<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
{X} Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 For the Period Ended September 30, 1996
or
{ } Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
Commission File No. 0-19923
STM WIRELESS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-3758983
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification number)
One Mauchly
Irvine, California 92718
(Address of principal executive offices) (Zip code)
(714) 753-7864
(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 and (2) has been subject to such filing
requirements for the last 90 days.
Yes No
X
- --- ---
As of October 30, 1996, there were 5,848,332 shares of Common Stock, no par
value, outstanding.
Page 1 of 13
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STM WIRELESS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE(S)
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1996 and
December 31, 1995 3
Consolidated Statements of Operations for the three and nine
month periods ended September 30, 1996 and September 30, 1995 4
Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1996 and September 30, 1995 5
Notes to Consolidated Financial Statements 6 -7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8 -11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
STM WIRELESS, INC
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,866 $ 4,145
Short-term investments 3,750 4,950
Accounts receivable, net 18,610 11,612
Inventories, net 10,474 6,255
Current portion of long-term receivables 320 544
Deferred income taxes 1,576 1,576
Net assets of discontinued operations - 3,761
------------ ------------
Total current assets 42,596 32,843
Property, plant & equipment, net 8,322 8,598
Long-term receivables 2,503 3,515
Other assets 1,273 1,256
------------ ------------
$ 54,694 $ 46,212
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 6,400 $ 1,600
Current portion of long-term debt 171 216
Accounts payable 6,889 3,923
Accrued liabilities 1,119 1,901
Customer deposits 79 -
Income taxes payable 1,407 1,102
------------ ------------
Total current liabilities 16,065 8,742
Long-term debt 4,732 4,488
Minority Interest 346 452
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized, none issued or outstanding - -
Common stock, no par value; 20,000,000 shares authorized;
issued and outstanding 5,848,332 shares at September 30,
1996 and 5,816,219 shares at December 31, 1995 32,164 32,068
Retained earnings 1,387 462
------------ ------------
Total shareholders' equity 33,551 32,530
------------ ------------
$ 54,694 $ 46,212
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
3
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STM WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months For the nine months
ended Sep. 30, ended Sep. 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Products $ 7,323 $ 6,320 $ 22,939 $ 20,004
Services 559 793 2,245 3,025
---------- ---------- ---------- ----------
Total revenues 7,882 7,113 25,184 23,029
Cost of revenues
Products 4,116 3,254 14,002 12,867
Services 295 373 946 1,227
---------- ---------- ---------- ----------
Total cost of revenues 4,411 3,627 14,948 14,094
Gross profit 3,471 3,486 10,236 8,935
Operating costs
Selling, general & administrative expenses 1,792 1,410 4,665 4,095
Research & development 1,685 1,000 4,650 2,486
---------- ---------- ---------- ----------
Total operating costs 3,477 2,410 9,315 6,581
Operating income (loss) (6) 1,076 921 2,354
Other income (28) 7 (100) 28
Interest income 206 51 765 516
Interest expense (197) (28) (528) (273)
---------- ---------- ---------- ----------
Income (loss) from continuing operations, before
minority interest and income taxes (25) 1,106 1,058 2,625
Income tax expense 51 (232) (327) (543)
---------- ---------- ---------- ----------
Income from continuing operations
before minority interest 26 874 731 2,082
Minority interest in net loss of consolidated
subsidiary 26 8 106 8
---------- ---------- ---------- ----------
Income from continuing operations 52 882 837 2,090
Income from and gain on sale
of discontinued operations net of income tax - 30 88 181
---------- ---------- ---------- ----------
Net income $ 52 $ 912 $ 925 $ 2,271
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per share:
Continuing operations $ 0.01 $ 0.15 $ 0.14 $ 0.35
Discontinued operations - - $ 0.01 $ 0.03
---------- ---------- ---------- ----------
Total net income per share: $ 0.01 $ 0.15 $ 0.15 $ 0.38
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares outstanding 6,044 6,089 6,013 6,016
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements
4
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STM WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the nine months
ended September 30,
1996 1995
---- ----
Net cash provided by (used in) operating activities $ (3,248) $ 1,071
---------- ----------
Cash flows provided by (used in) investing activities:
Net decrease in short-term investments 1,200 2,415
Acquisition of property, plant and equipment (562) (2,034)
---------- ----------
Net cash provided by (used in) investing activities 638 381
---------- ----------
Cash flows from financing activities:
Net decrease (increase) in long-term receivables 1,236 (3,467)
Proceeds from issuance of common stock 96 442
Borrowings from banks 4,800 1,150
Net increase (decrease) in long-term debt 199 (44)
---------- ----------
Net cash provided by (used in) financing activities 6,331 (1,919)
---------- ----------
Net increase (decrease) in cash and cash equivalents 3,721 (467)
Cash and cash equivalents at beginning of period 4,145 5,026
---------- ----------
Cash and cash equivalents at end of period $ 7,866 $ 4,559
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements
5
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STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995
(Unaudited)
1. BASIS OF PRESENTATION
These financial statements are unaudited; however, the information
contained herein for STM Wireless, Inc. (the "Company", or "STM") gives
effect to all adjustments (which are normal recurring accruals) necessary,
in the opinion of Company management, to present fairly the financial
statements for the interim periods presented.
The results of operations for the current interim period are not
necessarily indicative of the results to be expected for the current year.
Although the Company believes that the disclosures in these financial
statements are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"), and
these financial statements should be read in conjunction with the financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, which is on file with the SEC.
1. DISCONTINUED OPERATIONS
Effective March 31, 1996 the Company sold its RF Microsystems
subsidiary to Remec, Inc. for cash in the amount of $2,926,000. The gain
on the sale has been accounted for as discontinued operations and prior
period financial statements have been restated to reflect discontinuance of
this segment of the business. A summary of operating results for
discontinued operations is shown below:
For the three months For the nine months
ended September 30, ended September 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Net revenues $ - $1,529,000 $1,216,000 $4,069,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income from and gain
on sale of discontinued
operations, net of income taxes $ - $30,000 $88,000 $181,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
6
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3. INVENTORIES
Inventories are summarized as follows:
September 30, December 31,
1996 1995
--------------- ---------------
Raw materials $ 5,078,000 $ 1,797,000
Work in process 2,081,000 866,000
Finished goods 3,315,000 3,592,000
--------------- ---------------
$ 10,474,000 $ 6,255,000
--------------- ---------------
--------------- ---------------
At December 31, 1995, inventories included $2,881,000 related to
discontinued operations which are classified separately in the consolidated
balance sheet as part of "Net assets of discontinued operations".
4. INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Income per share of common stock is computed using the weighted
average number of common and common equivalent shares of stock outstanding
during the period. Common stock equivalents consist of dilutive
outstanding stock options and warrants and are calculated using the
treasury stock method. Primary income per share approximates fully diluted
earnings per share for all periods presented.
5. RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 consolidated
financial statements to conform to the 1996 presentation.
7
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Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company develops, manufactures and markets satellite and wireless
communication products including VSATs (very small aperture terminals),
transceivers, modems, and other networking equipment. The Company's proprietary
hardware and software are designed to support data, fax, voice, and video
networks requiring cost effective connections between geographically dispersed
locations. The majority of the Company's revenue is generated in the
international market through foreign distributors and sales representatives.
The Company's customers include government agencies, telephone companies, multi-
location corporations and others.
Effective March 31, 1996, the Company sold all the outstanding common
stock of RF Microsystems, Inc., its wholly owned subsidiary, to Remec, Inc. for
$2,926,000 cash. The Company also entered into a Technology Purchase Agreement
on March 31, 1996, whereby the Company sold certain of its technologies, which
were not part of the RF Microsystems segment, to Remec, Inc. for $1,000,000
cash. In addition, the Company entered into Development, Manufacturing and
Product Supply Agreements which establish Remec, Inc. as the provider of certain
components that are incorporated into the Company's products utilizing the
aforementioned technologies for a term of at least two years. The agreements
also provide for joint development of other products by the Company and Remec,
Inc. and purchase of such products by the Company from Remec, Inc. at specified
market prices.
RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
Combined product and service revenues were $7,882,000 and $25,184,000,
respectively, for the three and nine-month periods ended September 30, 1996,
compared to $7,113,000 and $23,029,000, respectively, for the corresponding
periods of 1995, representing increases of 11% and 9%, respectively, over the
prior year periods. Product revenues were $7,323,000 and $22,939,000,
respectively, for the three and nine-month periods ended September 30, 1996,
compared to $6,320,000 and $20,004,000, respectively, for the corresponding
periods in 1995, representing increases of 16% and 15%, respectively, over the
prior year periods. The product revenue increases were due to the sale of
technology to the purchaser of the Company's RF Microsystems subsidiary in the
first quarter, and to shipments related to the Company's major contracts
throughout the three and nine-month periods. Product revenues for the three
month period ended September 30, 1996 were adversely impacted by the reversal of
$2,132,000 of net sales to a customer in Brazil which was previously recognized
as revenue in the third quarter 1995. The reversal was the result of the
Company's decision to rescind the sale and refund the original deposit made by
the customer due to changed economic and regulatory conditions in Brazil, which
made the use of the network provided no longer economically
8
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viable for the customer. The Company believes its decision to rescind this
sale rather than pursuing legal remedies is in the long-term best interests of
the Company as it will enable the Company to maintain its good standing in the
Brazilian market and allow it to capitalize on anticipated Brazilian market
opportunities. Service revenues were $559,000 and $2,245,000, respectively,
for the three and nine-month periods ended September 30, 1996, compared to
$793,000 and $3,025,000, respectively, for the corresponding periods in 1995,
representing decreases of 30% and 26%, respectively, from the corresponding
periods of 1995. Program management services for both of the comparable
periods in 1995 were bolstered by a relatively large contract, not representing
core business, to provide services to a Malaysian customer in connection with
the design, procurement, and supervision of a personal communications service
(PCS) network. The contract was completed in 1995.
Combined product and service gross profit margins in the three and nine-
month periods ended September 30, 1996, were 44% and 41%, respectively, compared
to 49% and 39%, respectively, for the comparable periods in 1995. Product gross
profit margins in the three and nine-month periods ended September 30, 1996,
were 44% and 39%, respectively, compared to 49% and 36%, respectively, for the
comparable periods in 1995. The decrease in profit margins in the three-month
period was primarily due to the impact of the above-mentioned reversal of a sale
in the previous year to a customer in Brazil. Profit margins in the comparable
nine-month period in 1995 suffered primarily due to the Company acting as an
integrator in providing Standard A Earth Stations to a customer in Malaysia.
Product integration generally yields a lower gross profit margin than product
manufacturing. Service gross profit margins in the three and nine-month periods
ended September 30, 1996, were 47% and 58%, respectively, compared to 53% and
59%, respectively, for the comparable periods in 1995. Profit margins for both
periods were within the Company's expectations based on historical experience.
During the comparable periods in 1995, the Company was providing services to a
customer in Malaysia in connection with a PCS network, which provided higher
gross profit margins than the Company's historical services.
Selling, general, and administrative expenses for the three-month period
ended September 30, 1996, increased to $1,792,000 from $1,410,000, and increased
slightly as a percentage of revenue from 20% to 23%. For the nine months ended
September 30, 1996, such expenses increased to $4,665,000 from $4,095,000, but
remained flat as a percentage of revenue at 18%. The dollar increases in
expenditures in both periods in 1996 were the result of an increase in expenses
to support the Company's growth in core product revenues.
Research and development expenses for the three-month period ended
September 30, 1996, increased to $1,685,000, or 21% of revenues, from
$1,000,000, or 14% of revenues, in the corresponding period of 1995. For the
nine-month period ended September 30, 1996, such expenses increased to
$4,650,000, or 19% of revenues, from $2,486,000, or 11% of revenues, in the
corresponding period in 1995. The planned increases in expenditures for both
periods were for additional personnel and outside services, both in STM and the
Company's TMSI subsidiary, to support strategic new
9
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product development which the Company believes will lead to penetration of new
product markets.
Interest income increased by $155,000 to $206,000 for the three-month
period ended September 30, 1996. Interest income increased by $249,000 to
$765,000 for the nine-month period ended September 30, 1996, over the nine-month
period ended September 30, 1995. The increases in both periods were due to the
recognition of interest income related to a long-term lease receivable in
Brazil.
Interest expense increased by $169,000 to $197,000 for the three-month
period ended September 30, 1996, over the three-month period ended September 30,
1995. Interest expense increased by $255,000 to $528,000 for the nine-month
period ended September 30, 1996, over the nine-month period ended September 30,
1995. The increases were primarily due to interest expense incurred as a result
of the Company's increased utilization of its secured and unsecured lines of
credit.
DISCONTINUED OPERATIONS
Effective March 31, 1996 , the Company sold all the outstanding common
stock of RF Microsystems, Inc., its wholly owned subsidiary, to Remec, Inc. for
$2,926,000 cash. A summary of operating results for discontinued operations is
shown below:
For the three months For the nine months
ended September 30, ended September 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Net revenues $ - $1,529,000 $1,216,000 $4,069,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income from and gain
on sale of discontinued
operations, net of income taxes $ - $30,000 $88,000 $181,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LIQUIDITY AND CAPITAL RESOURCES
For the first nine months of 1996, the Company had negative cash flows from
operations of $3,248,000, compared to positive cash flows of $1,071,000 in the
same period of 1995. The decrease in cash flows was primarily due to increased
investments in receivables and inventories, partially offset by increased
accounts payable, the sale of net assets of discontinued operations, and net
income. Working capital increased to support the Company's continued growth into
new markets with new products.
Cash provided by investing activities in the first nine months of 1996
totaled $638,000. Sales and maturities of short-term investments exceeded
purchases of such investments by $1,200,000. The acquisition of fixed assets
used $562,000 of cash.
Cash flows from financing activities during the first nine months totaled
$6,331,000 and included net bank borrowings of $4,800,000. The Company paid down
and terminated its $3,000,000 unsecured line of credit with Wells Fargo Bank and
entered
10
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into an agreement with Wells Fargo HSBC Trade Bank N.A. (Trade Bank) for a
secured $5,000,000 line of credit, of which $4,800,000 had been utilized at
September 30, 1996. Subsequent to September 30, 1996, the agreement with Trade
Bank was amended to increase the line to $10,000,000. Further, the Company
borrowed an additional $500,000, secured by the Company's certificates of
deposit in the same amount, from another bank. Proceeds from issuance of common
stock related to the exercise of stock options totaled $96,000. A net increase
of long-term debt provided $199,000.
Overall, the Company's cash, cash equivalents and short-term investments
totaled $11,616,000 at September 30, 1996, as compared to $9,095,000 at December
31, 1995. The Company believes it has adequate capital resources to meet its
current working capital requirements and capital expenditure commitments for at
least the next 12 months, including the expansion of its international marketing
and sales efforts, and the purchase of additional capital equipment for
manufacturing and research and development.
POSSIBLE VOLATILITY OF STOCK PRICES
The market prices for securities of technology companies, including the
Company, have been volatile. Quarter to quarter variations in operating
results, changes in earnings estimates by analysts, announcements of
technological innovations or new products by the Company or its competitors,
announcements of major contract awards, changes in foreign political or
regulatory environments, and other events or factors may have significant impact
on the market price of the Company's common stock. In addition, the securities
of many technology companies have experienced extreme price and volume
fluctuations, which have often been unrelated to the Company's operating
performance. These conditions may adversely affect the market price of the
Company's stock.
FORWARD LOOKING STATEMENTS
This report contains certain forward looking statements that involve risks
and uncertainties. Certain risks and uncertainties which may impact the
accuracy of forward looking statements with respect to revenues, expenses and
operating results may include, without limitation, long-term cycle involved in
completing major contracts, particularly in foreign markets, increasing
competitive pressures, general economic conditions, technological advances, the
timing of new product introductions, political and economic risks involved in
foreign markets and foreign currencies and the timing of operating and other
expenditures.
Because of time and other factors affecting the Company's operating
results, past historical performance should not be used as an indicator of
future performance, and investors should not use historical trends to anticipate
results or trends in future periods.
11
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PART II -- OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
None
(b) Reports on Form 8-K
None
12
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SIGNATURES
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.
Satellite Technology Management, Inc.
Date: November 15, 1996 By: PRESTON ROMM
------------
Preston Romm
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR PERIOD ENDED 9-30-96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-START> JUL-01-1996
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<ALLOWANCES> 75
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