Notes

Relm Wireless. RWC

"RELM Wireless Corporation designs, manufactures and markets wireless communications products, principally two-way land mobile radios (LMR) and related products. The Company's products are marketed using three brand names: BK Radio, RELM/BK and RELM. These products are sold in two primary markets: the government and public safety market, which includes fire, rescue, law enforcement and emergency medical personnel, as well as the military and various agencies of federal, state and local governments in the United States, and the business and industrial market, which consists of enterprises requiring fast, affordable, communication among a discrete group of users. These include corporate disaster recovery, hotels, construction firms, schools, airports and taxies. Generally, BK Radio-branded products serve the government and public safety market, while RELM-branded products serve the business and industrial market. RELM/BK-branded products serve both of these markets."

It has a good story:
http://www.forbes.com/investmentnewsletters/2006/05/16/relm-wireless-motorola-in_nh_0516unwired_inl.html
http://www.forbes.com/investmentnewsletters/2006/09/11/Relm-Motorola-wireless-in_nh_0911unwired_inl.html

24May07

Insider buying in last week.

Notes from conference call:
+ Federal government hasn't approved budget yet, which delays orders from Federal agencies (over 50% of Relm's sales)
+ Post office contract up for renewal this summer.
+ New products coming soon
+ $5m order announced May 1 not included in Q1 numbers. CFO says margins are very high on that product.
+ Management very upbeat.

No debt.

9JUN07

Trailing P/E : 29.11
Forward P/E (fye 31-Dec-08): 13.53
PEG Ratio (5 yr expected): 0.86
Price/Sales (ttm): 2.02
Price/Book (mrq): 1.89

Current Ratio (mrq): 13.756 <--Wow

All assets tangible; no preferred or convertible shares or warrants

GROWTH estimates (2 analysts)
Sales 2008: 15%
Earnings:
- flat or down for rest of the year: current qtr. -13%, next qtr. 0%
+ next year 48%
Note: the company doesn't issue guidance.

Thoughts: Good long-term buy in the low $4-range for the aggressive investor in all of us. Short-term, the flat growth estimates may keep the price low. Rummaging around the Internet turns up good reviews for quality and price for Relm products. The balance sheet is excellent, and the long-term fundamentals are good.

25NOV07 - $3.32

QUARTERLY REPORT
After accounting for the timing of orders from the federal government and one-time expenses, Relm's earnings and revenue picture was mostly flat. Some things improved, others declined, but none of the changes were very dramatic.

"Overall, budgets and funding for some of our government customers remain constrained and unpredictable in some areas, as the timeline for approval of a federal budget for 2008 is uncertain." The US government accounts for 60%-70% of sales.

"We are continuing to aggressively pursue our P25 product development program and anticipate new product and capability introductions later this year, which we believe will broaden our addressable market and facilitate our efforts for new sales growth....We ... remain focused on our digital development program and anticipate introducing new P25 products and capabilities later this year and in 2008.

Sales of digital (P25) products are growing, while analog products are declining.

Market Cap (intraday): 44.34M
Enterprise Value: 29.15M
Trailing P/E (ttm, intraday): 17.42
Forward P/E (fye 31-Dec-08) : 8.71
PEG Ratio (5 yr expected): 0.58
Price/Sales (ttm): 1.52
Price/Book (mrq): 1.61
Enterprise Value/Revenue (ttm): 0.98
Enterprise Value/EBITDA (ttm): 6.167

Operating Margin (ttm): 14.43%
Return on Assets (ttm): 7.49%
Return on Equity (ttm): 8.90%

Weaknesses: Overall, it's been a sleepy year for this company. It paid a special dividend of $0.50 (better than 10%). So, it couldn't find a way to grow its company with all that cash. No new products have been announced lately. The stock price took a hit, partly because of non-cash expenses and partly because of the lack of news.
Strengths: The (promised) releases of new products soon should help provide some publicity and boost to the price, but that will only be sustained if it also boosts revenue. Another boost may come from upcoming favorable comparisons to last year: earnings are predicted grow roughly 150% in the next two quarters, relative to same quarters last year. I think that is from accounting changes rather than business growth. The same non-cash charges helped sink the company's stock early in the year, so it seems the market regards them as significant.

20MAR08 - $1.58

"The sales and operating results for both the year and the fourth quarter reflect a sluggish government and public safety market, which comprises the Company's largest business market. Customers in this market were impacted by budget and funding constraints, as the Federal Government operated without an approved budget throughout the year, which the Company believes reduced procurement activity from its largest customer agencies. Also, the combination of a less favorable mix of digital and analog product sales, lower total sales and reduced manufacturing volumes resulted in lower gross margins compared to the previous year.

"RELM President and Chief Executive Officer David Storey commented, '2007 was a challenging year. Many of our customers struggled with limited, or the absence of, LMR funding. Although we penetrated several federal agencies with which we had not previously done business, funding and other factors precluded them from significantly impacting our total sales. The approval in January of a 2008 federal budget improves the prospects for funding to our customers, which we expect to stimulate LMR procurements during 2008,' continued Storey. 'Also, the first product in our line of next- generation P-25 digital radios was approved by the FCC in December 2007. We plan to broaden the line during 2008 by following with models in additional frequency ranges. Successful execution of these developments should provide us with access to markets and customers that we have not served historically, including agencies of homeland security and the military. We believe the migration of government and public safety two-way radio users to P-25 digital technology will continue and drive sales growth. We expect that our new line of products positions us to capitalize on that trend.'

Market Cap (intraday): 21.16M
Enterprise Value (20-Mar-08): 12.71M
Trailing P/E (ttm, intraday): 12.06
Price/Sales (ttm): 0.78
Price/Book (mrq): 0.76
Enterprise Value/Revenue (ttm): 0.47
Enterprise Value/EBITDA (ttm): 4.783

Thoughts: Today, Relm made a new 52-week low. It's become one of the worst investments in my recent investing life. I still like it! Still holding.

1SEP08 - $1.45

Market Cap (intraday): 19.16M
Enterprise Value (29-Aug-08): 13.97M
Price/Sales (ttm): 0.85
Price/Book (mrq): 0.74
Enterprise Value/Revenue (ttm): 0.62
Enterprise Value/EBITDA (ttm): -9.404

"In June 2008, the Company announced that the first product in its new BK Radio high-performance KNG series of P25 digital radios has been released for sale. The KNG-P150, operating in the 136-174MHz frequency band, is designed with the demanding needs of professional applications, including public safety, law enforcement and the military. In addition to its high-specification performance, the KNG-P150 is also among the smallest and lightest professional-grade P25 digital portable radio in the market. Additional KNG portable models will be released this year and the entire KNG series is upgradeable to P25 Trunking.

"Sales during the second quarter 2008 strengthened from an extraordinarily weak first quarter 2008, due to improved procurement activity from our federal customers. Comparatively, however, purchases for our federal and state customers remain below last year's levels. We anticipate modest improvements to continue during at least the third quarter 2008. The extent and timing of more significant and sustained improvement in these conditions, however, cannot be predicted with certainty.

"During the second quarter 2008, we introduced the first product in a new line of next-generation P25 digital products. The line will be expanded in the next few months to include frequencies in which we have not previously offered digital products. We believe this will increase our addressable opportunities and, accordingly, improve our prospects for gaining market share and sales growth.

"Engineering and product development expenses for the three and six months ended June 30, 2008 increased by approximately $763,000 (103.5%) and $1.5 million (104.1%), respectively, compared with the same periods last year. This increase was entirely driven by the application of additional variable engineering resources to speed the finalization and introduction of our new P25 digital product line, the first model of which was launched in June 2008. Upon completion of these development projects later this year, engineering expenses are expected to return to more normalized levels.

"The operating loss for the first two quarters of 2008 is attributable primarily to lower total sales and sales of higher-margin P25 digital products, as well as increased engineering and product development expenses.
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Postives:
* "Upon completion of these development projects later this year, engineering expenses are expected to return to more normalized levels."
* Price/Sales (ttm): 0.85
* Price/Book (mrq): 0.74 (all tangible)
Negatives:
* "The extent and timing of more significant and sustained improvement in these conditions, however, cannot be predicted with certainty."
* Enterprise Value/EBITDA (ttm): -9.404

08NOV08 - $0.59

Quarterly report for SEP 30.

Tangible book value: $30 million, but $9 million of that is inventory. No significant change from December 2007. Price/book ratio is 0.3, darn good.

The company managed to pull out a $0.02 share profit for the last quarter, but it doesn't feel like an indicator of the future. The nine-month result was a loss of $0.10.

Nine-month cash flow from operations is negative $3.2 million.

"Procurement activity in our addressable markets for the third quarter, particularly with federal government agencies, continued to be slow compared to that of prior years, primarily attributable in our view to economic and budgetary constraints. Procurements, however, remained consistent with what we experienced in the second quarter of this year and were improved from the first quarter. The funding and business climate for our government customers remains uncertain for the foreseeable future."

Multiple insider buys since mid-Septemeber, including the CEO and CFO, between $1.10 and $0.50

Thoughts.
* The federal government will pinch a lot of pennies as it tries to make ends meet after its trillion dollar bailout of greedy banks. This is probably bad for Relm. Possibly, the safety importance of two-radios make them somewhat non-discretionary for the government, but the results of the last year don't look good.
* Relm had high expenses in the first half of the year because of new-product development costs, That part of the cycle is completed, suggesting an immediate future of lower expenses and increased sales from new products.
* Inventory seems kind of high, which clouds the vision of robust sales from new products.
* The balance sheet is solid, with no significant debt. The stock is trading at cash level. The price/book is reassuringly low. If credit markets were normal, one would have to wonder about a takeover or share buyback.

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