<PAGE>
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 Quarterly Period Ended Commission File Number
JUNE 30, 2000 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.)
1600 Parkwood Circle, Suite 200
ATLANTA, GEORGIA 30339-2119
----------------------------------------
(Address of principal executive offices)
(770) 693-5950
----------------------------------------------------
(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 July 28, 2000, an aggregate of 10,368,213 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 June 30, 2000 (unaudited) and
October 31, 1999 5
Condensed Consolidated Statements of Operations and Comprehensive Income
(unaudited) for the three-month period ended March 31, 2000 and 1999 7
Pro Forma Condensed Consolidated Statements of Operations and Comprehensive
Income (unaudited) for the three-month period ended March 31, 2000 and 1999 8
Condensed Consolidated Statements of Operations and Comprehensive Income
(unaudited) for the three-month and six-month period ended June 30, 2000 and 1999 9
Pro Forma Condensed Consolidated Statements of Operations and Comprehensive
Income (unaudited) for the three-month and six-month period ended
June 30, 2000 and 1999 10
Condensed Consolidated Statements of Cash Flows (unaudited) for the six-month
period ended June 30, 2000 and 1999 11
Notes to Condensed Consolidated Financial Statements (unaudited) 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risks 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
</TABLE>
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<PAGE>
NUMEREX CORP. AND SUBSIDIARIES
INDEX (Continued)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signature Page 22
</TABLE>
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<PAGE>
FORWARD-LOOKING STATEMENTS
The information contained in this Quarterly Report on Form 10-Q for the period
ended June 30, 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.
- 4 -
<PAGE>
NUMEREX CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS U.S. DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, OCTOBER 31,
2000 1999 1999
(UNAUDITED) (UNAUDITED)
----------- ------------ -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,357 $ 21,490 $ 5,691
Accounts receivable, net 5,378 6,241 11,015
Inventory 3,986 3,618 4,525
Prepaid taxes 0 0 311
Prepaid expenses 129 259 293
-------- -------- --------
TOTAL CURRENT ASSETS 28,850 31,608 21,835
PROPERTY AND EQUIPMENT, NET 2,707 2,899 3,792
GOODWILL, NET 11,086 11,404 8,808
INTANGIBLE ASSETS, NET 10,131 10,410 12,108
OTHER ASSETS 84 84 85
-------- -------- --------
TOTAL ASSETS $ 52,858 $ 56,405 $ 46,628
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,056 $ 2,823 $ 4,159
Income taxes 444 854 1,902
Other current liabilities 2,396 3,094 3,231
Obligations under capital leases, current portion 26 25 30
-------- -------- --------
TOTAL CURRENT LIABILITIES 4,922 6,796 9,322
LONG TERM LIABILITIES
Obligations under capital leases 64 85 84
-------- -------- --------
MINORITY INTEREST 5,370 6,616 7,201
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock--no par value; authorized 3,000,000; issued 30,000
at June 30, 2000 and December 31, 1999 and 0 at October 31, 1999 3,000 3,000 0
Class A , common stock--no par value; authorized 30,000,000; issued
12,047,542 at June 30, 2000 and 11,609,492 at October 31, and
December 1, 1999 31,425 29,870 29,870
Additional paid-in-capital 370 370 370
Treasury stock, at cost, 1,266,400 shares at June 30, 2000 and
December 31 and October 31, 1999 (5,222) (5,222) (5,222)
Accumulative other comprehensive income (47) (20) 4
Retained earnings 12,976 14,910 4,999
-------- -------- --------
42,502 42,908 30,021
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 52,858 $ 56,405 $ 46,628
======== ======== ========
</TABLE>
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<PAGE>
See accompanying notes to condensed consolidated financial statements
- 6 -
<PAGE>
NUMEREX CORP.--DIRECT COMPARISON
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
MARCH 31,
---------------------------
2000 1999
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net sales $ 5,139 $ 5,691
Cost of sales 2,426 3,506
Selling, general, administrative and other expenses 3,985 4,935
-------- --------
Operating profit (loss) (1,272) (2,750)
Interest and other income, net 309 82
Gain on disposition of assets and business, net of income tax 0 0
Minority interest 581 713
-------- --------
Earnings (loss) before income taxes (382) (1,955)
Provision for income taxes 0 323
Net earnings (loss) (382) (2,278)
Preferred stock dividend 60 0
Net earnings (loss) applicable to common shareholders (442) (2,278)
======== ========
Other comprehensive earnings (loss), net of income taxes
Foreign currency translation adjustment (17) 24
-------- --------
Comprehensive earnings (loss) $ (459) $ (2,254)
======== ========
Basic earnings (loss) per common share $ (0.04) $ (0.22)
Diluted earnings (loss) per common share (0.04) (0.22)
-------- --------
Number of shares used in per share calculation
Basic 10,434 10,351
Diluted 10,434 10,351
-------- --------
</TABLE>
The Direct Comparison Condensed Consolidated Statements of Operations and
Comprehensive Income are presented inclusive 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 March
31, 2000 and 1999, respectively.
See accompanying notes to condensed consolidated financial statements
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<PAGE>
NUMEREX CORP.--PRO FORMA COMPARISON
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
MARCH 31,
---------------------------
2000 1999
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net sales $ 5,139 $ 2,865
Cost of sales 2,426 2,479
Selling, general, administrative and other expenses 3,985 4,199
-------- --------
Operating profit (loss) (1,272) (3,813)
Interest and other income, net 309 54
Minority interest 581 713
-------- --------
Earnings (loss) before income taxes (382) (3,046)
Provision for income taxes 0 0
-------- --------
Net earnings (loss) (382) (3,046)
Preferred stock dividend 60 0
-------- --------
Net earnings (loss) applicable to common shareholders (442) (3,046)
======== ========
Other comprehensive earnings (loss), net of income taxes
Foreign currency translation adjustment (17) 75
-------- --------
Comprehensive earnings (loss) $ (459) $ (2,971)
======== ========
Basic earnings (loss) per common share $ (0.04) $ (0.29)
Diluted earnings (loss) per common share (0.04) (0.29)
-------- --------
Number of shares used in per share calculation
Basic 10,434 10,351
Diluted 10,434 10,351
-------- --------
</TABLE>
The Pro Forma Comparison 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 March
31, 2000 and 1999, respectively.
See accompanying notes to condensed consolidated financial statements
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<PAGE>
NUMEREX CORP.--DIRECT COMPARISON
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTH FOR THE SIX MONTH
PERIOD ENDED JUNE 30, PERIOD ENDED JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 4,933 $ 10,011 $ 10,072 $ 15,702
Cost of sales
2,831 4,742 5,257 8,248
Selling, general, administrative
and other expenses 4,668 5,029 8,653 9,964
-------- -------- -------- --------
Operating profit (loss) (2,566) 240 (3,838) (2,510)
Interest and other income, net
431 25 740 107
Gain on disposition of assets and
business, net of income tax 0 0 0 0
Minority interest 703 728 1,284 1,441
-------- -------- -------- --------
Earnings (loss) before income taxes (1,432) 993 (1,814) (962)
Provision for income taxes 0 643 0 966
-------- -------- -------- --------
Net earnings (loss) (1,432) 350 (1,814) (1,928)
Preferred stock dividend 60 0 120 0
-------- -------- -------- --------
Net earnings (loss) applicable
to common shareholders (1,492) 350 (1,934) (1,928)
======== ======== ======== ========
Other comprehensive income (loss),
net of income taxes
Foreign currency translation adjustment (10) (399) (27) (375)
-------- -------- -------- --------
Comprehensive earnings (loss) $ (1,502) $ (49) $ (1,961) $ (2,303)
======== ======== ======== ========
Basic earnings (loss) per common share $ (0.14) $ 0.03 $ (0.18) $ (0.19)
Diluted earnings (loss) per common shar (0.14) 0.03 (0.18) (0.19)
-------- -------- -------- --------
Number of shares used in per share calculation
Basic 10,781 10,343 10,608 10,347
Diluted 10,781 10,401 10,608 10,347
-------- -------- -------- --------
</TABLE>
The Direct Comparison Condensed Consolidated Statements of Operations and
Comprehensive Income are presented inclusive 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 June 30,
2000 and 1999, respectively.
See accompanying notes to condensed consolidated financial statements
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<PAGE>
NUMEREX CORP. - PRO FORMA COMPARISON
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTH FOR THE SIX MONTH
PERIOD ENDED JUNE 30, PERIOD ENDED JUNE 30,
2000 1999 2000 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 4,933 $ 6,087 $ 10,072 $ 8,952
Cost of sales
2,831 3,673 5,257 6,152
Selling, general, administrative and
other expenses 4,668 4,281 8,653 8,480
-------- -------- -------- --------
Operating profit (loss) (2,566) (1,867) (3,838) (5,680)
Interest and other income, net 431 16 740 70
Minority interest
703 728 1,284 1,441
-------- -------- -------- --------
Earnings (loss) before income taxes (1,432) (1,123) (1,814) (4,169)
Provision for income taxes 0 0 0 0
-------- -------- -------- --------
Net earnings (loss) (1,432) (1,123) (1,814) (4,169)
Preferred stock dividend 60 0 120 0
-------- -------- -------- --------
Net earnings (loss) applicable
to common shareholders (1,492) (1,123) (1,934) (4,169)
======== ======== ======== ========
Other comprehensive income (loss), net
of income taxes
Foreign currency translation adjustment (10) (107) (27) (32)
-------- -------- -------- --------
Comprehensive earnings (loss) $ (1,502) $ (1,230) $ (1,961) $ (4,201)
======== ======== ======== ========
Basic earnings (loss) per common share $ (0.14) $ (0.11) $ (0.18) $ (0.40)
Diluted earnings (loss) per common share
(0.14) (0.11) $ (0.18) $ (0.40)
-------- -------- -------- --------
Number of shares used in per share calculation
Basic 10,781 10,343 10,608 10,347
Diluted 10,781 10,343 10,608 10,347
-------- -------- -------- --------
</TABLE>
The Pro Forma Comparison 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 June 30,
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 SIX MONTH
PERIOD ENDED JUNE 30,
---------------------------
2000 1999
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (1,814) $ (1,928)
Adjustments to reconcile net earnings (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,405 1,701
Minority interest (1,284) (1,441)
Gain on disposition of assets 0 0
Gain on disposition of business 0 0
Changes in assets and liabilities which provided (used) cash:
Accounts receivable 863 (2,202)
Inventory (366) (1,156)
Prepaid expenses and taxes (280) 1,056
Accounts payable (768) 2,226
Other assets and liabilities (698) 106
-------- --------
Net cash provided by (used in) operating activities (2,942) (1,638)
-------- --------
Cash flows from investing activities
Proceeds from disposition of assets 0 0
Proceeds from disposition of business 0 0
Purchase of property and equipment (475) (1,028)
Purchase of intangible and other assets (120) (349)
Investment in business (22) 0
-------- --------
Net cash provided by (used in) investing activities (617) (1,377)
-------- --------
Cash flows from financing activities
Principal payment on revolving credit facility 0 (6,000)
Proceeds from exercise of stock options 1,593 0
Principal payment on capital lease obligations (20) (2)
Dividend payments (120) 0
Purchase of treasury stock 0 (158)
-------- --------
Net cash provided by (used in) financing activities 1,453 (6,160)
-------- --------
Effect of exchange differences on cash (27) (921)
-------- --------
Net increase (decrease) in cash and cash equivalents (2,133) (10,096)
Cash and cash equivalents, beginning of period 21,490 5,684
-------- --------
Cash and cash equivalents, end of period $ 19,357 $ 5,588
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statement
- 11 -
<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 six-month period ended June 30, 2000 may not be indicative of the
results that may be expected for the year ending December 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
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999 OCTOBER 31, 1999
------------- ----------------- ----------------
($'000's omitted)
<S> <C> <C> <C>
Raw materials $1,521 $1,978 $ 1,871
Work-in-progress 54 70 698
Finished goods 2,411 1,570 1,956
------- ------- -------
Total $ 3,986 $ 3,618 $ 4,525
------- ------- -------
</TABLE>
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%.
- 12 -
<PAGE>
On January 8, 1999, the Company terminated its revolving credit facility
and repaid amounts due including interest totaling $6,008,733.
6. SHAREHOLDER'S EQUITY
The Company in the six-month period to June 30, 2000 issued 438,050 shares
of Class A Common Stock of the Company following the exercise of stock
options and warrants.
- 13 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
This quarterly report on Form 10-Q for the period ended June 30, 2000 is the
first quarterly report filed by the Company following its change in fiscal year
end from October 31 to December 31.
Under applicable SEC regulations, the Company is permitted to combine the
information presented below for the quarter ended June 30, 2000 with the
information for the two months of February 2000 and March 2000. To facilitate an
understanding of the Company's financial condition and results of operations,
however, the Company has chosen to present information for the combined period
of January 1, 2000 to June 30, 2000. The Company also has included separate
financial statements (unaudited) in this quarterly report for the three-month
periods ended March 31, 2000 and March 31, 1999, respectively.
The following tables set forth, for the periods indicated the amounts and
percentages of net sales represented by selected items in the Company's Direct
Comparison Condensed Consolidated Statements of Operations and Pro Forma
Comparison Condensed Consolidated Statements of Operations.
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED JUNE 30,
(In Thousands U.S. Dollars)
2000 1999 1999
---- ---- ----
PRO FORMA
<S> <C> <C> <C>
Net sales:
Digital Multimedia and Networking $ 4,840 $ 5,587 $ 5,587
Wireless Communications and Security 5,232 10,115 3,365
-------- -------- --------
Total net sales 10,072 15,702 8,952
Cost of sales 5,257 8,248 6,152
-------- -------- --------
Gross profit (loss) 4,815 7,454 2,800
Selling, general, administrative and other expenses 8,653 9,964 8,480
-------- -------- --------
Operating profit (loss) $ (3,838) $ (2,510) $ (5,680)
-------- -------- --------
</TABLE>
(As a Percentages of Net Sales)
<TABLE>
<CAPTION>
2000 1999 1999
---- ---- ----
PRO FORMA
<S> <C> <C> <C>
Net sales:
Digital Multimedia and Networking 48.1% 35.6% 62.4%
Wireless Communications and Security 51.9% 64.4% 37.6%
-------- -------- --------
Total net sales 100.0% 100.0% 100.0%
Cost of sales 52.2% 52.5% 68.7%
-------- -------- --------
Gross profit (loss) 47.8% 47.5% 31.3%
Selling, general, administrative and other expenses 85.9% 63.5% 94.7%
-------- -------- --------
Operating profit (loss) (38.1%) (16.0%) (63.4%)
-------- -------- --------
</TABLE>
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<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 owned 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 six-month period ended June 30,
2000 comparing same against (i) the six-month period ended June 30, 1999 and
(ii) on a pro forma basis the six-month period ended June 30, 1999 adjusted for
income and expenditures directly related to the Company's divested Derived
Channel technology.
DIRECT COMPARISON
Net sales decreased 35.9% to $10,072,000 for the six-month period ended June 30,
2000, as compared to $15,702,000 for the comparable period in 1999.
Digital Multimedia and Networking product and service sales and revenues
decreased by 13.4% to $4,840,000 for the six-month period ended June 30, 2000 as
compared to the comparable period in 1999.
The principal reason for the reduction in sales was a 36.2% decrease in Digital
Multimedia product sales resulting from the transition from the marketing and
sale of analog based product to the marketing and sale of the new digital
hardware and software based product platform, `PowerPlay'. The reduction in
sales was, however, partially offset by a 53.0% increase in Networking product
and service sales resulting from growth in its core business activities.
Wireless Communications and Security product and service sales and revenues
decreased by 48.3% to $5,232,000 for the six-month period ended June 30, 2000 as
compared to the comparable period in 1999.
The principal reason for the reduction in sales was the loss, for the entire
period, of Derived Channel Systems product sales resulting from the divestment
of Derived Channel. The reduction in sales was, however, partially offset by the
continued growth in Wireless Communications product and service revenues, an
increase of 76.7%, resulting from the marketing and sales effort to establish
the Company as a recognized national wireless data service.
Cost of sales decreased by 36.3% to $5,257,000 for the six-month period ended
June 30, 2000 as compared to $8,248,000 for the comparable period in 1999.
The reduction 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.
- 15 -
<PAGE>
Gross profit as a percentage of net sales increased to 47.8% for the six-month
period ended June 30, 2000 as compared to 47.5% for the comparable period in
1999.
Selling, general, administrative and other expenses decreased by 13.2% to
$8,653,000 for the six-month period ended June 30, 2000 as compared to
$9,964,000 for the comparable period in 1999.
The principal reason for the reduction resulted primarily from the loss, for the
entire period, of Derived Channel Systems expenses resulting from the divestment
of Derived Channel.
Interest and other income increased by 591.6% to $740,000 for the six-month
period ended June 30, 2000 as compared to $107,000 for the comparable period in
1999. The increase was primarily related to interest income earned on cash
balances.
Minority interest decreased by 10.9% to $1,284,000 for the six-month period
ended June 30, 2000 as compared to $1,441,000 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 from operations, did not record a tax
provision for the six-month period ended June 30, 2000 as compared to a tax
provision of $966,000 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 a net loss of $1,814,000 for the six-month period ended
June 30, 2000 as compared to a net loss of $1,928,000 for the comparable period
in 1999.
The weighted average and diluted shares outstanding increased to 10,608,000 for
the period ended June 30, 2000 as compared to weighted average and diluted
shares outstanding of 10,347,000 for the comparable period in 1999.
PRO FORMA COMPARISON
On a pro forma comparative basis, excluding sales of the divested Derived
Channel for the six-month period ended June 30, 1999, net sales increased by
12.5% to $10,072,000 for the six-month period ended June 30, 2000 as compared to
$8,952,000 for the comparable period in 1999.
On a pro forma comparative basis, Wireless Communications and Security product
and service sales and revenues increased by 55.5% to $5,232,000 for the
six-month period ended June 30, 2000 as compared to the comparable period in
1999.
The principal reason for the improvement was the continued growth in Wireless
Communications product and service revenues, an increase of 76.7%, resulting
from the marketing and sales effort to establish the Company as a recognized
national wireless data service. Additionally, residual Derived Channel wireline
Security product and service sales increased by 30.4%.
The increase in Security revenues resulted from one-time product and service
contract revenues earned in Australia that was reflected in the three-month
period ended March 31, 2000. Excluding the Australian
- 16 -
<PAGE>
product and services contract revenues, residual Derived Channel wireline
Security product and service contract revenues decreased by 53.6%.
On a pro forma comparative basis, excluding cost of sales of the divested
Derived Channel for the six-month period ended June 30, 1999, cost of sales
decreased by 14.6% to $5,257,000 for the six-month period ended June 30, 2000 as
compared to $6,152,000 for the comparable period in 1999.
The reduction in cost of sales was primarily accounted for by the decrease in
Digital Multimedia product and service sales resulting from the transition from
the marketing and sale of analog based product to the marketing and sale of the
new digital hardware and software based product platform, `PowerPlay'. The
reduction in cost of sales was also favorably impacted by the increase in
Wireless Communication product and service sales and revenues, particularly from
the continuing growth in recurring service revenues.
On a pro forma comparative basis, excluding gross profit of the divested Derived
Channel for the six-month period ended June 30, 1999, gross profit as a
percentage of net sales increased to 47.8% for the six-month period ended June
30, 2000 as compared to 31.3% for the comparable period in 1999.
The improvement in gross profit margin resulted from the combined impact of the
increase in Company product and service sales revenues and the decrease in
Company cost of sales expense.
On a pro forma comparative basis, excluding the selling, general, administrative
and other expenses of the divested Derived Channel for the six-month period
ended June 30, 1999, selling, general, administrative and other expenses
increased by 2.0% to $8,653,000 for the six-month period ended June 30, 2000 as
compared to $8,480,000 for the comparable period in 1999.
On a pro forma comparative basis, excluding interest and other income of the
divested Derived Channel for the six-month period ended June 30, 1999, interest
and other income increased to $740,000 for the six-month period ended June 30,
2000 as compared to $70,000 for the comparable period in 1999. The increase was
primarily related to interest income earned on cash balances.
Minority interest decreased by 10.9% to $1,284,000 for the six-month period
ended June 30, 2000 as compared to $1,441,000 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 six-month period ended June 30, 1999, the net
loss recorded by the Company decreased by 56.5% to $1,814,000 for the six-month
period ended June 30, 2000 as compared to $4,169,000 for the comparable period
in 1999.
The reduction in net loss primarily resulted from the increased level of sales
activity, composition of product and service sales revenues and the continuing
growth of the Company's recurring service revenues.
The weighted average shares and diluted shares outstanding increased to
10,608,000 for the period ended June 30, 2000 as compared to weighted average
and diluted shares outstanding of 10,347,000 for the comparable period in 1999.
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<PAGE>
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.
Net cash used in operating activities increased by 79.6% to $2,942,000 for the
six-month period ended June 30, 2000 as compared to $1,638,000 for the
comparable period in 1999. The increase in cash used was primarily due to
changes in working capital.
Net cash used in investing activities decreased by 55.2% to $617,000 for the
six-month period ended June 30, 2000 as compared to net cash used in investing
activities of $1,377,000 for the comparable period in 1999. The decrease was the
result of reduced investment in tangible and intangible assets.
Net cash provided by financing activities amounted to $1,453,000 for the
six-month period ended June 30, 2000 as compared to net cash used in financing
activities of $6,160,000 for the comparable period in 1999.
The change in cash position was primarily accounted for by the receipt of
$1,593,000 of proceeds from the exercise of stock options which resulted in the
issue of an additional 438,050 shares of the Company's Class A Common Stock in
the period to June 30, 2000 and 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 in the corresponding period in 1999.
The Company had working capital balances of $23,928,000 and $12,513,000,
respectively, as of June 30, 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 the
proceeds from the sale of Derived Channel in November 1999.
The Company is obligated under the First Amendment to the Operating Agreement of
Cellemetry LLC to fund 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.
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<PAGE>
The Company believes that its cash and cash equivalents, including funds
available from the divestment of its Derived Channel technology will be
sufficient to finance its operating and capital requirements in fiscal 2000.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
At June 30, 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 June 30, 2000 the Company has no outstanding
borrowings payable except for obligations under capital leases. 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.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported in the Company's Form 10 - Q for the
three-month period ended January 31, 2000, 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.
None--not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None--not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders of the Company was held on April
28, 2000 (the "Meeting"). Three proposals were presented for a vote at
the Meeting.
Proposal 1--The election of six directors, George Benson, Matthew J.
Flanigan, Allan H. Liu, Stratton J. Nicolaides, John G. Raos and
Andrew J. Ryan, each to serve as a director of the Company for a
one-year term expiring at the annual meeting of shareholders to be
held in 2001 and until the election and qualification of each
successor.
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<PAGE>
Proposal 1--To elect a Board of Directors consisting of six persons
to serve until the next annual meeting of shareholders and until their
respective successors have been duly elected and qualified.
The proposal was approved as follows:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
George Benson 8,782,267 459,700
Matthew J. Flanigan 8,782,267 459,700
Allan H. Liu 8,782,267 459,700
Stratton J. Nicolaides 8,782,242 459,725
John G. Raos 8,782,267 459,700
Andrew J. Ryan 8,782,267 459,700
</TABLE>
Proposal 2--The approval of the Company's Long -Term Incentive Plan.
Proposal 2--To approve the Company's Long-Term Incentive Plan.
The proposal was approved as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
5,327,246 585,981 45,800
</TABLE>
Proposal 3--The ratification of the appointment of Grant Thornton LLP
as the Company's independent public accountants for the current fiscal
year ending October 31, 2000.
Proposal 3--To consider and vote upon the ratification of the
selection by the Board of Directors of Grant Thornton LLP as
independent accountants to the Company for the current fiscal
year ending October 31, 2000.
The proposal was approved as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
</TABLE>
9,237,417 2,850 1,700
ITEM 5. OTHER INFORMATION.
None - not applicable.
- 21 -
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.10 Numerex Corp. 1999 Long-term Incentive Plan
27 Financial Data Schedule
(b) Reports on Form 8-K
(i) On May 12, 2000, the Company filed an 8-K advising of its change
in its fiscal year end from a fiscal year ending October 31 to a
calendar fiscal year ending on December 31.
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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: AUGUST 11, 2000 By: /s/ STRATTON J. NICOLAIDES
-------------------- ------------------------------------------
STRATTON J. NICOLAIDES
Chairman and Chief Executive Officer
Date: AUGUST 11, 2000 By: /s/ PETER J. QUINN
-------------------- ------------------------------------------
PETER J. QUINN
Executive Vice President,
Chief Financial Officer, and
Principal Financial and Accounting
Officer
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