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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, 2000 0-22920
NUMEREX CORP.
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(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
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As of March 10, 2000, an aggregate of 10,348,132 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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<PAGE>
NUMEREX CORP. AND SUBSIDIARIES
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at January 31, 2000 (unaudited)
and October 31, 1999 4
Condensed Consolidated Statements of Operations and Comprehensive
Income (unaudited) for the three-month periods ended
January 31, 2000 and 1999 5
Pro Forma Condensed Consolidated Statements of Operations and Comprehensive
Income (unaudited) for the three-month periods ended
January 31, 2000 and 1999 6
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three-month periods ended January 31, 2000 and 1999 7
Notes to Condensed Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risks 15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signature Page 18
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<PAGE>
Forward-looking Statements
The information contained in the Quarterly Report on Form 10-Q for
the three-month period ended January 31, 2000 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, 1999 and in other reports filed with the
Securities and Exchange Commission.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
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<PAGE>
NUMEREX CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS U.S. DOLLARS)
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
(UNAUDITED)
----------- -----------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 21,052 $ 5,691
Accounts receivable, net 6,180 11,015
Inventory 3,638 4,525
Prepaid taxes 46 311
Prepaid expenses 220 293
-------- --------
TOTAL CURRENT ASSETS 31,136 21,835
PROPERTY AND EQUIPMENT, NET 2,828 3,792
GOODWILL, NET 11,334 8,808
INTANGIBLE ASSETS, NET 10,376 12,108
OTHER ASSETS 84 85
-------- --------
TOTAL ASSETS $ 55,758 $ 46,628
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,549 $ 4,159
Income taxes 750 1,902
Other current liabilities 2,669 3,231
Obligations under capital leases, current portion 23 30
-------- --------
TOTAL CURRENT LIABILITIES 5,991 9,322
LONG TERM LIABILITIES
Obligations under capital leases 84 84
-------- --------
MINORITY INTEREST 6,413 7,201
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock - no par value; authorized 3,000,000; issued 30,000 at
January 31, 2000 and 0 at October 31, 1999 0 0
Class A, common stock - no par value;
authorized 30,000,000; issued 11,609,492 29,870 29,870
Additional paid-in-capital 3,370 370
Treasury stock, at cost, 1,266,400 shares at January 31, 2000 and
October 31, 1999 (5,222) (5,222)
Accumulative other comprehensive income (20) 4
Retained earnings 15,272 4,999
-------- --------
43,270 30,121
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 55,758 $ 46,628
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE>
NUMEREX CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTH PERIOD ENDED
JANUARY 31,
2000 1999
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net sales $ 4,649 $ 5,842
Cost of sales
2,932 3,546
Selling, general, administrative and other expenses 4,243 4,473
-------- --------
Operating profit (loss) (2,526) (2,177)
Interest and other income, net 257 122
Gain on disposition of assets and business, net of income tax 11,819 0
Minority interest 788 599
-------- --------
Earnings (loss) before income taxes 10,338 (1,456)
Provision for income taxes 0 298
-------- --------
Net earnings (loss) 10,338 (1,754)
Preferred stock dividend 60 0
-------- --------
Net earnings (loss) applicable to common shareholders 10,278 (1,754)
-------- --------
Other comprehensive earnings (loss), net of income taxes
Foreign currency translation adjustment (24) (116)
-------- --------
Comprehensive earnings (loss) $ 10,254 $ (1,870)
-------- --------
Basic earnings (loss) per share 0.99 (0.17)
Diluted earnings (loss) per share 0.89 (0.17)
-------- --------
Number of shares used in per share calculation
Basic 10,343 10,481
Diluted 11,581 10,481
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE>
NUMEREX CORP.
PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTH PERIOD ENDED
JANUARY 31,
2000 1999
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net sales $ 4,649 $ 3,193
Cost of sales 2,932 2,605
Selling, general, administrative and other expenses 4,243 3,704
-------- --------
Operating profit (loss) (2,526) (3,116)
Interest and other income, net 257 (5)
Minority interest 788 599
-------- --------
Earnings (loss) before income taxes (1,481) (2,522)
Provision for income taxes 0 0
-------- --------
Net earnings (loss) (1,481) (2,522)
Preferred stock dividend 60 0
-------- --------
Net earnings (loss) applicable to common shareholders (1,541) (2,522)
-------- --------
Other comprehensive earnings (loss), net of income taxes
Foreign currency translation adjustment 3 (45)
-------- --------
Comprehensive earnings (loss) $ (1,538) $ (2,567)
-------- --------
Basic earnings (loss) per share (0.15) (0.24)
Diluted earnings (loss) per share (0.15) (0.24)
-------- --------
Number of shares used in per share calculation
Basic 10,343 10,481
Diluted 10,343 10,481
-------- --------
</TABLE>
The Pro Forma Condensed Consolidated Statements of Operations and Comprehensive
Income are presented exclusive of the impact of (i) the disposition of assets
and business, net of income tax, relating to the Company's wireline Derived
Channel (`Derived Channel') and, (ii) operations relating to certain of the
Company's wireline Derived Channel, in the periods ended January 31, 2000 and
1999, respectively.
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)
<TABLE>
<CAPTION>
FOR THE THREE
MONTH PERIOD ENDED
JANUARY 31,
2000 1999
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 10,338 $ (1,754)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 710 963
Minority interest (788) (599)
Gain on disposition of assets (75) 0
Gain on disposition of business (11,744) 0
Changes in assets and liabilities which provided (used) cash:
Accounts receivable 1,095 101
Inventory (449) (474)
Prepaid expenses and taxes 53 143
Accounts payable (975) (82)
Other assets and liabilities 1,310 (92)
-------- --------
Net cash provided by (used in) operating activities (525) (1,794)
-------- --------
Cash flows from investing activities
Proceeds from disposition of assets 161 0
Proceeds from disposition of business 16,721 0
Purchase of property and equipment (255) (612)
Purchase of intangible and other assets (84) (64)
Investment in business (99) 0
-------- --------
Net cash provided by (used in) investing activities 16,444 (676)
-------- --------
Cash flows from financing activities
Principal payment on revolving credit facility 0 (6,000)
Proceeds from exercise of stock options 0 0
Principal payment on capital lease obligations (7) (11)
Purchase of treasury stock 0 (578)
-------- --------
Net cash provided by (used in) financing activities (7) (6,589)
-------- --------
Effect of exchange differences on cash 0 (117)
-------- --------
Net increase (decrease) in cash and cash equivalents 15,912 (9,176)
Cash and cash equivalents, beginning of period 5,140 18,800
-------- --------
Cash and cash equivalents, end of period $ 21,052 $ 9,624
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE>
NUMEREX CORP.
NOTES TO CONDENSED 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, 2000 may not be indicative of
the results that may be expected for the year ending October 31,
2000. For further information, reference is also made to the
Company's Annual Report on Form 10-K for the year ended October 31,
1999 and the consolidated financial statements contained therein.
2. Reporting Currency
The condensed consolidated financial statements and the notes thereto
are stated in U.S. Dollars for all periods presented.
3. Reclassification
Certain prior year amounts have been reclassified to conform to the
current period presentation.
4. Inventory
January 31, January 3l,
2000 l999
---- ----
($`000's omitted)
Raw materials $ 1,973 $ 1,815
Work-in-progress 233 353
Finished goods 1,432 2,559
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$ 3,638 $ 4,727
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5. Revolving Credit Facility
The Company had a revolving credit facility, which provided for
maximum borrowings of $10,000,000 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 0.25% or LIBOR plus 1.25%.
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<PAGE>
On January 8, 1999, the Company terminated its revolving credit
facility and repaid amounts due including interest totaling
$6,008,733.
6. 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, 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
periods is required under the SFAS No. 131.
The Company has evaluated the adoption of the statement and has
concluded that there are no changes necessary to the presentation of
financial information for interim and annual periods.
In June 1999, 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 at fair value. This
statement is effective for fiscal years beginning after June 15,
1999, although early adoption is encouraged.
The Company has evaluated the effect that SFAS No. 133 will have on
its consolidated financial position or results of operation for the
period ended January 31, 2000 and has determined that the Company has
no reporting requirements under the statement.
7. Comprehensive Income (Loss)
The Company has adopted SFAS No. 130, "Reporting Comprehensive
Income", which established standards for reporting and disclosure of
comprehensive income effective November 1999.
Total comprehensive income (loss) for the three month periods ended
January 31, 2000 and 1999 was $(24,000) and $(116,000), respectively.
Total comprehensive income (loss) recorded relates to foreign
currency translation losses for the periods presented.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
The following tables set forth, for the periods indicated, the amounts and
percentages of net sales represented by selected items in the Company's
Condensed Consolidated Statements of Operations and Pro Forma Condensed
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Three-Month Period Ended January 31
-----------------------------------
(In Thousands US Dollars)
2000 1999 1999
---- ---- ----
Pro Forma
---------
<S> <C> <C> <C>
Net sales:
Digital Multimedia and Networking $ 2,293 $ 1,903 $ 1,903
Wireless Communications and Security 2,356 3,939 1,290
------- ------- -------
Total net sales 4,649 5,842 3,193
Cost of sales 2,932 3,546 2,605
------- ------- -------
Gross profit (loss) 1,717 2,296 588
Selling, general, administrative and other expenses 4,243 4,473 3,704
------- ------- -------
Operating profit (loss) $(2,526) $(2,177) $(3,116)
------- ------- -------
<CAPTION>
(As a Percentages of Net Sales)
2000 1999 1999
---- ---- ----
Pro Forma
---------
<S> <C> <C> <C>
Net sales:
Digital Multimedia and Networking 49.3% 32.6% 59.6%
Wireless Communications and Security 50.7% 67.4% 40.4%
------- ------- -------
Total net sales 100.0% 100.0% 100.0%
Cost of sales 63.1% 60.7% 81.6%
------- ------- -------
Gross profit (loss) 36.9% 39.3% 18.4%
Selling, general, administrative and other expenses 91.3% 76.6% 116.0%
------- ------- -------
Operating profit (loss) (54.4%) (37.3%) (97.6%)
------- ------- -------
</TABLE>
-10-
<PAGE>
Results of Operations
In November 1999 the Company divested its Derived Channel technology to British
Telecommunications plc. The transaction comprised the sale of the Company's
Derived Channel technology and wholly owned subsidiary, Bronzebase Limited, an
English limited liability company, which owns all of the stock of Versus
Technology Limited. As part of the transaction the Company retained the right to
market, under license, derived channel in North, Central and South America,
South Korea and Australia.
The management discussion and analysis of financial condition and results of
operations which follows covers the Company's three-month period ended January
31, 2000 comparing same against (i) the three-month period ended January 31,
1999 as reported in the Company's Form 10-Q For the Quarter Ended January 31,
1999 and (ii) on a pro forma basis the three-month period ended January 31, 1999
as reported in the Company's Form 10-Q For the Quarter Ended January 31, 1999
adjusted for income and expenditures directly related to the Company's divested
Derived Channel technology.
Direct Comparison
Net sales decreased 20.4% to $4,649,000 for the three-month period ended January
31, 2000, as compared to $5,842,000 for the comparable period in 1999.
Digital Multimedia and Networking product and services sales and revenues
increased by 20.4% to $2,293,000 for the three-month period ended January 31,
2000 as compared to the comparable period in 1999. The principal reasons for the
increase were improved Digital Multimedia Networking sales, derived from
concentrated sales and marketing efforts to the educational distance learning
sector, and improved Network Operational Support Systems sales of equipment and
services to telephone operating companies.
Wireless Communications and Security product and service sales and revenues
decreased by 40.2% to $2,356,000 for the three-month period ended January 31,
2000 as compared to the comparable period in 1999. The principal reason for the
decrease was the loss, for the entire period, of Derived Channel Systems product
sales resulting from the divestment of Derived Channel offset by the continued
growth in Wireless Communications product sales and service revenues from the
marketing and sales effort to establish Cellemetry as a recognized national data
transport service.
Cost of sales decreased by 17.4% to $2,932,000 for the three-month period ended
January 31, 2000 as compared to $3,546,000 for the comparable period in 1999.
The decrease in cost of sales resulted primarily from the loss, for the entire
period, of Derived Channel Systems product sales resulting from the divestment
of Derived Channel.
Gross profit as a percentage of net sales decreased to 36.9% for the three-month
period ended January 31, 2000 as compared to 39.3% for the comparable period in
1999. The decrease in gross profit margin resulted primarily from the loss, for
the entire period, of Derived Channel Systems product sales resulting from the
divestment of Derived Channel.
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<PAGE>
Selling, general, administrative and other expenses decreased by 5.1% to
$4,243,000 for the three-month period ended January 31, 2000 as compared to
$4,473,000 for the comparable period in 1999. The principal reason for the
decrease was the absence, for the entire period, of Derived Channel Systems
selling, general, administrative and other expenses resulting from the
divestment of Derived Channel. This decrease was partially offset by increased
expenditures in the Company's Wireless Communications business necessary as part
of the marketing and sales effort to establish Cellemetry as a recognized
national data transport service together with continuing investment in product
and service development and sales and marketing programs across all the
Company's lines of business.
Interest and other income increased by 110.7% to $257,000 for the three-month
period ended January 31, 2000 as compared to $122,000 for the comparable period
in 1999. The increase was primarily related to interest income earned on cash
balances.
As described above, in November 1999 the Company divested its Derived Channel
technology to British Telecommunications plc. The transaction comprised the sale
of the Company's Derived Channel technology and wholly owned subsidiary,
Bronzebase Limited, an English limited liability company, which owns all of the
stock of Versus Technology Limited. The gain on the sale of assets and business,
net of income tax, amounted to $11,819,000.
Minority interest increased by 31.6% to $788,000 for the three-month period
ended January 31, 2000 as compared to $599,000 for the comparable period in
1999. The gain represents that portion of the losses of the Company's Wireless
Communications business that is not accounted for by the Company.
The Company, due to the loss position, did not record a tax provision for the
three-month period ended January 31, 2000 as compared to a tax provision of
$298,000 for the comparable period in 1999. The change in tax provision
resulted from the sale of the Company's United Kingdom Derived Channel business
as part of the divestment of Derived Channel.
The Company recorded net earnings of $10,338,000 for the three-month period
ended January 31, 2000 as compared to a net loss of $1,754,000 for the
comparable period in 1999.
The weighted average shares outstanding declined to 10,343,000 and potential
shares outstanding on a diluted basis increased to 11,581,000 for the period
ended January 31, 2000 as compared to weighted average and diluted shares
outstanding of 10,481,000 for the comparable period in 1999.
Pro Forma Comparison
On a pro forma comparative basis, excluding sales of the divested Derived
Channel for the three-month period ended January 31, 1999; net sales increased
by 45.6% to $4,649,000 for the three-month period ended January 31, 2000 as
compared to $3,193,000 for the comparable period in 1999.
On a pro forma comparative basis, Wireless Communications and Security product
and service sales and revenues increased by 82.6% to $2,356,000 for the
three-month period ended January 31, 2000 as compared to the comparable period
in 1999. The principal reason for the increase was the continued growth in
Wireless Communications product sales and service revenues from the marketing
and sales effort to establish Cellemetry as a recognized national data transport
service augmented by the sale of network security equipment upgrades.
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<PAGE>
On a pro forma comparative basis, excluding cost of sales of the divested
Derived Channel for the three-month period ended January 31, 1999; cost of sales
increased by 12.6% to $2,932,000 for the three-month period ended January 31,
2000 as compared to $2,605,000 for the comparable period in 1999. The increase
in cost of sales resulted from the increased level of sales activity in the
period across the Company's lines of business.
On a pro forma comparative basis, excluding gross profit of the divested Derived
Channel for the three-month period ended January 31, 1999; gross profit as a
percentage of net sales increased to 36.9% for the three-month period ended
January 31, 2000 as compared to 18.4% for the comparable period in 1999. The
increase in gross profit margin resulted from the increased level of sales
activity and shift in sales mix in the period across the Company's lines of
business coupled with the growth of recurring service revenues.
On a pro forma comparative basis, excluding the selling, general, administrative
and other expenses of the divested Derived Channel for the three-month period
ended January 31, 1999; selling, general, administrative and other expenses
increased by 14.6% to $4,243,000 for the three-month period ended January 31,
2000 as compared to $3,704,000 for the comparable period in 1999. The increase
in selling, general, administrative and other expenses resulted primarily from
increased expenditure in the Company's Wireless Communications business
necessary as part of the marketing and sales effort to establish Cellemetry as a
recognized national data transport service and continuing investment in product
and service development and sales and marketing programs across all the
Company's lines of business.
On a pro forma comparative basis, excluding interest and other income of the
divested Derived Channel for the three-month period ended January 31, 1999;
interest and other income increased to a $257,000 for the three-month period
ended January 31, 2000 as compared to a net expense of $5,000 for the comparable
period in 1999. The increase was primarily related to interest income earned on
cash balances.
Minority interest increased by 31.6% to $788,000 for the three-month period
ended January 31, 2000 as compared to $599,000 for the comparable period in
1999. The gain represents that portion of the losses of the Company's Wireless
Communications business that is not accounted for by the Company
On a pro forma comparative basis, excluding the results of operations of the
divested Derived Channel for the three-month period ended January 31, 1999; the
net loss recorded by the Company decreased by 41.3% to $1,481,000 as compared to
$2,522,000 for the comparable period in 1999.
The weighted average shares outstanding declined to 10,343,000 and potential
shares outstanding on a diluted basis increased to 11,581,000 for the period
ended January 31, 2000 as compared to weighted average and diluted shares
outstanding of 10,481,000 for the comparable period in 1999.
Liquidity and Capital Resources of the Company
The Company has been able to fund its operations and working capital
requirements from cash flow generated by operations, the proceeds from a public
offering completed in April 1995 and the proceeds from the sale of its Derived
Channel technology in November 1999.
-13-
<PAGE>
Net cash used in operating activities decreased by 70.1% to $525,000 for the
three-month period ended January 31, 2000 as compared to $1,794,000 for the
comparable period in 1999. The decrease in cash used was primarily due to the
improvement in underlying net loss, on a pro forma basis, when account is taken
of the divestment of the Company's Derived Channel technology and positive
working capital.
Net cash provided by investing activities increased to $16,444,000 for the
three-month period ended January 31, 2000 as compared to net cash used in
investing activities of $676,000 for the comparable period in 1999. The increase
was primarily the result of the divestment of the Company's Derived Channel
technology, which generated proceeds of $16,882,000, and lower levels of
investment in tangible and intangible assets.
Net cash used in financing activities decreased to $7,000 for the three-month
period ended January 31, 2000 as compared to $6,589,000 for the comparable
period in 1999 which primarily comprised the repayment, in full in January 1999,
of amounts due under the Company's then Revolving Credit Facility and the
buy-back of the Company's common stock. The Company had working capital balances
of $25,145,000 and $12,513,000, respectively, as of January 31, 2000 and October
31, 1999.
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. The Company is
obligated under the First Amendment to the Operating Agreement of Cellemetry LLC
to fund in fiscal 2000 the operations of Cellemetry LLC to an amount of
$5,500,000 by way of interest bearing debt financing. The financing will be used
to fund the operations of Cellemetry LLC and Uplink Security, Inc. as both
operations are expected to be cash flow negative in fiscal 2000.
Expansion of the Company's Digital Multimedia Networking business in fiscal
2000, including the establishment and increased market penetration of
PowerPlay(TM), may require greater capital investments than in the past.
The Company believes that its cash and cash equivalents, including funds
available from the divestment of its Derived Channel technology, and cash
provided by operating activities will be sufficient to finance its operating
and capital requirements for the next twelve months.
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.
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<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risks.
At January 31, 2000, the Company was not invested in any material balances of
market risk sensitive instruments held for either trading purposes or for
purposes other than trading. As a result, the Company is not subject to interest
rate risk, foreign currency rate risk, commodity price risk, or other relevant
market risks, such as equity price risk.
The Company invests cash balances in excess of operating requirements in an
overnight investment account. At January 31, 2000, the Company has no
outstanding borrowings payable. The Company believes that the effect, if any, of
reasonably possible near-term changes in interest rates or foreign currency
exchange rates on the Company's financial position, results of operations and
cash flows should not be material.
-15-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In connection with the Company's acquisition of the entire equity
interest in Uplink Security, Inc. ("Uplink") a petition was filed by
Uplink in the Superior Court of Fulton County, Georgia seeking an
appraisal of the value of a minority stockholders shares. The
minority stockholder has alleged that the acquisition of Uplink was
procedurally improper and should be set aside and that Uplink and
certain of its officers (together with the Company and certain of its
officers) conspired to oppress the minority stockholder of Uplink and
acted fraudulently in effectuating the acquisition. The case is
entering the discovery phase.
Neither the Company nor its officers are parties to the litigation.
The Company believes, however, that the value the minority
stockholder is claiming for the shares is in excess of the fair value
of those shares. The Company also believes that the minority
stockholder's other claims are without merit, and Uplink intends to
vigorously defend the litigation.
Item 2. Changes in Securities.
In November 1999, the Company entered into the First Amendment to the
Operating Agreement and issued to BellSouth Wireless, Inc. 30,000
shares of Series A Convertible Redeemable Preferred Stock (the
"Preferred Stock"). The Preferred Stock is redeemable, at the
Company's option, commencing November 1, 2000, on the basis of a
pre-set annual redemption price per share. Also, the Preferred Stock,
at BellSouth Wireless Inc.'s option, commencing November 1, 2003 or
November 1, 2002 should the Company's common stock exceed a pre-set
market price for a given period of time, is convertible into 625,000
shares of common stock of the Company, approximately 6% of the
Company's common stock. The Preferred Stock carries certain
registration rights for the common stock upon such conversion. The
Preferred Stock was issued pursuant to an exemption from registration
pursuant to Section 4(2) under the Securities Act of 1933. The
Preferred Stock carries a cumulative 8% dividend.
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.
-16-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
The Company filed a Form 8-K on November 26, 1999, advising of (i)
the sale of its Derived Channel technology to British
Telecommunications plc and (ii) the restructuring of it's joint
venture, Cellemetry LLC, with BellSouth Wireless, Inc.
-17-
<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)
<TABLE>
<S> <C>
Date: March 16, 2000 By: /s/ Stratton J. Nicolaides
------------------ ------------------------------------
STRATTON J. NICOLAIDES
Chairman and
Chief Operating Officer
Date: March 16, 2000 By: /s/ Peter J. Quinn
------------------ ----------------------------------------------------
PETER J. QUINN
Executive Vice President,
Chief Financial Officer, and
Principal Financial and Accounting Officer
</TABLE>
-18-
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