<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period Commission File Number
November 1 to December 31, 1999 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 June 6, 2000, an aggregate of 10,780,876 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
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets at December 31, 1999 (unaudited)
and October 31, 1999 4
Condensed Consolidated Statements of Operations and Comprehensive
Income (unaudited) for the two-month transition periods ended
December 31, 1999 and 1998 5
Pro Forma Condensed Consolidated Statements of Operations and Comprehensive
Income (unaudited) for the two-month transition periods ended December 31,
1999 and 1998 6
Condensed Consolidated Statements of Cash Flows (unaudited)
for the two-month transition periods ended December 31, 1999 and 1998 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
</TABLE>
-2-
<PAGE>
TRANSITION PERIOD
The Company on April 28, 2000 determined to change its fiscal year-end from a
fiscal year ending October 31 to a calendar fiscal year ending on December 31.
To comply with SEC regulations on the subject the Company is required to file a
Transition Report on Form 10 - Q covering the transition period, November 1,
1999 to December 31, 1999.
FORWARD-LOOKING STATEMENTS
The information contained in this Transition Period Report on Form 10-Q for the
two-month transition period ended December 31, 1999 contains forward-looking
statements (as such term is defined in the Securities Exchange Act of 1934 and
the regulations thereunder), including without limitation, statements as to
trends or management's beliefs, expectations or opinions, which are based upon a
number of assumptions concerning future conditions that ultimately may prove to
be inaccurate.
Such forward-looking statements are subject to risks and uncertainties and may
be affected by various factors, which may cause actual results to differ
materially from those in the forward-looking statements. Certain of these risks,
uncertainties and other factors, are discussed in the Company's Annual Report on
Form 10-K for the year ended October 31, 1999 and in other reports filed with
the Securities and Exchange Commission.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
-3-
<PAGE>
NUMEREX CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1999 1999
(UNAUDITED)
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 21,490 $ 5,691
Accounts receivable, net 6,241 11,015
Inventory 3,618 4,525
Prepaid taxes 0 311
Prepaid expenses 259 293
-------- --------
TOTAL CURRENT ASSETS 31,608 21,835
PROPERTY AND EQUIPMENT, NET 2,899 3,792
GOODWILL, NET 11,404 8,808
INTANGIBLE ASSETS, NET 10,410 12,108
OTHER ASSETS 84 85
-------- --------
TOTAL ASSETS $ 56,405 $ 46,628
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,823 $ 4,159
Income taxes 854 1,902
Other current liabilities 3,094 3,231
Obligations under capital leases, current portion 25 30
-------- --------
TOTAL CURRENT LIABILITIES 6,796 9,322
LONG TERM LIABILITIES
Obligations under capital leases 85 84
-------- --------
MINORITY INTEREST 6,616 7,201
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock - no par value; authorized 3,000,000; issued 30,000 at
December 31, 1999 and 0 at October 31, 1999 0 0
Class A , common stock - no par value; authorized 30,000,000; issued
11,609,492 at December 31, 1999 and October 31, 1999 29,870 29,870
Additional paid-in-capital 3,370 370
Treasury stock, at cost, 1,266,400 shares at December 31, 1999 and
October 31, 1999 (5,222) (5,222)
Accumulative other comprehensive income (20) 4
Retained earnings 14,910 4,999
-------- --------
42,908 30,021
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 56,405 $ 46,628
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
-4-
<PAGE>
NUMEREX CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE TWO
MONTH PERIOD ENDED
DECEMBER 31,
1999 1998
(UNAUDITED) (UNAUDITED)
-----------------------------
<S> <C> <C>
Net sales $ 2,301 $ 3,143
Cost of sales 1,746 2,023
Selling, general, administrative and other expenses 3,154 2,966
-------- --------
Operating profit (loss) (2,599) (1,846)
Interest and other income, net 100 93
Gain on disposition of assets and business, net of income tax 11,819 0
Minority interest 591 376
-------- --------
Earnings (loss) before income taxes 9,911 (1,377)
Provision for income taxes 0 114
-------- --------
Net earnings (loss) 9,911 (1,491)
Preferred stock dividend 0 0
-------- --------
Net earnings (loss) applicable to common shareholders 9,911 (1,491)
-------- --------
Other comprehensive earnings (loss), net of income taxes
Foreign currency translation adjustment (24) (240)
-------- --------
Comprehensive earnings (loss) $ 9,887 $ (1,731)
-------- --------
Basic earnings (loss) per share 0.96 (0.14)
Diluted earnings (loss) per share 0.88 (0.14)
-------- --------
Number of shares used in per share calculation
Basic 10,343 10,541
Diluted 11,250 10,541
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements
-5-
<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 TWO
MONTH PERIOD ENDED
DECEMBER 31,
1999 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net sales $ 2,301 $ 1,855
Cost of sales 1,746 1,466
Selling, general, administrative and other expenses 3,154 2,492
-------- --------
Operating profit (loss) (2,599) (2,103)
Interest and other income, net 100 (18)
Minority interest 591 376
-------- --------
Earnings (loss) before income taxes (1,908) (1,745)
Provision for income taxes 0 0
-------- --------
Net earnings (loss) (1,908) (1,745)
Preferred stock dividend 0 0
-------- --------
Net earnings (loss) applicable to common shareholders (1,908) (1,745)
-------- --------
Other comprehensive earnings (loss), net of income taxes
Foreign currency translation adjustment (24) 55
-------- --------
Comprehensive earnings (loss) $ (1,932) $ (1,690)
-------- --------
Basic earnings (loss) per share (0.18) (0.17)
Diluted earnings (loss) per share (0.18) (0.17)
-------- --------
Number of shares used in per share calculation
Basic 10,343 10,541
Diluted 10,343 10,541
-------- --------
</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 December 31, 1999 and
1998, respectively.
See accompanying notes to condensed consolidated financial statements
-6-
<PAGE>
NUMEREX CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE TWO
MONTH PERIOD ENDED
DECEMBER 31,
1999 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 9,911 $ (1,491)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 470 547
Minority interest (591) (376)
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 1,034 33
Inventory (429) (259)
Prepaid expenses and taxes 1,179 120
Accounts payable (701) (664)
Other assets and liabilities 788 (461)
-------- --------
Net cash provided by (used in) operating activities (158) (2,551)
-------- --------
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 (209) (447)
Purchase of intangible and other assets (61) (66)
Investment in business (95) 0
-------- --------
Net cash provided by (used in) investing activities 16,517 (513)
-------- --------
Cash flows from financing activities
Principal payment on revolving credit facility 0 0
Proceeds from exercise of stock options 0 0
Principal payment on capital lease obligations (9)
Purchase of treasury stock 0 (420)
-------- --------
Net cash provided by (used in) financing activities (9) (423)
-------- --------
Effect of exchange differences on cash 0 371
-------- --------
Net increase (decrease) in cash and cash equivalents 16,350 (3,116)
Cash and cash equivalents, beginning of period 5,140 18,800
-------- --------
Cash and cash equivalents, end of period $ 21,490 $ 15,684
-------- --------
</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
two-month transition period ended December 31, 1999 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>
DECEMBER 31, DECEMBER 31,
1999 1998
---- ----
($`000'S OMITTED)
<S> <C> <C>
Raw materials $ 1,978 $ 2,325
Work-in-progress 70 545
Finished goods 1,570 1,642
------- -------
$ 3,618 $ 4,512
------- -------
</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
-8-
<PAGE>
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.
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 operations for the
period ended December 31, 2000 and has determined that the Company
has no reporting requirements under the statement.
7. COMPREHENSIVE EARNINGS (LOSS)
The Company has adopted SFAS No. 130, "Reporting Comprehensive
Income", which established standards for reporting and disclosure of
comprehensive income effective November 1999.
Comprehensive earnings (loss) for the two-month transition periods
ended December 31, 1999 and 1998 was $9,887,000 and $(1,731,000),
respectively. Comprehensive earnings (loss) recorded relates to
foreign currency translation losses for the periods presented.
-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
Condensed Consolidated Statements of Operations and Pro Forma Condensed
Consolidated Statements of Operations.
TWO-MONTH TRANSITION PERIOD ENDED DECEMBER 31,
(In Thousands US Dollars)
<TABLE>
<CAPTION>
1999 1998 1998
---- ---- ----
PRO FORMA
---------
<S> <C> <C> <C>
Net sales:
Digital Multimedia and Networking $ 1,348 $ 1,024 $ 1,024
Wireless Communications and Security 953 2,119 831
------- ------- -------
Total net sales 2,301 3,143 1,855
Cost of sales 1,746 2,023 1,466
------- ------- -------
Gross profit (loss) 555 1,120 389
Selling, general, administrative and other expenses 3,154 2,966 2,492
------- ------- -------
Operating profit (loss) $(2,599) $(1,846) $(2,103)
------- ------- -------
</TABLE>
(As a Percentages of Net Sales)
<TABLE>
<CAPTION>
1999 1998 1998
---- ---- ----
PRO FORMA
---------
<S> <C> <C> <C>
Net sales:
Digital Multimedia and Networking 58.6% 32.6% 55.2%
Wireless Communications and Security 41.4% 67.4% 44.8%
------- ------- -------
Total net sales 100.0% 100.0% 100.0%
Cost of sales 75.9% 64.4% 79.0%
------- ------- -------
Gross profit (loss) 24.1% 35.6% 21.0%
Selling, general, administrative and other expenses 137.0% 94.4% 134.3%
------- ------- -------
Operating profit (loss) (112.9%) (58.8%) (113.3%)
------- ------- -------
</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 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 two-month transition period ended
December 31, 1999 comparing same against (i) the two-month period ended December
31, 1998 and (ii) on a pro forma basis the two-month transition period ended
December 31, 1999 adjusted for income and expenditures directly related to the
Company's divested Derived Channel technology.
DIRECT COMPARISON
Net sales decreased 26.8% to $2,301,000 for the two-month transition period
ended December 31, 1999, as compared to $3,143,000 for the comparable period in
1998.
Digital Multimedia and Networking product and service sales and revenues
increased by 31.6% to $1,348,000 for the two-month transition period ended
December 31, 1999 as compared to the comparable period in 1998. The principal
reason for the increase was improved Digital Multimedia Networking sales,
derived from concentrated sales and marketing efforts to the educational
distance learning sector.
Wireless Communications and Security product and service sales and revenues
decreased by 55.0% to $953,000 for the two-month transition period ended
December 31, 1999 as compared to the comparable period in 1998. 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. The
decrease was, however, 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 13.7% to $1,746,000 for the two-month transition
period ended December 31, 1999 as compared to $2,023,000 for the comparable
period in 1998. 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 24.1% for the two-month
transition period ended December 31, 1999 as compared to 35.6% for the
comparable period in 1998. 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.
-11-
<PAGE>
Selling, general, administrative and other expenses increased by 6.3% to
$3,154,000 for the two-month transition period ended December 31, 1999 as
compared to $2,966,000 for the comparable period in 1998. The principal reason
for the increase was higher operating 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 particularly in
the Company's Digital Multimedia business. The increase was, however, partially
offset by the absence, for the entire period, of Derived Channel Systems
selling, general, administrative and other expenses resulting from the
divestment of Derived Channel.
Interest and other income increased by 7.5% to $100,000 for the two-month
transition period ended December 31, 1999 as compared to $93,000 for the
comparable period in 1998. 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 owned 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 57.2% to $591,000 for the two-month transition
period ended December 31, 1999 as compared to $376,000 for the comparable period
in 1998. 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 two-month transtion period ended December 31, 1999 as compared
to a tax provision of $114,000 for the comparable period in 1998. 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 $9,911,000 for the two-month transition
period ended December 31, 1999 as compared to a net loss of $1,491,000 for the
comparable period in 1998.
The weighted average shares outstanding declined to 10,343,000 and potential
shares outstanding on a diluted basis amounted to 11,250,000 for the transition
period ended December 31, 1999 as compared to weighted average and diluted
shares outstanding of 10,541,000 for the comparable period in 1998.
PRO FORMA COMPARISON
On a pro forma comparative basis, excluding sales of the divested Derived
Channel for the two-month transition period ended December 31, 1998, net sales
increased by 24.0% to $2,301,000 for the two-month transition period ended
December 31, 1999 as compared to $1,855,000 for the comparable period in 1998.
-12-
<PAGE>
On a pro forma comparative basis, Wireless Communications and Security product
and service sales and revenues increased by 14.7% to $953,000 for the two-month
transition period ended December 31, 1999 as compared to the comparable period
in 1998. 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.
On a pro forma comparative basis, excluding cost of sales of the divested
Derived Channel for the two-month transition period ended December 31, 1998,
cost of sales increased by 19.1% to $1,746,000 for the two-month transition
period ended December 31, 1999 as compared to $1,466,000 for the comparable
period in 1998. The increase in cost of sales resulted from the increased level
of sales activity and the mix of sales in the period across all of the Company's
lines of business.
On a pro forma comparative basis, excluding gross profit of the divested Derived
Channel for the two-month transition period ended December 31, 1998, gross
profit as a percentage of net sales increased to 24.1% for the two-month
transition period ended December 31, 1999 as compared to 21.0% for the
comparable period in 1998. The increase in gross profit margin resulted from the
increased level of sales activity and sales mix in the period across all of the
Company's lines of business augmented by the growth of the Company's recurring
service revenues.
On a pro forma comparative basis, excluding the selling, general, administrative
and other expenses of the divested Derived Channel for the two-month transition
period ended December 31, 1998, selling, general, administrative and other
expenses increased by 26.6% to $3,154,000 for the two-month transition period
ended December 31, 1999 as compared to $2,492,000 for the comparable period in
1998. 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 two-month transition ended December 31, 1998,
interest and other income increased to a $100,000 for the two-month transition
period ended December 31, 1999 as compared to a net expense of $18,000 for the
comparable period in 1998. The increase was primarily related to interest income
earned on cash balances.
Minority interest increased by 57.2% to $591,000 for the two-month transition
period ended December 31, 1999 as compared to $376,000 for the comparable period
in 1998. 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 two-month transition period ended December 31,
1998, the net loss recorded by the Company increased by 9.3% to $1,908,000 for
the two-month transition period ended December 31, 1999 as compared to
$1,745,000 for the comparable period in 1998.
-13-
<PAGE>
The weighted average shares and diluted shares outstanding declined to
10,343,000 for the transition period ended December 31, 1999 as compared to
weighted average and diluted shares outstanding of 10,541,000 for the comparable
period in 1998.
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 decreased by 93.8% to $158,000 for the
two-month transition period ended December 31, 1999 as compared to $2,549,000
for the comparable period in 1998. The decrease in cash used was primarily due
to positive working capital.
Net cash provided by investing activities increased to $16,517,000 for the
two-month transition period ended December 31, 1999 as compared to net cash used
in investing activities of $513,000 for the comparable period in 1998. 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 $9,000 for the two-month
transition period ended December 31, 1999 as compared to $423,000 for the
comparable period in 1998, which primarily comprised the buy-back of the
Company's common stock.
The Company had working capital balances of $24,812,000 and $12,513,000,
respectively, as of 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 its Derived Channel technology 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, and cash
provided by operating activities, 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.
-14-
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
At December 31, 1999, 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 December 31, 1999, 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.
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.
As previously reported in the Company's Form 10 - Q for the
three-month period ended January 31, 2000, 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.
-16-
<PAGE>
None - not applicable.
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: JUNE 12, 2000 By: /s/ Stratton J. Nicolaides
-------------------- ---------------------------------
STRATTON J. NICOLAIDES
Chairman and
Chief Executive Officer
Date: JUNE 12, 2000 By: /s/ Peter J. Quinn
-------------------- ----------------------------------
PETER J. QUINN
Executive Vice President,
Chief Financial Officer, and
Principal Financial and Accounting Officer
</TABLE>
-18-
