<PAGE> 1
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 June 30, 1997
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 92618
(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 [X] No [ ]
As of August 12, 1997, there were 5,899,208 shares of Common Stock, $0.001 par
value, outstanding.
Page 1 of 12
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STM WIRELESS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1997 and
December 31, 1996 3
Consolidated Statements of Operations for the three and six
month periods ended June 30, 1997 and June 30, 1996 4
Consolidated Statements of Cash Flows for the six
month periods ended June 30, 1997 and June 30, 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
STM WIRELESS, INC
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
(unaudited)
Current assets:
Cash and cash equivalents $ 5,555 $ 9,148
Short-term investments 4,509 4,509
Accounts receivable, net 7,597 11,957
Inventories, net 12,510 9,199
Current portion of long-term receivables 536 536
Deferred income taxes 2,826 2,826
------------ ------------
Total current assets 33,533 38,175
Property & equipment, net 8,408 8,450
Long-term receivables 1,730 1,991
Other assets 1,357 1,188
------------ ------------
$ 45,028 $ 49,804
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 1,600 $ 6,400
Current portion of long-term debt 168 233
Accounts payable 7,092 8,137
Accrued liabilities 1,500 1,785
Customer deposits 188 --
Income taxes payable 587 457
------------ ------------
Total current liabilities 11,135 17,012
Long-term debt 4,561 4,601
Minority Interest 314 385
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized, none issued or outstanding -- --
Common stock, $0.001 par value; 20,000,000 shares
authorized; issued and outstanding 5,893,875
shares at June 30, 1997 and 5,849,160 shares at
December 31, 1996 32,440 32,164
Accumulated deficit (3,422) (4,358)
------------ ------------
Total stockholders' equity 29,018 27,806
------------ ------------
$ 45,028 $ 49,804
============ ============
</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 six months
ended June 30, ended June 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Products 14,044 $ 9,079 $ 20,919 $ 15,617
Services 304 757 921 1,686
-------- -------- -------- --------
Total revenues 14,348 9,836 21,840 17,303
Cost of revenues
Products 9,879 5,928 14,366 9,886
Services 279 388 616 652
-------- -------- -------- --------
Total cost of revenues 10,158 6,316 14,982 10,538
Gross profit 4,190 3,520 6,858 6,765
Operating costs
Selling, general & administrative expenses 1,900 1,402 3,073 2,873
Research & development 1,482 1,377 2,782 2,966
-------- -------- -------- --------
Total operating costs 3,382 2,779 5,855 5,839
Operating income 808 741 1,003 926
Other income 49 (72) 66 (72)
Interest income 175 177 325 558
Interest expense (249) (188) (390) (332)
-------- -------- -------- --------
Income from continuing operations, before
minority interest and income taxes 783 658 1,004 1,080
Income tax expense (108) (221) (140) (372)
-------- -------- -------- --------
Incomefrom continuing operations
before minority interest 675 437 864 708
Minority interest in net loss of consolidated
subsidiary 45 32 72 81
-------- -------- -------- --------
Income from continuing operations 720 469 936 789
Income from and gain on sale
of discontinued operations -- -- -- 84
-------- -------- -------- --------
Net income $ 720 $ 469 $ 936 $ 873
======== ======== ======== ========
Net income per share:
Continuing operations $ 0.12 $ 0.08 $ 0.16 $ 0.13
Discontinued operations -- -- -- $ 0.02
-------- -------- -------- --------
Total net income per share: $ 0.12 $ 0.08 $ 0.16 $ 0.15
======== ======== ======== ========
Weighted average shares outstanding 5,983 5,998 5,981 5,998
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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STM WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the six months
ended June 30,
---------------------
1997 1996
------- -------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 1,356 $(2,464)
------- -------
Cash flows provided by (used in) investing activities:
Net decrease in short-term investments -- 400
Acquisition of property, plant and equipment (581) (393)
------- -------
Net cash provided by (used by) investing activities (581) 7
------- -------
Cash flows from financing activities:
Net (increase) decrease in long-term receivables 291 (782)
Proceeds from issuance of common stock 276 75
(Repayments to) borrowings from banks (4,800) 3,500
Repayments of long-term debt (105) (52)
------- -------
Net cash (used in) provided by financing activities (4,368) 2,684
------- -------
Net increase (decrease) in cash and cash equivalents (3,593) 284
Cash and cash equivalents at beginning of period 9,148 4,145
------- -------
Cash and cash equivalents at end of period $ 5,555 $ 4,429
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
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STM WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1997 and 1996
(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, 1996, which
is on file with the SEC.
2. 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:
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, June 30,
------------------------------------ -----------------------------------
1997 1996 1997 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net revenues $ - $ - $ - $ 1,216,000
================= ================= ================= =================
Net income from and gain
on sale of discontinued
operations, net of income taxes $ - $ - $ - $ 84,000
================= ================= ================= =================
</TABLE>
6
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3. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------------- -------------------
<S> <C> <C>
Raw materials $ 7,486 $ 5,512
Work in process 1,504 1,662
Finished goods 3,520 2.025
=================== ===================
$ 12,510 $ 9,199
=================== ===================
</TABLE>
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 earnings per share approximates fully
diluted earnings per share for all periods presented.
In February 1997, the Financial Standards Board issued SFAS no. 128,
"Earnings Per Share". SFAS No. 128 specifies new standards designed to
improve the earnings per share ("EPS") information provided in
financial statements by simplifying the existing computational
guidelines, revising the disclosure requirements and increasing the
comparability of EPS data on an international basis. Some of the
changes made to simplify the EPS computations include: (a) eliminating
the presentation of primary EPS and replacing it with basic EPS, with
the principal difference being that common stock equivalents are not
considered in computing basic EPS, (b) eliminating the modified
treasury stock method and the three percent materiality provision and
(c) revising the contingent share provision and the supplemental EPS
data requirements. SFAS No. 128 also makes a number of changes to
existing disclosure requirements. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. The Company has not determined the impact of
the implementation of SFAS No. 128.
5. RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 consolidated
financial statements to conform to the 1997 presentation.
7
<PAGE> 8
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General
STM Wireless, Inc. (the "Company" or "STM"), founded in 1982, is a
manufacturer of satellite communications products including VSATs (very small
aperture terminals), hubs/gateways, multiplexers, modems and other networking
equipment. The Company's products are designed to support data, fax, voice and
video networks requiring cost-effective connections between geographically
dispersed locations. The Company's proprietary equipment and software are
utilized by businesses, government agencies and telephone companies in Europe,
the Americas, Africa and Asia. The Company also operates and sells services to
customers on networks it owns.
Effective March 31, 1996 , the Company sold all the outstanding common
stock of RF Microsystems, Inc., its wholly owned subsidiary, for $2,926,000 cash
to Remec, Inc.
Results of Operations
RESULTS OF CONTINUING OPERATIONS
Combined product and service revenues were $14,348,000 and $21,840,000,
respectively, for the three and six-month periods ended June 30, 1997, compared
to $9,836,000 and $17,303,000, respectively, for the corresponding periods of
1996, representing increases of 46% and 26%, respectively, over the prior year
periods. Product revenues were $14,044,000 and $20,919,000, respectively, for
the three and six-month periods ended June 30, 1997, compared to $9,079,000 and
$15,617,000, respectively, for the corresponding periods in 1996, representing
increases of 55% and 34%, respectively, over the prior year periods. The product
revenue increases were primarily due to shipments related to a major contract
for a rural telephony network in Southeast Asia. Service revenues were $304,000
and $921,000, respectively, for the three and six-month periods ended June 30,
1997, compared to $757,000 and $1,686,000, respectively, for the corresponding
periods in 1996, representing decreases of 60% and 45%, respectively, from the
prior year periods. A large component of service revenues is program management
which is subject to variations depending upon the makeup of particular
contracts. The contract for rural telephony network in Southeast Asia has no
service content, hence the decrease in service revenues.
Combined product and service gross profit margins in the three and
six-month periods ended June 30, 1997, were 29% and 31%, respectively, compared
to 36% and 39%, respectively, for the comparable periods in 1996. Product gross
profit margins in the three and six-month periods ended June 30, 1997, were 30%
and 31%, respectively, compared to 35% and 37%, respectively, for the comparable
periods in 1996. The
8
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reduction in gross profit margins was in line with Company expectations and was
primarily due to relatively lower gross margins earned on the large rural
telephony contract in Southeast Asia. Service gross profit margins in the three
and six-month periods ended June 30, 1997, were 8% and 33%, respectively,
compared to 49% and 61%, respectively, for the comparable periods in 1996. The
reduction in service gross margins was due to the lower level of service
revenues and the relatively fixed level of expenses.
Selling, general, and administrative expenses for the three-month
period ended June 30, 1997, increased to $1,900,000 from $1,402,000, but
decreased as a percentage of revenue from 14% to 13%. For the six months ended
June 30, 1997, such expenses increased to $3,073,000 from $2,873,000, but
decreased as a percentage of revenue from 17% to 14%. The dollar increases in
expenditures in both periods in 1997 were the result of increases in expenses to
support the Company's growth in core product revenues.
Research and development expenses for the three-month period ended June
30, 1997, increased to $1,482,000, or 10% of revenues, from $1,377,000, or 14%
of revenues, in the corresponding period of 1996. For the six-month period ended
June 30, 1997, such expenses decreased to $2,782,000, or 13% of revenues, from
$2,966,000, or 17% of revenues, in the corresponding period in 1996.
Interest income decreased by $2,000 to $175,000 for the three-month
period ended June 30, 1997. Interest income decreased by $233,000 to $325,000
for the six-month period ended June 30, 1997, over the six-month period ended
June 30, 1996. The decrease in interest income for the six-month period was
primarily the result of the recognition of less interest related to a long-term
financing lease in Brazil.
Interest expense increased by $61,000 to $249,000 for the three-month
period ended June 30, 1997, over the three-month period ended June 30, 1996.
Interest expense increased by $58,000 to $390,000 for the six-month period ended
June 30, 1997, over the six-month period ended June 30, 1996. The increases were
primarily due to interest expense incurred as a result of discounting customer
letters of credit.
DISCONTINUED OPERATIONS
Effective March 31, 1996 , the Company sold all the outstanding common
stock of RF Microsystems, Inc., its wholly owned subsidiary, for $2,926,000 cash
to Remec, Inc.. A summary of operating results for discontinued operations is
shown below:
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, June 30,
------------------------------------ -----------------------------------
1997 1996 1997 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net revenues $ - $ - $ - $ 1,216,000
================= ================= ================= =================
Net income from and gain
on sale of discontinued
operations, net of income taxes $ - $ - $ - $ 84,000
================= ================= ================= =================
</TABLE>
9
<PAGE> 10
Liquidity and Capital Resources
For the first six months of 1997, the Company had positive cash flows
from operations of $1,356,000, compared to negative cash flows of $2,464,000 in
the same period of 1996. The increase in cash flows was primarily due to net
income and a reduction in accounts receivable, partially offset by increased
investments in inventories and decreases in accounts payable and accrued
liabilities.
Cash used in acquisition of fixed assets in the first six months of
1997 totaled $581,000.
Cash used in financing activities during the first six months of 1997
totaled $4,368,000. A reduction in short-term borrowings used $4,800,000 and
repayment of long-term debt used $105,000. A decrease in long-term receivables
provided $291,000 and proceeds from issuance of common stock related to the
exercise of stock options totaled $276,000.
Overall, the Company's cash, cash equivalents, and short-term
investments totaled $10,064,000 at June 30, 1997, as compared to $13,657,000 at
December 31, 1996. 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.
Risk Factors and Forward Looking Statements
THIS REPORT CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT INVOLVE RISKS AND
UNCERTAINTIES. IN ADDITION, THE COMPANY MAY FROM TIME TO TIME MAKE ORAL FORWARD
LOOKING STATEMENTS. ACTUAL RESULTS ARE UNCERTAIN AND MAY BE IMPACTED BY THE
FACTORS DISCUSSED IN MORE DETAIL IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE PERIOD ENDIED DECEMBER 31, 1996. IN PARTICULAR, CERTAIN RISKS AND
UNCERTAINTIES THAT MAY IMPACT THE ACCURACY OF THE FORWARD LOOKING STATEMENTS
WITH RESPECT TO REVENUES, EXPENSES AND OPERATING RESULTS INCLUDE WITHOUT
LIMITATION, LONG TERM CYCLES 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. AS A
RESULT, THE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD LOOKING STATEMENTS.
BECAUSE OF THESE AND OTHER FACTORS THAT MAY AFFECT THE COMPANY'S
OPERATING RESULTS, PAST FINANCIAL PERFORMANCE SHOULD NOT BE CONSIDERED AN
INDICATOR OF FUTURE PERFORMANCE, AND INVESTORS SHOULD NOT USE HISTORICAL TRENDS
TO ANTICIPATE RESULTS OR TRENDS IN FUTURE PERIODS.
10
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PART II -- OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits -
27 Financial Data Schedule
(b) Reports on Form 8-K
None
11
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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.
STM Wireless, Inc.
Date: August 12, 1997 By: /s/ JOSEPH WALLACE
--------------
Joseph Wallace
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer and
Duly Authorized Officer)
12
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibits
- -------- --------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED 6-30-97 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,555
<SECURITIES> 4,509
<RECEIVABLES> 8,230
<ALLOWANCES> 633
<INVENTORY> 12,510
<CURRENT-ASSETS> 33,533
<PP&E> 12,925
<DEPRECIATION> 4,517
<TOTAL-ASSETS> 45,028
<CURRENT-LIABILITIES> 11,135
<BONDS> 4,561
0
0
<COMMON> 32,440
<OTHER-SE> (3,422)
<TOTAL-LIABILITY-AND-EQUITY> 45,028
<SALES> 14,044
<TOTAL-REVENUES> 14,572
<CGS> 9,879
<TOTAL-COSTS> 10,158
<OTHER-EXPENSES> 3,382
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 249
<INCOME-PRETAX> 783
<INCOME-TAX> 108
<INCOME-CONTINUING> 720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 720
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
