<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
September 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
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(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 ___
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As of November 7, 2000, an aggregate of 10,410,713 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
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets at September 30, 2000 (unaudited),
December 31, 1999 (unaudited) and October 31, 1999 4
Condensed Consolidated Statements of Operations and Comprehensive Income
(unaudited) for the three-month and nine-month period ended September 30, 2000 and 1999 5
Pro Forma Condensed Consolidated Statements of Operations and Comprehensive
Income (unaudited) for the three-month period ended September 30, 2000 and 1999 6
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine-month
period ended September 30, 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 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
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature Page 21
</TABLE>
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FORWARD-LOOKING STATEMENTS
The information contained in this Quarterly Report on Form 10-Q for the period
ended September 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.
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NUMEREX CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, OCTOBER 31,
2000 1999 1999
(UNAUDITED) (UNAUDITED)
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,006 $ 21,490 $ 5,691
Accounts receivable, net 6,577 6,241 11,015
Inventory 4,724 3,618 4,525
Prepaid taxes 0 0 311
Prepaid expenses 402 259 293
----- ----- -----
TOTAL CURRENT ASSETS 24,709 31,608 21,835
====== ====== ======
PROPERTY AND EQUIPMENT, NET 2,602 2,899 3,792
GOODWILL, NET 10,932 11,404 8,808
INTANGIBLE ASSETS, NET 9,993 10,410 12,108
OTHER ASSETS 89 84 85
----- ----- -----
TOTAL ASSETS $ 48,325 $ 56,405 $ 46,628
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $3,175 $2,823 $4,159
Income taxes 307 854 1,902
Other current liabilities 2,438 3,094 3,231
Obligations under capital leases, current portion 22 25 30
----- ----- -----
TOTAL CURRENT LIABILITIES 5,942 6,796 9,322
LONG TERM LIABILITIES
Obligations under capital leases 58 85 84
----- ----- -----
MINORITY INTEREST 4,360 6,616 7,201
----- ----- -----
SHAREHOLDERS' EQUITY
Preferred stock - no par value; authorized 3,000,000; issued
30,000 at September 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 12,177,113 at September 30, 2000 and
11,609,492 at October 31, and December 31, 1999 32,056 29,870 29,870
Additional paid-in-capital 370 370 370
Treasury stock, at cost, 1,766,400 shares at September,
2000 and 1,266,400 at December 31 and October 31, 1999 (9,222) (5,222) (5,222)
Accumulative other comprehensive income (23) (20) 4
Retained earnings 11,784 14,910 4,999
------ ------ ------
37,965 42,908 30,021
------ ------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $48,325 $ 56,405 $46,628
======= ======== =======
</TABLE>
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 NINE MONTH
PERIOD ENDED SEPTEMBER 30, PERIOD ENDED SEPTEMBER 30,
2000 1999 2000 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $5,076 $ 8,849 $ 15,148 $ 24,551
Cost of sales 3,288 4,274 8,545 12,233
Selling, general, administrative and other expenses 3,586 3,765 10,560 12,113
Research and development expenses 843 840 2,522 2,745
--- --- ----- -----
Operating profit (loss) (2,641) (30) (6,479) (2,540)
Interest and other income, net 500 55 1,240 162
Gain on disposition of assets and business, net
of income tax 0 0 0 0
Minority interest 1,009 437 2,293 1,878
----- --- ----- -----
Earnings (loss) before income taxes (1,132) 462 (2,946) (500)
Provision for income taxes 0 386 0 1,352
- --- - -----
Net earnings (loss) (1,132) 76 (2,946) (1,852)
Preferred stock dividend 60 0 180 0
-- - --- -
Net earnings (loss) applicable to common shareholders (1,192) 76 (3,126) (1,852)
====== == ====== ======
Other comprehensive income (loss), net of
income taxes
Foreign currency translation adjustment 24 345 (3) (30)
-- --- -- ---
Comprehensive earnings (loss) $ (1,168) $ 421 $ (3,129) $(1,882)
======== ===== ======== =======
Basic earnings (loss) per common share $ (0.11) $ 0.01 $ (0.30) $ (0.18)
Diluted earnings (loss) per common share (0.11) 0.01 (0.30) (0.18)
----- ---- ----- -----
Number of shares used in per share calculation
Basic 10,452 10,343 10,555 10,346
Diluted 10,452 10,425 10,555 10,346
------ ------ ------ ------
</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
September 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 NINE MONTH
PERIOD ENDED SEPTEMBER 30, PERIOD ENDED SEPTEMBER 30,
2000 1999 2000 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $ 5,076 $ 5,282 $ 15,148 $ 14,234
Cost of sales 3,288 3,493 8,545 9,645
Selling, general, administrative and other expenses 3,586 2,446 10,560 9,310
Research and development expenses 843 673 2,522 2,289
------- ------- -------- --------
Operating profit (loss) (2,641) (1,330) (6,479) (7,010)
Interest and other income, net 500 46 1,240 116
Gain on disposition of assets and business, net
of income tax 0 0 0 0
Minority interest 1,009 437 2,293 1,878
------- ------- -------- --------
Earnings (loss) before income taxes (1,132) (847) (2,946) (5,016)
Provision for income taxes 0 0 0 0
------- ------- -------- --------
Net earnings (loss) (1,132) (847) (2,946) (5,016)
Preferred stock dividend 60 0 180 0
------- ------- -------- --------
Net earnings (loss) applicable to common
shareholders (1,192) (847) (3,126) (5,016)
======= ======= ======== ========
Other comprehensive income (loss), net of
income taxes
Foreign currency translation adjustment 24 (128) (3) (160)
------- ------- -------- --------
Comprehensive earnings (loss) $(1,168) $ (975) $ (3,129) $ (5,176)
======= ======= ======== ========
Basic earnings (loss) per common share $ (0.11) $ (0.08) $ (0.30) $ (0.48)
Diluted earnings (loss) per common share (0.11) (0.08) (0.30) (0.48)
------- ------- -------- --------
Number of shares used in per share calculation
Basic 10,452 10,343 10,555 10,346
Diluted 10,452 10,343 10,555 10,346
------- ------- -------- --------
</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
September 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 NINE
MONTH PERIOD ENDED
SEPTEMBER 30,
2000 1999
(UNAUDITED) (UNAUDITED)
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (2,946) $(1,852)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,120 2,468
Minority interest (2,293) (1,878)
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 (335) (2,968)
Inventory (1,106) (1,270)
Prepaid expenses and taxes (143) 2,218
Accounts payable 352 2,648
Other assets and liabilities (1,204) (746)
------ ------
Net cash provided by (used in) operating activities (5,555) (1,380)
------ ------
Cash flows from investing activities
Proceeds from disposition of assets 0 0
Proceeds from disposition of business 0 0
Purchase of property and equipment (700) (1,461)
Purchase of intangible and other assets (176) (1,405)
Investment in business (35) 0
------ ------
Net cash provided by (used in) investing activities (911) (2,866)
------ ------
Cash flows from financing activities
Principal payment on revolving credit facility 0 (6,000)
Proceeds from exercise of stock options 2,224 0
Principal payment on capital lease obligations (30) (5)
Dividend payments (180) 0
Purchase of treasury stock (4,000) (158)
------ ------
Net cash provided by (used in) financing activities (1,986) (6,163)
------ ------
Effect of exchange differences on cash (32) (505)
------ ------
Net increase (decrease) in cash and cash equivalents (8,484) (10,914)
Cash and cash equivalents, beginning of period 21,490 15,684
------ ------
Cash and cash equivalents, end of period $ 13,006 $ 4,770
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
-7-
<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 nine-month period ended
September 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>
September 30, 2000 December 31,1999 October 31, 1999
------------------ ---------------- ----------------
($'000's omitted)
<S> <C> <C> <C>
Raw materials $1,579 $1,978 $ 1,871
Work-in-progress 52 70 698
Finished goods 3,093 1,570 1,956
----- ----- -----
Total $ 4,724 $ 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%.
On January 8, 1999, the Company terminated its revolving credit
facility and repaid amounts due including interest totaling $6,008,733.
-8-
<PAGE>
6. SHAREHOLDER'S EQUITY
Common Stock
The Company in the three-month period to September 30, 2000 issued
129,571 shares of Class A Common Stock following the exercise of stock
options and warrants and received $631,000. In the nine-month period to
September 30, 2000 the Company issued 567,621 shares of Class A Common
Stock following the exercise of stock options and warrants and received
$2,186,000.
Treasury Stock
On July 17, 2000 the Company repurchased 500,000 shares of its Class A
Common Stock for $4,000,000.
-9-
<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 Direct
Comparison Condensed Consolidated Statements of Operations and Pro Forma
Comparison Condensed Consolidated Statements of Operations.
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED SEPTEMBER 30 - IN THOUSAND U.S. DOLLARS
2000 1999 1999
---- ---- ----
Pro Forma
---------
<S> <C> <C> <C>
Net sales:
Digital Multimedia and Networking $ 2,893 3,774 3,774
Wireless Communications and Security 2,183 5,075 1,508
----- ----- -----
Total net sales 5,076 8,849 5,282
Cost of sales 3,288 4,274 3,493
----- ----- -----
Gross profit (loss) 1,788 4,575 1,789
Selling, general, administrative and
other expenses 3,586 3,765 2,446
Research and development expenses 843 840 673
--- --- -----
Operating profit (loss) $(2,641) $ (30) $(1,330)
-------- ----- -------
<CAPTION>
THREE-MONTH PERIOD ENDED SEPTEMBER 30 - AS A PERCENTAGE OF NET SALES
2000 1999 1999
---- ---- ----
Pro Forma
---------
<S> <C> <C> <C>
Net sales:
Digital Multimedia and Networking 57.0% 42.7% 71.5%
Wireless Communications and Security 43.0% 57.3% 28.5%
----- ----- -----
Total net sales 100.0% 100.0% 100.0%
Cost of sales 64.8% 48.3% 66.1%
----- ----- -----
Gross profit (loss) 35.2% 51.7% 33.9%
Selling, general, administrative and
other expenses 70.7% 42.5% 46.3%
Research and development expenses 16.6% 9.5% 12.7%
----- ---- -----
Operating profit (loss) (52.1%) (0.3%) (25.1%)
------- ------ -------
<CAPTION>
NINE-MONTH PERIOD ENDED SEPTEMBER 30 - IN THOUSANDS U.S. DOLLARS
2000 1999 1999
---- ---- ----
Pro Forma
---------
<S> <C> <C> <C>
Net sales:
Digital Multimedia and Networking $ 7,733 $ 9,361 $ 9,361
Wireless Communications and Security 7,415 15,190 4,873
----- ------ -----
Total net sales 15,148 24,551 14,234
Cost of sales 8,545 12,233 9,645
----- ------ -----
Gross profit (loss) 6,603 12,318 4,589
Selling, general, administrative and
other expenses 10,560 12,113 9,310
Research and development expenses 2,522 2,745 2,289
------- ----- -----
Operating profit (loss) $(6,479) $(2,540) $(7,010)
------- --------- --------
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<PAGE>
<CAPTION>
NINE-MONTH PERIOD ENDED SEPTEMBER 30 - AS A PERCENTAGE OF NET SALES
2000 1999 1999
---- ---- ----
Pro Forma
---------
<S> <C> <C> <C>
Net sales:
Digital Multimedia and Networking 51.1% 38.1% 65.8%
Wireless Communications and Security 48.9% 61.9% 34.2%
----- ----- -----
Total net sales 100.0% 100.0% 100.0%
Cost of sales 56.4% 49.8% 67.8%
----- ----- -----
Gross profit (loss) 43.6% 50.2% 32.2%
Selling, general, administrative and
other expenses 69.7% 49.4% 65.4%
Research and development expenses 16.7% 11.2% 16.1%
----- ----- -----
Operating profit (loss) (42.8%) (10.4%) (49.3%)
------- ------- -------
</TABLE>
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 three-month and nine-month period
ended September 30, 2000 comparing the same against (i) the three-month and
nine-month period ended September 30, 1999 and (ii) on a pro forma basis the
three-month and nine-month period ended September 30, 1999 adjusted for income
and expenditures directly related to the Company's divested Derived Channel
technology.
DIRECT COMPARISON - INCLUSIVE OF RESULTS OF DIVESTED DERIVED CHANNEL TECHNOLOGY.
Net sales decreased 42.6% to $5,076,000 for the three-month period ended
September 30, 2000, as compared to $8,849,000 in the comparable period in 1999.
In the nine-month period ended September 30, 2000 net sales decreased 38.3% to
$15,148,000 as compared to $24,551,000 in the comparable period in 1999.
Digital Multimedia and Networking product and service sales and revenues
decreased 23.3% to $2,893,000 in the three-month period ended September 30, 2000
as compared to $3,774,000 in the comparable period in 1999. In the nine-month
period ended September 30, 2000 net sales decreased 17.4% to $7,733,000 as
compared to $9,361,000 in the comparable period in 1999.
The principal reason for the decrease in sales in the three-month period ended
September 30, 2000 as compared to the comparable period in 1999 was a 42.0%
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(TM). The
decrease in sales wAS partially offset by a 51.9% increase in Networking product
and service sales resulting from growth in its core business activities.
In the nine-month period ended September 30, 2000 as compared to the comparable
period in 1999 Digital Multimedia product sales decreased 38.6% resulting from
the transition from the marketing and sale of analog
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<PAGE>
based product to the marketing and sale of the new digital hardware and software
based product platform, PowerPlay(TM). The decrease in sales was partially
offset by a 52.6% 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 57.0% to $2,183,000 in the three-month period ended September 30, 2000
as compared to $5,075,000 in the comparable period in 1999. In the nine-month
period ended September 30, 2000 net sales decreased 51.2% to $7,415,000 as
compared to $15,190,000 in the comparable period in 1999.
The principal reason for the decrease in sales in the three-month period to
September 30, 2000 as compared to the comparable period in 1999 was the loss,
for the entire period, of Derived Channel Systems product sales resulting from
the divestment of Derived Channel. The decrease in sales was partially offset by
continued growth in Wireless Communications product and service revenues, a
67.0% increase, resulting from the marketing and sales effort to establish the
Company as a recognized national wireless data service.
In the nine-month period ended September 30, 2000 as compared to the comparable
period in 1999 the principal reason for the decrease in Wireless Communications
and Security product and service sales and revenues was the loss, for the entire
period, of Derived Channel Systems product sales resulting from the divestment
of Derived Channel. The decrease in sales was partially offset by continued
growth in Wireless Communications product and service revenues, a 73.1%
increase, resulting from the marketing and sales effort to establish the Company
as a recognized national wireless data service.
Cost of sales decreased 23.1% to $3,288,000 in the three-month period ended
September 30, 2000 as compared to $4,274,000 for the comparable period in 1999.
In the nine-month period ended September 30, 2000 cost of sales decreased 30.2%
to $8,545,000 as compared to $12,233,000 in the comparable period in 1999.
The decrease in cost of sales in the three-month and nine-month periods ended
September 30, 2000, respectively, as compared to the comparable periods in 1999
resulted primarily from the loss, for the entire periods, of Derived Channel
cost of sales expenses resulting from the divestment of Derived Channel.
Gross profit as a percentage of net sales decreased to 35.2% in the three-month
period ended September 30, 2000 as compared to 51.7% for the comparable period
in 1999. In the nine-month period ended September 30, 2000 gross profit as a
percentage of sales decreased to 43.6% as compared to 50.2% in the comparable
period in 1999.
Selling, general, administrative and other expenses decreased 4.8% to $3,586,000
in the three-month period ended September 30, 2000 as compared to $3,765,000 for
the comparable period in 1999. In the nine-month period ended September 30, 2000
selling, general, administrative and other expenses decreased 12.8% to
$10,560,000 as compared to $12,113,000 in the comparable period in 1999.
The decrease in selling, general, administrative and other expenses in the
three-month and nine-month periods ended September 30, 2000 as compared to the
comparable periods in 1999 resulted primarily from the loss, for the entire
periods, of Derived Channel expenses resulting from the divestment of Derived
Channel.
Research and development expenses increased 0.4% to $843,000 in the three-month
period ended September 30, 2000 as compared to $840,000 for the comparable
period in 1999. In the nine-month period ended
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<PAGE>
September 30, 2000 research and development expenses decreased 8.1% to
$2,522,000 as compared to $2,745,000 in the comparable period in 1999.
The increase in research and development expenses in the three-month period
ended September 30, 2000 as compared to the comparable period in 1999 resulted
primarily from increased Wireless Communications expenditure, off-set by the
loss, for the entire period, of Derived Channel expenses resulting from the
divestment of Derived Channel.
The decrease in research and development expenses in the nine-month period ended
September 30, 2000 as compared to the comparable period in 1999 resulted
primarily from the loss, for the entire period, of Derived Channel expenses
resulting from the divestment of Derived Channel.
Interest and other income in the three-month period ended September 30, 2000
increased 809.1% to $500,000 as compared to $55,000 in the comparable period in
1999. In the nine-month period ended September 30, 2000 interest and other
income increased 665.4% to $1,240,000 as compared to $162,000 in the comparable
period in 1999.
The increase in interest and other income was primarily related to interest
income earned on cash balances and the release of funds held in escrow in
connection with the divestment of the Company's Derived Channel technology.
Minority interest in the three-month period ended September 30, 2000 increased
130.9% to $1,009,000 as compared to $437,000 in the comparable period in 1999.
In the nine-month period ended September 30, 2000 minority interest increased
22.1% to $2,293,000 as compared to $1,878,000 in 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 in the three-month and nine-month periods ended September 30, 2000 as
compared to tax provisions of $386,000 and $1,352,000, respectively, in the
comparable periods in 1999.
The Company recorded a net loss of $1,132,000 in the three-month period ended
September 30, 2000 as compared to net earnings of $76,000 in the comparable
period in 1999. In the nine-month period ended September 30, 2000 the Company
recorded a net loss of $2,946,000 as compared to a net loss of $1,852,000 in the
comparable period in 1999.
The weighted average and diluted shares outstanding increased to 10,555,000 for
the period ended September 30, 2000 as compared to weighted average and diluted
shares outstanding of 10,346,000 in the comparable period in 1999.
PRO FORMA COMPARISON - EXCLUSIVE OF RESULTS OF DIVESTED DERIVED CHANNEL
On a pro forma comparative basis, excluding sales of the divested Derived
Channel in the three-month period ended September 30, 1999 net sales in the
three-month period ended September 30, 2000 decreased 3.9% to $5,076,000 as
compared to $5,282,000 in the comparable period in 1999. In the nine-month
period ended September 30, 2000 on a pro-forma basis, excluding sales of the
divested Derived Channel in the nine-month
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<PAGE>
period ended September 30, 1999, net sales increased 6.4% to $15,148,000 as
compared to $14,234,000 in the comparable period in 1999.
On a pro forma comparative basis, excluding sales of the divested Derived
Channel in the three-month period ended September 30, 1999, Wireless
Communications and Security product and service sales and revenues in the
three-month period ended September 30, 2000 increased 44.8% to $2,183,000 as
compared to $1,508,000 in the comparable period in 1999. In the nine-month
period ended September 30, 2000 on a pro-forma basis, excluding sales of the
divested Derived Channel in the nine-month period ended September 30, 1999,
Wireless Communications and Security product and service sales and revenues
increased 52.2% to $7,415,000 as compared to $4,873,000 in the comparable period
in 1999.
The principal reason for the increase in sales in the three-month period ended
September 30, 2000 as compared to the comparable period in 1999 was the
continued growth in Wireless Communications product and service revenues, a
67.0% increase, resulting from the marketing and sales effort to establish the
Company as a recognized national wireless data service. The increase in sales
was partially offset by a 14.6% decrease in residual Derived Channel Wireline
Security product and service sales.
In the nine-month period ended September 30, 2000 as compared to the comparable
period in 1999 the principal reason for the increase in sales was the continued
growth in Wireless Communications product and service revenues, a 73.1%
increase, 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 20.1%.
The increase in Wireline Security revenues in the nine-month period to September
30, 2000 as compared to the comparable period in 1999 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 product
and services contract revenues, residual Derived Channel Wireline Security
product and service contract revenues decreased 45.4%.
On a pro forma comparative basis, excluding cost of sales of the divested
Derived Channel in the three-month period ended September 30, 1999, cost of
sales in the three-month period ended September 30, 2000 decreased 5.9% to
$3,288,000 as compared to $3,493,000 in the comparable period in 1999. In the
nine-month period ended September 30, 2000 on a pro-forma basis, excluding cost
of sales of the divested Derived Channel in the nine-month period ended
September 30, 1999, cost of sales decreased 11.4% to $8,545,000 as compared to
$9,645,000 in the comparable period in 1999.
The principal reason for the decrease in cost of sales in the three-month and
nine-month periods ended September 30, 2000, respectively, as compared to the
comparable periods in 1999 was the decrease in Digital Multimedia product sales
with a consequent decrease in cost of 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(TM) off-set
by a combination of increased cost of sales, due TO increased product and
service sales and revenues and support costs, in Networking, Wireless
Communications and residual Derived Channel Wireline Security.
On a pro forma comparative basis, excluding gross profit of the divested Derived
Channel in the three-month period ended September 30, 1999, gross profit as a
percentage of net sales in the three-month period ended September 30, 2000
increased to 35.2% as compared to 33.9% in the comparable period in 1999. In the
nine-
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month period ended September 30, 2000, on a pro forma comparative basis,
excluding gross profit of the divested Derived Channel in the nine-month period
ended September 30, 1999, gross profit as a percentage of sales increased to
43.6% as compared to 32.2% in the comparable period in 1999.
The increase in gross profit margin resulted from the combined impact of the
increase in Company product and service sales and revenues, particularly in the
Company's Wireless Communications resulting from the growth in product sales and
recurring revenues, and the decrease in Company cost of sales expense.
On a pro forma comparative basis, excluding selling, general, administrative and
other expenses of the divested Derived Channel in the three-month period ended
September 30, 1999, selling, general, administrative and other expenses in the
three-month period ended September 30, 2000 increased 46.6% to $3,586,000 as
compared to $2,446,000 in the comparable period in 1999. In the nine-month
period ended September 30, 2000, on a pro forma comparative basis, excluding
selling, general, administrative and other expenses of the divested Derived
Channel in the nine-month period ended September 30, 1999, selling, general,
administrative and other expenses increased 13.4% to $10,560,000 as compared to
$9,310,000 in the comparable period in 1999.
The principal reason for the increase in selling, general, administrative and
other expenses in the three-month and nine-month periods ended September 30,
2000, respectively, as compared to the comparable periods in 1999 was an
increase in management and organizational expenses and in sales and marketing
activity.
On a pro forma comparative basis, excluding research and development expenses of
the divested Derived Channel in the three-month period ended September 30, 1999
research and development expenses in the three-month period ended September 30,
2000 increased 25.3% to $843,000 as compared to $673,000 in the comparable
period in 1999. In the nine-month period ended September 30, 2000, on a pro
forma comparative basis, excluding research and development expenses of the
divested Derived Channel in the nine-month period ended September 30, 1999,
research and development expenses increased 10.2% to $2,522,000 as compared to
$2,289,000 in the comparable period in 1999.
The principal reason for the increase in research and development expenses in
the three-month and nine-month periods ended September 30, 2000, respectively,
as compared to the comparable periods in 1999 was the increase in research and
development expenses in the Company's Wireless Communications.
On a pro forma comparative basis, excluding interest and other income of the
divested Derived Channel in the three-month period ended September 30, 1999,
interest and other income in the three-month period ended September 30, 2000
increased 987.0% to $500,000 as compared to $46,000 in the comparable period in
1999. In the nine-month period ended September 30, 2000, on a pro forma
comparative basis, excluding interest and other income of the divested Derived
Channel in the nine-month period ended September 30, 1999, interest and other
income increased 969.0% to $1,240,000 as compared to $116,000 in the comparable
period in 1999.
The increase in interest and other income was primarily related to interest
income earned on cash balances and the release of funds held in escrow in
connection with the divestment of the Company's Derived Channel technology.
On a pro forma comparative basis, excluding the results of operations of the
divested Derived Channel in the three-month period ended September 30, 1999 the
net loss recorded by the Company in the three-month period ended September 30,
2000 increased 33.7% to $1,132,000 as compared to $847,000 in the comparable
period in 1999. In the nine-month period ended September 30, 2000, on a pro
forma comparative basis, excluding the
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results of operations of the divested Derived Channel in the nine-month period
ended September 30, 1999, the net loss recorded by the Company decreased 41.3%
to $2,946,000 as compared to $5,016,000 in the comparable period in 1999.
The increase in the net loss for the three-month period ended September 30, 2000
as compared to the comparable period in 1999 was primarily the result of
increased Company operating expenses. The decrease in the net loss for the
nine-month period ended September 30, 2000 as compared to the comparable period
in 1999 was primarily the result of increased sales, the composition of product
and service sales and revenues and the continuing growth of the Company's
recurring service revenues, decreased cost of sales and increased gross profit.
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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 302.5% to $5,555,000 for the
nine-month period ended September 30, 2000 as compared to $1,380,000 in 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 68.2% to $911,000 in the
nine-month period ended September 30, 2000 as compared to $2,866,000 in the
comparable period in 1999. The decrease in cash used was the result of reduced
investment in tangible and intangible assets.
Net cash used in financing activities decreased 67.8% to $1,986,000 in the
nine-month period ended September 30, 2000 as compared to $6,163,000 in the
comparable period in 1999.
The decrease in cash used was primarily accounted for by the receipt of
$2,224,000 of proceeds from the exercise of stock options and stock warrants
which resulted in the issue of an additional 567,621 shares of the Company's
Class A Common Stock, the payment of $4,000,000 for the repurchase of 500,000
shares of the Company's Class A Common Stock and the payment of $180,000 in
dividends on the Company's Preferred Stock in the nine-month period to September
30, 2000 compared to the repayment, in full in January 1999, of $6,000,000 due
under the Company's then Revolving Credit Facility and the repurchase of 48,000
shares of the Company's Class A Common Stock under the terms of the Company's
stock buy-back program in the comparable period in 1999.
The Company had working capital balances of $18,767,000, $24,812,000 and
$12,513,000, respectively, as of September 30, 2000, December 31, 1999 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.
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.
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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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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
At September 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. At
September 30, 2000 the Company had 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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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 and six-month period ended June 30, 2000,
respectively, 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 in 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.
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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SIGNATURES
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: NOVEMBER 14, 2000 By: /s/ Stratton J. Nicolaides
---------------------- --------------------------
STRATTON J. NICOLAIDES
Chairman and Chief Executive Officer
Date: NOVEMBER 14, 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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