UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
April 30, 1996 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.)
1400 N. Providence Road, Suite 5500
Media, PA 19063
(Address of principal executive offices)
(Zip Code)
(610) 892-0316
(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 the close of the period covered by this report, an aggregate of 11,597,492
shares of the registrant's Class A Common Stock no par value (being the
registrant's only class of common stock outstanding), were outstanding.
NUMEREX CORP.
INDEX
Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at April 30,
1996 (unaudited) and October 31, 1995 4
Consolidated Statements of Income (unaudited)
for the three months and the six months ended April 30, 1996 and 1995 5
Consolidated Statements of Cash Flows (unaudited)
for the three months and the six months ended April 30, 1996 and 1995 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature Page 13
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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NUMEREX CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS POUNDS STERLING)
APRIL 30, October 31,
1996 1995
---------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents 22,190 22,271
Accounts Receivable, net 6,550 5,832
Inventory 4,761 5,293
Prepaid Expenses 347 139
------ ------
33,848 33,535
PROPERTY AND EQUIPMENT, NET 1,237 1,248
INTANGIBLE ASSETS, NET 3,215 2,570
------ ------
TOTAL ASSETS 38,300 37,353
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable 1,440 1,545
Income Taxes 1,950 2,370
Other Current Liabilities 1,623 1,362
------ ------
TOTAL LIABILITIES 5,013 5,277
------ ------
SHAREHOLDERS' EQUITY
Class A, Common Stock - no par value;
authorized 30,000,000; issued and
outstanding 11,597,492 18,321 18,321
Accumulated Translation Adjustment 1,130 277
Retained Earnings 13,836 13,478
------ ------
33,287 32,076
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 38,300 37,353
====== ======
See Accompanying Notes to Consolidated Financial Statements
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NUMEREX CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS POUNDS STERLING,
EXCEPT PER SHARE AMOUNTS)
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
APRIL 30, APRIL 30,
---------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net Sales 5,374 6,063 9,513 11,949
Cost of Sales 2,868 2,078 5,229 4,431
---------- ---------- ---------- ----------
GROSS PROFIT 2,506 3,985 4,284 7,518
Selling, General, Administrative
and Other Expenses 1,962 1,431 3,725 2,740
---------- ---------- ---------- ----------
OPERATING INCOME 544 2,554 559 4,778
Interest and Other Income(Expense) 244 (57) 559 99
---------- ---------- ---------- ----------
INCOME BEFORE
INCOME TAXES 788 2,497 1,118 4,877
Provision for Income Taxes 268 856 381 1,666
---------- ---------- ---------- ----------
NET INCOME 520 1,641 737 3,211
========== ========== ========== ==========
EARNINGS PER SHARE .04 .17 .06 .33
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 11,597,000 9,791,000 11,597,000 9,713,000
========== ========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements
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NUMEREX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS POUNDS STERLING)
FOR THE SIX
MONTHS ENDED
APRIL 30,
------------------------
1996 1995
---- ----
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 737 3,211
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and Amortization 618 336
Changes in current assets and liabilities which
provided (used) cash
Accounts Receivable (718) (2,330)
Inventory 532 (892)
Prepaid Expenses (208) 126
Accounts Payable (105) 150
Other Liabilities (159) 1,459
------- -------
Net Cash Provided by Operating Activities 697 2,060
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Business -- (828)
Investment in Fixed Assets (157) (180)
Increase in Intangible Assets (1,109) (304)
------- -------
Net Cash Used in Investing Activities (1,266) (1,312)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds from Sale of Stock -- 15,691
Net Reduction in Debt -- (560)
Dividends Paid (379) --
------- -------
Net Cash Provided By (Used in) Financing
Activities (379) 15,131
------- -------
EFFECT OF EXCHANGE DIFFERENCES ON CASH 867 --
------- -------
Net Increase (Decrease) in cash (81) 15,879
CASH, BEGINNING 22,271 7,769
------- -------
CASH, ENDING 22,190 23,648
======= =======
See Accompanying Notes to Consolidated Financial Statements
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NUMEREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Financial Statement Presentation
The accompanying unaudited 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 April 30, 1996 may not be indicative of the
results that may be expected for the year ending October 31, 1996.
For further information, reference is also made to the Company's
Annual Report on Form 10-K for the year ended October 31, 1995 and
the consolidated financial statements contained therein.
2. Inventory April 30, October 3l,
1996 l995
---- ----
((pounds) 000's omitted)
Raw materials 1,725 2,471
Work in Progress 1,286 1,233
Finished good 1,750 1,589
------ ------
4,761 5,293
====== ======
3. Long-Term Contract
The Company performs certain software development services under
contract for a significant customer. Revenue from the fixed-price
contract is recognized on the percentage of completion method which is
measured by the percentage of costs incurred to date to the estimated
total costs for the contract. Service contract costs consist primarily
of outside consultant and software engineering fees. Costs and
earnings in excess of billings on this contract were (pounds)584,000
as of April 30, 1996. Through April 30, 1996 total costs of
(pounds)1,696,000, revenues of (pounds)2,424,000 and billings of
(pounds)1,840,000 have been recorded under the contract.
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4. Income Statement
Pursuant to Section 11(a) of the Securities Act of 1933 (the "Act")
and Rule 158 thereunder, the information contained herein, and
similar statement of income information contained in the Company's
Quarterly Report on Form 10-Q for the Quarter ended July 31, 1995,
Annual Report on Form 10-K for the year ended October 31, 1995, and
Quarterly Report on Form 10-Q for the quarter ended January 31, 1996,
collectively satisfies the "earning statement" requirement of Section
11(a) under the Act and Rule 158 thereunder.
5. Investment Considerations
In analyzing whether to make, or continue, an investment in the
Company, investors should consider, among other factors, certain
investment considerations more particularly described in the
Company's Annual Report on Form 10-K for the year ended October 31,
1995, a copy of which can be obtained from Charles L. McNew, Chief
Financial Officer, NumereX Corp., Rose Tree Corporate Center II, 1400
North Providence Road, suite 5500, Media, PA 19063.
6. Forward-looking Statements
The information contained in the Quarterly Report on Form 10-Q for
the quarter ended April 30, 1996 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. 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, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
General
The following table sets forth, for the periods indicated, the percentage of net
sales represented by selected items in the Company's Consolidated Statements of
Income.
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Three Months Ended Six Months Ended
April 30, April 30,
1996 1995 1996 1995
---- ---- ---- ----
Net sales:
Derived Channel Systems .......................... 76.6% 74.2% 73.5% 73.7%
Intrusion alarm and network products ............. 23.4 25.8 26.5 26.3
----- ----- ----- -----
Total net sales .............................. 100.0 100.0 100.0 100.0
Cost of sales ...................................... 53.4 34.3 55.0 37.1
----- ----- ----- -----
Gross profit ....................................... 46.6 65.7 45.0 62.9
Selling, general, administrative and other ......... 36.5 23.6 39.2 22.9
----- ----- ----- -----
Operating income ................................... 10.1 42.1 5.8 40.0
===== ===== ===== =====
Net income ......................................... 9.7% 27.1% 7.7% 26.9%
===== ===== ===== =====
Results of Operations
Net sales decreased 11.4% to (pounds)5.4 million for the quarter ended April 30,
1996 as compared to (pounds)6.1 million for the comparable period in 1995. For
the six months ended April 30, 1996 net sales decreased 20.4% to (pounds)9.5
million as compared to (pounds)11.9 million for the comparable period in 1995.
The principal reason for the decline in net sales during both periods was year
on year reduction in Derived Channel network equipment sales in the United
Kingdom (although the second quarter of fiscal 1996 was stronger than the first
quarter of 1996). While the rate of STU unit sales has recovered from an earlier
slowdown, it is uncertain whether network equipment sales in the UK will return
to their historically higher levels.
Cost of sales increased 38.0% to (pounds)2.9 million for the quarter ended
April 30, 1996 and increased 18% to (pounds)5.2 million for the six months ended
April 30, 1996 as compared to (pounds)2.1 million and (pounds)4.4 million,
respectively, for the comparable period in 1995. Gross profit as a percentage of
net sales decreased to 46.6% and 45.0%, respectively, for the three and six
month periods ended April 30, 1996 as compared to 65.7% and 62.9%, respectively
for the comparable periods in 1995. The decrease in the gross profit margin was
primarily due to a shift in sales mix to lower margin products as network
equipment (a higher margin product) sales to BT declined. In addition, certain
fixed costs related to manufacturing, which did not decline in conjunction with
net sales, caused a further decrease in the gross profit margin.
Selling, general, administrative and other expenses increased 37.1% and 35.9%,
respectively, to (pounds)2.0 million and (pounds)3.7 million, respectively, for
the three and six months ended April 30, 1996 as compared to (pounds)1.4 million
and (pounds)2.7 million, respectively, for the comparable periods in 1995. The
increase was principally related to a major expansion of the sales and marketing
effort, product development expenses and an increase in legal and other
expenses.
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Operating income decreased 78.7% and 88.3%, respectively, to (pounds)0.5 million
and (pounds)0.6 million, respectively, for the three and six month periods ended
April 30, 1996 as compared to (pounds)2.6 million and (pounds)4.8 million,
respectively, for the comparable period in 1995. The decreases in operating
income were due to the decreases in net sales and gross profit margins coupled
with the increase in selling, general, administrative and other expenses.
The effective tax rates were 34.0% and 34.1%, respectively, for the three and
six month periods ended April 30, 1996 as compared to 34.3% and 34.2%,
respectively, for the comparable periods in 1995. The differences in the
effective rates are related to changes in the periodic estimation of tax
liabilities.
The decline of the Company's net sales and gross profit margins, and the
increase in selling, general, administrative and other expenses resulted in net
income decreases of 68.3% and 77.0%, respectively, to (pounds)0.5 million and
(pounds)0.7 million, respectively, for the three and the six month periods ended
April 30, 1996, as compared to (pounds)1.6 million and (pounds)3.2 million,
respectively, for the comparable periods in 1995.
As a result of new shares issued in conjunction with a public offering the
weighted average shares outstanding increased to 11.6 million for both the
quarter and the six months ended April, 1996 as compared to 9.8 million and 9.7
million shares for the comparable periods in 1995.
Liquidity and Capital Resources of the Company
The Company is presently able to fund its operations and working capital
requirements from cash flow generated by operations and the proceeds from a
public offering completed in April 1995. Net cash provided by operating
activities decreased to (pounds)0.7 million for the six months ended April 30,
1996 as compared to (pounds)2.1 million for the comparable period in 1995. The
decrease from 1995 was primarily due to lower earnings, and an increase in
outstanding accounts receivable which was somewhat offset by a decrease in
inventory and other current liabilities.
Net cash used in investing activities remained unchanged at (pounds)1.3 million
for the six months ended April 30, 1996 as compared to (pounds)1.3 million for
the comparable period in 1995. The 1996 investing activities were primarily due
to increases in capitalized software as compared to acquisition costs in 1995.
Net cash used in financing activities decreased to (pounds)0.4 million for the
six months ended April 30, 1996 as compared to cash provided of (pounds)15.1
million for the comparable period in 1995. The principal reason for the decrease
was the inclusion of proceeds from a sale of stock in 1995 period. This was
partially offset by the payment of an initial quarterly dividend during the 1996
period.
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The Company has working capital balances of (pounds)28.8 million and
(pounds)28.3 million as of April 30, 1996 and October 31, 1995, respectively.
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 cash provided by operating activities. In order to fund an
expansion of its Derived Channel System business (including an effort to
increase market penetration in North America and the Pacific Rim and expand into
other parts of the world), the Company may require significantly greater capital
investments than it has in the past. Presently, the Company has no material
commitments for capital expenditures.
On February 9, 1996 the Company announced its intention to pay a cash dividend
on a quarterly basis. An initial quarterly cash dividend of $0.05 (five cents)
per share was declared and was paid on March 4, 1996 to all shareholders of
record on February 19, 1996. The next dividend payment is scheduled for
distribution on June 4, 1996 to all shareholders of record on May 20, 1996.
The Company believes that its anticipated cash flow from operations, together
with its available cash, including the proceeds of its public offering completed
in April, 1995, will be sufficient to finance its operating and capital
requirements at least through the fiscal year ending October 31, 1996. Cash
requirements for future expansion of the Company's operations will be evaluated
on an as-needed basis. The Company does not expect that such expansion will have
a materially negative impact on the Company's ability to fund its existing
operations.
Foreign Currency
Currently, the Company's functional and reporting currency is British pounds
sterling because a substantial majority of the Company's net sales are presently
generated in the United Kingdom. Although the Company does not have an ongoing
currency hedging program in place, it occasionally hedges its operations
selectively against fluctuations in foreign currency as needed. This occasional
hedging is done primarily because a portion of the Company's production costs
associated with its off-shore contract manufacturing are denominated in U.S.
dollars while the bulk of its net sales are in British pounds sterling. The
Company uses forward U.S. dollar contracts which have a maximum term of six
months and which are not material to the Company. The Company anticipates that
it may utilize additional foreign currency contracts as needed to hedge against
fluctuations in the exchange rate between the U.S. dollar and the British pound
sterling. Fluctuations in foreign currency exchange rates are not expected to
have a material impact on the Company's results of operations or liquidity.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In July and August of 1995, the Company received complaints in three
separate purported lawsuits. The complaints, which were consolidated
into a single amended complaint, sought class action status and
alleged violations arising under certain federal securities laws for
alleged material misstatements and omissions in the prospectus
associated with the Company's recent public offering. The complaint
was filed against certain of the Company's directors and executive
officers, principal shareholder and underwriters. The complaint
sought rescission and/or damages against all defendants, including
the awarding of costs and disbursements. The defendants filed a
Motion to Dismiss and on January 24, 1996, the defendants' Motion to
Dismiss was granted and the case was dismissed. On February 16, 1996
the plaintiffs appealed the Order of the U.S. District Court to the
United States Court of Appeals. The appeal is pending. The Company
and the individual defendants believe the allegations are untrue and
without merit and continue to vigorously defend the action.
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 Stockholders was held on February 28, 1996. The
only item considered by shareholders at the meeting was the election
of directors. George Benson, Matthew J. Flanigan, Kenneth F. Manser,
Richard L. Mooers, Frederick C. Shay and Gordon T. Ray were all
elected as directors of the Company.
Item 5. Other Information.
None - not applicable.
Item 6. Exhibits and Reports on Form 8-K.
None - not applicable
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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: June 12, 1996 By: /s/ John J. Reis
-------------------- ---------------------
JOHN J. REIS
President and
Chief Executive Officer
Date: June 12, 1996 By: /s/ Charles L. McNew
-------------------- -------------------------
CHARLES L. McNEW
Chief Financial Officer and
Chief Accounting Officer
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