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
January 31, 1999 0-22920
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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.)
1600 Parkwood Circle, Suite 200
Atlanta, Georgia 30339-2119
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(Address of principal executive offices)
(770) 693-5950
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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 March 10, 1999, an aggregate of 10,343,092 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
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Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at January 31,
1999 (unaudited) and October 31, 1998 4
Condensed Consolidated Statements of Operations and Comprehensive
Income (unaudited) for the three months ended January 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended January 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
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NUMEREX CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS U.S. DOLLARS)
<TABLE>
<CAPTION>
January 31, October 31,
1999 1998
(UNAUDITED)
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 9,624 $ 18,800
Accounts Receivable, net 5,136 5,237
Inventory 4,727 4,253
Prepaid Taxes 1,313 1,320
Prepaid Expenses 525 661
-------- --------
TOTAL CURRENT ASSETS 21,325 30,271
PROPERTY AND EQUIPMENT, NET 3,036 2,874
GOODWILL, NET 8,539 8,681
INTANGIBLE ASSETS, NET 11,869 12,175
OTHER ASSETS 393 405
-------- --------
TOTAL ASSETS $ 45,162 $ 54,406
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt -- $ 6,000
Accounts Payable $ 2,090 2,172
Income Taxes 860 673
Other Current Liabilities 3,394 3,696
-------- --------
TOTAL CURRENT LIABILITIES 6,344 12,541
-------- --------
MINORITY INTEREST 9,020 9,619
-------- --------
SHAREHOLDERS' EQUITY
Class A, Common Stock - no par value;
authorized 30,000,000; issued 11,609,492 29,870 29,870
Additional paid-in-capital 220 220
Treasury Stock, at cost, 1,266,400
shares at January 31, 1999 and
1,034,900 shares at October 31, 1998 (5,222) (4,644)
Cumulative Translation Adjustment 55 171
Retained Earnings 4,875 6,629
-------- --------
29,798 32,246
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 45,162 $ 54,406
======== ========
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See Accompanying Notes to Condensed Consolidated Financial Statements
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NUMEREX CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS U.S. DOLLARS,
EXCEPT PER SHARE AMOUNTS)
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<CAPTION>
FOR THE THREE
MONTHS ENDED
JANUARY 31,
----------------------------
1999 1998
(UNAUDITED) (UNAUDITED)
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Net Sales $ 5,842 $ 6,818
Cost of Sales 2,690 3,440
Selling, General, Administrative
and Other Expenses 5,329 3,202
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OPERATING INCOME (LOSS) (2,177) 176
Interest and Other Income (Net) 122 362
Equity in Net Losses of Affiliate -- (197)
Minority Interest 599 --
-------- --------
INCOME (LOSS) BEFORE
INCOME TAXES (1,456) 341
Provision for Income Taxes 298 193
-------- --------
NET INCOME (LOSS) $ (1,754) $ 148
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation Adjustments (116) (246)
Comprehensive (Loss) $ (1,870) $ (98)
======== ========
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE $ (.17) $ .01
======== ========
NUMBER OF SHARES USED IN PER SHARE CALCULATION:
BASIC 10,481 10,918
======== ========
DILUTED 10,481 11,058
======== ========
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See Accompanying Notes to Condensed Consolidated Financial Statements
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<PAGE>
NUMEREX CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS U.S. DOLLARS)
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<CAPTION>
FOR THE THREE
MONTHS ENDED
JANUARY 31,
--------------------------
1999 1998
(UNAUDITED) (UNAUDITED)
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OPERATING ACTIVITIES
Net Income (Loss) $ (1,754) $ 148
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and Amortization 963 637
Minority Interest (599) --
Equity in Net Losses of Affiliate -- 197
Changes in assets and liabilities which provided (used) cash:
Accounts Receivable 101 442
Inventory (474) (93)
Prepaid Expenses and taxes 143 (106)
Accounts Payable (82) (607)
Other Assets and Liabilities (103) (304)
-------- --------
Net Cash Provided by (used in) Operating Activities (1,805) 314
-------- --------
INVESTING ACTIVITIES
Investment in Fixed Assets (612) (292)
Increase in Intangible Assets (64) (5)
Investment in Business -- (1,018)
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Net Cash Used in Investing Activities (676) (1,315)
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FINANCING ACTIVITIES
Repayment of short-term borrowings (6,000) --
Proceeds from Exercise of Stock Options -- 61
Purchase of Treasury Stock (578) (91)
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Net Cash Used in Financing Activities (6,578) (30)
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EFFECT OF EXCHANGE DIFFERENCES ON
CASH AND CASH EQUIVALENTS (117) (246)
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Net Increase (Decrease) in cash and cash equivalents (9,176) (1,277)
CASH AND CASH EQUIVALENTS, BEGINNING 18,800 26,163
-------- --------
CASH AND CASH EQUIVALENTS, ENDING $ 9,624 $ 24,886
======== ========
</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 condensed 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 three
month period ended January 31, 1999 may not be indicative of the
results that may be expected for the year ending October 31, 1999.
For further information, reference is also made to the Company's
Annual Report on Form 10-K for the year ended October 31, 1998 and
the consolidated financial statements contained therein.
2. Reporting Currency
Historically, the Company's consolidated financial statements have
been expressed in British Pounds Sterling. As a result of increased
business activity in the United States ("U.S.") resulting principally
from recent U.S. acquisitions, the U.S. dollar has become the unit of
measure of the large majority of the Company's operations.
Accordingly, the U.S. dollar has been adopted as the Company's
reporting currency effective for the quarter ended January 31, 1999.
The condensed consolidated financial statements and the notes thereto
have been restated in U.S. dollars for all periods presented.
3. Inventory
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January 31, October 3l,
l999 l998
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($000's omitted)
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Raw materials 1,815 1,591
Work-in-progress 353 749
Finished goods 2,559 1,912
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4,727 4,253
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<PAGE>
4. Revolving Credit Facility
The Company had a revolving credit facility which provided for
maximum borrowings of $10.0 (pounds 6.1) million and included 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 was charged at
the bank's prime lending rate less .25% or LIBOR plus 1.25%.
On January 8, 1999, the Company terminated its revolving credit
facility and repaid amounts due including interest totaling
$6,008,733.
5. New Accounting Pronouncements
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 in the
second year of implementation, is effective for fiscal years
beginning after December 15, 1997, although earlier application is
permitted. The Company is evaluating whether the adoption of this
statement will result in any changes to its presentation of financial
data. The Company will adopt SFAS No. 131 in the annual financial
statements for the year ending October 31, 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts collectively referred to as derivatives, and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those statements as fair value. This
statement is effective for fiscal years beginning after June 15,
1999, although early adoption is encouraged. The Company is
evaluating the effect that the adoption of SFAS No. 133 will have on
its consolidated financial position or results of operation.
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,
1998, a copy of which can be obtained from Charles L. McNew, Chief
Financial Officer, NumereX Corp., 1600 Parkwood Circle, Suite 200,
Atlanta, Georgia, 30339-2119.
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7. Forward-looking Statements
The information contained in the Quarterly Report on Form 10-Q for
the quarter ended January 31, 1999 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, 1998.
8. Comprehensive Income (Loss)
The Company adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income, which established standards for
reporting and disclosure of comprehensive income effective for the
three months ended January 31, 1999. Total comprehensive loss for the
three months ended January 31, 1999 and 1998 was $(1,870,000) and
$(98,000), respectively. Total comprehensive loss includes net income
(loss) and foreign currency translation losses for the periods
presented.
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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.
Three Months Ended
January 31,
-------------------
1999 1998
---- ----
Net sales:
Derived Channel Systems ................ 52.3% 67.6%
Broadband and network products ......... 32.6 32.4
Wireless products ...................... 15.1 --
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Total net sales .................... 100.0 100.0
Cost of sales ............................ 46.1 50.5
Gross profit ............................. 53.9 49.5
Selling, general, administrative and other 91.2 47.0
----- -----
Operating income (Loss) .................. (37.3) 2.5
===== =====
Net income (Loss) ........................ (30.0)% 2.0%
===== =====
Results of Operations
Net sales decreased 14.3% to $5.8 million for the quarter ended January 31, 1999
as compared to $6.8 million for the comparable period in 1998. The principal
reason for the decline was a reduction in the volume of derived channel network
equipment sales in both North America and the United Kingdom. There was a
decrease in sales volume of network management products that was somewhat offset
by a modest improvement in sales volume of broadband products and services.
Wireless product sales for the quarter ended January 31, 1999 were $0.9 million
resulting from the acquisition of a controlling interest in UPLINK Security and
the formation of Cellemetry LLC in May, 1998. There were no significant sales
pricing changes during the quarter ended January 31, 1999.
Total cost of sales decreased 21.8% to $2.7 million for the quarter ended
January 31, 1999 as compared to $3.4 million for the comparable period in 1998.
The decrease resulted primarily from the decline in net sales.
Total selling, general, administrative and other expenses increased 66.4% to
$5.3 million for the quarter ended January 31, 1999 as compared to $3.2 million
for the comparable period in 1998. The principal reasons for the increase 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 by BNI.
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<PAGE>
The Company recognized an operating loss of $2.2 million for the quarter ended
January 31, 1999, primarily due to the inclusion of Cellemetry LLC and Uplink
results and the revenue decline for the quarter. This compares to operating
income of $0.2 million for the comparable period in 1998.
Interest and other income decreased 66.3% to $0.1million for the quarter ended
January 31, 1999 as compared to $0.4 million for the comparable period in 1998.
The decrease was principally related to a decline in interest income generated
from temporary cash investments and the inclusion of interest expense on the
Revolving Credit Facility.
As a result of the Company's 19.5% investment in Uplink from July, 1997 to
January, 1998, there was a charge of $0.2 million for the quarter ended January
31, 1998 that represented the Company's equity in the net losses of Uplink. The
change resulted from the Company's acquisition of a controlling interest in
Uplink effective May 1998 which required a restatement of its investment in
Uplink from the cost method to the equity method.
The Company recorded a tax provision of $0.3 million for the quarter ended
January 31, 1999, despite pre-tax losses. Certain losses arising from United
States operations were not deductible during the quarter ended January 31, 1999,
while earnings from United Kingdom operations were fully taxable. The effective
income tax rate was 57% for the quarter ended January 31, 1998.
The Company had net losses of $1.8 million for the quarter ended January 31,
1999. This compares to net income of $0.1 million for the comparable period in
1998.
As a result of the Company's stock buyback program, the weighted average shares
and potential shares outstanding on a diluted basis, declined to 10.5 million
for the quarter ended January 31, 1999 as compared to 10.9 million and 11.1
million shares for the comparable period in 1998.
Liquidity and Capital Resources of the Company
Net cash used by operating activities was $1.8 million for the quarter ended
January 31, 1999. Net cash provided was $0.3 million for the comparable period
in 1998. The decrease was primarily due to net losses.
Net cash used in investing activities decreased to $0.7 million for the quarter
ended January 31, 1999 as compared to $1.3 million for the comparable period in
1998. The decrease was primarily attributable to the Company's investment in
Uplink during 1998.
Net cash used in financing activities increased to $6.6 million for the quarter
ended January 31, 1999 as compared to $0.01 million for the comparable period in
1998. The increase was principally due to the repayment of amounts due under the
revolving credit facility and increased purchases of treasury stock.
The Company had working capital balances of $15.0 million and $17.7 million,
respectively as of January 31, 1999 and October 31, 1998.
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<PAGE>
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, proceeds from the public offering and funds
that had been available under a revolving credit facility. Presently, the
Company is obligated to fund the operations of Cellemetry LLC(which will require
$8.0 million in fiscal 1999 and $2.0 million in fiscal 2000). Expansion of the
Company's Derived Channel Systems business in the UK and certain other
international markets and the potential expansion of the Company's broadband
product line may require greater capital investments than have been required in
the past.
In January 1999, the Company terminated its revolving credit facility and repaid
amounts due including interest. In order to meet the Company's expected 1999
funding requirements, additional financing may be necessary. Management believes
that the Company will be able to meet its 1999 funding needs.
The Company believes that its available cash and funds from potential lending
sources, will be sufficient to finance its operating and capital requirements at
least through the fiscal year ending October 31, 1999. The Company will have
funding obligations to Cellemetry LLC and Uplink as both entities are expected
to be cash flow negative for the balance of fiscal year 1999. Cash requirements
for future expansion of the Company's operations will be evaluated on an
as-needed basis and may involve external financing.
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<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.
None - not applicable.
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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: March 12, 1999 By: /s/ Gordon T. Ray
------------------------ ------------------------------
GORDON T. RAY
Chairman, President and
Chief Executive Officer
Date: March 12, 1999 By: /s/ Charles L. McNew
------------------------- -------------------------------
CHARLES L. McNEW
Chief Financial Officer and
Chief Accounting Officer
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<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JAN-31-1999
<EXCHANGE-RATE> 1
<CASH> 9,624
<SECURITIES> 0
<RECEIVABLES> 5,136
<ALLOWANCES> 0
<INVENTORY> 4,727
<CURRENT-ASSETS> 21,325
<PP&E> 3,036
<DEPRECIATION> 0
<TOTAL-ASSETS> 45,162
<CURRENT-LIABILITIES> 6,344
<BONDS> 0
0
0
<COMMON> 29,870
<OTHER-SE> (72)
<TOTAL-LIABILITY-AND-EQUITY> 45,162
<SALES> 5,842
<TOTAL-REVENUES> 0
<CGS> 2,690
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,456)
<INCOME-TAX> 298
<INCOME-CONTINUING> (1,754)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,754)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
