the comparable period in 1997. The
principal reason for the increase was an improvement in the sales of broadband
products and services and the inclusion of sales of wireless products and
services (from Cellemetry LLC and Uplink, which were acquired in May, 1998).
This increase was somewhat offset by a reduction of Derived Channel product
sales in the United States. For the nine months ended July 31, 1998, net sales
decreased 10.9% to Pound 11.9 million as compared to Pound 13.4 million for the
comparable period in 1997. The decrease was related to the lack of significant
Derived Channel sales to Bell Canada. The Company is working with Bell Canada
with the hope of reaching a mutually favorable conclusion; although no
assurances can be given. In addition, intrusion alarm product sales were
eliminated due to the sale of DA (in May 1997). This was somewhat offset by the
inclusion of sales of broadband products and services (from BNI, which was
acquired in March 1997) and a modest improvement in sales of network management
products.
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<PAGE>
Total cost of sales increased 8.5% to Pound 2.0 million for the quarter ended
July 31, 1998 and decreased 16.2% to Pound 5.6 million for the nine months ended
July 31, 1998 as compared to Pound 1.8 million and Pound 6.7 million,
respectively, for the comparable periods in 1997. The decrease for the nine
months resulted primarily from the decline in net sales. Gross profit as a
percentage of net sales increased to 55.0% and 53.1%, respectively, for the
three and nine-month periods ended July 31, 1998 as compared to 55.4% and 50.2%,
respectively, for the comparable periods in 1997. The increases in the gross
profit margin were primarily due to a shift in sales mix to higher margin
products principally due to the elimination of the intrusion alarm product line.
Total selling, general, administrative and other expenses increased 77.1% to
Pound 2.9 million for the three months ended July 31, 1998 as compared to
Pound 1.6 million for the comparable period in 1997. For the nine months ended
July 31, 1998, total selling, general, administrative and other expenses
increased 31.1% to Pound 7.1 million as compared to Pound 5.4 million for the
comparable period in 1997. The principal reason for the increases were the
inclusion of the operating expenses from the wireless product line (from
Cellemetry LLC and Uplink, acquired in May, 1998) as well as the Company's
continuing investment in product development and sales and marketing programs.
Principally due to the inclusion of Cellemetry LLC and Uplink results (including
the restatement discussed in note two of the condensed consolidated financial
statements) and the revenue decline for the nine month period, the Company
recognized operating losses of Pound 0.5 million and Pound 0.8 million,
respectively, for the three and nine month periods ended July 31, 1998. This
compares to operating income of Pound 0.6 million and Pound 1.3 million,
respectively, for the comparable periods in 1997.
Interest and other income (net) decreased 80.4% and 50.5%, respectively, to
Pound 0.139 million and Pound 0.540 million, respectively, for the three and
nine month periods ended July 31, 1998 as compared to Pound 0.708 million and
Pound 1.091 million, respectively, for the comparable periods in 1997. The
decreases were principally related to a decrease in interest income generated
from temporary cash investments and an increase in the interest expense on the
Revolving Credit Facility which was used in conjunction with the BNI and Uplink
acquisitions. In addition, there was a gain recognized on the sale of DA for the
three and nine-month periods ended July 31, 1997.
As a result of the Company's 19.5% investment in Uplink from July, 1997 to May,
1998, there was a charge of Pound 0.3 million for the nine-month period ended
July 31, 1998 that represented the Company's equity in the net losses of Uplink,
inclusive of the effect of the restatement discussed in note two to the
condensed consolidated financial statements. This was somewhat offset by the
minority interest in the losses of Cellemetry LLC (acquired in May, 1998) for
the same period of Pound 0.2 million.
The Company recorded tax provision of Pound 0.3 million and Pound 0.5 million,
respectively, for the three and nine months ended July 31, 1998, despite the
pre-tax losses. Certain losses arising from United States operations were not
deductible during the three and nine-month periods ended July 31, 1998, while
earnings from United Kingdom operations were fully taxable. The effective income
tax rate for both the three and nine-month periods ended April 30, 1997 was 35%.
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<PAGE>
The Company had net losses of Pound 0.5 million and Pound 0.9 million,
respectively, for the three and nine months ended July 31, 1998. This compares
to net income of Pound 0.9 million and Pound 1.6 million, respectively, for the
comparable periods in 1997.
As a result of the Company's stock buyback program, the weighted average shares
and potential shares outstanding on a diluted basis declined to 10.9 million and
11.0 million, respectively, for the three-month and nine-month periods ended
July 31, 1998 as compared to 11.1 million shares for the comparable periods in
1997.
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 used in operating activities
was Pound 0.6 million for the nine months ended July 31, 1998. Net cash provided
was Pound 1.4 million for the comparable period in 1997. The decrease was
primarily due to net losses, changes in other working capital (including
inventory built in anticipation of product shipments to Bell Canada) and delays
in collecting certain receivables due from a customer in Argentina.
Net cash used in investing activities decreased to Pound 2.1 million for the
nine months ended July 31, 1998 as compared to Pound 5.9 million for the
comparable period in 1997. The Company acquired BNI during 1997 and has made
investments in Uplink during 1998.
Net cash provided by financing activities decreased to Pound 0.6 million for the
nine months ended July 31, 1998 as compared to Pound 1.4 million for the
comparable period in 1997. The decrease was principally due to a decline in the
borrowings under the Revolving Credit Facility during 1998 which was somewhat
offset by decreased repurchases of Company common stock.
The Company had working capital balances of Pound 19.5 million and Pound 21.0
million, respectively, as of July 31, 1998 and October 31, 1997.
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.
Presently, the Company is obligated to fund the operations of Cellemetry LLC
(which will require $15.5 million over the next 24-months) and Uplink. Expansion
of the Company's Derived Channel System business (including an effort to
increase market penetration in North America and expand into other parts of the
world and the potential expansion of the Company's broadband product line), may
require significantly greater capital investments than it has in the past.
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<PAGE>
The Company believes that 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, 1998.
The Company will have funding obligations for Cellemetry LLC and Uplink as both
entities are expected to be cash flow negative for the balance of fiscal year
1998. Cash requirements for future expansion of the Company's operations will be
evaluated on an as-needed basis and may involve external financing. 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 pound
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 has occasionally hedged its operations
selectively against fluctuations in foreign currency as needed. The Company has
used 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 pound
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.
(c) On May 18, 1998, the Company acquired an additional 78,795 shares
of Uplink Security, Inc. common stock from certain existing
shareholders of Uplink for approximately $1,225,000, plus
warrants to purchase 89,763 shares of Numerex common stock, with
an exercise price of $6.00 per share.
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 Informateion.
None - not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(b) Form 8-K, filed May 29, 1998 under Item 5. Other Events,
regarding the Cellemetry LLC joint venture.
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<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 14, 1997 By: /s/ Gordon T. Ray
------------------- --------------------------------
GORDON T. RAY
Chairman, President and
Chief Executive Officer
Date: September 14 , 1997 By: /s/ Charles L. McNew
-------------------- --------------------------------
CHARLES L. McNEW
Chief Financial Officer and
Chief Accounting Officer
-16-
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