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, 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)
(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 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 11,102,492
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. AND SUBSIDIARIES
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at April 30, 1997
(unaudited) and October 31, 1996 4
Condensed Consolidated Statements of Operations (unaudited)
for the three months and six months ended April 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the six months ended April 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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NUMEREX CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS POUNDS STERLING)
April 30, October 31,
1997 1996
(UNAUDITED)
------------ -----------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents 19,643 18,459
Accounts Receivable, net 4,629 5,397
Inventory 3,227 2,838
Prepaid Expenses 199 175
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27,698 26,869
PROPERTY AND EQUIPMENT, NET 920 773
GOODWILL, NET 3,768 612
INTANGIBLE AND OTHER ASSETS, NET 1,709 1,728
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TOTAL ASSETS 34,095 29,982
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt 485 --
Accounts Payable 1,694 1,425
Income Taxes 744 243
Other Current Liabilities 1,825 2,014
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TOTAL CURRENT LIABILITIES 4,748 3,682
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LONG-TERM DEBT 2,770 --
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TOTAL LIABILITIES 7,518 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, 495,000 shares
at April 30, (1,314) (848)
1997 and 310,000 shares at October 31, 1996
Accumulated Translation Adjustment 119 72
Retained Earnings 9,451 8,755
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26,577 26,300
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TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY 34,095 29,982
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See Accompanying Notes to Condensed Consolidated Financial Statements
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NUMEREX CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS POUNDS STERLING,
EXCEPT PER SHARE AMOUNTS)
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
APRIL 30, APRIL 30,
1997 1996 1997 1996
---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net Sales 5,145 5,374 9,288 9,513
Cost of Sales 2,635 2,868 4,836 5,229
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GROSS PROFIT 2,510 2,506 4,452 4,284
Selling, General, Administrative
and Other Expenses 1,980 1,962 3,780 3,725
------ ------ ------ ------
OPERATING INCOME 530 544 672 559
Interest and Other Income (Net) 160 244 383 559
------ ------ ------ ------
INCOME BEFORE
INCOME TAXES 690 788 1,055 1,118
Provision for Income Taxes 235 268 359 381
------ ------ ------ ------
NET INCOME 455 520 696 737
====== ====== ====== ======
EARNINGS PER SHARE .04 .04 .06 .06
====== ====== ====== ======
WEIGHTED AVERAGE SHARES OUTSTANDING 11,176 11,597 11,204 11,597
====== ====== ====== ======
See Accompanying Notes to Condensed Consolidated Financial Statements
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NUMEREX CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS POUNDS STERLING)
FOR THE SIX
MONTHS ENDED
APRIL 30,
1997 1996
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 696 737
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Depreciation and Amortization 715 618
Changes in current assets and liabilities
which provided (used) cash:
Accounts Receivable 1,051 (718)
Inventory 135 532
Prepaid Expenses (10) (208)
Accounts Payable 71 (105)
Other Current Liabilities 191 (159)
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Net Cash Provided by Operating Activities 2,849 697
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CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Fixed Assets (137) (157)
Increase in Intangible Assets (411) (1,109)
Acquisition of Business, Net of Cash (3,547) --
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Net Cash Used in Investing Activities (4,095) (1,266)
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CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Short-Term Debt 72 --
Proceeds from Long-Term Debt 2,770 --
Purchase of Treasury Stock (466) --
Dividends Paid -- (379)
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Net Cash Provided by (Used in) Financing
Activities 2,376 (379)
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EFFECT OF EXCHANGE DIFFERENCES ON CASH AND CASH
EQUIVALENTS 54 867
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Net Increase (Decrease) in cash and cash equivalents 1,184 (81)
CASH AND CASH EQUIVALENTS, BEGINNING 18,459 22,271
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CASH AND CASH EQUIVALENTS, ENDING 19,643 22,190
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See Accompanying Notes to Condensed Consolidated Financial Statements
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NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Financial Statement Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended April 30, 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.
On February 28, 1997, the Company completed its acquisition of 100% of the
outstanding common stock of Broadband Networks, Inc. ("BNI") for
approximately (Pounds Sterling)3,447,000 ($5,600,000). The acquisition was
accounted for using the purchase method of accounting. In addition, the
Company invested (Pounds Sterling)1,031,000 ($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 of BNI was 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 was recorded as goodwill, which will be amortized on a
straight-line basis over 20 years.
In March, 1997, the Company announced that it has entered into a
non-binding Letter of Intent to acquire a minority interest in Uplink
Technologies, located in Marietta, Georgia. Completion of the transaction
is subject to the satisfaction of various conditions, including the parties
entering into a definitive agreement, satisfactory due diligence
investigations, and approval by the Board of Directors of both companies.
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2. Inventory.
April 30, October 3l,
l997 l996
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(pounds sterling 000's omitted)
Raw materials 1,087 1,051
Work-in-progress 1,102 730
Finished goods 1,038 1,057
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3,227 2,838
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3. Revolving Credit Facility
The Company has a revolving credit facility which provides for maximum
borrowings of $10,000,000 and includes 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 is charged at the banks prime lending rate less .25% or LIBOR plus
1.25%.
On April 30, 1997, there were outstanding borrowings of approximately
(pounds sterling)2.8 ($4.5) million at an interest rate of 6.875%. In
addition, there was (pounds sterling)0.5 million outstanding short-term
debt related to borrowings of acquired business.
4. 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 Officer, NumereX Corp.,
2360 Maryland Road, Willow Grove, Pennsylvania, 19090.
5. Forward-looking Statements
The information contained in the Quarterly Report on Form 10-Q for the
quarter ended April 30, 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.
-8-
6. New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No.
128"). SFAS No. 128 specifies the computation, presentation, and disclosure
requirements of earnings per share and supersedes Accounting Principles
Board Opinion No. 15, Earnings Per Share. SFAS No. 128 requires a dual
presentation of basic and diluted earnings per share on the face of the
Company's consolidated statement of income and a reconciliation of the
computation of basic earnings per share to diluted earnings per share.
Basic earnings per share, which replaces primary earnings per share,
excludes the dilutive impact of common stock equivalents and is computed by
dividing net income by the weighted-average number of shares of common
stock outstanding for the period.
Diluted earnings per share will include the effect of potential dilution
from the exercise of outstanding common stock equivalents into common stock
using the treasury stock method at an average market price for the
Company's common stock.
SFAS No. 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997 and early adoption is not
permitted. When adopted by the Company for the first quarter of fiscal 1998
ending January 31, 1998, all prior quarters' earnings per share information
will be required to be restated.
Assuming that SFAS No. 128 had been implemented, the pro forma amounts of
basic earnings per share and diluted earnings per share would not have
differed from earnings per share disclosed in the accompanying unaudited
condensed consolidated statements of operations.
7. Subsequent Events
On May 8, 1997, the Company sold all of the stock of its wholly-owned
subsidiary, DA Systems Ltd. (DA), to Detection Systems, Inc. (DSI) of
Rochester, NY (NASDAQ: DETC). In exchange for the stock of DA, NumereX has,
subject to post closing adjustments, received 226,168 shares of DSI common
stock valued at $17.00 per share. In addition, NumereX retained (pounds
sterling)1.4 ($2.3) million of DA cash. With respect to the DSI common
stock, NumereX has been granted registration rights and can require DSI to
repurchase the shares on July 1, 1998 for (pounds sterling)2.4 ($3.9)
million plus interest. In a companion transaction, a subsidiary of NumereX
entered into a License Agreement with DSI whereby DSI may manufacture and
supply certain products in return for royalty payments.
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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 Condensed Consolidated
Statements of Operations.
Three Months Ended Six Months Ended
April 30, April 30,
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1997 1996 1997 1996
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Net sales:
Derived Channel Systems ................... 53.5% 76.6% 58.2% 73.5%
Intrusion alarm, network, and
broadband products ........................ 46.5 23.4 41.8 26.5
----- ----- ----- -----
Total net sales ....................... 100.0 100.0 100.0 100.0
Cost of sales ............................... 51.2 53.4 52.1 55.0
----- ----- ----- -----
Gross profit ................................ 48.8 46.6 47.9 45.0
Selling, general, administrative and other... 38.5 36.5 40.7 39.2
----- ----- ----- -----
Operating income ............................ 10.3 10.1 7.2 5.8
===== ===== ===== =====
Net income .................................. 8.8% 9.7% 7.5% 7.7%
===== ===== ===== =====
Results of Operations
Net sales decreased 4.3% to (pounds sterling)5.1 million for the quarter ended
April 30, 1997, as compared to (pounds sterling)5.4 million for the comparable
period in 1996. For the six months ended April 30, 1997, net sales decreased
2.4% to (pounds sterling)9.3 million as compared to (pounds sterling)9.5 million
for the comparable period in 1996. There was a reduction in Derived Channel
product sales principally due to a decline in the sales of software development
services to British Telecom which was somewhat offset by a modest improvement in
sales of intrusion alarm and network management products, as well as the
inclusion of sales of broadband products and services.
Cost of sales decreased 8.1% to (pounds sterling)2.6 million for the quarter
ended April 30, 1997 and decreased 7.5% to (pounds sterling)4.8 million for the
six months ended April 30, 1997 as compared to (pounds sterling)2.9 million and
(pounds sterling)5.2 million, respectively, for the comparable periods in 1996.
Gross profit as a percentage of net sales increased to 48.8% and 47.9%,
respectively, for the three and six month periods ended April 30, 1997 as
compared to 46.6% and 45.0%, respectively, for the comparable periods in 1996.
The increase in the gross profit margin was primarily due to a shift in sales
mix to higher margin products, principally due to the decline of lower margin
software development services.
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Selling, general, administrative and other expenses were (pounds sterling)2.0
million and (pounds sterling)3.8 million, respectively, for the three and six
months ended April 30, 1997 virtually unchanged from the comparable periods in
1996.
Operating income was (pounds sterling)0.5 million for the quarter ended April
30, 1997 virtually unchanged from the comparable period in 1996. Operating
income for the six month period ended April 30, 1997 increased 20.0% to (pounds
sterling)0.7 million as compared to (pounds sterling)0.6 million for the
comparable periods in 1996.
Other income and expenses decreased 34.4% and 31.4%, respectively, to (pounds
sterling)0.2 million and (pounds sterling)0.4 million, respectively, for the
three and six month periods ended April 30, 1997 as compared to (pounds
sterling)0.2 million and (pounds sterling)0.6 million, respectively, for the
comparable periods in 1996. The decreases were principally related to a decline
in interest income generated from temporary cash investments and the inclusion
of interest expense on the Revolving Credit Facility which was used in
conjunction with the BNI acquisition.
The effective income tax rate was 34% for the three and six month periods ended
April 30, 1997 and 1996.
The decrease in interest and other income (net), which was somewhat offset by an
increase in gross profit margin and operating income, was the principal reason
for a decrease in net income of 12.5% and 5.6%, respectively, to (pounds
sterling)0.5 million and (pounds sterling)0.7 million, respectively, for the
three and six month periods ended April 30, 1997, as compared to (pounds
sterling)0.5 million and (pounds sterling)0.7 million for the comparable periods
in 1996.
As a result of an on-going stock buyback program, weighted average shares
outstanding declined to 11.2 million shares for the three and six month periods
ended April 30, 1997 as compared to 11.6 million shares for the comparable
periods 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, proceeds from a
public offering completed in April 1995 and the proceeds from the Revolving
Credit Facility. Net cash provided by operating activities increased to (pounds
sterling)2.8 million for the six months ended April 30, 1997 as compared to
(pounds sterling)0.7 million for the comparable period in 1996, principally due
to a decrease in outstanding accounts receivable which was somewhat offset by
changes in other working capital.
Net cash used in investing activities increased to (pounds sterling)4.1 million
for the six months ended April 30, 1997 as compared to (pounds sterling)1.3
million for the comparable period in 1996, principally due to the acquisition of
Broadband Networks, Inc. which was somewhat offset by reductions in amounts
invested in capitalized software.
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Net cash provided by financing activities increased to (pounds sterling)2.4
million for the six months ended April 30, 1997, principally due to the
borrowings under the Revolving Credit Facility which was somewhat offset by the
purchase of treasury stock. Net cash used by financing activities for the six
months ended April 30, 1996 was (pounds sterling)0.4 million.
The Company has working capital balances of (pounds sterling)23.0 million and
(pounds sterling)23.2 million, respectively, as of April 30, 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 (pounds sterling)3.5 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None - not applicable.
Item 2. Changes in Securities.
None - not applicable.
Item 3. Defaults Upon Senior Securities.
None - not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of shareholders was held on February 27, 1997. In
addition to the election of Directors, the following proposal was
considered at the meeting and received the number of votes indicated:
1. Proposal to increase the number of shares of common stock for
issuance under the Company's Employee Stock Option Plan:
For Against Abstain
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10,002,227 147,127 41,409
Item 5. Other Information.
None - not applicable.
Item 6. Exhibits and Reports on Form 8-K.
1. For 8-K - Date of Report (February 21, 1997) - Item 5.
Other events, regarding Stock Purchase Agreement between
Broadband Networks Inc. and the Company.
2. Form 8-K - Date of Report (February 28, 1997) - Item 2.
Acquisition on Disposition of Assets, regarding completion of
acquisition of stock of Broadband Networks, Inc.
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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, 1997 By: /s/ John J. Reis
------------------------------------- -------------------
JOHN J. REIS
President and
Chief Executive Officer
Date: June 12, 1997 By: /s/ Charles L. McNew
------------------------------------- -----------------------
CHARLES L. McNEW
Chief Financial Officer
and Chief Accounting
Officer
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