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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Period Ended March 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
Commission File No. 0-19923
STM WIRELESS, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 95-3758983
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification number)
One Mauchly
Irvine, California 92618
(Address of principal executive offices) (Zip code)
(714) 753-7864
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the last 90 days.
Yes X No
--- ---
As of April 30, 1997, there were 5,887,875 shares of Common Stock, no par value,
outstanding.
Page 1 of 12
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STM WIRELESS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 3
Condensed Consolidated Statements of Operations for the three
month periods ended March 31, 1997 and March 31, 1996 4
Condensed Consolidated Statements of Cash Flows for the three
month periods ended March 31, 1997 and March 31, 1996 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on 8-K 11
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
STM WIRELESS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 2,764 $ 9,148
Short-term investments .................................. 4,302 4,509
Accounts receivable, net ................................ 12,791 11,957
Inventories, net ........................................ 12,212 9,199
Current portion of long-term receivables ................ 536 536
Deferred income taxes ................................... 2,826 2,826
-------- --------
Total current assets ....................... 35,431 38,175
Property & equipment, net ........................................... 8,314 8,450
Long-term receivables ............................................... 1,862 1,991
Other assets ........................................................ 1,254 1,188
-------- --------
$ 46,861 $ 49,804
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings ................................... $ 5,100 $ 6,400
Current portion of long-term debt ....................... 199 233
Accounts payable ........................................ 6,275 8,133
Accrued liabilities ..................................... 1,509 1,785
Customer deposits ....................................... 61 --
Income taxes payable .................................... 513 457
-------- --------
Total current liabilities................... 13,657 17,008
Long-term debt ...................................................... 4,592 4,601
Minority Interest ................................................... 358 385
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;
issued and outstanding 5,885,875 shares at March 31,
1997 and 5,849,160 shares at December 31, 1996 ....... 32,392 32,164
Accumulated deficit ..................................... (4,138) (4,354)
-------- --------
Total Stockholders' equity ................. 28,254 27,810
-------- --------
$ 46,861 $ 49,804
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
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STM WIRELESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months
ended March 31,
--------------------
1997 1996
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<S> <C> <C>
Revenues
Products ...................................... $ 6,875 $ 6,537
Services ...................................... 617 929
------- -------
Total revenues .......................... 7,492 7,466
Cost of revenues
Products ...................................... 4,487 3,957
Services ...................................... 337 264
------- -------
Total cost of revenues .................. 4,824 4,221
Gross profit ........................................... 2,668 3,245
Operating costs
Selling, general & administrative expenses .... 1,173 1,471
Research & development costs .................. 1,300 1,589
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Total operating costs ................... 2,473 3,060
Operating income ....................................... 195 185
Other income ........................................... 17 --
Interest income ........................................ 150 382
Interest expense ....................................... (141) (144)
------- -------
Income from continuing operations, before
minority interest and income taxes ............ 221 423
Income tax expense ..................................... (32) (151)
------- -------
Income from continuing operations
before minority interest ...................... 189 272
Minority interest in net loss of consolidated subsidiary 27 48
------- -------
Income from continuing operations ...................... 216 320
Income from and gain on sale of discontinued operations -- 84
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Net income ............................................. $ 216 $ 404
======= =======
Net income per share:
Continuing operations ......................... $ 0.04 $ 0.05
Discontinued operations ....................... -- 0.02
------- -------
Total net income per share: ............................ $ 0.04 $ 0.07
======= =======
Weighted average shares outstanding .................... 5,940 5,997
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
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STM WIRELESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months
ended March 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Net cash used in continuing operations .................. $(5,425) $(4,411)
Net cash provided by discontinued operations ............ -- 846
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Net cash used in operating activities ................... (5,425) (3,565)
------- -------
Cash flows from investing activities:
Net decrease in short-term investments .......... 207 1,900
Acquisition of property and equipment............ (180) (237)
------- -------
Net cash provided by investing activities ............... 27 1,663
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Cash flows from financing activities:
Net decrease in long-term receivables ........... 129 --
Proceeds from issuance of common stock .......... 228 36
Net increase (decrease) in short-term borrowings (1,300) 2,000
Net decrease in long-term debt................... (43) (90)
------- -------
Net cash provided by (used in) financing activities ..... (986) 1,946
------- -------
Net increase (decrease) in cash and cash equivalents..... (6,384) 44
Cash and cash equivalents at beginning of period ........ 9,148 4,145
------- -------
Cash and cash equivalents at end of period .............. $ 2,764 $ 4,189
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
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STM WIRELESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1997 and 1996
(Unaudited)
1. BASIS OF PRESENTATION
These financial statements are unaudited; however, the information contained
herein for STM Wireless, Inc. (the "Company" or "STM") gives effect to all
adjustments (which are normal recurring accruals) necessary, in the opinion
of Company management, to present fairly the financial statements for the
interim periods presented.
The results of operations for the current interim period are not necessarily
indicative of the results to be expected for the current year.
Although the Company believes that the disclosures in these financial
statements are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"), and these
financial statements should be read in conjunction with the financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, which is on file with the SEC.
2. DISCONTINUED OPERATIONS
Effective March 31, 1996 the Company sold its RF Microsystems subsidiary to
Remec, Inc. for cash in the amount of $2,926,000. The gain on the sale has
been accounted for as discontinued operations and prior period financial
statements have been reclassified to reflect discontinuance of this segment
of the business. A summary of operating results for discontinued operations
is shown below:
<TABLE>
<CAPTION>
For the three months
ended March 31,
----------------------
1997 1996
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<S> <C> <C>
Net revenues ................................... $ -- $1,216,000
======= ==========
Net income from and gain on sale of discontinued
operations, net of income taxes .............. $ -- $ 84,000
======= ==========
</TABLE>
6
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3. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Raw materials $ 7,733 $ 5,512
Work in process 1,185 1,662
Finished goods 3,294 2,025
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$12,212 $ 9,199
======= =======
</TABLE>
4. INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Income per share of common stock is computed using the weighted average
number of common and common equivalent shares of stock outstanding during
the period. Common stock equivalents consist of dilutive outstanding stock
options and warrants and are calculated using the treasury stock method.
Primary earnings per share approximates fully diluted earnings per share for
all periods presented.
In February 1997, the Financial Standards Board issued SFAS no. 128,
"Earnings Per Share". SFAS No. 128 specifies new standards designed to
improve the earnings per share ("EPS") information provided in financial
statements by simplifying the existing computational guidelines, revising
the disclosure requirements and increasing the comparability of EPS data on
an international basis. Some of the changes made to simplify the EPS
computations include: (a) eliminating the presentation of primary EPS and
replacing it with basic EPS, with the principal difference being that common
stock equivalents are not considered in computing basic EPS, (b) eliminating
the modified treasury stock method and the three percent materiality
provision and (c) revising the contingent share provision and the
supplemental EPS data requirements. SFAS No. 128 also makes a number of
changes to existing disclosure requirements. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. The Company has not determined the impact of the
implementation of SFAS No. 128.
7
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Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General
- -------
STM Wireless, Inc. (the "Company" or "STM"), founded in 1982, is a
manufacturer of satellite communications products including VSATs (very small
aperture terminals), hubs/gateways, multiplexers, modems and other networking
equipment. The Company's products are designed to support data, fax, voice and
video networks requiring cost-effective connections between geographically
dispersed locations. The Company's proprietary equipment and software are
utilized by businesses, government agencies and telephone companies in Europe,
the Americas, Africa and Asia. The Company also operates and sells services to
customers on networks it owns.
Effective March 31, 1996 , the Company sold all the outstanding common
stock of RF Microsystems, Inc., its wholly owned subsidiary, for $2,926,000 cash
to Remec, Inc.
Results of Operations
- ---------------------
RESULTS OF CONTINUING OPERATIONS
Combined product and service revenues were $7,492,000 for the
three-month period ended March 31, 1997, compared to $7,466,000 for the
corresponding period of 1996, an increase of less than 1%. Product revenues were
$6,875,000 for the three-month period ended March 31, 1997, compared to
$6,537,000 for the corresponding period in 1996, an increase of 5%. This
increase in product revenues was primarily due to shipments related to the
Company's major contracts. Service revenues were $617,000 for the three-month
period ended March 31, 1997, compared to $929,000 for the corresponding period
in 1996, a decrease of 34%.
Combined product and service gross profit margin in the three-month
period ended March 31, 1997 was 36% compared to 43% for the comparable period in
1996. Product gross profit margin in the three-month period ended March 31, 1997
was 35% compared to 39% for the comparable period in 1996. This decrease in
product gross profit margin was primarily due to sales mix. Service gross profit
margin in the three-month period ended March 31, 1997 was 45%, compared to 72%
for the comparable period in 1996.
Selling, general and administrative expenses (SG&A) for the three-month
period ended March 31, 1997 decreased by $298,000 to $1,173,000, or 16% of
revenues, from $1,471,000, or 20% of revenues, in the corresponding period of
1996. The decrease in selling and general administrative expenses reflects a
$400,000 reversal of a reserve, no
8
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longer required, that was established in the prior fiscal year for a potential
concession to a customer.
Research and development expenses for the three-month period ended
March 31, 1997 decreased to $1,300,000, or 17% of total revenues, from
$1,589,000, or 21% of total revenues, in the corresponding period of 1996. The
decrease in expenditures for the period was primarily due to the absence in 1997
of the Company's Radio Products development personnel transferred to RF
Microsystems, Inc. at the time of the sale of that subsidiary by the Company to
Remec, Inc. on March 31, 1996.
Interest income decreased by $232,000 to $150,000 for the three-month
period ended March 31, 1997, over the three-month period ended March 31, 1996.
The decrease in interest income was primarily the result of the recognition of
less interest related to a long-term financing lease in Brazil.
Interest expense decreased by $3,000 to $141,000 for the three-month
period ended March 31, 1997, over the three-month period ended March 31, 1996.
DISCONTINUED OPERATIONS
Effective March 31, 1996 , the Company sold all the outstanding common
stock of RF Microsystems, Inc., its wholly owned subsidiary, for $2,926,000 cash
to Remec, Inc.. A summary of operating results for discontinued operations is
shown below:
<TABLE>
<CAPTION>
For the three months
ended March 31,
---------------------
1997 1996
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<S> <C> <C>
Net revenues ................................... $ -- $1,216,000
------- ----------
Net income from and gain on sale of discontinued
operations, net of income taxes ................ $ -- $ 84,000
======= ==========
</TABLE>
Liquidity and Capital Resources
- -------------------------------
For the first three months of 1997, the Company had negative cash flows
from operating activities of $5,425,000, compared to negative cash flows of
$3,565,000 in the same period of 1996. The increase in negative cash flow was
primarily due to increased investments in inventory to support the Company's
sales backlog and a reduction of accounts payable.
Cash provided by investing activities in the first three months of 1997
totaled $27,000. Sales and maturities of short-term investments exceeded
purchases of such investments by $207,000. The acquisition of fixed assets used
$180,000.
Cash used in financing activities during the first three months totaled
$986,000. A net reduction of short-term borrowings used $1,300,000, and a
reduction of long-term
9
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debt used $43,000. Proceeds from issuance of common stock related to the
exercise of stock options provided $228,000 and a reduction of long-term
receivables provided $129,000.
Overall, the Company's cash, cash equivalents, and short-term
investments totaled $7,066,000 at March 31, 1997, as compared to $13,657,000 at
December 31, 1996. The Company continues to have a secured $10,000,000 revolving
line of credit with a bank. The availability under this line of credit was
$10,000,000 at March 31, 1997, of which $3,500,000 had been drawn down. The
Company believes it has adequate capital resources to meet its current working
capital requirements and capital expenditure commitments for at least the next
12 months, including the expansion of its international marketing and sales
efforts, and the purchase of additional capital equipment for manufacturing and
research and development.
Risk Factors and Forward Looking Statements
- -------------------------------------------
THIS REPORT CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT INVOLVE RISKS AND
UNCERTAINTIES. IN ADDITION, THE COMPANY MAY FROM TIME TO TIME MAKE ORAL FORWARD
LOOKING STATEMENTS. ACTUAL RESULTS ARE UNCERTAIN AND MAY BE IMPACTED BY THE
FACTORS DISCUSSED IN MORE DETAIL IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE PERIOD ENDIED DECEMBER 31, 1996. IN PARTICULAR, CERTAIN RISKS AND
UNCERTAINTIES THAT MAY IMPACT THE ACCURACY OF THE FORWARD LOOKING STATEMENTS
WITH RESPECT TO REVENUES, EXPENSES AND OPERATING RESULTS INCLUDE WITHOUT
LIMITATION, LONG TERM CYCLES INVOLVED IN COMPLETING MAJOR CONTRACTS,
PARTICULARLY IN FOREIGN MARKETS, INCREASING COMPETITIVE PRESSURES, GENERAL
ECONOMIC CONDITIONS, TECHNOLOGICAL ADVANCES, THE TIMING OF NEW PRODUCT
INTRODUCTIONS, POLITICAL AND ECONOMIC RISKS INVOLVED IN FOREIGN MARKETS AND
FOREIGN CURRENCIES AND THE TIMING OF OPERATING AND OTHER EXPENDITURES. AS A
RESULT, THE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD LOOKING STATEMENTS.
BECAUSE OF THESE AND OTHER FACTORS THAT MAY AFFECT THE COMPANY'S
OPERATING RESULTS, PAST FINANCIAL PERFORMANCE SHOULD NOT BE CONSIDERED AN
INDICATOR OF FUTURE PERFORMANCE, AND INVESTORS SHOULD NOT USE HISTORICAL TRENDS
TO ANTICIPATE RESULTS OR TRENDS IN FUTURE PERIODS.
10
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PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STM Wireless, Inc.
Date: May 13, 1997 By: JOSEPH WALLACE
---------------------------
Joseph Wallace
Vice President, Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer and Duly
Authorized Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1997
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,764
<SECURITIES> 4,302
<RECEIVABLES> 13,758
<ALLOWANCES> 967
<INVENTORY> 12,212
<CURRENT-ASSETS> 35,431
<PP&E> 12,524
<DEPRECIATION> 4,210
<TOTAL-ASSETS> 46,861
<CURRENT-LIABILITIES> 13,657
<BONDS> 4,592
0
0
<COMMON> 32,392
<OTHER-SE> (4,138)
<TOTAL-LIABILITY-AND-EQUITY> 46,861
<SALES> 6,875
<TOTAL-REVENUES> 7,492
<CGS> 4,487
<TOTAL-COSTS> 4,824
<OTHER-EXPENSES> 2,473
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141
<INCOME-PRETAX> 248
<INCOME-TAX> 32
<INCOME-CONTINUING> 216
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 216
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
