UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q/A
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, 1998 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.)
100 Four Falls Corporate Center, Suite 407
Route 23 & Woodmont Road
West Conshohocken, PA 19428-2961
-----------------------------------------
(Address of principal executive offices)
(610) 941-2844
--------------------
(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 10,827,592
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,
1998 (unaudited) and October 31, 1997 4
Condensed Consolidated Statements of Operations (unaudited)
for the three months and six months ended April 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the six months ended April 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
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This form 10-Q/A is being filed as a result of the acquisition of a controlling
interest in Uplink on May 15, 1998. The Company is required under generally
accepted accounting principles to restate its investment in Uplink from the cost
method to the equity method in the two quarters ended April 30, 1998. The
financial statement effect of the change in method on periods prior to fiscal
1998 was not significant. See Note 8 to the Company's Condensed Consolidated
Financial Statements.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
-3-
NUMEREX CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS POUNDS STERLING)
April 30, October 31,
1998 1997
(UNAUDITED)
----------- -----------
AS RESTATED,
SEE NOTE 8)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents (Pounds) 14,176 (Pounds) 15,626
Accounts Receivable, net 3,195 3,690
Inventory 3,552 2,929
Prepaid Taxes 1,250 1,250
Prepaid Expenses 426 251
-------- --------
TOTAL CURRENT ASSETS 22,599 23,746
PROPERTY AND EQUIPMENT, NET 1,150 1,092
GOODWILL, NET 3,491 3,599
INTANGIBLE ASSETS, NET 1,617 1,892
OTHER ASSETS 3,036 2,180
-------- --------
TOTAL ASSETS (Pounds) 31,893 (Pounds) 32,509
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable (Pounds) 1,087 (Pounds) 1,518
Income Taxes 643 430
Other Current Liabilities 1,142 839
-------- --------
TOTAL CURRENT LIABILITIES 2,872 2,787
LONG-TERM DEBT 2,690 2,688
-------- --------
TOTAL LIABILITIES 5,562 5,475
-------- --------
SHAREHOLDERS' EQUITY
Class A, Common Stock - no par value;
authorized 30,000,000; issued 11,607,492 18,358 18,321
Treasury Stock, at cost, 779,900 shares at
April 30, 1998 and 684,900 shares at
October 31, 1997 (2,184) (1,921)
Accumulated Translation Adjustment (418) (308)
Retained Earnings 10,575 10,942
-------- --------
26,331 27,034
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (Pounds) 31,893 (Pounds) 32,509
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements
-4-
NUMEREX CORP.
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,
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ----------- ----------- -----------
AS RESTATED, AS RESTATED,
SEE NOTE 8 SEE NOTE 8
Net Sales (Pounds) 3,414 (Pounds) 5,145 (Pounds) 7,522 (Pounds) 9,288
Cost of Sales 1,533 2,635 3,606 4,836
------- ------- ------ ------
GROSS PROFIT
1,881 2,510 3,916 4,452
Selling, General, Administrative
and Other Expenses 2,266 1,980 4,196 3,780
------- ------- ------ ------
OPERATING INCOME (LOSS) (385) 530 (280) 672
Interest and Other Income (Net) 183 160 401 383
Equity in Net Losses of Affiliate (115) -- (236) --
------- ------- ------ ------
INCOME (LOSS) BEFORE
INCOME TAXES (317) 690 (115) 1,055
Provision for Income Taxes 136 235 252 359
------- ------- ------ ------
NET INCOME (LOSS) (Pounds) (453) (Pounds) 455 (Pounds) (367) (Pounds) 696
======= ======= ====== ======
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE (Pounds) (.04) (Pounds) .04 (Pounds) (.03) (Pounds) .06
======= ======= ====== ======
NUMBER OF SHARES USED IN PER
SHARE CALCULATION:
BASIC 10,880 11,176 10,899 11,204
======= ======= ====== ======
DILUTED 10,999 11,180 11,028 11,207
======= ======= ====== ======
See Accompanying Notes to Condensed Consolidated Financial Statements
-5-
NUMEREX CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS POUNDS STERLING)
FOR THE SIX
MONTHS ENDED
APRIL 30,
1998 1997
(UNAUDITED) (UNAUDITED)
------------- -----------
(AS RESTATED,
SEE NOTE 8)
OPERATING ACTIVITIES
Net Income (Loss) (Pounds) (367) (Pounds) 696
Adjustments to reconcile net income (Loss)
to net cash provided by operating activities:
Depreciation and Amortization 759 715
Equity in Net Losses of Affiliate 236 --
Changes in assets and liabilities which
provided (used) cash:
Accounts Receivable 107 1,051
Inventory (623) 135
Prepaid Expenses (175) (10)
Accounts Payable (431) 71
Other Current Liabilities 516 191
----- -----
Net Cash Provided by Operating Activities 22 2,849
----- -----
INVESTING ACTIVITIES
Investment in Fixed Assets (241) (137)
Increase in Intangible Assets (193) (411)
Investment in Business (692) --
Acquisition of Business, Net of Cash -- (3,547)
----- -----
Net Cash Used in Investing Activities (1,126) (4,095)
----- -----
FINANCING ACTIVITIES
Proceeds from Exercise of Stock Options 37 --
Increase in Short-Term Debt -- 72
Proceeds from Long-Term Debt -- 2,770
Purchase of Treasury Stock (263) (466)
----- -----
Net Cash Provided by (Used in) Financing (226) 2,376
----- -----
EFFECT OF EXCHANGE DIFFERENCES ON CASH AND CASH EQUIVALENTS (120) 54
----- -----
Net Increase (Decrease) in Cash & Cash Equivalents (1,450) 1,184
CASH AND CASH EQUIVALENTS, BEGINNING 15,626 18,459
------ ------
CASH AND CASH EQUIVALENTS, ENDING (Pounds) 14,176 (Pounds) 19,643
------ ------
See Accompanying Notes to Condensed Consolidated Financial Statements
-6-
NUMEREX CORP.
NOTES TO 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, 1998 may not be indicative of the
results that may be expected for the year ending October 31, 1998.
For further information, reference is also made to the Company's
Annual Report on Form 10-K for the year ended October 31, 1997 and
the consolidated financial statements contained therein.
On July 17, 1997, the Company invested(Pounds)598,000 ($1,000,000) in
return for 19.5% of the common stock of Uplink Security, Inc. In
addition, the Company extended Uplink a $5,000,000 Line of Credit
that could be drawn against a defined set of milestones over a
24-month period. Various options contained in the agreements provide
the Company a means of acquiring a controlling interest in Uplink. On
May 18, 1998, the Company acquired a controlling interest in Uplink
(See Note 7).
As of April 30, 1998 and October 31, 1997, the Company had loans
outstanding to Uplink totaling(Pounds)1,196,000 ($2,000,000) and
(Pounds)598,000 ($1,000,000), respectively. The Company's investment
and loan to Uplink are included in "Other Assets" in the accompanying
consolidated balance sheets at April 30, 1998.
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 presentation of basic and diluted
earnings per share on the face of the Company's consolidated
statement of operations.
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.
-7-
Diluted earnings per share includes 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. Effective with the first quarter ended
January 31, 1998, the Company adopted SFAS No. 128. The Company has
computed its earnings per share in accordance with SFAS No. 128 for
both the three months and six months ended April 30, 1998 and has
restated 1997 earnings per share information on a comparable basis.
During the quarter ended January 31, 1998, the Company began
shipments under a significant contract in which it records revenue
when product is delivered to the customer. Payment for the
receivables under the contract will be made through a revenue sharing
arrangement with the customer wherein full payment of the receivables
is anticipated within a three-year period. Accordingly, the
receivables at April 30, 1998 have been recorded as non-current and
discounted to its present value assuming a three-year term.
2. Inventory.
April 30, October 3l,
l998 l997
--------- -----------
(Pounds 000's omitted)
Raw materials (Pounds)1,232 (Pounds)1,129
Work-in-progress 523 411
Finished goods 1,797 1,389
------ ------
(Pounds)3,552 (Pounds)2,929
====== ======
3. Revolving Credit Facility
The Company has a revolving credit facility which provides for
maximum borrowings of $10.0 (Pounds 6.0) million 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 bank's prime lending rate less .25% or LIBOR plus 1.25%.
On April 30, 1998, there were outstanding borrowings of approximately
(Pounds)2.7 ($4.5) million at an interest rate of 6.94%.
The Company is currently in technical violation of certain financial
performance loan covenants, however, the Company expects to receive a
full waiver from the lender.
4. New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which establishes standards for reporting
and disclosure of comprehensive income, is effective for annual
periods beginning after December 15,
-8-
1997, although earlier adoption is permitted. Reclassification of
financial information for earlier periods presented for comparative
purposes is required under SFAS No. 130. As this statement only
requires additional disclosures in the Company's consolidated
financial statement; its adoption will not have any impact on the
Company's consolidated financial position or results of operations.
The Company expects to adopt SFAS No. 130 effective November 1, 1998.
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 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 purposes is required under
SFAS No. 131. The Company is evaluating whether the adoption of this
statement will result in any changes to its presentation of financial
data. The Company expects to adopt SFAS No. 131 effective November
1, 1998.
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,
1997, a copy of which can be obtained from Charles L. McNew, Chief
Financial Officer, NumereX Corp., 100 Four Falls Corporate Center,
Suite 407, Route 23 & Woodmont Road, West Conshohocken, PA
19428-2961.
6. Forward-looking Statements
The information contained in the Quarterly Report on Form 10-Q for
the quarter ended April 30, 1998 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, 1997.
7. Subsequent Events
NumereX Corporation ("NumereX"), BellSouth Wireless, Inc. ("BellSouth
Wireless") and BellSouth Corporation completed a transaction whereby
Cellemetry LLC, a joint venture between NumereX and BellSouth
Wireless, was effectuated. Cellemetry LLC,
-9-
a Delaware limited liability company, is owned 60% by NumereX and 40%
by BellSouth Wireless. The parties have entered into an operating
agreement (the "Operating Agreement") which deals with, among other
things, the conduct of the business of Cellemetry LLC. Pursuant to
the Operating Agreement, NumereX will make initial in-kind and cash
contributions valued at $7.5 million as well as additional cash
contributions of up to $15.5 million during the first three years of
Cellemetry LLC's operations. NumereX's initial contributions may be
represented by, with the consent of BellSouth Wireless, (i) various
interests it has in Uplink Security, Inc., including a 19.5 equity
interest in Uplink, or (ii) certain business plan attainment levels
(as well as a cash component if certain levels are not attained). The
initial contribution by NumereX also included a license from Europlex
Research Limited relating to gateway router and radio module
technologies. BellSouth Wireless has made an initial in-kind capital
contribution of all the assets related to its cellemetry technology,
valued at $15.3 million. Additional capital contributions are
required to be made by BellSouth Wireless. Pursuant to the Operating
Agreement, each party has made warranties, representations and
indemnifications to the other parties. Cellemetry LLC will initially
have five board members, three of whom will be appointed by NumereX
and two by BellSouth Wireless. The Operating Agreement requires that
certain actions of the board of directors require the approval by at
least one of the BellSouth Wireless appointees. In addition, the
Operating Agreement provides certain restrictions on the right to
transfer ownership interests in Cellemetry LLC. In the event certain
goals established by the business plan for Cellemetry LLC are not
achieved, in certain circumstances, at NumereX's election, it may
require either that BellSouth put its interest to NumereX for $15.33
million, plus interest at a 13% annual compound rate, or take various
actions whereby certain property and other rights belonging to
Cellemetry LLC (including cellemetry technology) would be transferred
to BellSouth. The Operating Agreement also addresses various rights
of the parties in the event of dissolution, liquidation and
termination. Cellemetry LLC has elected to be taxed as a partnership
for federal, state and foreign income tax purposes.
On May 18, 1998, the Company acquired an additional 78,795 shares of
Uplink Security, Inc. from certain existing shareholders for
approximately $1,225,000 plus 89,763 NumereX common stock warrants
with a strike price of $6.00. This stock purchase increases the
Company's ownership interest in Uplink to 85%.
8. Restatement
As a result of the acquisition of a controlling interest in Uplink on
May 15, 1998, the Company is required under generally accepted
accounting principles to restate its investment in Uplink from the
cost method to the equity method in the two quarters ended April 30,
1998. The effect of the restatement, which is included in the line
item equity in net losses of affiliate in the Consolidated Statement
of Operations for the three and six months ended April 30, 1998, was
a reduction in net income and retained earnings of (pound)115,000 and
(pound)236,000 or (pound).01 and (pound).02 per share, respectively.
The financial statement effect of the change in method on periods
prior to fiscal 1998 was not significant.
-10-
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 Six Months Ended
April 30, April 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Net sales:
Derived Channel Systems .......................................... 56.6% 53.5% 62.6% 58.2%
Intrusion alarm, broadband and network
Products (1) ................................................... 43.4 46.5 37.4 41.8
----- ----- ----- -----
Total net sales .............................................. 100.0 100.0 100.0 100.0
Cost of sales ...................................................... 44.9 51.2 47.9 52.1
Gross profit ....................................................... 55.1 48.8 52.1 47.9
Selling, general, administrative and other ......................... 66.4 38.5 55.8 40.7
----- ----- ----- -----
Operating income (Loss) ............................................ (11.3) 10.3 (3.7) 7.2
===== ===== ===== =====
Net income (Loss) .................................................. (13.3)% 8.8% (4.9)% 7.5%
===== ===== ===== =====
(1) The Company acquired BNI in March 1997 and sold DA in May 1997. The above
table includes sales of broadband products only for the six months ended
April 30, 1998 and the two months ended April 30, 1997. The table also
includes sales of intrusion alarm products only for the six months ended
April 30, 1997.
Results of Operations
Net sales decreased 33.6% to (Pounds)3.4 million for the quarter ended April 30,
1998, as compared to (Pounds)5.1 million for the comparable period in 1997. For
the six months ended April 30, 1998, net sales decreased 19.0% to (Pounds)7.5
million as compared to (Pounds)9.3 million for the comparable period in 1997.
There was a reduction in Derived Channel products sales principally due to a
decrease in network equipment sales in the United Kingdom and a decrease in net
sales of Subscriber Terminal Units (STUs) primarily due to shift from product
sales to royalty revenue as a result of the sale of DA, effective May 1997. The
lack of significant sales to Bell Canada, resulting from the halting of
deployment shipments to Bell Canada, due to the identification of a technical
problem, negatively impacted sales performance. The Company is working through
these issues with Bell Canada with the hope of reaching a mutually favorable
conclusion; although no assurances can be given. Intrusion alarm product sales
were eliminated due to sale of DA (in May 1997). This was somewhat offset by the
inclusion of sales of broadband products and services (from BNI, which was
acquired in March 1997) and a modest improvement in sales of network management
products.
Total cost of sales decreased 41.8% to (Pounds)1.5 million for the quarter ended
April 30, 1998 and decreased 25.4% to (Pounds)3.6 million for the six months
ended April 30, 1998 as compared to (Pounds)2.6 million and (Pounds)4.8 million,
respectively, for the comparable periods in 1997. The decrease
-11-
resulted primarily from the decline in net sales. Gross profit as a percentage
of net sales increased to 55.1% and 52.1%, respectively, for the three and six
months ended April 30, 1998 as compared to 48.8% and 47.9%, respectively, for
the comparable periods in 1997. The increase in the gross profit margin was
primarily due to a shift in sales mix to higher margin products principally due
to the elimination of DA and its intrusion alarm product line.
As a result of the Company's continuing investment in product development and
sales and marketing programs, total selling, general, administrative and other
expenses increased 14.4% to (Pounds)2.3 million for the three months ended April
30, 1998 as compared to (Pounds)2.0 million for the comparable period in 1997.
For the six months ended April 30, 1998, total selling, general, administrative
and other expenses increased 11.0% to (Pounds)4.2 million as compared to
(Pounds)3.8 million for the comparable period in 1997. In May of 1998 the
Company announced a restructuring of its DCX business unit.
Due to the Company's decreased sales and the increase in total selling, general,
administrative and other expenses, the Company recognized operating losses of
(Pounds)0.4 million and (Pounds)0.3 million, respectively, for the three and six
month periods ended April 30, 1998. This compares to operating income of
(Pounds)0.5 million and (Pounds)0.7 million, respectively, for the comparable
periods in 1997.
Interest and other income (net) increased 14.4% and 4.7%, respectively, to
(Pounds)0.183 million and (Pounds)0.401 million, respectively, for the three and
six month periods ended April 30, 1998 as compared to (Pounds)0.160 million and
(Pounds)0.383 million, respectively, for the comparable periods in 1997. The
increases were principally related to an increase in interest income generated
from temporary cash investments which were somewhat offset by an increase in the
interest expense on the Revolving Credit Facility which was used in conjunction
with the BNI acquisition.
As a result of the Company's 19.5% investment in Uplink from July, 1997 to
April, 1998, there was a charge of (Pounds)0.2 million for the six-month period
ended April 30, 1998 that represented the Company's equity in the net losses of
Uplink, inclusive of the effect of the restatement discussed in note 8 to the
condensed consolidated financial statements.
The Company recorded tax provisions of (Pounds)0.1 million and(Pounds)0.3
million, respectively, for the three and six months ended April 30, 1998 despite
the pre-tax losses. Certain losses arising from United States operations were
not deductible during the three and six-month periods ended April 30, 1998,
while earnings from United Kingdom operations were fully taxable. The effective
income tax rate for both the three and six-month periods ended April 30, 1997
was 34%.
The Company had net losses of (Pounds)0.5 million and (Pounds)0.4 million,
respectively, for the three and six months ended April 30, 1998. This compares
to net income of (Pounds)0.5 million and (Pounds)0.7 million, respectively, for
the comparable periods in 1997.
As a result of the Company's stock buyback program, the weighted average shares
and potential shares outstanding on a diluted basis, declined to 11.0 million
for the three month and six month periods ended April 30, 1998 as compared to
11.2 million shares for the comparable periods in 1997.
-12-
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 was (Pounds)0.02 million for the six months ended April 30, 1998. Net
cash provided was (Pounds)2.8 million for the comparable period in 1997. The
decrease was primarily due to net losses, changes in other working capital
(including inventory built in anticipation of product shipments to Bell Canada)
and delays in collecting certain receivables due from a customer in Argentina.
Net cash used in investing activities decreased to (Pounds)1.1 million for the
six months ended April 30, 1998 as compared to (Pounds)4.1 million for the
comparable period in 1997. The decrease was primarily attributable to the
acquisition of BNI during 1997 which was somewhat offset by the Company's
investment in Uplink during 1998.
Net cash used in financing activities decreased to (Pounds)0.2 million for the
six months ended April 30, 1998 as compared to net cash provided of (Pounds)2.4
million for the comparable period in 1997. The decrease was principally due to
the borrowings under the Revolving Credit Facility during 1997 which was
somewhat offset by decreased purchases of treasury stock.
The Company had working capital balances of (Pounds)19.7 million and
(Pounds)21.0 million, respectively as of April 30, 1998 and October 31, 1997.
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.
Presently, the Company is obligated to fund the operations of Cellemetry LLC
(which will require $15.5 million over the next 24-months) and Uplink, and the
Company is also committed to a network equipment deployment in conjunction with
the previously announced Bell Canada agreement. Expansion of the Company's
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), may also require significantly greater capital investments than it
has in the past.
The Company believes 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, 1998. The Company will have
funding obligations for Cellemetry LLC and Uplink as both entities are expected
to be cash flow negative for the balance of fiscal year 1998. 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.
-13-
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 has occasionally hedged its operations
selectively against fluctuations in foreign currency as needed. The Company has
used 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.
-14-
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 26, 1998. 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
--- ------- -------
9,728,930 533,792 34,542
2. Proposal to increase the number of shares of common stock under
the Company's Non-Employee Director Stock Option Plan:
For Against Abstain
--- ------- -------
10,561,508 237,442 41,092
Item 5. Other Information.
None - not applicable.
Item 6. Exhibits and Reports on Form 8-K.
1. Form 8-K - Date of Report (February 25, 1998) - Item 5.
Other events, regarding entering into an agreement regarding the
formation of Cellemetry LLC.
-15-
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: October 27, 1998 By: /s/ Gordon T. Ray
-------------------------------- ----------------------------------
GORDON T. RAY
Chairman, President and
Chief Executive Officer
Date: October 27, 1998 By: /s/ Charles L. McNew
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CHARLES L. McNEW
Chief Financial Officer and
Chief Accounting Officer
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