<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 For the Period Ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
Commission File No. 0-19923
STM WIRELESS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-3758983
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification number)
One Mauchly
Irvine, California 92618
(Address of principal executive offices) (Zip code)
(714) 753-7864
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the last 90 days.
Yes No
[X] [ ]
As of November 5, 1997, there were 5,944,406 shares of Common Stock, $0.001 par
value, outstanding.
Page 1 of 13
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STM WIRELESS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30, 1997 and
December 31, 1996 3
Condensed Consolidated Statements of Operations for the three and
nine month periods ended September 30, 1997 and
September 30, 1996 4
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1997 and September 30, 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 -11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
STM WIRELESS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,334 $ 9,148
Short-term investments 4,527 4,509
Accounts receivable, net 10,374 11,957
Inventories, net 11,331 9,199
Current portion of long-term receivables 578 536
Deferred income taxes 2,826 2,826
-------- --------
Total current assets 35,970 38,175
Property & equipment, net 9,156 8,450
Long-term receivables 1,673 1,991
Other assets 1,992 1,188
-------- --------
$ 48,791 $ 49,804
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,200 $ 6,400
Current portion of long-term debt 323 233
Accounts payable 7,862 8,137
Accrued liabilities 1,313 1,785
Customer deposits 191 -
Income taxes payable 745 457
-------- --------
Total current liabilities 13,634 17,012
Long-term debt 4,683 4,601
Minority Interest 231 385
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized, none issued or outstanding - -
Common stock, $0.001 par value; 20,000,000 shares
authorized; issued and outstanding: 5,932,042 shares
at September 30, 1997 and 5,849,160 shares at
December 31, 1996 32,602 32,164
Accumulated deficit (2,359) (4,358)
-------- --------
Total stockholders' equity 30,243 27,806
-------- --------
$ 48,791 $ 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 For the nine months
ended September 30, ended September 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Products $ 16,622 $ 7,323 $ 37,541 $ 22,939
Services 892 559 1,813 2,245
-------- -------- -------- --------
Total revenues 17,514 7,882 39,354 25,184
Cost of revenues
Products 12,316 4,116 26,682 14,002
Services 383 295 999 946
-------- -------- -------- --------
Total cost of revenues 12,699 4,411 27,681 14,948
Gross profit 4,815 3,471 11,673 10,236
Operating costs
Selling, general & administrative expenses 1,868 1,792 4,941 4,665
Research & development 1,542 1,685 4,324 4,650
-------- -------- -------- --------
Total operating costs 3,410 3,477 9,265 9,315
Operating income 1,405 (6) 2,408 921
Other income (117) (28) (51) (100)
Interest income 173 206 498 765
Interest expense (322) (197) (712) (528)
-------- -------- -------- --------
Income from continuing operations, before
minority interest and income taxes 1,139 (25) 2,143 1,058
Income tax expense (158) 51 (298) (327)
-------- -------- -------- --------
Income from continuing operations
before minority interest 981 26 1,845 731
Minority interest in net loss of
consolidated subsidiary 82 26 154 106
-------- -------- -------- --------
Income from continuing operations 1,063 52 1,999 837
Income from and gain on sale
of discontinued operations - - - 88
-------- -------- -------- --------
Net income $ 1,063 $ 52 $ 1,999 $ 925
======== ======== ======== ========
Net income per share:
Continuing operations $ 0.17 $ 0.01 $ 0.02 $ 0.14
Discontinued operations - - - $ 0.01
-------- -------- -------- --------
Total net income per share: $ 0.17 $ 0.01 $ 0.32 $ 0.15
======== ======== ======== ========
Weighted average common shares and common
share equivalents used in determining
net income per share 6,270 6,044 6,194 6,013
======== ======== ======== ========
</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 nine months
ended September 30,
1997 1996
------- -------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 1,199 $(4,042)
------- -------
Cash flows provided by (used in) investing activities:
Proceeds from sale of discontinued operations 2,926
Net (increase) decrease in short-term investments (18) 1,200
Acquisition of property, plant and equipment (1,681) (562)
------- -------
Net cash provided by (used in) investing activities (1,699) 3,564
------- -------
Cash flows from financing activities:
Net (increase) decrease in long-term receivables 276 (896)
Proceeds from issuance of common stock 438 96
Net increase (decrease) in short-term borrowings (3,200) 4,800
Net increase in long-term debt 172 199
------- -------
Net cash (used in) provided by financing activities (2,314) 4,199
------- -------
Net increase (decrease) in cash and cash equivalents (2,814) 3,721
Cash and cash equivalents at beginning of period 9,148 4,145
------- -------
Cash and cash equivalents at end of period $ 6,334 $ 7,866
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
STM WIRELESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
1. BASIS OF PRESENTATION
These financial statements are unaudited; however, the information
contained herein for STM Wireless, Inc. (the "Company", or "STM") gives
effect to all adjustments (which are normal recurring accruals)
necessary, in the opinion of Company management, to present fairly the
financial statements for the interim periods presented.
The results of operations for the current interim period are not
necessarily indicative of the results to be expected for the current
year.
Although the Company believes that the disclosures in these financial
statements are adequate to make the information presented not
misleading, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission
(the "SEC"), and these financial statements should be read in
conjunction with the financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, which
is on file with the SEC.
2. DISCONTINUED OPERATIONS
Effective March 31, 1996 the Company sold its RF Microsystems subsidiary
to Remec, Inc. for cash in the amount of $2,926,000. The gain on the
sale has been accounted for as discontinued operations and prior period
financial statements have been restated to reflect discontinuance of
this segment of the business. A summary of operating results for
discontinued operations is shown below:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, September 30,
------------------------- --------------------------
1997 1996 1997 1996
---------- -------- --------- ----------
<S> <C> <C> <C> <C>
Net revenues $ - $ - $ - $1,216,000
=========== ========= ========== ==========
Net income from and gain
on sale of discontinued
operations, net of income taxes $ - $ - $ - $ 88,000
=========== ========= ========== ==========
</TABLE>
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3. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials $ 5,844 $ 5,512
Work in process 1,213 1,662
Finished goods 4,274 2.025
--------- ---------
$ 11,331 $ 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 effects of this change are not expected to
have a material effect on net income per share.
5. RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 consolidated
financial statements to conform to the 1997 presentation.
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. See Note 2 of Notes to Condensed Consolidated Financial
Statements and "Discontinued Operations" below.
In October 1997, Direc-To-Phone, International, Inc. ("DTPI"), a wholly
owned subsidiary of the Company, was awarded a 10-year service contract to
provide a nation-wide satellite network for telephony and data services in
Mexico. DTPI was established in 1996 for the purpose of offering fixed satellite
telephony and advanced data services in emerging markets. DTPI uses products
manufactured by STM to enter into service agreements with local partners for the
purpose of generating long-term cash flows.
Results of Operations
RESULTS OF CONTINUING OPERATIONS
Combined product and service revenues were $17,514,000 and $39,354,000,
respectively, for the three and nine-month periods ended September 30, 1997,
compared to $7,882,000 and $25,184,000, respectively, for the corresponding
periods of 1996, representing increases of 122% and 56%, respectively, over the
prior year periods. Product revenues were $16,622,000 and $37,541,000,
respectively, for the three and nine-month periods ended September 30, 1997,
compared to $7,323,000 and $22,939,000, respectively, for the corresponding
periods in 1996, representing increases of 127% and 64%, respectively, over the
prior year periods. The product revenue increases were primarily due to
shipments related to major contracts for rural telephony networks in Southeast
Asia and South America. Service revenues were $892,000 and $1,813,000,
respectively, for the three and nine-month periods ended September 30, 1997,
compared to $559,000 and $2,245,000, respectively, for the corresponding periods
in 1996, representing a 60% increase for the three month period and a 19%
decrease for the nine month period. A large component of service revenues is
program management which is subject to variations depending upon the structure
of services provided under particular
8
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contracts. Accordingly, the Company does not believe that period-to-period
comparisons of service revenue are meaningful.
Combined product and service gross profit margins in the three and
nine-month periods ended September 30, 1997, were 27% and 30%, respectively,
compared to 44% and 41%, respectively, for the comparable periods in 1996.
Product gross profit margins in the three and nine-month periods ended September
30, 1997, were 26% and 29%, respectively, compared to 44% and 39%, respectively,
for the comparable periods in 1996. The reduction in gross profit margins was in
line with Company expectations and was primarily due to relatively lower gross
margins earned on the large rural telephony contract in Southeast Asia. Service
gross profit margins in the three and nine-month periods ended September 30,
1997, were 57% and 45%, respectively, compared to 47% and 58%, respectively, for
the comparable periods in 1996. The differences in service gross profit margins
in both periods were due to the relative size of the contract management
component of services in each period. Service gross margins were in line with
Company expectations.
Selling, general, and administrative (SG&A) expenses for the three-month
period ended September 30, 1997, increased to $1,868,000 from $1,792,000, but
decreased as a percentage of revenue from 23% to 11%. For the nine months ended
September 30, 1997, such expenses increased to $4,941,000 from $4,665,000, but
decreased as a percentage of revenue from 19% to 13%. SG&A expenses tend to be
semi-fixed relative to sales, and the dollar increases in expenditures in both
periods in 1997 were in line with Company expectations.
Research and development expenses for the three-month period ended
September 30, 1997, decreased to $1,542,000, or 9% of revenues, from $1,685,000,
or 21% of revenues, in the corresponding period of 1996. For the nine-month
period ended September 30, 1997, such expenses decreased to $4,324,000, or 11%
of revenues, from $4,650,000, or 18% of revenues, in the corresponding period in
1996. The decreases were primarily related to reduced expenditures for outside
engineering services. Expenditures for outside engineering services are subject
to wide fluctuations, depending upon the nature and stages of various projects.
Interest income decreased by $33,000 to $173,000 for the three-month
period ended September 30, 1997. Interest income decreased by $267,000 to
$498,000 for the nine-month period ended September 30, 1997, over the nine-month
period ended September 30, 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 increased by $125,000 to $322,000 for the three-month
period ended September 30, 1997, over the three-month period ended September 30,
1996. Interest expense increased by $184,000 to $712,000 for the nine-month
period ended September 30, 1997, over the nine-month period ended September 30,
1996. The increases were primarily due to interest expense incurred as a result
of discounting customer letters of credit.
9
<PAGE> 10
DISCONTINUED OPERATIONS
Effective March 31, 1996 , the Company sold all the outstanding common
stock of RF Microsystems, Inc., its wholly owned subsidiary, for $2,926,000 cash
to Remec, Inc.. A summary of operating results for discontinued operations is
shown below:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, September 30,
------------------------------ ---------------------------
1997 1996 1997 1996
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues $ - $ - $ - $1,216,000
============= ============ ============ ==========
Net income from and gain
on sale of discontinued
operations, net of income taxes $ - $ - $ - $ 88,000
============= ============ ============ ==========
</TABLE>
Liquidity and Capital Resources
For the first nine months of 1997, the Company had positive cash flows
from operations of $1,199,000, compared to negative cash flows of $4,042,000 in
the same period of 1996. The increase in cash flows was primarily due to net
income and a reduction in accounts receivable, partially offset by increased
investment in inventories, increases in prepaid expenses, and decreases in
accounts payable and accrued liabilities
Cash used in acquisition of fixed assets in the first nine months of
1997 totaled $1,681,000. A net increase in short-term investments used $18,000.
Cash used in financing activities during the first nine months of 1997
totaled $2,314,000. A net reduction in short-term borrowings used $3,200,000 and
a net increase in long-term debt provided $172,000. A decrease in long-term
receivables provided $276,000 and proceeds from issuance of common stock related
to the exercise of stock options totaled $438,000.
Overall, the Company's cash, cash equivalents and short-term investments
totaled $10,861,000 at September 30, 1997, as compared to $13,657,000 at
December 31, 1996. In connection with the award of the 10-year service contract
in Mexico, and due to the capital intensive nature of the contract and other
contracts that DTPI may be awarded in the future, the Company is reviewing
financing alternatives to enable it to pursue these business opportunities in
the most beneficial manner. However, there is no guarantee that such financing
will be available under terms acceptable to the Company. 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.
10
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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 ENDED 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.
11
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PART II -- OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits -
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STM Wireless, Inc.
Date: November 12, 1997 By: JOSEPH WALLACE
---------------------------------------------
Joseph Wallace
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
13
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EXHIBIT INDEX
(a) Exhibits -
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,334
<SECURITIES> 4,527
<RECEIVABLES> 11,057
<ALLOWANCES> 683
<INVENTORY> 11,331
<CURRENT-ASSETS> 35,970
<PP&E> 14,026
<DEPRECIATION> 4,870
<TOTAL-ASSETS> 48,791
<CURRENT-LIABILITIES> 13,634
<BONDS> 4,683
0
0
<COMMON> 32,602
<OTHER-SE> (2,359)
<TOTAL-LIABILITY-AND-EQUITY> 30,243
<SALES> 16,622
<TOTAL-REVENUES> 17,514
<CGS> 12,316
<TOTAL-COSTS> 12,699
<OTHER-EXPENSES> 3,410
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 322
<INCOME-PRETAX> 1,139
<INCOME-TAX> 158
<INCOME-CONTINUING> 1,063
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,063
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
