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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File Number 0-19923
STM WIRELESS, INC.
(Exact name of the registrant as specified in its charter)
Delaware 95-3758983
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MAUCHLY, IRVINE, CALIFORNIA 92618
(Address of principal executive offices)
(714) 753-7864
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE PER SHARE
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 report), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 24, 1997, the aggregate market value of the registrant's common
stock, held by non-affiliates of the registrant was approximately $ 22,049,367
based on the closing sales price of $7.125 per share of the common stock as of
such date, as reported by The National Market. As of March 24, 1997, 5,869,875
shares of the registrant's common stock were outstanding.
Page 1 of 63 Pages
Exhibit Index appears on Page 57
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PART I
ITEM 1 - BUSINESS
THE COMPANY
STM Wireless, Inc. (the "Company" or "STM"), is a leading manufacturer
of satellite and communications products including VSATs (very small aperture
terminals), hubs/gateways, multiplexors, modems and other networking
equipment. STM 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.
The Company was incorporated in California in January 1982 as Services
Via Satellite and in December 1982 changed its name to Satellite Technology
Management, Inc. In January 1995, the Company registered in California to do
business as STM Wireless, Inc. In December 1995, the Company reorganized as a
Delaware corporation via a merger into a wholly owned subsidiary with the name
STM Wireless, Inc.
DESCRIPTION OF THE BUSINESS
The Company, founded in 1982, designs, manufactures and markets
wireless based satellite communications infrastructure products to customers for
the creation of public and private networks. These networks are used to either
bypass or extend terrestrial networks or in some instances to provide a
communications infrastructure where a terrestrial network does not exist. The
Company's products provide customers with the ability to transmit many forms of
information including voice, fax, data and video. The Company sells its products
primarily in the international marketplace where the growing deregulation of
telecommunications markets and rapid economic growth stimulates the demand for
communications infrastructure. The solutions currently provided by the Company
are principally satellite communications networks which can be deployed and
reconfigured faster and at a lower cost than terrestrial alternatives. The main
products that STM sells are two-way small earth stations referred to as VSATs
(very small aperture terminals), associated infrastructure equipment and
software, transceivers, modems and other networking equipment.
The Company's product line is based on proprietary hardware and
software used in the remote terminals, hubs and network management systems. The
Company's VSAT product line includes the TXR-3000 and the DAMA 10000 which are
both capable of concurrently transmitting and receiving data as well as several
channels of digitized voice, using the Company's software to perform call
routing and to allocate satellite capacity on call initiation. The product
features allow more efficient use of satellite transponders and are attractive
to international customers for whom combined voice and data communications costs
are a prime concern. The DAMA 10000 VSAT product is a real-time Demand Assigned
Multiple Access VSAT that provides full mesh, single-hop satellite transmission
through direct connections between any two ports in a network without the need
for a central hub system.
The Company has established alliances with customers, distributors and
sales representatives in over 20 countries and has supplied networks to
customers or end users in many geographic areas, including Argentina, Bosnia,
Brazil, Canada, China, Columbia, Ecuador, Germany, Holland, Hungary, India,
Italy, Malaysia, Mexico, Pakistan, Peru, Philippines, Spain, Thailand and the
United States.
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MARKET
The major initial advantage of VSAT networks in the North American
marketplace was substantial cost savings compared to land based telephone
networks where the network users were geographically widespread. In addition,
the flexibility and control offered by VSAT networks made them attractive to
users. Due to the nature of satellites, transmission costs are not affected by
the distance information travels, while in land based networks, transmission
costs are directly related to the distance between the network users. Also,
in-premise VSAT equipment can be rapidly installed, upgraded or moved without
reliance on third parties. Thus, networks can be expanded or changed with
minimum expense and disruption. Bandwidth allocated to each user can be changed
dynamically, and the network can be reconfigured and additional features and
changes downloaded to the user. Furthermore, the network user or services
provider has the ability to monitor operations of the network, collect
performance statistics and perform diagnostics.
All of these benefits are equally applicable to the international
market. However, while the application in the North American market is primarily
for data transmission, in most international applications voice, and more
recently video capabilities are important. In certain developing countries where
telephone facilities are inadequate for the growing economy, VSATs are a
practical method of quickly making available sophisticated communications
capabilities. One specific application for voice is rural telephony, that is,
the provision of voice telephone facilities to remote villages located in remote
or difficult terrain.
Since the mid-1980's, the VSAT network market has grown steadily with
the North American market share dominating. However, both political and
regulatory advances have contributed to the international expansion of the
market. The Company believes that the following factors should lead to continued
growth in the VSAT market:
- Technology enhancements, such as the integration of voice and
video, should help to keep VSATs competitive with other
telecommunications alternatives.
- Economic and political changes in many Eastern European, South
American, Pacific Rim and Asian nations should lead to a need
for advanced communications capabilities in these countries.
- Deregulation and the availability of domestic and regional
satellites in South America, Asia and the Pacific Rim should
create new market opportunities by allowing private companies
to expand their use of satellites.
- The growth in gross national product in Asia and Latin
American countries should produce greater demand for
sophisticated telecommunications equipment.
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Applications which are well suited to VSAT networks include:
- Telephony.
- Credit verification.
- Airline and hotel reservation systems.
- Inventory control.
- Banking, including automatic teller machines.
- Point of sale.
- Distance learning
- Publishing
- Telemedicine
Historically about half of the Company's sales are to telephone companies and
service providers with the other half representing private networks for major
corporations.
PRODUCTS AND SERVICES
The Company's VSAT networking products have evolved from their initial
deployment in data networking to include voice and video to accommodate the
needs of international users.
The equipment provided in networks normally supplied by the Company
consists of either a central hub or gateway facility and VSATs installed at
remote sites that are interconnected by a satellite transponder. A central hub
consists of a large antenna and radio frequency equipment integrated with the
rest of the network processing equipment. A network management system is also
provided at the hub facility or network control center.
The VSAT consists of a small outdoor antenna and radio frequency unit
and an indoor electronics unit typically with one or more data ports. Most
two-way VSAT networks implemented in the United States are for data applications
only and operate in the Ku-band frequency range. Internationally there is a need
for a mixture of data, voice and video, and in many countries C-band
transmission is essential because of the lack of Ku-band satellite capacity.
The Company classifies its consolidated revenues into two categories;
products and services. Revenues associated with products amounted to 91.7%,
88.6%, and 83.1%, of total revenues in 1996, 1995, and 1994 respectively, and
include items listed below as Hubs/Gateways, TXR-3000 and DAMA 10000 VSATS,
Network Management Systems, Systems Integration Products, and Terrestrial
Communications Products. Revenues associated with services amounted to 8.3%,
11.4%, and 16.9%, of total revenues in 1996, 1995, and 1994 respectively, and
include items listed below as Services.
PRODUCTS
HUBS/GATEWAYS
Hub/Gateways The Company manufactures the digital and modem portion of
the hub/gateway which is comprised of a series of special purpose processing
units utilized in multiplexing, network configuration and routing of information
to the appropriate network destinations. This is controlled by the Company's
proprietary networking and system software. Typically, the digital portion of
the hub/gateway has a number of voice and data ports that directly attach to
the user's equipment. Transmission between the hub/gateway
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and the remote VSAT is via a satellite transponder. The hub/gateway also
includes radio frequency components and an antenna, which are purchased from
suppliers and integrated into the system by the Company. The hub/gateway
interacts with a network management system, which operates on a local or remote
work station using proprietary software supplied by the Company.
The Company offers optional voice/fax capabilities that operate with
both the hub/gateway and VSATs. One of the Company's primary voice products is
its proprietary Demand Assigned Multiple Access (DAMA) software that makes
efficient use of satellite bandwidth by assigning resources only for the
duration of the call. This software also provides a voice PBX function within
the hub/gateway by which each VSAT subscriber extension in a subnetwork can be
interconnected to another extension or a hub/gateway trunk. Where appropriate,
the Company also provides non-DAMA and broadcast mode voice capabilities. The
relevant software operates with additional cards installed in the hub/gateway
and VSATs.
TXR-3000 AND DAMA 10000 VSATS
The TXR-3000 series VSAT is a multi-port communications station
installed at the customer's premises. The basic configuration includes five
duplex data ports, expandable to seventeen. The TXR-3000 can also be used as a
local concentrator which serves multiple locations through tail-end local
telephone circuits or dial-up lines. As an alternative the data port expansion
capability can be replaced by cards offering voice channel capability or a
direct connection to local area networks.
The VSAT hardware consists of a dish antenna, typically up to six feet
in diameter, a microwave radio frequency unit that includes amplifiers and
frequency converters and an indoor controller unit containing a satellite modem
and digital processing equipment. The user devices are connected directly to
data communications ports on the indoor controller.
The DAMA 10000 bandwidth-on-demand VSAT enables direct interconnections
between any two ports in a network without the need for a hub/gateway. Satellite
transponder channels are allocated only upon call initiation, and only for its
duration, thereby optimizing satellite costs since the transponder is used only
when it is needed. Applications benefiting from this new product include private
and public networks which need to have full connectivity among all sites and
support of both voice, fax, video, and data traffic. The DAMA 10000 is a fully
integrated product that offers the flexibility to create and manage both large
and small networks. With an expandable system architecture and highly
configurable terminal equipment, the DAMA 10000 is a cost effective solution
for small to very large networks. The system supports full mesh, point-to-point
or point-to-multi-point communications circuits and any user can connect to any
other user anywhere within the network.
NETWORK MANAGEMENT SYSTEMS
The Company provides a network management system which shows network
status in real time, and permits the operator to monitor and control network
operations, including diagnosis of problems. The interface with the operator is
by a graphic display of the network status on a color monitor. The network
management system can also be used for redefining network parameters, for adding
and deleting remote network locations, for changing protocols and for collecting
and reporting operational information and providing management reports. In
addition, the system can be expanded if the hub/gateway is shared among several
customers, to permit each customer to have such capabilities. The network
management system can be installed remotely from the hub/gateway location if
required.
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SYSTEMS INTEGRATION PRODUCTS
In order to offer a more complete product line, the Company also
integrates equipment from other manufacturers into systems or earth stations
manufactured by the Company. These products include antennas, radio frequency
equipment, satellite modems, voice and data multiplexers, local area network
routers and video communications equipment. The Company encounters requests for
such products while marketing its proprietary VSAT products and expects to
continue to sell such systems on an individual project basis as part of its
direct sales effort.
TERRESTRIAL COMMUNICATIONS PRODUCTS
In August, 1995 the Company acquired majority ownership of Telecom
Multimedia Solutions, Inc. ("TMSI"). With this acquisition, the Company has
diversified into the development of Digital Circuit Multiplication Equipment
(DCME) and multiplexer equipment. This equipment utilizes state of the art
compression technology to significantly expand the capacity of satellite,
cellular and terrestrial communications facilities. TMSI's objective is to use
its expertise in signal processing and telecommunications to establish itself as
a provider of voice networking products.
SERVICES
SHARED-HUB/GATEWAY SERVICES. The Company offers shared hub/gateway
network services in the United States using a central hub/gateway installed at
the Company's headquarters and transponder services leased from United States
domestic satellite service providers. This facility currently serves
approximately 200 VSATs throughout the continental United States and is used by
three customers. This service is similar to that provided by a telephone company
which shares its central office equipment among many customers.
PROJECT MANAGEMENT. The Company offers engineering, project management,
and contract services in support of products sold.
CUSTOM DEVELOPMENT. From time to time the Company receives orders from
its customers and distributors for product features, new products or software
protocols and functions that enhance the Company's product lines. While such
custom development orders do not contribute significantly to the Company's
revenues, they demonstrate the Company's ability to be responsive to market
requirements.
TECHNICAL SUPPORT SERVICES. The Company provides technical support
services to its installed base of customers either directly or through
third-parties. Services include technical support, installations, maintenance,
training and spares provisioning.
SALES AND MARKETING
The key elements of the Company's strategy are: (1) the continued
development and strengthening of its strategic market relationships by
developing key relationships with partners who have substantial influence in the
markets the Company seeks to address, (2) the development of communication
products suited to the emerging high growth economies resulting from increasing
deregulation of telecommunications services in many countries and (3) taking
advantage of service opportunities in conjunction with the continued
deregulation of major markets for telecommunications.
The Company sells its satellite communication products primarily
through international distributors and alliances which are supported by the
Company's sales and marketing personnel. Direct sales by the
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Company are targeted toward large accounts and the establishment of distributors
and alliances in new markets. The Company additionally derives service revenue
from three customers in the United States who use the Company's VSAT products in
their satellite networks.
The Company's direct VSAT and wireless products sales force is
comprised of sales and marketing staff supported by management personnel and
systems and applications engineers. Direct sales activities are focused on
expanding the Company's international sales by identifying emerging markets and
establishing new distributor accounts and working with current strategic
partners. Additionally, the Company directly targets certain major accounts that
provide entry into new markets or lead to subsequent distribution agreements.
Such major accounts are telecommunications agencies and major corporations in
international markets. The Company has a customer service and support group,
which primarily supports distributors and end users and is responsible for
after-sales support and installation supervision. In certain instances, the
Company uses third party companies for installation and maintenance.
Export sales, as a percentage of revenues, were approximately 95%, 97%,
and 90% in 1996, 1995, and 1994 respectively. In 1996, sales to Samart
Corporation and Unisource Satellite Services accounted for approximately 36% and
11% of revenues, respectively. No other customer accounted for greater than 10%
of revenues in 1996. Reference is made to Note 12 of the notes to the
consolidated financial statements - Sales to Principal Customers, Geographic
Regions and Concentration of Credit Risk in Item 8 - "Financial Statements,
Financial Statement Schedule and Supplementary Data".
BACKLOG
As of December 31, 1996 and 1995, the Company's backlog was
approximately $4.1 million and $15.3 million, respectively. The Company's
backlog includes orders for Company products and services that are expected to
be delivered within the next twelve months. The Company manufactures its
products on the basis of customer orders and its forecast of near-term demand
for VSATs from its customers. The Company conducts nearly all of its business
with foreign customers in United States currency and accordingly, is generally
not subject to foreign currency fluctuations. Customary terms of business are a
substantial deposit on order with the remainder guaranteed by an irrevocable
letter of credit or when appropriate open account.
MANUFACTURING
The Company's products are assembled and tested at the Company's Irvine
facility using subsystems and circuit boards supplied by subcontractors. The
Company's microwave products are designed and fabricated utilizing microwave
components manufactured by outside suppliers. The Company maintains adequate
stock to reduce the procurement lead time for certain components. The Company's
products use a number of application specific integrated circuit (ASIC) chips,
monolithic microwave integrated circuits (MMIC) and customized components or
subassemblies produced by a limited number of suppliers. In the event that such
suppliers are unable to fulfill the Company's requirements, the Company may
experience an interruption in production until an alternative source of supply
is developed. The Company maintains an inventory of certain MMIC and ASIC chips
and components and subassemblies to limit the potential for such an
interruption. The Company believes that there are a number of companies capable
of providing replacements for the types of unique MMIC and ASIC chips and
customized components and subassemblies used in its products.
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RESEARCH AND DEVELOPMENT
The Company's research and development efforts to date have been
entirely devoted to the design and implementation of satellite and wireless
radio communications network hardware and software, along with terrestrial
digital circuit multipliction and multiplexer equipment. The Company's future
growth depends on adaptation of its existing satellite communications products
to new applications, and the introduction of new communications products that
will gain market acceptance and benefit from the Company's established
international distribution channels. Accordingly, the Company is actively
applying its communications expertise to design and develop new hardware and
software products and enhance existing products.
In 1996, 1995, and 1994, the Company incurred expenses of $6,895,000,
$3,677,000, and $2,980,000 respectively, on research and development activities.
During this period, the Company enhanced the TXR-3000 VSAT, and continued the
development of the DAMA 10000 VSAT, SMR 2000, SCPC C-Band satellite transceiver,
and started development of the Subscriber Earth Station (the Company's low cost
telephony product compatible with DAMA 10000), SpaceWeb (an internet access
product compatible with X.star), and the terrestrial multiplexing products.
COMPETITION
The Company has a number of competitors in the satellite communications
field, most of which have substantially greater financial, marketing, and
technological resources than the Company. The Company's competitors include
large companies such as Hughes Network Systems, and Scientific Atlanta, all of
whom compete to some extent in some international markets. There can be no
assurance that the Company will not experience increased competition in the
future from these or other competitors which may adversely affect the Company's
ability to continue to successfully market its products or services. The Company
believes that it has been able to compete with these companies by offering
flexible and cost effective products and utilizing the resources of local
distributors, forming strategic alliances with major corporations, and by
emphasizing product features and functions such as concurrent support of
multiple protocols, voice capability, built-in diagnostic ports and downloadable
software and configurations, which allow the products to serve the diverse needs
of international customers. These product features and functions are based upon
the Company's proprietary hardware and software. See "Patents and Intellectual
Property."
However, most of the Company's competitors offer products which have
one or more of the features and functions similar to those offered by the
Company. The Company believes that the quality, performance and capabilities of
its products, its ability to customize certain network functions and the
efficient utilization of satellite capacity coupled with the products generally
offered by the Company's major vendors have contributed to the Company's ability
to compete successfully. The Company's major competitors have the resources
available to develop products with features and functions, competitive with or
superior to those offered by the Company. There can be no assurance that such
competitors will not develop such features or functions or that the Company will
be able to maintain a lower cost advantage for these products.
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PATENTS AND INTELLECTUAL PROPERTY
The Company believes that the improvement of existing products,
reliance upon trade secrets, copyrights and unpatented proprietary know-how
and the development of new products are generally as important as patent
protection in establishing and maintaining a competitive advantage because,
among other reasons, patents often provide only narrow protection which may not
result in a competitive advantage in areas of rapid technological change.
Further patents require public disclosure of information which may otherwise be
subject to trade secret protection. The Company believes that the value of its
products is dependent upon its proprietary software and hardware remaining
"trade secrets" or subject to copyright protection. However, with its venture
into new fields such as terrestrial and low cost telephony products, the Company
believes that patent protection may be more appropriate. Accordingly, the
Company has applied for one patent and is in the process of pursuing one
additional patent protection. Generally, the company enters into confidentiality
and invention assignment agreements with its employees. However, there can be no
assurance that the Company's proprietary technology will remain a trade secret,
or that others will not develop a similar technology and use such a technology
to compete with the Company. The inability of the Company to protect its
intellectual property and proprietary technology could have a material adverse
effect on its business, operating results and financial condition. As the number
of patents, copyrights and other intellectual property rights in the Company's
industry increases, and as the coverage of these rights and the functionality of
the products of new markets further overlap, the Company believes that its
products may increasingly become the subject of infringement claims. The Company
may in the future be notified that it is infringing upon certain intellectual
property rights of others. Although the Company has not received any such
notification to date, and there are no pending or threatened intellectual
property lawsuits against the Company, there can be no assurance that such
litigation or infringement claims will not occur in the future. Any such
litigation or claims could result in substantial costs and aversion of resources
and could have a material adverse effect on the Company's business, operating
results and financial condition.
GOVERNMENT REGULATIONS
The Communications Act of 1934, as amended, gives the Federal
Communications Commission ("FCC") jurisdiction over the communications products
and services provided by the Company in the United States. Part 25 of the FCC's
rules and regulations governs the operation and use of satellite transponders
and requires authorization for construction and operation of each transmitting
earth station, including VSATs installed on customers' premises. The Company
believes it has received all authorizations from the FCC required to date in the
operation of its two-way VSAT network in the United States.
The Company's international sales are also subject to Department of
Commerce regulations for export of its products, which usually meet general
license requirements depending on country of destination.
EMPLOYEES
As of December 31, 1996 the Company employed 128 people on a full-time
basis, including 31 employees in engineering/research and development, 43
employees in manufacturing, 10 employees in marketing and sales, 20 employees in
administration and accounting, and 24 employees in customer service and support.
The Company believes that its relations with all employees are
satisfactory. The employees and the Company are not parties to any collective
bargaining agreements.
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RISK FACTORS
FORWARD LOOKING STATEMENTS. THIS ANNUAL 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 FOLLOWING FACTORS. 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.
OPERATING PERFORMANCE
The Company has incurred net operating losses from its inception in
1982 through 1996. Although the Company has been successful in growing revenues
by 85% over the last five years and has generated income from operations in
three of the last five years, the competitive environment in which the Company
operates, the complexity and delays that arise when operating in an
international environment, the long lead time and extended sales effort required
to secure the larger value orders that the Company focuses its sales efforts on
obtaining, the continued and continuing requirement to invest in the development
of new products and the enhancement of existing products, the risk of inventory
obsolescence, the exposure to disputes by international customers, the impact of
the U.S. Department of Commerce ("U.S. DOC") investigation in 1993 and the
on-going requirement to invest in people and the infrastructure of the business,
has resulted in operating losses from continuing operations of approximately
$2.8 million in the last five years. The Company is attempting to diversify into
other areas of business, to develop a more cost competitive generation of
products and to increase its order backlog in order to achieve a more stable and
profitable pattern of trading. There can be no assurance, however, that during
1997, and thereafter the Company's growth in total revenues will continue nor
that the Company will achieve profitability.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results fluctuate in part due to the
timing of product sales and shipments and product development expenditures among
other events and factors. Accordingly, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as an indication of future performance.
The Company's sales in any quarter are dependent on orders booked and shipped in
that quarter. A significant portion of the Company's operating expenses are
relatively fixed, and planned expenditures are based on sales forecasts.
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Further, sales of the Company's products are generally consummated through large
orders which require a long lead-time and an extended sales effort. Accordingly,
the Company's revenues and operating results for any given quarter are largely
dependent on its ability to close these large orders, and its failure to close
such orders or its failure to achieve its sales expectations could have a
negative adverse effect on short term operating results.
MARKET; SALES TO FOREIGN CUSTOMERS
While the market for VSAT communications networks and services has
grown steadily since its inception in the mid 1980's, there can be no assurance
that this market will continue to grow or that the technology serving this
market will not be replaced by an alternative technology. The Company's success
will also be materially dependent upon its ability to continue to successfully
market voice and data VSAT communication networks in the international market.
The Company has entered into distribution or representation agreements with
companies in Europe, Latin America and Asia. Export sales, as a percentage of
total revenues, were approximately 95%, 97%, and 90% in 1996, 1995 and 1994,
respectively. As a result, the Company is subject to various risks, including
greater difficulty of administering business globally, compliance with multiple
and potentially conflicting regulatory requirements, such as export
requirements, tariffs and other barriers, differences in intellectual property
protections, difficulties in staffing and managing foreign operations, longer
accounts receivable cycles and delays in resolving customer disputes, currency
fluctuations, repatriation of earnings, export control restrictions, overlapping
or differing tax structures, political and economic instability and general
trade restrictions. If any of these risks materializes, they could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company's foreign sales are generally invoiced in U.S.
dollars and accordingly, the Company does not currently engage in foreign
currency hedging transactions. However, as the Company continues to expand its
international operations, the Company may be paid in foreign currencies , and
exposure to losses in foreign currency transactions may increase. In addition,
if the relative value of the U.S. dollar in comparison to the Company's foreign
customers should increase, the resulting effective price increase of the
Company's products to such foreign customers could result in decreased sales
which could have a material adverse effect on the Company's business, operating
results and financial condition.
COMPETITION
The Company's products and services compete with those offered by
companies such as Hughes Network Systems and Scientific Atlanta, all of which
possess greater financial, technical and marketing resources than the Company.
Most of these major competitors, in particular Hughes Network Systems, and
Scientific Atlanta, compete to some extent in some international markets. There
can be no assurance that the Company will not experience increased competition
in the future from these or other companies which may adversely affect the
Company's ability to continue to successfully market its products and services.
CHANGES IN TECHNOLOGY
The technology underlying the Company's products and services is
subject to rapid change. The Company's success will depend in part upon its
continuing ability to respond quickly and successfully to technological advances
by developing and introducing new products. The Company maintains an ongoing
research and development program. However, there can be no assurance that the
Company will be able to foresee and respond to such changes. Other risks
inherent in operating in an industry where technology changes rapidly, is the
exposure to inventory obsolescence.
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CONCENTRATION OF CREDIT RISK
The Company generates a substantial amount of its revenues from
individually significant orders, primarily on an international basis. These
sales are on a letter of credit or a similar guaranteed basis or on an open
account basis. Generally, credit on an open account basis is only extended to
customers with substantial financial resources or to public utilities that are
government owned in the country to which the product is shipped. There can be no
assurance, however, that these customers will not encounter liquidity problems
that could result in exceptional delays in the payment of or the inability to
pay, accounts receivable balances. In the event of such an occurrence, the
Company's financial condition and results of operations could be adversely
affected.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance is significantly dependent on the
continued active participation of Emil Youssefzadeh, the Company's founder,
Chief Executive Officer and President. Should Mr. Youssefzadeh leave or
otherwise become unavailable to the Company, the Company's business and results
of operations may be materially adversely affected. The Company has obtained a
"key man" life insurance policy in the amount of $5,000,000 on the life of Mr.
Youssefzadeh.
PROPRIETARY RIGHTS
The Company relies on trade secrets and copyrights to protect its
technology and software and enters in confidentiality and invention assignment
agreements with its employees and consultants. The Company does not have patent
protection on any aspect of its technology or software. However, with its
venture into new fields such as terrestrial and low cost telephony products, the
Company believes that patent protection may be more appropriate. Accordingly,
the Company applied for one patent and is in the process of seeking one
additional patent protection. The Company believes that the improvement of
existing products, reliance upon trade secrets, copyrights and unpatented
proprietary know-how and the development of new products are generally as
important as patent protection in establishing and maintaining a competitive
advantage because, among other reasons, patents often provide only narrow
protection which may not provide a competitive advantage in areas of rapid
technological change. Further, patents require public disclosure of information
which may otherwise be subject to trade secret protection. The use of trade
secrets and copyrights will not necessarily protect the Company from the use by
other persons of its technology or software, or technology or software that is
similar to that which is embodied in the Company's trade secrets or copyrights.
There can be no assurance that others will not be able to duplicate the
Company's technology and software in whole or in part. The inability of the
Company to protect its intellectual property and proprietary technology could
have a material adverse effect on its business, operating results and financial
condition. As the number of patents, copyrights and other intellectual property
rights in the Company's industry increases, and as the coverage of these rights
and the functionality of the products of new markets further overlap, the
Company believes that its products may increasingly become the subject of
infringement claims. The Company may in the future be notified that it is
infringing upon certain intellectual property rights of others. Although the
Company has not received any such notification to date, and there are no pending
or threatened intellectual property lawsuits against the Company, there can be
no assurance that such litigation or infringement claims will not occur in the
future. Any such litigation or claims could result in substantial costs and
aversion of resources and could have a material adverse effect on the Company's
business, operating results and financial condition.
12
<PAGE> 13
DEPENDENCE ON KEY SUPPLIERS AND MANUFACTURERS
Certain components used by the Company in its existing products are
purchased from single source suppliers and manufacturers. While the Company
maintains an inventory of components and believes that alternative suppliers and
manufacturers for all such components are available at reasonable terms, an
interruption in the delivery of these components may have a material adverse
effect on the Company.
ABILITY OF THE EXISTING STOCKHOLDERS TO CONTROL THE COMPANY
As of December 31, 1996, the officers, directors, principal
stockholders and their affiliates owned approximately 48% of the outstanding
Common Stock. If such stockholders were to act in concert, they would
be able to elect a majority of the Company's directors, to determine the outcome
of most corporate actions requiring stockholder approval and otherwise to
control the business affairs of the Company.
DEPARTMENT OF COMMERCE INVESTIGATION ("DOC")
In May 1993, the Company was informed by the U.S. DOC that it was under
investigation in connection with the export of an equipment order to a customer
in Iran. Although in January 1994, the U.S. Department of Justice formally
informed the Company that it had closed its investigation into the Company's
export of equipment to Iran and no action was to be taken against the Company,
the U.S. DOC has not formally notified the Company that it will not undertake
any civil proceeding against the Company. The seized equipment has been returned
to the Company. In the event the U.S. DOC decides to undertake a civil
proceeding against the Company, the Company's results of operations and
financial condition could be adversely affected.
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 and other events or factors may have a 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 companies' operating
performance. These conditions may adversely affect the market price of the
Company's common stock.
ITEM 2 - PROPERTIES
The Company's executive offices are located in a 62,000 square foot
facility in Irvine, California, which houses all functions including
manufacturing, engineering, accounting, administration, marketing, sales, and
service. The Company purchased this facility on July 28, 1994 with cash reserves
and a purchase money promissory mortgage note (the "Mortgage Note") in the
amount of approximately $4.3 million. The Mortgage Note is secured by the
Company's land and building, accrues interest at 7% per annum, and requires
monthly principal and interest payments of approximately $28,700 which commenced
with the Company's occupancy in October 1994. The Mortgage Note is being
amortized over a thirty-year period and matures on September 1, 2009, at which
time all remaining principal and accrued interest is due.
13
<PAGE> 14
ITEM 3 - LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of business. As of
December 31, 1996, the Company was not engaged in any material legal proceedings
which the Company expects, individually or in the aggregate, will have a
material adverse effect on the Company's results of operations or its financial
condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
14
<PAGE> 15
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the National Market under the
symbol STMI. The high and low transaction prices for the common stock, as
reported by the National Association of Securities Dealers, Inc. for each of the
quarterly periods for the years ended December 31, 1996 and 1995 are set forth
in the following table:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Price Range Per Share of Common Stock Quarter Quarter Quarter Quarter
------ ------ ------ ------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
High 19 3/4 14 3/4 12 1/4 10 1/4
Low 9 5/8 10 7 1/4 6 1/2
Year Ended December 31, 1995
High 15 1/2 14 1/4 23 21
Low 10 1/4 10 3/4 12 1/4 14 5/8
</TABLE>
There were 101 shareholders of record, and approximately 1300
beneficial owners, as of March 24, 1997.
The Company does not currently pay cash dividends on its common stock
and intends to retain earnings, if any, for use in the operation and expansion
of its business.
15
<PAGE> 16
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere herein.
Effective March 31, 1996, the Company sold all the outstanding common
stock of RF Microsystems ("RF") a wholly owned subsidiary for $2,926,000. This
sale qualified as a disposal of a segment of the business and accordingly prior
period financial statements have been reclassified to reflect the discontinuance
of this segment of the business. See note 4 to the consolidated financial
statements.
The statement of operations data and income (loss) per share of common
stock with respect to the years ended December 31, 1996, 1995, and 1994 and the
balance sheet data at December 31, 1996 and 1995 are derived from audited
financial statements included elsewhere herein. The statement of operations data
and income (loss) per share of common stock for the years ended December 31,
1993 and 1992 and the balance sheet data at December 31, 1994, 1993 and 1992 are
derived from audited financial statements reclassified in connection with the
disposal of the segment of the business discussed above.
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994 1993 1992
(in thousands, except per share data) -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues $ 34,809 $ 31,744 $ 20,474 $ 11,143 $ 18,851
Gross profit 8,619 10,971 8,568 3,472 8,754
Operating (loss) income (7,003) 1,320 1,682 (3,196) 4,371
(Loss) income before cumulative effect
of change in accounting principle and
discontinued operations (4,904) 1,389 1,767 (2,395) 3,531
Net (loss) income $ (4,816) $ 1,722 1,562 $ (1,926) $ 3,610
(Loss) Income per Share of Common Stock:
(Loss) income before cumulative effect
of change in accounting principle and
discontinued operations $ (0.84) $ 0.23 $ 0.32 $ (0.49) $ 0.76
Net (loss) income $ (0.82) $ 0.28 $ 0.28 $ (0.39) $ 0.77
Weighted average shares outstanding 5,849 6,047 5,527 4,881 4,661
Balance Sheet Data:
Working capital $ 21,167 $ 24,101 $ 26,770 $ 19,365 $ 21,706
Total assets 49,804 46,212 40,216 25,797 28,029
Long term debt 4,601 4,488 4,445 -- --
Stockholders' equity $ 27,810 $ 32,530 $ 30,229 $ 21,384 $ 23,270
</TABLE>
16
<PAGE> 17
Quarterly Information (unaudited):
The following table sets forth certain unaudited quarterly financial
information for the Company's last eight fiscal quarters. This information
includes all normal recurring adjustments that the Company considers necessary
for a fair presentation. The operating results for any quarter are not
necessarily indicative of results for any future period. See Risk Factors:
Fluctuations in Quarterly Operating Results in Part 1 of this document. The 1995
quarterly data, where appropriate, has been reclassified to reflect the
discontinuance of the segment of the business as discussed in Note 4 to the
consolidated financial statements.
<TABLE>
<CAPTION>
Year ended December 31, 1996 1st 2nd 3rd 4th* Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total Revenue $ 7,466 9,836 7,882 9,625 34,809
Gross Profit 3,245 3,520 3,471 (1,617) 8,619
Operating income (loss) 185 741 (5) (7,924) (7,003)
Net income (loss) $ 404 469 52 (5,741) (4,816)
Income (loss) per share of common stock $ 0.07 0.08 0.01 (0.96) (0.82)
Year ended December 31, 1995
Total revenues $ 5,924 9,992 7,113 8,715 31,744
Gross profit 2,450 2,999 3,486 2,036 10,971
Operating income (loss) 493 785 1,076 (1,034) 1,320
Net income (loss) $ 522 837 912 (549) 1,722
Income (loss) per share of common stock $ 0.09 0.14 0.15 (0.09) 0.28
</TABLE>
* The results for the fourth quarter of 1996 include charges of $5,200,000 which
comprise reserves of $2,500,000, primarily for inventory obsolescence due to the
uncertainty about future revenues from the previous generation of the Company's
products, $1,000,000 for the settlement of contractual commitments and claims,
including $650,000 non-recurring engineering charges for a version of a product
that the Company does not expect to sell in significant quantities and
$1,700,000, primarily for customer concessions and allowances that are estimated
to be required.
17
<PAGE> 18
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
BACKGROUND
STM develops, manufactures and markets satellite and wireless communication
products including VSATs (very small aperture terminals), hubs/gateways,
multiplexors, modems and other networking equipment. The Company's hardware and
software products are designed to support data, fax, voice, and video networks
requiring cost effective connections between geographically dispersed locations.
Approximately 95% 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.
In June, 1994 the Company sold 693,188 shares of newly issued common stock at a
price of $10.00 per share to a wholly-owned subsidiary of Berjaya Group Berhad,
a Malaysian based conglomerate, representing approximately 14% of the then
outstanding shares of common stock. In addition, Berjaya Group Berhad, through
its subsidiary, purchased an additional 528,106 shares of common stock from the
open market and from certain former shareholders of the Company, COM.NET S.p.A.
and IMI Capital Markets USA Corporation. Berjaya Group Berhad's beneficial
ownership as of March 24, 1997 was approximately 20% of the current outstanding
shares of common stock.
During October, 1994 the Company relocated all domestic operations into a 62,000
square foot facility. In conjunction with the purchase of this facility, the
Company entered into a 15 year, 7 percent mortgage with monthly payments of
approximately $28,700 and a $3,200,000 balloon payment at the end of the term.
During August, 1995 the Company purchased 72.5% of the outstanding common stock
and newly issued preferred stock of Telecom Multimedia Systems, Inc. ("TMSI")
for $1,000,000 cash and 10,000 shares of the Company's common stock. Arising
from this transaction, the Company has approximately $711,000 of net intangible
assets and a balance of $385,000 due to the minority shareholders at December
31, 1996.
Effective March 31, 1996, the Company sold its RF subsidiary for $2,926,000 cash
to Remec, Inc. ("Remec") Further, the Company also entered into a Technology
Purchase Agreement on March 31, 1996 with Remec whereby the Company sold certain
of its technologies, which were not part of the RF business segment, for
$1,000,000 cash. See Note 4 to the consolidated financial statements. In
addition, the Company entered into a Development, Manufacturing and Product
Supply Agreement and a Manufacturing Supply Agreement which establishes Remec as
the sole provider for certain components that are incorporated into the
Company's products utilizing the aforementioned technologies. The Development,
Manufacturing and Product Supply Agreement also provides for joint development
of other products by the Company and Remec which will require purchases of such
products by the Company at specified levels and market prices. See notes 4 and
10 to the consolidated financial statements.
The sale of RF has been accounted as a discontinuation of a segment of the
business and prior period financial statements have been reclassified.
Accordingly, the prior year comparatives and commentaries included herein have
been revised to compare current year continuing operations to prior periods
continuing operations.
18
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth for the periods presented the percentages of
revenues represented by certain items in the Company's Statements of Operations
for the last three fiscal years. These percentages have been recalculated to
give effect to the discontinuation of the RF business segment.
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of revenues 75.2 65.4 58.2
----- ----- -----
Gross profit 24.8 34.6 41.8
Selling, general and administrative expenses 25.1 18.8 19.1
Research and development costs 19.8 11.6 14.5
----- ----- -----
Total operating costs 44.9 30.4 33.6
----- ----- -----
Operating (loss) income (20.1) 4.2 8.2
Other (expense) income (0.3)
Interest income (net) 0.6 1.0 1.6
----- ----- -----
(Loss) income from continuing operations before
income taxes and minority interest (19.8) 5.2 9.8
Income tax benefit (expense) 5.5 (1.1) (1.2)
----- ----- -----
(Loss) income from continuing operations
before minority interest (14.3) 4.1 8.6
Minority interest 0.2 0.3
----- ----- -----
(Loss) income from continuing operations (14.1) 4.4 8.6
Income (loss) from discontinued operations
and gain on sale in 1996 0.3 1.0 (1.0)
----- ----- -----
Net (loss) income (13.8)% 5.4% 7.6%
===== ===== =====
</TABLE>
RESULTS OF CONTINUING OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues for 1996 were $34,809,000 compared with $31,744,000 for 1995, a 9.7%
increase. Revenues for 1996 were negatively impacted (as further discussed
herein) by the reversal in the third quarter of 1996, of $2,132,000 of a sale to
a customer in Brazil which was recognized as revenue in 1995. Excluding this
sale from revenues for both 1996 and 1995, revenues in 1996 increased by 24.7%
over the prior year.
19
<PAGE> 20
Product revenues for 1996 were $31,905,000 compared to $28,133,000 in 1995, an
increase of 13.4%. Excluding the aforementioned Brazilian revenue (which was all
product revenue), from both 1996 and 1995, product revenues in 1996 increased by
30.9% over 1995. Product revenues in 1996 included significant sales in
Thailand, The Netherlands, India, Brazil and the Philippines. The Company
generates a substantial amount of its revenues from individually significant
orders which can give rise to a concentration of revenues to individual
customers and in geographic regions during particular fiscal periods, however,
the Company does not consider itself especially vulnerable to the loss of
revenues from any customer or in any region of the world.
This increase in product revenues is consistent with the Company's strategy of
developing strategic market relationships with partners who have substantial
influence in the Company's targeted markets and the continued development of
communications products suited to the emerging high growth economies.
In connection with the reversal of the $2,132,000 sale to a customer in Brazil,
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 viable for the customer. The Company believes its decision
to rescind this sale rather than pursuing legal remedies was in the long-term
interests of the Company to maintain its good standing in the Brazilian market
and allow it to capitalize on anticipated market opportunities.
Service revenues for 1996 were $2,904,000 compared to $3,611,000 in 1995, a
decrease of 19.6%. This decrease was primarily the result of the absence of a
management services contract in 1996 revenues, for the provision of services to
a Malaysian customer in connection with the design, procurement and supervision
of a personal communication service network that was included in 1995 revenues.
The contract was completed in 1995 and did not represent continuing core
business. The Company's strategy continues to be, to take advantage of service
opportunities in conjunction with the continued deregulation of major markets
for telecommunications.
The gross profit for 1996 was $8,619,000 compared to $10,971,000 for 1995,
representing a gross profit as percentage of revenues of 24.8% and 34.6% for
1996 and 1995, respectively. The decrease in the gross profit to 24.8% in 1996
was primarily the result of the recognition of inventory obsolescence and other
reserves and the reversal of the gross profit on the above mentioned sale in
Brazil, which was at a relatively higher gross profit percentage than other 1996
sales. The inventory obsolescence reserve reflects the Company's decision to
focus on the high volume public telephony business represented by the DAMA
product and its next generation of technologies.
Selling, general and administrative expenses were $8,727,000 in 1996 compared to
$5,974,000 in 1995, representing 25.1% and 18.8% of revenues for 1996 and 1995,
respectively. The increase of $2,753,000 in 1996 comprises increased selling
costs of approximately $1,700,000 attributable to reserves established in the
fourth quarter of 1996 to reflect potential customer concessions and allowances
associated with certain large value sales that occurred in 1996 and 1995. The
Company believes that it has fulfilled all its obligations under these
contracts, however, certain concessions may be required in the interest of
establishing and maintaining long term relationships with these strategic
customers. The remaining increase was attributable to general increases in
expenditures to support the growth in core product revenues.
Research and development costs for 1996 were $6,895,000 compared to $3,677,000
in 1995,
20
<PAGE> 21
representing 19.8% and 11.6% of revenues for 1996 and 1995, respectively.
Approximately $1.0 million of the increase was attributable to a joint
development effort with a key vendor. This development effort was undertaken in
anticipation of a significant sales opportunity which now appears unlikely.
Accordingly, the Company has recognized its full obligation for this development
effort in the fourth quarter of 1996. The remaining increase relates to planned
investment in personnel and outside services, both in the Company and its TMSI
subsidiary, to support strategic new product development which the Company
believes should lead to penetration of new product markets.
Interest income for 1996 was $982,000 compared to $702,000 for 1995. The
increase reflects higher investment income generated from the Company's excess
cash. Interest expense for 1996 was $764,000 compared with $379,000 for 1995.
The increase reflects a higher level of short term borrowings as a result of
draw downs under the Company's increased credit facility.
In 1996, the Company had an income tax benefit of $1,907,000 compared to an
income tax provision of $347,000 in 1995. The 1996 benefit reflects losses
incurred in 1996 as compared with income for 1995. The benefit in 1996 primarily
relates to the effects of current year net operating losses on deferred income
taxes. Deferred tax assets at December 31, 1996 were $5,202,000, of which the
Company has established a valuation allowance of $2,376,000, for a net deferred
tax asset balance of $2,826,000. Management believes the existing net deductible
temporary differences will reverse during periods in which the Company generates
net taxable income; however; there can be no assurance that the Company will
generate any specific level of earnings in future years.
The minority interest of $67,000 and $82,000 for 1996 and 1995 respectively,
represents the share of losses of TMSI attributable to the minority
shareholders.
The income from discontinued operations and gain on sale in 1996, net of income
taxes relates to RF and represents in 1996, the net income from operations for
the period January 1, 1996 to March 31, 1996 and the gain on the sale, while in
1995 it represents the results of operations for the year 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues increased to $31,744,000 in 1995 from $20,474,000 in 1994, a 55.0%
increase, primarily as a result of the addition of new customers in India,
Brazil, and Argentina, as well as increased sales activity in Malaysia and
Europe. The Company's strategic alliances with Telefonica de Espana and Berjaya
Group Berhad, along with new customers in India had favorable impacts to the
Company's growth in revenues. Sales in Mexico decreased from 18% of total
revenue in 1994 to 5.8% in 1995 due to the economic conditions existing in that
country.
Product revenues increased to $28,133,000 in 1995 from $17,013,000 in 1994, or a
65.4% increase. Included in 1995 revenues were $5,873,000 in sales to a single
Malaysian customer having as a director and major shareholder the Chairman of
the Board of Directors and a major shareholder of Berjaya Group Berhad. Berjaya
Group Berhad beneficially owned 1,221,294 shares (20.9%) of STM's common stock
as of December 31, 1996. Revenues from sales to this Malaysian based customer
included product hardware and software of $4,698,000 and engineering and project
management of $1,175,000. The engineering and project management fees were
associated with the design, procurement, and supervision of a large personal
communications services (PCS) network in Malaysia.
Service revenues increased to $3,611,000 in 1995 from $3,461,000 in 1994, or a
4.3% increase. The
21
<PAGE> 22
main components of service revenue in 1995 were associated with sales to the
Malaysian customer discussed previously herein.
Total gross profit decreased to 34.6% of revenues in 1995 from 41.8% in 1994 as
a result of a decrease in both product gross profit margin and service gross
profit margin. Product gross profit decreased to 31.8% in 1995 from 35.3% in
1994 primarily due to one order to the Malaysian customer discussed previously
herein for which STM acted as an integrator of non-STM equipment which carried a
lower gross profit than Company designed and manufactured products. Service
gross profit decreased to 56.3% in 1995 from 74.2% in 1994 primarily due to
increased expenses in the infrastructure required to service the Company's
products.
Selling, general and administrative expenses for 1995 increased to $5,974,000 as
compared to $3,906,000 in 1994. Measured as a percent of revenues, these
expenses decreased to 18.8% in 1995 as compared to 19.1% in 1994. The dollar
increase in 1995 was primarily a result of increased investment in
infrastructure and costs associated with the growth in revenues.
Research and development expenses increased to $3,677,000 in 1995 as compared to
$2,980,000 in 1994. Measured as a percent of revenues, these expenses decreased
to 11.6% in 1995 as compared to 14.5% in 1994. The dollar increase in 1995 was
due to planned expenditures for personnel and outside services in support of the
Company's continuing new product development efforts combined with costs
associated with enhancements to the existing products.
Income tax for 1995 was $347,000 as compared to $242,000 in 1994 due primarily
to the utilization of tax credit carryforwards in 1994. The net deferred tax
assets at December 31, 1995 were $1,576,000.
The minority interest of $82,000 in 1995 represented the share of the losses of
TMSI attributable to the minority shareholders.
The income (loss) from discontinued operations, net of income taxes relates to
the net income (loss) of RF for 1995 and 1994.
RESULTS OF DISCONTINUED OPERATIONS
For 1996, 1995 and 1994 revenues for RF were $1,216,000, $5,339,000 and
$5,812,000, respectively, net income (loss) was $37,000, $333,000 and
$(205,000), respectively, and the gain on sale in 1996 was $51,000.
LIQUIDITY AND CAPITAL RESOURCES
In 1996 the Company had negative cash flows from continuing operations of
$2,704,000 as compared to positive cash flows of $1,163,000 in 1995. This
deterioration in cash flows was primarily a result of net losses for the year,
increases in inventories and accounts receivable due to the Company's growth in
revenues, partially offset by increases in accounts payable, reserves
established for accounts receivable and inventories and the reversal of the sale
to a customer in Brazil. The Company continues to rely heavily on letters of
credit and up front deposits from its customers.
At December 31, 1996 the Company had bank lines of credit of up to $11,600,000.
These lines have been maintained by two separate banks and are comprised of a
$10,000,000 secured line, and two lines secured by the Company's certificates of
deposits at those banks for $1,600,000 which were fully
22
<PAGE> 23
drawn-down at December 31, 1996. See Note 8 of the notes to consolidated
financial statements. The availability of the $10,000,000 facility is calculated
based on certain inventory and account receivable balances. At December 31, 1996
the available balance was approximately $4,800,000 which was fully drawn-down.
During 1996 the Company received proceeds from issuance of common stock related
to the exercise of stock options totaling approximately $96,000.
Working capital decreased $2,934,000 to $21,167,000 as a result of the items
discussed previously herein.
In September, 1994 the Company's Board of Directors authorized a stock
repurchase program whereby the Company may repurchase, in the open market, up to
10% of its shares outstanding, at times and prices to be determined by the
Board. The repurchased shares would be used for potential future acquisitions
and for exercises under the Company's stock option plans. The Company has not
repurchased any shares to date nor does it have any present commitments to
repurchase shares at this time.
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 continued expansion of its international marketing
and sales efforts, and the purchase of additional capital equipment for
manufacturing and research and development.
NEW ACCOUNTING STANDARDS
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.
23
<PAGE> 24
ITEM 8 - FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND SUPPLEMENTARY
DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE:
Consolidated Financial Statements:
Report of Independent Auditors .............................................. 25
Consolidated Balance Sheets as of December 31, 1996 and 1995 ................ 26
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995, and 1994 ............................. 27
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995, and 1994 ....................... 28
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995, and 1994 ............................. 29
Notes to Consolidated Financial Statements .................................. 31
Financial Statement Schedule:
(For the three years ended December 31, 1996)
Schedule II - Valuation and Qualifying Accounts and Reserves ................ 49
All other financial statement schedules are omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
24
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
STM Wireless, Inc.:
We have audited the accompanying consolidated financial statements of STM
Wireless, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of STM Wireless, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
Orange County, California
March 21, 1997
25
<PAGE> 26
STM WIRELESS, INC.
Consolidated Balance Sheets
December 31, 1996 and 1995
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents including restricted
cash of $1,600 in 1996 and $1,100 in 1995 $ 9,148 4,145
Short-term investments 4,509 4,950
Accounts receivable, less allowances
of $2,006 in 1996 and $75 in 1995 11,957 11,612
Inventories 9,199 6,255
Current portion of long-term receivables 536 544
Deferred income taxes 2,826 1,576
Net assets of discontinued operations -- 3,761
-------- --------
Total current assets 38,175 32,843
Property, plant and equipment, net 8,450 8,598
Long-term receivables 1,991 3,515
Other assets 1,188 1,256
-------- --------
$ 49,804 46,212
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Short term borrowings $ 6,400 1,600
Current portion of long-term debt 233 216
Accounts payable 8,133 3,923
Accrued liabilities 1,785 1,901
Income taxes payable 457 1,102
-------- --------
Total current liabilities 17,008 8,742
Long-term debt 4,601 4,488
Minority Interest in consolidated subsidiary 385 452
Stockholders' 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; 5,849,160 and 5,816,219 shares
issued and outstanding at December 31, 1996
and 1995, respectively 32,164 32,068
Retained earnings (accumulated deficit) (4,354) 462
-------- --------
Total stockholders' equity 27,810 32,530
Commitments and contingencies
-------- --------
$ 49,804 46,212
</TABLE> ======== ========
See accompanying notes to consolidated financial statements.
26
<PAGE> 27
STM WIRELESS, INC.
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Products $ 31,905 28,133 17,013
Services 2,904 3,611 3,461
-------- -------- --------
Total revenues 34,809 31,744 20,474
Cost of revenues:
Products 24,797 19,194 11,012
Services 1,393 1,579 894
-------- -------- --------
Total cost of revenues 26,190 20,773 11,906
Gross profit 8,619 10,971 8,568
Selling, general and administrative expenses 8,727 5,974 3,906
Research and development costs 6,895 3,677 2,980
-------- -------- --------
Total operating costs 15,622 9,651 6,886
-------- -------- --------
Operating (loss) income (7,003) 1,320 1,682
Interest income 982 702 417
Interest expense (764) (379) (90)
Other (expense) income (93) 11 --
-------- -------- --------
(Loss) income from continuing operations
before income taxes and minority interest (6,878) 1,654 2,009
Income tax benefit (expense) 1,907 (347) (242)
-------- -------- --------
(Loss) income from continuing operations
before minority interest (4,971) 1,307 1,767
Minority interest in net loss of consolidated
subsidiary 67 82 --
-------- -------- --------
(Loss) income from continuing operations (4,904) 1,389 1,767
Income (loss) from discontinued operations
and gain on sale in 1996, net of income taxes 88 333 (205)
-------- -------- --------
Net (loss) income $ (4,816) 1,722 1,562
======== ======== ========
(Loss) income per share of common stock:
Continuing operations $ (0.84) 0.23 0.32
Discontinued operations 0.02 0.05 (0.04)
-------- -------- --------
Net (loss) income $ (0.82) 0.28 0.28
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
STM WIRELESS, INC.
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1994, 1995 and 1996
(dollars in thousands except share data)
<TABLE>
<CAPTION>
Retained
Common Stock Earnings Total
Number of (Accumulated Stockholders'
Shares Amount Deficit) Equity
------ ------ -------- ------
<S> <C> <C> <C> <C>
Balance at
December 31, 1993 4,925,557 $ 24,206 (2,822) 21,384
Sale of common stock, net 693,188 6,871 -- 6,871
Exercise of stock options 79,205 181 -- 181
Amortization of deferred
compensation related to
stock options -- 15 -- 15
Income tax benefit on
stock options -- 215 -- 215
Net income -- -- 1,562 1,562
--------- --------- --------- ---------
Balance at
December 31, 1994 5,697,950 31,488 (1,260) 30,228
Exercise of stock options
and warrants 108,269 277 -- 277
Issuance of common stock for
acquisition of TMSI 10,000 188 -- 188
Income tax benefit on
stock options -- 115 -- 115
Net income -- -- 1,722 1,722
--------- --------- --------- ---------
Balance at
December 31, 1995 5,816,219 $ 32,068 462 32,530
Exercise of stock options 32,941 96 -- 96
Net loss -- -- (4,816) (4,816)
--------- --------- --------- ---------
Balance at
December 31, 1996 5,849,160 32,164 (4,354) 27,810
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
STM WIRELESS, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,816) 1,722 1,562
Adjustments to reconcile net income (loss) to
net cash provided by (used in) continuing
operations:
Discontinued Operations (37) (333) 205
Gain on sale of discontinued operations (51) -- --
Provision for allowances on accounts
receivable 1,931 -- --
Provision for inventory obsolescence 2,722 168 --
Reversal of sale 2,132 -- --
Depreciation and amortization 1,157 1,140 781
Amortization of deferred compensation
related to stock options -- -- 15
Changes in assets and liabilities:
Increase in accounts receivable (2,276) (2,534) (5,031)
(Increase) decrease in inventories (5,666) (1,222) 3,301
Decrease in income
tax receivable -- -- 800
Increase in deferred income taxes (1,250) (1,073) (4)
(Increase) decrease in other assets 68 (821) 77
Increase in accounts payable 4,210 2,136 806
Increase (decrease) in accrued liabilities (116) 525 (114)
Increase (decrease) in minority interest (67) 452 --
Increase (decrease) in income tax payable (645) 1,003 138
-------- -------- --------
Net cash provided by (used in)
continuing operations (2,704) 1,163 2,536
Net cash provided by (used in)
discontinued operations 923 (1,361) (1,964)
-------- -------- --------
Net cash provided by (used in)
operating activities (1,781) (198) 572
-------- -------- --------
Cash flows from investing activities:
Purchases of short-term investments (5,759) (14,338) (11,246)
Sales and maturities of short-term investments 6,200 17,863 2,770
Purchases of property, plant, & equipment (1,009) (2,190) (6,723)
Proceeds from sale of discontinued operations 2,926 -- --
-------- -------- --------
Net cash provided by (used in)
investing activities $ 2,358 1,335 (15,199)
-------- -------- --------
(continued)
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
STM WIRELESS, INC.
Consolidated Statements of Cash Flows (continued)
Years ended December 31, 1996, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Increase in long-term receivables $ (883) (4,083) --
Payments received from long-term receivables 283 25 --
Proceeds from issuance of common stock, net 96 277 7,052
Proceeds from issuance of debt 8,386 2,749 4,552
Repayments of debt (3,456) (985) (224)
-------- ------ -------
Net cash provided by (used in)
financing activities 4,426 (2,017) 11,380
-------- ------ -------
Net increase (decrease) in cash and cash equivalents 5,003 (880) (3,247)
Cash and cash equivalents at beginning of year 4,145 5,025 8,272
-------- ------ -------
Cash and cash equivalents at end of year $ 9,148 4,145 5,025
======== ====== =======
Supplemental disclosure of cash flow information:
Interest paid $ 722 379 136
======== ====== =======
Income taxes paid $ 79 118 112
======== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
STM WIRELESS, INC.
Notes to Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994
(1) Description of the Company
STM Wireless, Inc. (the "Company" or "STM"), founded in 1982, is a
manufacturer of satellite and communications products including VSATs
(very small aperture terminals), hubs/gateways, multiplexors, 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.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. The minority interest
relates to Telecom Multimedia Systems, Inc., ("TMSI"), the Company's
voice compression equipment subsidiary (see note 3). All significant
intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the dates of the
balance sheets and revenues and expenses for the periods. Actual
results could differ significantly from those estimates.
Revenue Recognition
Sales of the Company's communications products and related installed
software are generally recognized upon shipment. Sales of the Company's
products to distributors are normally not subject to right of return.
Revenues from contract services are earned under cost reimbursement and
fixed price type contracts. Revenues from contracts are recognized
under the percentage-of-completion method, whereby contract costs are
expensed as incurred and revenues are recorded based on the ratio of
costs incurred to total estimated costs at completion. The costs and
estimated earnings in excess of billings on contracts under the
percentage of completion method were approximately $69,000 at December
31, 1995, and are included in accounts receivable in the accompanying
1995 consolidated balance sheet. If the estimate of total contract
costs results in a loss, a provision is made currently for the total
anticipated loss.
The Company generally warrants its products to be free from defects for
a period of one year
31
<PAGE> 32
from shipment. Estimated warranty expense is recognized upon shipment
of equipment.
Cash Equivalents
Cash equivalents are highly liquid investments which are readily
convertible into known amounts of cash and have original maturities of
three months or less, consisting primarily of cash, certificates of
deposit and other money market instruments.
Short-term Investments
The Company's short-term investments consisting of certificates of
deposits, various U.S. government securities, and others have been
classified as "available for sale" and have original maturities between
90 and 360 days. As of December 31, 1996 and 1995 the fair market value
of these securities approximates cost.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market and consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(dollars in thousands)
<S> <C> <C>
Raw materials $5,512 1,797
Work in process 1,662 866
Finished goods 2,025 3,592
------ -----
$9,199 6,255
====== =====
</TABLE>
Certain components used by the Company in its existing products are
purchased from single source suppliers and manufacturers. While the
Company maintains an inventory of components and believes that
alternative suppliers and manufacturers for all such components are
available at reasonable terms, an interruption in the delivery of these
components may have a material adverse effect on the Company.
In December 1996, the Company increased its inventory reserves by
approximately $2,500,000 to recognize the increased risk of
obsolescence associated with previous generations of the Company's
products and to reflect the Company's present focus on the high volume
public telephony business.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of their
estimated useful lives or the terms of the leases.
32
<PAGE> 33
Long-Term Receivables
Long-term receivables are recorded at cost, less the related allowance
for impaired notes receivable. The Company adopted the provisions of
Statement of Financial Accounting ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure," on January 1, 1995. Management,
considering current information and events regarding the borrowers'
ability to repay their obligations, considers a note to be impaired
when it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the note agreement.
When a loan is considered to be impaired, the amount of the impairment
is measured based on the present value of expected future cash flows
discounted at the note's effective interest rate. Impairment losses are
included in the allowance for doubtful accounts through a charge to bad
debt expense. Cash receipts on impaired notes receivable are applied to
reduce the principal amount of such notes until the principal has been
recovered and are recognized as interest income, thereafter. As of
December 31, 1996 and 1995, the Company has not established an
allowance for impaired notes receivable.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires entities to disclose the fair value of financial instruments,
both assets and liabilities recognized and not recognized on the
balance sheet, for which it is practicable to estimate fair value. SFAS
No. 107 defines fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction
between willing parties.
As of December 31, 1996 and 1995, the carrying value of cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities
and income taxes payable approximate fair value due to the short term
nature of such instruments. The carrying value of short-term
investments approximate fair value based on quoted market prices for
those or similar investments. The fair value of all debt and long-term
receivables approximate fair value as the related interest rates
approximate rates currently available to/from the Company.
Research and Development
All research and development costs, consisting primarily of salaries
and applicable overhead expenses of employees directly involved in the
design and implementation of the satellite network hardware and
software, are charged to expense as incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the
33
<PAGE> 34
enactment date.
Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option
plans in accordance with the provisions of the Accounting Principles
Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees,"
and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS No. 123, "Accounting for Stock-based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income (loss) and pro forma net income (loss) per share disclosures for
employee stock option grants made in 1995 and future years, as if the
fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
Impairment of Long-lived assets and
Long-lived assets to be disposed of
The Company adopted the provisions of SFAS No. 121 "Accounting for
Impairment of Long-Lived assets and Long-Lived Assets to be disposed
of," on January 1, 1996. This statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of
the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
cost to sell. Adoption of this statement did not have a material impact
on the Company's financial position, results of operations or
liquidity.
Income (Loss) per Share of Common Stock
Income (loss) per share is computed using the weighted average number
of shares of common and common stock equivalents outstanding during
each year. Common stock equivalents consist of outstanding stock
options and warrants calculated using the treasury stock method. Common
stock equivalents are not used in the 1996 computation as they would be
anti-dilutive. For all years presented, primary income per share
approximates fully diluted income per share.
The weighted average number of shares of common stock and common stock
equivalents used in determining income (loss) per share was 5,849,160,
6,046,737 and 5,527,477 in 1996, 1995 and 1994, respectively (see note
14).
Reclassifications
Certain reclassifications have been made to the 1995 and 1994
consolidated financial statements to conform to the 1996 presentation.
34
<PAGE> 35
(3) Acquisitions
On August 26, 1995, the Company purchased 72.5% of the outstanding
common stock and newly issued preferred stock of Telecom Multimedia
Systems, Inc. ("TMSI") for $1,000,000 cash and 10,000 shares of the
Company's common stock valued at $18.75 per share. TMSI designs and
markets terrestrial based voice compression equipment for the
telecommunications industry. The acquisition of TMSI was accounted for
as a purchase. Accordingly, the purchase price was allocated to the net
assets acquired based upon their estimated fair market values. The
accompanying consolidated statements of income reflect the operations of
TMSI since the effective date of the acquisition and were insignificant
in 1995.
(4) Discontinued Operations
Effective March 31, 1996, the Company sold its RF Microsystems ("RF")
subsidiary to Remec, Inc.("Remec") for cash of $2,926,000. RF designed
and manufactured microwave systems and components and provided technical
support under government contracts. Such disposition has been accounted
for as a disposal of a segment of a business and prior period financial
statements have been reclassified to reflect discontinuance of this
business segment.
During the three-months ended March 31, 1996 and the years ended
December 1995 and 1994, RF had revenues of $1,216,000, $5,339,000 and
$5,812,000, respectively, and net income (loss) of $37,000, $333,000 and
$(205,000), respectively. Additionally, the Company recorded a gain on
the sale of RF of $51,000 which is included in income (loss) from
discontinued operations and gain on sale in 1996, net of income taxes in
the accompanying consolidated statement of operations for 1996.
Net assets of discontinued operations at December 31, 1995 consisted
primarily of accounts receivable of $1,670,000, inventories of
$2,781,000, fixed assets of $387,000, short term borrowings of $600,000,
account payable of $512,000 and accrued expenses of $279,000.
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 business segment, to Remec for $1,000,000 cash.
In addition, the Company entered into a Development, Manufacturing and
Product Supply Agreement and a Manufacturing Supply Agreement which
established Remec as the sole provider for certain components that are
incorporated into the Company's products utilizing the aforementioned
technologies. The Development, Manufacturing and Product Supply
Agreement also provides for the joint development of other products by
the Company and Remec, which will require purchase of such product by
the Company from Remec at specified market prices (see note 10).
35
<PAGE> 36
(5) Property, Plant and Equipment
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(dollars in thousands)
<S> <C> <C>
Land $ 2,530 2,530
Building and building improvements 3,636 3,395
Satellite equipment 580 593
Equipment 5,409 4,631
Furniture and fixtures and
Leasehold improvements 189 186
------- ------
12,344 11,335
Less accumulated depreciation
and amortization 3,894 2,737
------- ------
$ 8,450 8,598
======= ======
</TABLE>
(6) Long-Term Receivables
Lease Receivable
The Company leases certain satellite equipment to a customer in Brazil
under a sales-type lease arrangement. Total minimum lease payments
receivable on this sales-type lease are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(dollars in thousands)
<S> <C>
1997 $ 759
1998 759
1999 759
2000 759
2001 24
------
3,060
Less: Unearned Interest 533
------
2,527
Less: Current Portion 536
------
$1,991
======
</TABLE>
Note Receivable
In September 1995, the Company sold certain satellite network equipment
to a customer in Brazil for $250,000 cash and a note receivable for
$1,932,000. The note bore interest at 10% per annum and required the
borrower to pay 60 consecutive monthly principal and interest payments
of $41,060 which commenced in October 1995. The loan was secured by a
surety
36
<PAGE> 37
bond established by the borrower in the amount of $2,460,000 that was
to mature in September 2000. As of December 31, 1995, the note
receivable balance was $1,882,000 of which $319,000 was classified as
current in the accompanying consolidated balance sheet at December 31,
1995.
During the third quarter of 1996, this sale was reversed, solely as a
result of the Company's decision not to hold the customer liable under
the terms of the sales agreement. Accordingly, the note was cancelled
and the original deposit was refunded to the customer. The reversal
resulted from changed economic and regulatory conditions in Brazil
which made the network supplied to the customer no longer economically
viable. The Company believes its decision to rescind this sale rather
than pursuing legal remedies was in the long-term interests of the
Company to maintain its good standing in the Brazilian market and allow
it to capitalize on anticipated market opportunities.
37
<PAGE> 38
(7) Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(dollars in thousands)
<S> <C> <C>
Accrued salaries, bonuses and
payroll related expenses $ 782 830
Accrued warranty 80 80
Due to sub-contractor -- 703
Accrued legal & audit fees 309 79
Accrued agents commissions 234 99
Other 380 110
------ ------
$1,785 $1,901
====== ======
</TABLE>
(8) Short Term Borrowings and Long Term Debt
Short Term Borrowings
During 1995, the Company had two revolving credit facilities with one
bank totaling $1,200,000. During 1996, these facilities were increased
to $1,600,000. The facilities are secured by the Company's certificates
of deposit in the same amount with the bank. Borrowings are due on
demand and accrue interest at .75% over the certificates of deposit
rate. At December 31, 1996 and 1995, the outstanding balances under
these credit facilities were $1,600,000 and $1,100,000, respectively.
During 1995, the Company obtained a $3,000,000 unsecured revolving line
of credit with a bank which matured on June 30, 1996. Borrowings under
this line of credit bore interest at the prime rate plus .75% or LIBOR
plus 3%. The prime rate at December 31, 1995 was 8.5%. The outstanding
balance at December 31, 1995 under this facility was $500,000. During
1996, the Company paid down all balances and terminated this facility.
At December 31, 1995, the Company's RF subsidiary had drawn down
$600,000 on a line of credit for the same amount. This balance has been
reclassified as part of "Net assets of discontinued operations" in the
accompanying consolidated balance sheet at December 31, 1995.
In 1996, the Company entered into an agreement with Wells Fargo HSBC
Trade Bank N.A. (Trade Bank) for a secured $10,000,000 revolving line
of credit. Borrowings under this facility bear interest at Prime plus
0.25%. The prime rate at December 31, 1996 was 8.25%. The availability
under this line of credit is based on inventory required to fulfill
specific foreign orders and certain foreign accounts receivable
balances. In addition, this facility can be used to issue standby
letters of credit for bid and performance guarantees subject to a 25%
collateral requirement and availability under the line of credit. The
agreement contains various restrictions and covenants including
maintaining a minimum net worth, a minimum current ratio, and the
requirement to be profitable on an annual and quarterly basis. The
Company was
38
<PAGE> 39
in compliance with or had secured waivers from Trade Bank to permit the
Company to be in compliance with such restrictions and covenants at
December 31, 1996. At December 31, 1996, the available balance under
this facility was approximately $4,800,000 which was fully drawn down.
Long term debt
In connection with the purchase of the Company's headquarters on July
28, 1994, the Company entered into a purchase money promissory mortgage
note ("Mortgage Note") in the amount of $4,320,000. The Mortgage Note
is secured by the Company's land and building, accrues interest at 7%
per annum, and requires monthly principal and interest payments of
$28,741 which commenced on October 1, 1994. The Mortgage Note is being
amortized over a 30-year period and matures on September 1, 2009, at
which time all remaining principal and accrued interest is due.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(dollars in thousands)
<S> <C> <C>
Mortgage payable on building $ 4,213 4,261
Capitalized lease obligations 621 443
------- ------
Total 4,834 4,704
Less current portion (233) (216)
------- ------
Long-term debt $ 4,601 4,488
======= ======
</TABLE>
The increase in the obligations for capital leases in 1996 relates to
new leases entered into in 1996 for the purchase of computer equipment.
The capitalized leases are at rates which vary from 8.5% to 10.7% per
annum.
Future maturities on long-term debt are as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
(dollars in thousands)
<S> <C>
1997 $ 233
1998 237
1999 191
2000 151
2001 108
Thereafter 3,914
------
$4,834
======
</TABLE>
39
<PAGE> 40
(9) Stockholders' Equity
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock.
The Board of Directors has the authority to issue the preferred stock
in one or more series, and to fix the rights, preferences, privileges
and restrictions thereof without any further vote by the holders of
common stock.
Common Stock
In June 1994, the Company sold 693,188 shares of newly issued Company
common stock to a wholly-owned subsidiary of Berjaya Group Berhad
("Berjaya") for aggregate net proceeds of $6,871,000. Further, during
1994 Berjaya purchased 528,106 shares of common stock from the public
market inclusive of shares held by the Company's distributor in Italy
whose former Chief Executive Officer was a member of the Company's
Board of Directors from November 1991 to April 1993.
Stock Options
In 1984, the Company adopted an Incentive Stock Option Plan ("ISO")
(the "1984 Plan") to reward the performance and contributions of
eligible employees. Options were granted at the discretion of the Board
of Directors to selected employees to purchase shares of the Company's
common stock at fair market value at the date of grant. Options
generally became exercisable in annual installments beginning one year
after the date of grant. All options expired ten years after the date
of grant. No more than 498,000 shares were to be issued under the 1984
Plan. Also, the Company from time to time granted non qualified stock
options to directors, consultants and officers. These options were
granted and vested based upon terms decided upon by the Board of
Directors. At December 31, 1996, all options to purchase shares had
been exercised. The 1984 Plan was terminated by the Board of Directors
in February 1992.
In January 1992, the Company adopted the Incentive Stock Option, Non
qualified Stock Option and Restricted Stock Purchase Plan - 1992 (the
"1992 Plan"). The 1992 Plan was amended by the Board of Directors in
both 1995 and 1994 to increase the number of stock options available
for grant by 500,000. The 1992 Plan now provides for the grant by the
Company of options and/or rights to purchase up to an aggregate of
850,000 shares of common stock.
In October 1994, the Company's Board of Directors adopted the Satellite
Technology Management, Inc. 1994 Option Plan for Non-Employee Directors
(the "1994 Plan"). The 1994 Plan was approved by the Company's
stockholders in July 1995. The 1994 Plan provides for the grant by the
Company of options to purchase up to 250,000 shares of common stock to
non-employee members of the Company's Board of directors who are
neither employees nor paid consultants of the Company.
As explained in Note 2, the Company applies APB Opinion No.25 in
accounting for its stock option plans. Accordingly, no compensation
cost has been recognized for the Company's plans in the consolidated
financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under
SFAS No. 123, the Company's net income in 1995 would have been reduced
by approximately $395,000 and the Company's net loss for 1996 would
have been increased by approximately $750,000. The resulting pro forma
net income (loss) for 1996 and 1995 would have been $(5,566,000) and
40
<PAGE> 41
$1,327,000, respectively, and the pro forma net income (loss) per share
for 1996 and 1995 would have been $(0.95) and $0.22, respectively.
Pro forma net income (loss) and pro forma income (loss) per share
reflects only options granted in 1996 and 1995. Therefore, the full
impact of calculating compensation cost for stock options under SFAS
123 is not reflected in the net income (loss) presented above because
compensation cost is reflected over the options' vesting period of five
years and compensation cost for options granted prior to January 1,
1995 is not considered.
The compensation cost of $750,000 and $395,000 for 1996 and 1995
respectively, was determined using the Black Scholes option pricing
model with the following weighted average assumptions for grants in
1996 and 1995 - risk free interest rate of 6.21% and 6.31%,
respectively, an expected life of five years and an expected volatility
rate of 55.8%.
A summary of stock option transactions under all plans follows:
<TABLE>
<CAPTION>
Number Weighted-Average
of Exercise Price
Shares Per share
------ ---------
<S> <C> <C>
Options outstanding at
December 31, 1993: 397,388 $ 3.44
Granted 204,000 7.62
Exercised (79,205) 2.47
Canceled (39,300) 4.50
-------
Options outstanding at
December 31, 1994: 482,883 5.28
Granted 305,175 13.47
Exercised (100,769) 2.00
Canceled (55,583) 9.99
-------
Options outstanding at
December 31, 1995: 631,706 9.34
Granted 272,000 11.69
Exercised (32,941) 2.93
Canceled (151,350) 13.25
-------
Options outstanding at
December 31, 1996: 719,415 $ 9.71
=======
</TABLE>
41
<PAGE> 42
The following table summarizes information regarding the stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Number Remaining Average Number Weighted
Range of Outstanding at Contractual Exercise Exercisable Average Exercise
Exercise Prices 12/31/96 Life Price at 12/31/96 Price
- --------------- -------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 3.88-7.13 179,840 6.71 5.27 130,215 $ 5.35
7.25-9.75 208,500 8.42 8.18 59,750 7.36
9.88-13.25 217,750 8.70 11.62 58,250 10.54
14.50-19.00 113,325 8.85 15.88 29,699 15.73
------- -------
$ 3.88-19.00 719,415 8.15 9.71 277,914 $ 7.98
======= =======
</TABLE>
Common stock received through the exercise of non-qualified stock
options or incentive stock options which are sold by the optionee
within two years of grant or one year of exercise result in a tax
deduction for the Company equivalent to the taxable gain recognized by
the optionee. For financial reporting purposes, the tax effect of this
deduction is accounted for as a credit to common stock rather than as a
reduction of income tax expense. Such optionee sales resulted in a tax
benefit to the Company of approximately $115,000 and $215,000 during
1995 and 1994 respectively.
At December 31,1996, the range of exercise prices and weighted -
average remaining contractual life of outstanding options under the
Company's stock option plans were $3.88 to $19.00 and 8.15 years,
respectively.
Stock Purchase Warrants
In connection with the Company's initial public offering of common
stock (the "IPO") in 1992, the Underwriter acquired warrants from the
Company to purchase up to 162,500 shares of Common Stock at an exercise
price of $15.00 per share. The warrants are exercisable for a period of
four years beginning one year after the date of the IPO.
In May 1993, in connection with a settlement agreement, a warrant to
purchase 7,500 shares of Common Stock at an exercise price of $10.00
per share was granted. The warrant was fully exercised during 1995.
(10) Commitments and Contingencies
Lease Obligations
The Company leased some of its facilities under operating leases which
expired in 1996 and accordingly there are no minimum lease commitments
outstanding at December 31,1996. Rent expenses under lease commitments
were approximately $197,000, $362,000 and $668,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
42
<PAGE> 43
Purchase Commitments
In connection with the sale of RF (see note 4), the Company entered
into purchase commitments with Remec to purchase certain components
that are incorporated into certain of the Company's products.
Under the Manufacturing and Product Supply Agreement dated April 30,
1996 the Company entered into a two year agreement to purchase a
minimum of $9,375,000 of product, of which $6,175,000 remains to be
purchased at December 31,1996.
Under the Development, Manufacturing and Product Supply Agreement,
dated April 30,1996 as amended November 1, 1996, the Company entered
into a three year agreement to undertake the joint development of two
products. The Company will reimburse Remec for non-recurring
engineering expenses for the development of the products up to
$1,250,000 and will purchase products up to approximately $18,000,000.
STM will have title to and ownership of the design of the products and
will have exclusive rights to the sale of the products. The three year
period commences with the production of the first unit, which is
expected to be in April 1997. Should the Company fail to purchase the
minimum requirement of the products or elects to terminate the
agreement, the Company will be required to pay Remec up to $2,475,000.
In 1996, the Company has expensed $1 million for non-recurring
engineering expenses of which $650,000 was recognized in the fourth
quarter of 1996.
While management believes that none of these purchase commitments are
in excess of requirements and all purchases will be used to fulfill
customer orders in the normal course of business, there can be no
assurance that the company will generate any future level of revenues.
Litigation
To date, the Company has not been informed of any further actions that
may be taken by the U.S. Department of Commerce ("DOC") resulting from
a DOC investigation relating to a 1993 order to be shipped to a
customer in Iran. While management believes the Company has not
violated any applicable laws or regulations, there can be no assurance
that no further action will be taken.
The Company is involved as both plaintiff and defendant in various
claims and legal actions arising in the ordinary course of business. In
the opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Company's financial
position.
Contingency
A wholly-owned subsidiary of the Company, the net assets of which are
insignificant, is contingently liable under a $2,315,000 standby letter
of credit as security for a non-recourse bank loan made to the Company
in a back-to-back lending arrangement. The total facility available to
the Company is $3,600,000. Under the arrangement, a customer pledged
cash balances and cash flows sufficient to repay bank indebtedness used
by that customer to fund purchases from the subsidiary. The customer's
bank indebtedness was arranged under terms duplicate to, and is being
used to service, the non-recourse bank loan. The Company has determined
that the customer's cash security is sufficient to repay the bank's
loan and that it is remote that the standby letter of credit will be
negotiated to repay any indebtedness owed by the
43
<PAGE> 44
customer. Accordingly, the back-to-back loans have been offset by the
Company.
In addition, the company is contingently liable for standby letters of
credit for $442,000 issued to a customer as performance guarantees.
(11) Income Taxes
The components of income tax benefit (expense) consists of the
following:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Current:
Federal $ 549 (102) (30)
State 147 (45) (216)
Foreign (39) (1,273) --
------- ------ ----
Total Current 657 (1,420) (246)
------- ------ ----
Deferred:
Federal 1,127 947 4
State 123 126 --
------- ------ ----
1,250 1,073 4
------- ------ ----
Total $ 1,907 (347) (242)
======= ====== ====
</TABLE>
The actual income tax benefit (expense) differs from the statutory
Federal income tax rate as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income
tax rate 34.0% (34.0)% (34.0)%
State taxes, net of Federal
tax benefit 3.5 2.6 (9.1)
Effect of foreign operations 7.7 -- (2.7)
(Increase) decrease in
valuation allowance (15.9) 11.8 37.7
Other, net (1.6) (1.4) (3.9)
---- ----- -----
Effective tax rate 27.7% (21.0)% (12.0)%
==== ===== =====
</TABLE>
44
<PAGE> 45
Cumulative temporary differences which give rise to deferred tax assets
and liabilities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Fixed assets $ -- 13
Inventories 1,386 324
Accounts receivable 642 164
Accrued expenses 645 213
R&D costs capitalized for tax purposes 277 347
Tax credit carryforwards 1,856 1,808
Net operating loss carryforwards 1,088 --
Other 46 15
Valuation allowance (2,376) (1,308)
------- ------
Total deferred tax assets 3,564 1,576
Deferred tax liabilities:
Minority Interest (60) --
Unremitted earnings of
foreign subsidiary (678) --
------- ------
Net deferred tax assets $ 2,826 1,576
======= ======
</TABLE>
The balance of the valuation allowance against deferred tax assets was
increased by $1,068,000 in 1996. In order to fully realize the net
deferred tax asset of $2,826,000 at December 31, 1996, the Company must
generate net taxable income during the carryforward period of
approximately $7,250,000. Additionally, in order to utilize the foreign
tax credit carryforward the Company must have sufficient foreign source
income. Management believes it is more likely than not that the Company
will realize the benefit of the existing net deferred tax assets as of
December 31, 1996 and that the existing net deductible temporary
differences will reverse during periods in which the Company generates
net taxable income; however, there can be no assurance that the Company
will generate any earnings or any specific level of continuing earnings
in future years.
At December 31, 1996, the Company had Federal foreign net operating
loss carryforwards available to offset future tax liabilities, subject
to alternative minimum tax limitations, of approximately $1,418,000
expiring in 2003 through 2008. Additionally, the Company had available
research and development credit carryforwards of approximately $450,000
which expire in 2001 to 2010.
45
<PAGE> 46
(12) Sales to Principal Customers, Geographic Regions and
Concentration of Credit Risk
Sales by geographic area are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Asia $21,580 12,773 6,348
Europe 6,832 8,273 4,825
Latin and South America 3,784 8,972 5,436
North America 1,850 1,726 3,865
Africa 763 -- --
------- ------ ------
Total sales $34,809 31,744 20,474
======= ====== ======
</TABLE>
The Company generates a substantial amount of its revenues from
individually significant orders, primarily on an international basis to
both developed and developing countries. This can give rise to a
concentration of revenues and credit risk to individual customers and
in geographic regions.
In 1996, the Company was successful in generating revenues from
approximately 50 customers in 20 countries (including the United
States) compared to approximately 40 customers in 13 countries in 1995.
While in an individual year a customer can represent a significant
proportion of the revenues for that year, the Company does not generate
a significant level of on-going revenues for any individual customer
nor does it consider itself especially vulnerable to the loss of
revenues from any customer, or in any region of the world. The majority
of the Company's revenues in any given year generally represent new
projects, to new or existing customers in new or existing geographic
regions.
To date, the Company has been successful in generating sales to new
customers, however, there can be no assurance that the Company will
generate any revenues or any specific level of continuing revenues in
future years.
Asia
Within the Asian region there were sales to one customer for
approximately $12,500,000 and approximately $2,050,000 in 1996 and
1995, respectively. There were no significant sales to this customer in
1994. At December 31, 1996 and 1995, the accounts receivable balances
for this customer were approximately $1,476,000 and $211,000,
respectively. In addition, sales in India in 1996 and 1995 were
approximately $4,350,000 and $5,100,000 respectively. The sales in 1996
were to six customers while in 1995 there were sales to two customers
of which approximately $4,650,000 was to one customer. This one
customer had an accounts receivable balance at December 31, 1995 of
approximately $980,000.
For 1995 and 1994, there were sales to a single Malaysian customer
having as a director and major shareholder the Chairman of the Board of
Directors and major shareholder of Berjaya. Berjaya owns 1,221,294
shares (20.8%) of the Company's common stock as of December 31,
46
<PAGE> 47
1996 (see note 9). Revenues in 1995 and 1994 for this customer include
product hardware and software of $4,698,000 and $1,983,000,
respectively, and engineering, project management and contract
negotiation fees (services) of $1,175,000 and $2,325,000, respectively.
There were no sales to this customer in 1996. Accounts receivable from
this customer totaled $336,000 as of December 31, 1995.
Europe
Sales in Europe in 1996 were primarily to three customers. In Holland
sales to one customer were approximately $3,800,000 in 1996 compared to
approximately $1,680,000 in 1995. In Spain sales to one customer were
approximately $660,000 in 1996 compared to approximately $6,450,000 in
1995.
Sales in Italy amounting to approximately $2,335,000 and $2,354,000 in
1996 and 1994 respectively, were primarily to a distributor whose
Former Chief Executive Officer was a member of the Company's Board of
Directors from November 1991 until April 1993. The distributor also was
a shareholder of the Company until July, 1994 (see note 9).
South America
Sales in South America in 1996 were primarily to two customers in
Brazil. Sales in Brazil in 1996, 1995, and 1994 were approximately
$2,737,000, $4,084,000 and $822,000 respectively. Sales in 1996 are net
of a sale of $2,132,000 which was reversed in the third quarter of 1996
as a 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.
North America
Sales in North America have been reclassified for all periods presented
for the sale of RF in 1996 which has been treated as a discontinuation
of a segment of the business. Sales by RF in 1996, 1995 and 1994 were
$1,216,000, $5,339,000 and $5,812,000, respectively and all sales were
to customers in North America.
Sales are, in general, to customers with substantial financial
resources or to public utilities that are government owned in the
country to which the product is shipped.
The Company sells substantially all of its products internationally
both on a letter of credit or similar guaranteed basis, whereby
customers post security letters of credit to assure collection of
receivables, and on an open account basis. At December 31, 1996 and
1995, the Company had five customers, which accounted for approximately
$6,111,000 and $9,279,000, respectively of total accounts receivable,
of which 63% and 41% respectively were on a letter of credit basis.
In the fourth quarter of 1996, the Company established approximately
$1,700,000 in accounts receivable allowances, primarily for customer
concessions and allowances that are estimated to be required.
(13) Employee Benefits
Effective September 1991, the Company adopted a defined contribution
retirement plan. The Company's contributions to the plan are determined
at the discretion of the Board of Directors.
47
<PAGE> 48
During 1996, 1995 and 1994, the Company made no contributions to the
Plan.
Up to March 31, 1996, the Company made matching contributions of 50% of
the first 3% contributed by the employee in connection with a defined
contribution retirement plan for employees of RF Microsystems. The
Company's contributions to the Plan were approximately $13,000 and
$59,000 for years 1995 and 1994, respectively. There were no
contributions in 1996.
(14) Weighted Average Common and Common Stock Equivalents
The computation of weighted average shares of common and common stock
equivalents outstanding at December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average shares
of common stock outstanding
during the period 5,849,160 5,720,299 5,271,940
Incremental shares
assumed to be
outstanding -- 326,438 255,537
--------- --------- ---------
Weighted average shares
of common and common
stock equivalents outstanding 5,849,160 6,046,737 5,527,477
========= ========= =========
</TABLE>
Common stock equivalents are not used in the 1996 computation as they
would be anti-dilutive.
48
<PAGE> 49
SCHEDULE II
STM WIRELESS, INC.
Valuation and Qualifying Accounts and Reserves
For the years ended December 31, 1996, 1995 and 1994
Reserve for Accounts Receivable Allowances
(dollars in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
Year ended of Period Expenses Deductions Period
- ---------- --------- -------- ---------- ------
<S> <C> <C> <C> <C>
December 31, 1996 $75 1,931 - $2,006
=== ===== ==== ======
December 31, 1995 $75 -- - $ 75
=== ===== ==== ======
December 31, 1994 $75 -- - $ 75
=== ===== ==== ======
</TABLE>
Inventory Reserves
(dollars in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
Year ended of Period Expenses Deductions (a) Period
- ---------- --------- -------- -------------- ------
<S> <C> <C> <C> <C>
December 31, 1996 $ 590 2,722 $3,312
=== ===== ==== ======
December 31, 1995 $ 626 168 204 $ 590
=== ===== ==== ======
December 31, 1994 $ 794 -- 168 $ 626
=== ===== ==== ======
</TABLE>
(a) write-off of excess and obsolete inventories
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
49
<PAGE> 50
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information relating to the Company's directors
and executive officers:
Emil Youssefzadeh, 44, is the founder of the Company. He has been
director of the Company and has served as its President since he founded the
Company in January 1982, and has served as Chief Executive Officer from January
1982 to June 1988 and since January 1991. From January 1979 until founding the
Company, Mr. Youssefzadeh was a satellite research engineer with Hughes Aircraft
Company where his projects included design of satellite communications systems
and satellite earth stations. He also was a member of the team responsible for
communications system engineering for the Intelsat-VI spacecraft.
Dennis W. Elliott, 55, has been a director of the Company since January
1985 and since October 1993 has been Chairman of the Board of Directors. Mr.
Elliott has served as President of Elliott Communications, a consulting firm
specializing in telecommunication strategy and high technology ventures, since
he founded it in February 1990. From March 1989 to January 1990 and from March
1987 to March 1989, Mr. Elliott was Chief Executive Officer and President of
Pacific Telecom Cable, Inc., and Chief Executive Officer and President of
National Gateway Telecom, Inc., respectively, both subsidiaries of Pacific
Telecom, Inc. From June 1984 to March 1987, he served as Executive Vice
President for Pacific Telecom, Inc., and from January 1976 to June 1984, he
served as Vice President, Finance of RCA American Communications, a domestic
satellite communications carrier.
Frank T. Connors, 63, has been a director of the Company since June
1988, and served as its Chairman of the Board of Directors from June 1988 to
September 1993, and as its Chief Executive Officer from June 1988 to January
1991. Since October 1, 1994 Mr. Connors is Vice Chairman and Executive Vice
President of the company. From December 1982 to January 1988 Mr. Connors was the
Chief Executive Officer of Doelz Networks, a manufacturer of packet switching
equipment. From 1979 to 1981, Mr. Connors was Group Vice President of Northern
Telecom's Computer Systems Group. Mr. Connors is currently a director of DISC,
Inc. (NASDAQ NM : DCSC; DCSCW), an optical computer storage manufacturing
company located in northern California.
Dianne Walker, 40, has been a director of the Company since January
1985. Since December 1994, Ms. Walker has served as an independent consultant.
From September 1992 to December 1994, Ms. Walker has served as a consultant to
Bear Stearns & Co., Inc., a national investment banking firm. From January 1990
to August 1992, Ms. Walker served as a consultant to Kidder, Peabody & Co.,
Inc., a national investment banking firm. From January 1983 to October 1989, Ms.
Walker served in various positions with PacifiCorp, including Director, Mergers
and Acquisitions with Pacific Power & Light Co., a division of PacifiCorp, and
Vice President of Pacific Crest Capital, PacifiCorp's venture capital fund. Ms.
Walker also serves as a director of Comdial Corp, Microtest Inc., and Arizona
Public Service Company.
Kim Poh Tan, 43, has been a director of the Company since April 1994
and Group Executive Director of Berjaya Group Berhad since August 1991. From
June 1989 to August 1991, Mr. Tan served as a Consultant and Advisor to IGB
Corporate Berhad, a Malaysian securities firm. From February 1977 to May 1989,
Mr. Tan served as General Manager of Banking and Corporation Services of D & C
Sakura Merchant Bankers Berhad, a Malaysian merchant banking firm. Mr. Tan
presently serves as a director of Berjaya Group Berhad, a Malaysian company
which is a strategic partner of,
50
<PAGE> 51
and investor in, the Company.
Dr. Ernest Gambaro has been a director of the company since March 1997.
Since 1988, Dr. Gamboro directed the formation of Infonet Services Corporation
and now serves as the Vice President, General Counsel and Secretary. Infonet
Services Corporation operates the world's largest value added international data
communication network with offices in 58 countries. Prior to 1988, Dr. Gambaro
was Assistant General Counsel for Computer Sciences Corporation focusing on the
company's international, acquisition and divestiture activities. Between 1962
and 1975, Dr. Gambaro directed programs at the Aerospace Corporation relating to
the conceptual, definition and implementation of advanced technology systems for
space.
Michael Lindsay, 39, has been Chief Operating Officer of the Company
since July 1994. From January 1993 to March 1994, Mr. Lindsay served as Chief
Operating Officer of Numedia Corporation, a software developer. From September
1988 to October 1992, Mr. Lindsay held various officer positions at Dowty
Communications, Inc., a company specializing in data communications, including
President, Executive Vice President and Vice President - Finance and Operations.
Joseph J. Wallace, 37, has been Vice President-Finance and Chief
Financial Officer of the Company since March 1997. From April 1994 to March
1997, Mr. Wallace was Corporate Controller of MAI Systems Corporation, a
publicly held worldwide provider of total information system solutions for the
hospitality and manufacturing industries. From 1990 to 1993, Mr. Wallace was
Controller and Chief Financial Officer of Simmons Magee, PLC, a British based
value added reseller of computer products and services.
There are no family relationships between any director, executive
officer or person nominated or chosen by the Registrant to become a director or
executive officer.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely upon its review of the copies of reporting forms furnished
to the Registrant, or written representations that no annual Form 5 reports were
required, the Registrant believes that all filing requirements under Section
16(a) of the Exchange Act applicable to its directors, executive officers and
any persons holding 10% or more of the Registrant's common stock with respect to
the Registrant's year ended December 31, 1996, were satisfied (except that
certain reports required to be filed by Mr. Connors were filed late).
51
<PAGE> 52
ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth compensation received for the three years
ended December 31, 1996, by the Company's Chief Executive Officer, and the other
executive officers whose salary and bonus exceeded $100,000 for fiscal year 1996
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
Name and
Principle Position Year Salary ($) Bonus ($) Other ($) (2) Awards Options (#)
- ------------------ ---- ---------- --------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Emil Youssefzadeh 1996 219,448 33,020 10,000
President and Chief 1995 222,883 -0- 33,000 -0-
Executive Office 1994 195,000 -0- 27,800 -0-
Frank Connors (1) 1996 150,000 -0- -0- 10,000
Executive VP and 1995 150,000 -0- -0- 5,000
Vice Chairman 1994 -0- -0- -0- -0-
Michael Lindsay (1) 1996 148,440 -0- -0- -0-
Chief Operating 1995 143,554 -0- -0- -0-
Officer 1994 58,154 -0- -0- 100,000
Preston Romm (1) 1996 133,062 -0- -0- -0-
VP Finance and 1995 118,377 -0- -0- -0-
Chief Financial Officer 1994 6,808 -0- -0- 25,000
</TABLE>
(1) The employment of the Company's other current executive officers, Mr.
Connors, Mr. Lindsay, and Mr. Romm commenced in October 1994, July
1994, and November 1994. Mr. Romm left the Company's employment in
December 1996.
(2) During 1996 and 1995 amounts represent $33,020 and $33,000,
respectively, of automobile allowance and expenses paid by the Company
for the benefit of the Chief Executive Officer. In 1994, amount
represents $15,612 of insurance premiums and $12,188 of automobile
allowance and expenses paid by the Company for the benefit of the Chief
Executive Officer.
52
<PAGE> 53
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of stock
options made during the fiscal year ended December 31, 1996, to each of the
Named Executive Officers:
<TABLE>
<CAPTION>
Name Options % Total Exercise Expiration Potential Realizable
- ---- Granted Options Price Date (2) Value at Assumed
# Granted to ($/sh) -------- Annual Rates of Stock
------- Employees ------ Price Appreciation
in Fiscal Yr. (1) for Option Term (3)
----------------- -------------------
5%($) 10%($)
----- ------
<S> <C> <C> <C> <C> <C> <C>
Emil Youssefzadeh 10,000 3.67% $12.125 5/02/06 $76,250 $193,241
Frank Connors 10,000 3.67% $12.125 5/02/06 $76,250 $193,241
Michael Lindsay -0- -0-
Preston Romm -0- -0-
</TABLE>
(1) Options to purchase an aggregate of 272,000 share of Common Stock were
granted to employees, including the named Executive Officers, during the year
ended December 31, 1996.
(2) Options granted have a term of ten years, subject to earlier termination on
certain events related to termination of employment or service to the Company.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years). It is calculated by assuming that the stock
price appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on the last
day of its term for the appreciated stock price. No gain to the option holder is
possible unless the stock price increases over the option term.
53
<PAGE> 54
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning exercises of stock options
during the fiscal year ended December 31, 1996, by each of the named executive
officers and the year-end value of unexercised options:
<TABLE>
<CAPTION>
Name Shares Value Realized Number of Values of
- ---- Acquired on ($) Unexercised Unexercised
Exercise --- Options at Fiscal In-the-Money
(#) Fiscal Year End Options at Fiscal
--- (#) End ($)
--- -------
Exercisable/ Exercisable/
Unexercisable Unexercisable (1)
------------- -----------------
<S> <C> <C> <C> <C>
Emil Youssefzadeh -0- -0- -0-/10,000 $0/$0
Frank Connors -0- -0- 5,000/10,000 $0/$0
Michael Lindsay -0- -0- 40,000/60,000 $0/$0
</TABLE>
(1) Value is based on fair market value of Common Stock as of December 31, 1996
stock market close minus the exercise price or base price of "in-the-money"
options. The closing sales price for the Company's Common Stock as of December
31, 1996 on the NASDAQ national Market was $7.00
Subsequent to December 31, 1996, the Company offered to reduce the exercise
price of certain options previously granted to employees to $7.125, the fair
market value at March 21, 1997.
Directors' Fees
The Chairman of the Board of Directors receives an annual retainer at
the rate of $48,000, and each of the outside directors receives an annual
retainer at the rate of $15,000 for services rendered in his or her capacity as
a director of the Company. Accordingly, during 1996, Mr. Elliott received
$48,000 and Ms. Walker and Mr. Tan received $15,000 for their services as
outside directors of the Company. The Company's outside directors were also
reimbursed for expenses incurred for meetings of the Board of Directors which
they attended.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1996, the Company's Board of
Directors established the levels of compensation for the Company's executive
officers. Emil Youssefzadeh, a director and the President and Chief Executive
Officer of the Company, and Frank Connors, the Vice Chairman and the Executive
Vice President of the Company participated in the deliberations of the Board
regarding executive compensation, but did not participate in proceedings or
decisions of the Board of Directors regarding their compensation.
54
<PAGE> 55
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is certain information as of March 24, 1997, regarding
the beneficial ownership of the Company's common stock by (i) any person who was
known by the Company to own more than 5% of the voting securities of the
Company, (ii) each of the directors, (iii) each of the Named Executive Officers
and (iv) all directors and executive officers as a group. Except as otherwise
indicated, the Company believes, based on information furnished by such owners,
that the beneficial owners of the Registrant's Common Stock listed below have
sole investment and voting power with respect to such shares, subject to
applicable community property laws.
<TABLE>
<CAPTION>
Amount and
Five Percent Shareholders, Nature of
Directors, Named Executive Officers and Beneficial Percent
Directors and Executive Officers as a Group Ownership of Class
- ------------------------------------------- --------- --------
<S> <C> <C>
Emil Youssefzadeh (1) 1,351,237 22.65%
Satellite Technology Management, Inc.
One Mauchly
Irvine, California 92718
Berjaya Group (Cayman), Ltd. (2) 1,221,294 20.47%
Level 17, Shahzan Prudential Tower
30 Jalan Sultan Ismail
50250 Kuala Lumpur, Malaysia
Kim Poh Tan (3) 1,231,294 20.64%
Level 17, Shahzan Prudential Tower
30 Jalan Sultan Ismail
50250 Kuala Lumpur, Malaysia
Frank T. Connors (4) 193,080 3.23%
Dennis W. Elliott (5) 26,308 *
Dianne C. Walker (6) 28,308 *
Michael Lindsay (7) 40,000 *
All Directors and Executive
Officers as a group (6 persons) (1) (3) 2,870,227 48.12%
</TABLE>
- ----------
* Less than 1%
(1) Includes 263,991 and 259,011 shares held by Kamil Youssefzadeh
and Shafigh Youssefzadeh, respectively, who are brothers of
Emil Youssefzadeh, for which Emil Youssefzadeh has voting
rights. Accordingly, Emil Youssefzadeh is deemed to share
beneficial ownership of these shares. Further, includes 5,000
shares issuable upon exercise of stock options exercisable
within 60 days of March 24, 1997.
55
<PAGE> 56
(2) According to a report filed with the Securities and Exchange
Commission, Berjaya Group (Cayman), Ltd. ("Berjaya Cayman") is
a wholly-owned subsidiary of, and is controlled by, Berjaya
Group Berhad ("Berjaya"), a Malaysian corporation, whose
principal offices are located at Level 17, Shahzan Prudential
Tower, 30 Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia.
Accordingly, Berjaya may be deemed to beneficially own such
shares. However, Berjaya disclaims such beneficial ownership
pursuant to Rule 13d-4 under the Securities Exchange Act of
1934, as amended.
(3) Consists of shares held by Berjaya Cayman. Mr. Tan is Group
Executive Director of Berjaya and, accordingly, may be deemed
to beneficially own such shares. However, Mr. Tan disclaims
such beneficial ownership pursuant to Rule 13d-4 under the
Securities Exchange Act of 1934, as amended. Further, includes
10,000 shares issuable upon exercise of stock options
exercisable within 60 days of March 24, 1997.
(4) Inclusive of 15,000 shares issuable upon exercise of stock
options exercisable within 60 days of March 26, 1996.
(5) Inclusive of 15,000 shares issuable upon exercise of stock
options exercisable within 60 days of March 26, 1996.
(6) Inclusive of 15,000 shares issuable upon exercise of stock
options exercisable within 60 days of March 26, 1996.
(7) Consists of 40,000 shares issuable upon exercise of stock
options exercisable within 60 days of March 26, 1996.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1994, the Registrant sold 693,188 shares of newly issued common
stock at a price of $10.00 per share to Berjaya Cayman, a wholly-owned
subsidiary of Berjaya Group Berhad. In addition, Berjaya Cayman purchased an
additional 528,106 shares of common stock from the open market and from certain
former shareholders of the Company, COM.NET S.p.A. ("COMNET") and IMI Capital
Markets USA Corporation. A major shareholder and the Chairman of the Board of
Directors of Berjaya Group Berhad is also a major shareholder and a director of
Mutiara Telecommunications SDN ("Mutiara") a customer of the Company. The
Company made sales of products and provided services to Mutiara approximating
$5,873,000 and $4,308,000 in 1995 and 1994 respectively. The Registrant believes
that the terms and conditions of sales to Mutiara were negotiated at arm's
length and are no less favorable than those that could be entered into with
independent parties.
56
<PAGE> 57
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND EXHIBITS
(1) Financial Statements
The following Consolidated Financial Statements of the Company, are
incorporated by reference under Part II, Item 8 herein.
STATEMENT
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
The following schedule is filed herewith:
Schedule II -- Valuation and Qualifying Accounts and Reserves are
incorporated by reference under Part II, Item 8 herein.
Selected Quarterly Financial Data are incorporated by reference under
Part II, Item 6 herein.
All other schedules are omitted because they are not required, are not
applicable or the information is included in the consolidated financial
statements or notes thereto.
(3) Exhibits
EXHIBIT NUMBER DESCRIPTION
REPORT
3.1****** Restated Certificate of Incorporation of the Company.
3.2****** Bylaws of the Company.
10.1* Satellite Technology Management, Inc. Incentive
Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan - 1992
57
<PAGE> 58
(the "Plan").
10.2 * Form of Incentive Stock Option Agreement pertaining
to the Plan.
10.3 * Form of Nonqualified Stock Option agreement
pertaining to the Plan.
10.4 * Form of Indemnification Agreement between Registrant
and its directors.
10.7 * Product Distribution Agreement between ANT
Nachrichtentechnik GmbH and Registrant dated December
13, 1988, as amended by Amendment dated December 14,
1988.
10.8 * Product Distribution Agreement between Canadian
Satellite Communications, Inc. and Registrant dated
May 8, 1988.
10.11* Contract between Principal Products Marketing
Corporation and Registrant dated December 20, 1991
for supply of satellite communication network.
10.12* Contract between Principal Products Marketing
Corporation and Registrant dated December 20, 1991
for supply of various technical services.
10.13* Agreement between GE American Communications, Inc.
and Registrant dated March 1, 1988.
10.14* Satellite Audio and Data Service Agreement between
Hughes Communications Galaxy, Inc. and Registrant
dated August 12, 1991.
10.16* Federal Communications Commission authorization and
order, File Nos. 2061/2062--DSE--P/L 84 and
3379/3380--DSE--P/L--84.
10.17** Building leases between General Electric Company and
RF Microsystems, Inc., dated June 12, 1990 and
October 5, 1993.
10.18*** Stock Purchase Agreement, dated April 1, 1994, by and
among the Company, Berjaya Group (Cayment), Ltd. and
Emil Youssefzadeh and Albert Youssefzadeh
10.19**** Agreement for Purchase and Sales of Real Property and
Escrow Instructions dated June 1, 1994, by and
between Thomas M. Zapara, Violet Zapara, trustees of
the Zapara Family Trust W/D/T dated March 4, 1982 and
the Company
10.20***** Credit Agreement, dated April 11, 1995, by and between the
Company and Wells Fargo Bank, N.A.
10.21 ****** 1994 Stock Option Plan for Non-Employee Directors
10.22******* Stock Purchase Agreement between STM Wireless, Inc. and
Remec, Inc. dated March 31, 1996
10.23 ********Credit Agreement entered into as of 31st day of May, 1996,
by and between STM Wireless, Inc. ("Borrower") and
Wells Fargo HSBC Trade Bank N.A. ("Bank")
11.1 Computation of Primary and Fully Diluted Earnings per
Share. 61
21. Subsidiaries of Registrant 62
23.1 Consent of KPMG Peat Marwick LLP. 63
- ------------
*Incorporated herein by reference to the referenced exhibit number to the
Company's Registration Statement on Form S-1, Reg. No. 33-45694.
**Incorporated by reference to the referenced exhibit number to the Company's
Form 10K filed for the year ended December 31, 1993.
*** Incorporated by reference to the referenced exhibit number to the Company's
Form 10-Q for the Quarter
58
<PAGE> 59
ended June 31, 1994
**** Incorporated by reference to the referenced exhibit number to the
Company's Form 10-Q for the Quarter ended September 30, 1994
**** Incorporated by reference to the referenced exhibit number to the
Company's Registration Statement on Form S-8, Registration No. 33-99372
***** Incorporated by reference to the referenced exhibit to the
Company's Form 10Q for the quarter ended June 30, 1995.
****** Incorporated by reference to the Company's Form 10K filed for
the year ended December 31, 1995.
******* Incorporated by reference to the referenced exhibit to the
Company's Form 10Q for the Quarter ended March 31, 1996.
******** Incorporated by reference to the referenced exhibit to the
Company's Form 10Q for the Quarter ended June 30,1996.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
EXHIBIT NUMBER DESCRIPTION
LOCATION
10.1 Satellite Technology Management, Inc. Incentive Stock Option,
Nonqualified Stock Option and Restricted Stock Purchase Plan -
1992 (the "Plan"). *
10.2 Form of Incentive Stock Option Agreement pertaining to the
Plan. *
10.3 Form of Nonqualified Stock Option Agreement pertaining to the
Plan. *
10.21 1994 Stock Option Plan for Non-Employee Directors ******
(b) Reports on Form 8-K
None.
59
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: April 4, 1997 STM Wireless, Inc.
By: /s/ EMIL YOUSSEFZADEH
---------------------------------
Emil Youssefzadeh
Chief Executive Officer and President, Director
By: /s/ JOSEPH WALLACE
---------------------------------
Joseph Wallace
Vice President, Finance
Chief Financial Officer and Principal Accounting
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Each person whose
signature to this report on Form 10-K appears below hereby appoints Emil
Youssefzadeh and Joseph Wallace, or either of them, to act severally as
attorneys-in-fact and agents, with power of substitution and resubstitution, for
each of the undersigned, for any and all capacities, to sign on his behalf,
individually and in the capacities stated below, and to file any and all
amendments to this report on Form 10-K, which amendment or amendments may make
changes and additions as such attorneys-in-fact may deem necessary.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DENNIS W. ELLIOTT Chairman of the Board April 4, 1997
- ---------------------------------
Dennis W. Elliott
/s/ EMIL YOUSSEFZADEH Chief Executive Officer and President, April 4, 1997
- ------------------------------- Director
Emil Youssefzadeh
/s/ JOSEPH WALLACE Vice President, Finance
- ------------------------------- Chief Financial Officer and
Joseph Wallace Principal Accounting Officer April 4, 1997
/s/ FRANK T. CONNORS Executive Vice President, and
- ------------------------------- Vice Chairman of the Board April 4, 1997
Frank T. Connors
/s/ DIANNE WALKER Director April 4, 1997
- -------------------------------
Dianne Walker
/s/ KIM POH TAN Director April 4, 1997
- -------------------------------
Kim Poh Tan
/s/ DR. ERNEST GAMBARO Director April 4, 1997
- -------------------------------
Dr. Ernest Gambaro
</TABLE>
60
<PAGE> 1
EXHIBIT 11.1
STM WIRELESS, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED (LOSS) INCOME PER SHARE OF COMMON STOCK
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Primary (loss) income per share of common stock:
Weighted average shares of common stock
outstanding during period 5,849,160 5,720,299 5,271,940
Incremental shares assumed to be outstanding (1) -- 326,438 255,537
---------- --------- ---------
Weighted average shares of common and common
stock equivalents outstanding 5,849,160 6,046,737 5,527,477
---------- --------- ---------
Net (loss) income (4,816) 1,722 1,562
---------- --------- ---------
(Loss) income per share of common
and common stock equivalents $ (0.82) $ 0.28 $ 0.28
---------- --------- ---------
Fully diluted (loss) income per share:
Weighted average shares of common stock outstanding
during period 5,849,160 5,720,299 5,271,940
Incremental shares assumed to be outstanding (1) -- 326,438 255,537
---------- --------- ---------
Weighted average shares of common and common
stock equivalents outstanding 5,849,160 6,046,737 5,527,477
---------- --------- ---------
Net (loss) income (4,816) 1,722 1,562
---------- --------- ---------
(Loss) income per share of common and common
stock equivalents $ (0.82) $ 0.28 $ 0.28
---------- --------- ---------
</TABLE>
(1) Incremental shares are anti-dilutive in 1996 and are therefore excluded
from the determination of weighted average common and common stock
equivalents outstanding.
61
<PAGE> 1
EXHIBIT 21
SATELLITE TECHNOLOGY MANAGEMENT, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
The subsidiaries of the Company are: Percentage Ownership
<S> <C>
Telecom Multimedia Systems, Inc. 72.5%
One Mauchly
Irvine, California 92618
STM do Brasil 100.0%
Avenida das Americas, 3333
Sala 801
22631-003 Rio de Janeiro, Brazil
STM de Mexico , S. A de C.V. 100.0%
Madrid #11 Col. El Carmen Coyoacan
04100, Mexico DF
STM Sales Corp. 100.0%
134 West Soledad Avenue
Suite 401
Agana, Guam 96910
Direc-to-Phone 100.0%
One Mauchly
Irvine, CA 92618
</TABLE>
62
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors
STM Wireless, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-50806, 33-99570, 33-99572) on Form S-8 and registration statements (Nos.
33-73962, 33-70650, 33-99568) on Form S-3 of STM Wireless, Inc. of our report
dated March 21, 1997, relating to the consolidated balance sheets of STM
Wireless, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996,
and the related schedule, which report appears in the December 31, 1996 annual
report on Form 10-K of STM Wireless, Inc.
Orange County, California
April 14, 1997
63
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 9,148
<SECURITIES> 4,509
<RECEIVABLES> 13,963
<ALLOWANCES> (2,006)
<INVENTORY> 9,199
<CURRENT-ASSETS> 38,175
<PP&E> 12,344
<DEPRECIATION> 3,894
<TOTAL-ASSETS> 49,804
<CURRENT-LIABILITIES> 17,008
<BONDS> 0
0
0
<COMMON> 32,164
<OTHER-SE> (4,354)
<TOTAL-LIABILITY-AND-EQUITY> 49,804
<SALES> 34,809
<TOTAL-REVENUES> 34,809
<CGS> 26,190
<TOTAL-COSTS> 26,190
<OTHER-EXPENSES> 15,622
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (764)
<INCOME-PRETAX> (6,878)
<INCOME-TAX> 1,907
<INCOME-CONTINUING> (4,904)
<DISCONTINUED> 88
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,816)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.82)
</TABLE>
