UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON D.C.
20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR l 5(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
January 31, 1997 0-22920
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NUMEREX CORP.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 11-2948749
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2360 Maryland Road
Willow Grove, PA 19090
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(Address of principal executive offices)
(Zip Code)
(610) 892-0316
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 month' (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
11,202,492 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 January 31,
1997 (unaudited) and October 31, 1996 4
Consolidated Statements of Operations (unaudited)
for the three months ended January 31, 1997 and 1996 5
Consolidated Statements of Cash Flows (unaudited)
for the three months ended January 31, 1997 and 1996 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 11
Item 2. Changes in Securities 11
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
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
NUMEREX CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS POUNDS STERLING)
JANUARY 31, October 31,
1997 1996
(UNAUDITED)
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ASSETS
CURRENT ASSETS
Cash and Cash Equivalents (Pound Sterling) 17,620 (Pound Sterling) 18,459
Accounts Receivable, net 5,895 5,397
Inventory 2,601 2,838
Prepaid Expenses 143 175
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26,259 26,869
PROPERTY AND EQUIPMENT, NET 687 773
INTANGIBLE AND OTHER ASSETS, NET 2,228 2,340
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TOTAL ASSETS (Pound Sterling) 29,174 (Pound Sterling) 29,982
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable (Pound Sterling) 905 (Pound Sterling) 1,425
Income Taxes 184 243
Other Current Liabilities 1,613 2,014
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TOTAL LIABILITIES 2,702 3,682
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SHAREHOLDERS' EQUITY
Class A, Common Stock - no par value;
authorized 30,000,000; issued 11,597,492 18,321 18,321
Treasury Stock, at cost, 395,000 shares at January 31, (1,054) (848)
1997 and 310,000 shares at October 31, 1996
Accumulated Translation Adjustment 209 72
Retained Earnings 8,996 8,755
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26,472 26,300
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (Pound Sterling) 29,174 (Pound Sterling) 29,982
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See Accompanying Notes to Consolidated Financial Statements
-4-
NUMEREX CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS POUNDS STERLING,
EXCEPT PER SHARE AMOUNTS)
FOR THE THREE
MONTHS ENDED
JANUARY 31,
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1997 1996
(UNAUDITED) (UNAUDITED)
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Net Sales (Pound Sterling) 4,143 (Pound Sterling) 4,139
Cost of Sales 2,201 2,360
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GROSS PROFIT 1,942 1,779
Selling, General, Administrative
and Other Expenses 1,800 1,763
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OPERATING INCOME 142 16
Interest and Other Income (Expense) 223 314
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INCOME BEFORE
INCOME TAXES 365 330
Income Taxes 124 113
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NET INCOME (Pound Sterling) 241 (Pound Sterling) 217
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EARNINGS PER SHARE (Pound Sterling) .02 (Pound Sterling) .02
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WEIGHTED AVERAGE SHARES OUTSTANDING 11,231 11,597
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See Accompanying Notes to Consolidated Financial Statements
-5-
NUMEREX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS POUNDS STERLING)
FOR THE THREE
MONTHS ENDED
JANUARY 31,
------------------------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Pound Sterling) 241 (Pound Sterling) 217
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and Amortization 321 339
Changes in current assets and liabilities which
provided (used) cash:
Accounts Receivable (498) 1,506
Inventory 237 (162)
Prepaid Expenses 32 (162)
Accounts Payable (520) (88)
Other Current Liabilities (460) (829)
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Net Cash Provided by (used in) Operating Activities (647) 821
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CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Fixed Assets (48) (137)
Increase in Intangible Assets (83) (425)
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Net Cash Used in Investing Activities (131) (562)
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CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of Treasury Stock (206) --
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Net Cash Used in Financing Activities (206) --
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EFFECT OF EXCHANGE DIFFERENCES ON
CASH AND CASH EQUIVALENTS 145 846
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Net Increase (Decrease) in cash and cash equivalents (839) 1,105
CASH AND CASH EQUIVALENTS, BEGINNING 18,459 22,271
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CASH AND CASH EQUIVALENTS, ENDING (Pound Sterling) 17,620 (Pound Sterling) 23,376
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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 three month period ended January 31, 1997 may not be indicative of the
results that may be expected for the year ending October 31, 1997. For
further information, reference is also made to the Company's Annual Report
on Form 10-K for the year ended October 31, 1996 and the consolidated
financial statements contained therein.
2. Inventory. January 31 October 31,
1997 1996
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(000's omitted)
(All amounts Pound Sterling)
Raw materials 708 1,051
Work-in-progress 877 730
Finished goods 1,016 1,057
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2,601 2,838
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3. 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, 1996, a copy of which can be obtained
from Charles L. McNew, Chief Financial Of ficer, NumereX Corp., Rose Tree
Corporate Center II, 1400 North Providence Road, Suite 5500, Media, PA 19063.
4. Forward-looking Statements
The information contained in the Quarterly Report on Form 10-Q for the
quarter ended January 31, 1997 contains forward-looking statements (as such
term is defined under Section 21E of the Securities Exchange Act of 1934
and the regulations thereunder), including without limitation, statements
as to trends, 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, 1996.
5. Subsequent Events
On February 28, 1997, the Company completed its acquisition of 100% of the
outstanding common stock of Broadband Networks, Inc. ("BNI") for
approximately $5,600,000. The acquisition will be accounted for using the
purchase method of accounting. In addition, the Company invested $1,675,000
directly into BNI for working capital purposes. Certain employees of BNI
will continue to hold BNI incentive stock options which, upon exercise,
would entitle them to own approximately 18% of BNI's then outstanding
common shares.
The purchase price will be allocated to the assets purchased and the
liabilities assumed based upon their fair values at the date of
acquisition. The excess of the purchase price over the fair values of the
net assets acquired will be recorded as goodwill, which will be amortized
on a straight-line basis over 20 years.
On February 12, 1997, the Company finalized a financing transaction and has
entered into a $ 10,000,000 Revolving Credit Facility with PNC Bank, N.A.
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.
Three Months Ended
January 31,
1997 1996
Net sales:
Derived Channel Systems .............................. 64.1% 69.4%
Intrusion alarm and network products.................. 35.9 30.6
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Total net sales..................................... 100.0 100.0
Cost of sales........................................... 53.1 57.0
Gross profit............................................ 46.9 43.0
Selling, general, administrative and other.............. 43.5 42.6
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Operating income........................................ 3.4 0.4
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Net income.............................................. 5.8% 5.2%
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Results of Operations
Net sales were (Pound Sterling)4.1 million for the three months ended
January 31, 1997, virtually unchanged from the comparable period in 1996. There
was a modest improvement in sales of intrusion alarm and network management
products, which was somewhat offset by a slight reduction in Derived Channel
product sales principally due to a decline in the sales of software development
services to British Telecom.
Cost of sales decreased 6.7% to (Pound Sterling)2.2 million for the quarter
ended January 31, 1997 as compared to (Pound Sterling)2.4 million for the
comparable period in 1996. Gross profit as a percentage of net sales increased
to 46.9% for the three months ended January 31, 1997 as compared to 43.0% for
the comparable period in 1996. The increase in the gross profit margin was
primarily due to a shift in sales mix to higher margin products. Lower margin
software development services decreased while higher margin network equipment
sales increased.
Selling, general, administrative and other expenses were (Pound
Sterling)1.8 million for the quarter ended January 31, 1997 virtually unchanged
from the comparable period in 1996.
Operating income increased to (Pound Sterling)0.14 million for the three
months ended January 31, 1997 as compared to (Pound Sterling)0.02 for the
comparable period in 1996.
Other income and expenses decreased 29.0% to (Pound Sterling)0.2 million
for the quarter ended January 31, 1997 as compared to (Pound Sterling)0.3
million for the comparable period in 1996. The decrease was principally related
to a decline in interest income generated from temporary cash investments.
The effective income tax rate was 34.0% for the quarters ended January 31, 1997
and 1996, respectively.
The increase in gross profit margin and operating income which was somewhat
offset by a decrease in other income and expenses were the principal reasons for
an increase in net income of 11.1% to (Pound Sterling)0.24 million as compared
to (Pound Sterling)0.22 million for the comparable period in 1996.
As a result of an on-going stock buyback program, weighted average shares
outstanding declined to 11.2 million shares for the quarter ended January 31,
1997 as compared to 11.6 million shares for the comparable period in 1996.
Liquidity and Capital Resources of the Company
The Company is presently able to fund its operations and working capital
requirements from anticipated cash flows from future operations and the proceeds
from a public offering completed in April 1995. Net cash used in operating
activities was (Pound Sterling)0.65 million for the quarter ended January 31,
1997 principally due to a settlement payment in conjunction with a shareholder
litigation matter. Net cash provided by operations for the quarter ended January
31, 1996 was (Pound Sterling)0.82 million.
Net cash used in investing activities decreased to (Pound Sterling)0.13 million
for the quarter ended January 31, 1997 as compared to (Pound Sterling)0.56
million for the comparable period in 1996. The decline from 1996 was primarily
due to reductions in amounts invested in capitalized software.
Net cash used in financing activities for the quarter ended January 31, 1997 was
(Pound Sterling)0.21 million due to the purchase of treasury stock. No cash
was used in financing activities for the quarter ended January 31, 1996.
The Company has working capital balances of (Pound Sterling)23.6 million
and (Pound Sterling)23.2 million, respectively, as of January 31, 1997 and
October 31, 1996.
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 and 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, Western Europe, 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.
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, and funds available under its Revolving Credit Facility, will be
sufficient to finance its operating and capital requirements at least through
the fiscal year ending October 31, 1997. From these sources, the Company has
used approximately $5.6 million to complete the purchase of BNI. 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In July and August 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
1995 public offering. The Company and the individual defendants believe the
allegations are untrue and without merit. The complaint was filed against
certain of the Company's directors and executive of ficers, 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 in January
1996, the defendants' Motion to Dismiss was granted and the case was
dismissed. In February 1996, the plaintiffs appealed the Order of the U.S.
District Court to the United States Court of Appeals. A settlement,
effective October 24, 1996 was reached among the parties and final court
approval was received on March 3, 1997. Certain defendants paid $2.1
million to a settlement fund, which will be paid to a class. The Company's
contribution to the settlement fund was $1,033,340.
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.
On February 12, 1997, the Company entered into a financing transaction
whereby it received a $10 million Revolving Credit Facility from PNC Bank,
N.A. Pursuant to the facility, the Company and its subsidiaries, DCX
Systems Inc., Digilog, Inc. and NumereX Investment Corp. are borrowers and
65% of the stock of Bronzebase Limited, Digital Audio Limited and a to be
formed Canadian subsidiary have or will be pledged as collateral security
under the facility.
Item 6. Exhibits and Reports on Form 8K.
Financial Data Schedule
Loan agreement between NumereX Corp., DCX Systems, Inc., Digilog, Inc.,
NumereX Investment Corp., and PNC Bank, N.A. dated February 12, 1997.
Convertible Line of Credit Note in the amount of $10,000,000 by the
Company, DCX Systems, Inc., and Digilog Inc.
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.
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(Registrant)
Date: March 11, 1997 By: /s/ John J. Reis
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JOHN J. REIS
President and
Chief Executive Of ficer
Date: March 11, 1997 By: /s/ Charles L. McNew
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CHARLES L. McNEW
Chief Financial Officer and
Chief Accounting Of ficer