<PAGE>
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, 2000
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)
(949) 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 May 15, 2000, there were 7,145,225 shares of Common Stock, $0.001 par
value per share, outstanding.
Page 1 of 1
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STM WIRELESS, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at March 31, 2000
and December 31, 1999.........................................3
Condensed Consolidated Statements of Operations for the
three month periods ended March 31, 2000 and March 31, 1999...4
Condensed Consolidated Statements of Cash Flows for the three
month periods ended March 31, 2000 and March 31, 1999.........5
Notes to Condensed Consolidated Financial Statements.......6-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................11-15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK............................................15
PART II. OTHER INFORMATION....................................................17
ITEM 1. LEGAL PROCEEDINGS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2
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PART I - FINANCIAL INFORMATION (ITEM 1 - FINANCIAL STATEMENTS)
STM WIRELESS, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,593 $ 4,441
Restricted cash and short-term investments 2,707 2,615
Accounts receivable, net 7,508 7,841
Inventories, net 10,827 11,069
Prepaid expenses and other current assets 462 250
---------- -----------
Total current assets 30,097 26,216
Property & equipment, net 7,732 7,964
Equity and other investments 157 157
Other assets 173 141
---------- -----------
$ 38,159 $ 34,478
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,497 $ 2,000
Current portion of long-term debt 523 542
Accounts payable 4,569 5,967
Accrued liabilities 4,614 4,214
Customer deposits and deferred revenue 10 7
Income taxes payable 490 490
---------- -----------
Total current liabilities 13,703 13,220
Long-term debt 6,972 7,049
Other long-term liabilities 762 762
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 7,144,225 shares
at March 31, 2000 and 7,042,204 at December 31, 1999 7 7
Additional paid in capital 38,878 38,140
Accumulated deficit (22,163) (24,700)
---------- -----------
Total stockholders' equity 16,722 13,447
---------- -----------
$ 38,159 $ 34,478
========== ===========
</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,
2000 1999
---- ----
<S> <C> <C>
Revenues:
Products $ 3,235 $ 2,626
Services 582 465
---------- ----------
Total revenues 3,817 3,091
Cost of revenues:
Products 2,019 3,334
Services 504 1,086
---------- ----------
Total cost of revenues 2,523 4,420
Gross profit (loss) 1,294 (1,329)
Operating costs and other operating items:
Selling, general & administrative expenses 1,347 3,010
Research & development 1,262 1,516
Recovery of note receivable from affiliate (3,175) --
Restructuring costs -- 617
---------- ----------
Total (566) 5,143
Operating income (loss) 1,860 (6,472)
Other income -- 67
Gain on disposal of affiliate 575 --
Foreign currency devaluation costs 6 (1,554)
Interest income 257 266
Interest expense (161) (511)
---------- ----------
Income (loss) before income taxes and minority interest 2,537 (8,204)
Income tax expense -- --
----------- ----------
Income (loss) before minority interest 2,537 (8,204)
Minority interest expense -- (150)
Equity in net loss of unconsolidated affiliate -- (109)
----------- ----------
Net income (loss) $ 2,537 $ (8,463)
=========== ==========
Net income (loss) per common share:
BASIC $ 0.36 $ (1.20)
=========== ==========
DILUTED $ 0.33 $ (1.20)
=========== ==========
Common shares used in computing per share amounts:
BASIC 7,095 7,042
DILUTED 7,595 7,042
</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>
Three Months
Ended March 31,
2000 1999
---- ----
<S> <C> <C>
Net cash provided by operations $ 1,743 $ 96
----------- -----------
Cash flows from investing activities:
Net decrease in short-term investments -- 494
Increase in restricted assets (92) (1,034)
Acquisition of property and equipment (144) (164)
Equity and other investments -- (827)
Cash proceeds from disposal of affiliate 575 --
----------- -----------
Net cash provided by (used in) investing activities 339 (1,531)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 644 --
Net increase in short-term borrowings 1,497 --
Increase (repayment) of long-term debt (77) 23
----------- -----------
Net cash provided by financing activities 2,064 23
----------- -----------
Effect of exchange rate changes on cash and cash
equivalents 6 (734)
Net increase (decrease) in cash and cash equivalents 4,152 (2,146)
Cash and cash equivalents at beginning of period 4,441 11,016
----------- -----------
Cash and cash equivalents at end of period $ 8,593 $ 8,870
=========== ===========
</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, 2000 AND 1999
(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 necessary (consisting only of normal accruals),
in the opinion of Company management, to present fairly the financial
statements for the interim periods presented.
The results for the three months ended March 31, 1999, include the
results of Direc-To-Phone International, Inc. ("DTPI"). As a result of STM
reducing its ownership in DTPI in June 1999, the Company discontinued
consolidating the results of DTPI from that date. See note 6.
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 condensed consolidated 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, 1999, which is on file
with the SEC.
2. INVENTORIES:
Inventories are summarized as follows:
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
Raw materials $ 5,231 $ 6,091
Work in process 2,670 590
Finished goods 2,926 4,388
------------ ------------
$ 10,827 $ 11,069
============ ============
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3. NET INCOME (LOSS) PER SHARE:
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---- ----
<S> <C> <C>
Net income (loss) $ 2,537 $ (8,463)
=========== =========
BASIC:
Weighted average common shares outstanding used
in computing basic net income (loss) per share 7,095 7,042
=========== =========
Basic net income (loss) per share $ 0.36 (1.20)
=========== =========
DILUTED:
Weighted average common shares outstanding 7,095 7,042
Dilutive options outstanding 500 -
----------- ----------
Shares used in computing diluted net income (loss) per share
7,595 7,042
=========== ==========
Diluted net income (loss) per share $ 0.33 $ (1.20)
=========== ==========
</TABLE>
At March 31, 2000, options to purchase 77,150 shares of common
stock were not included in the computation of diluted net income per
share because the options' exercise price was greater than the average
market price of the common shares, and therefore, the effect would be
antidilutive. Options to purchase 1,392,598 shares of common stock were
outstanding at March 31, 1999, and were excluded from the computation
of diluted net loss per share as the effect would have been
antidilutive.
4. NEW ACCOUNTING STANDARDS:
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133,
as amended by SFAS 137, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. SFAS 133 establishes accounting
and reporting standards for derivative instruments including derivative
instruments embedded in other contracts and for hedging activities.
Adoption of SFAS 133 is not expected to have a material impact on the
Company's consolidated financial position, results of operations or
liquidity.
In December 1999, the United States Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements," as amended, which for the Company
is effective April 1, 2000. SAB No. 101 summarizes certain of the SEC
staff's views regarding the appropriate recognition of revenue in
financial statements. The Company believes that adoption of SAB No. 101
will have no material impact on its financial statements.
7
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5. GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION:
The Company operates in one principal industry segment: the design,
manufacture and provision of wireless-based satellite communications
infrastructures.
<TABLE>
<CAPTION>
Revenues by geographic area: Three Months Ended March 31,
2000 1999
---- ----
Total: (dollars in thousands)
<S> <C> <C>
United States $ 1,486 $ 150
Asia 1,035 890
Latin & South America 732 1,365
Africa & Middle East 401 611
Europe 163 75
-------- --------
Total revenues $ 3,817 $ 3,091
======== ========
<CAPTION>
Three Months Ended March 31,
Products: 2000 1999
---- ----
<S> <C> <C>
United States $ 1,382 $ 67
Asia 843 737
Latin & South America 579 1,232
Africa & Middle East 368 574
Europe 63 16
-------- --------
Total $ 3,235 $ 2,626
======== ========
<CAPTION>
Three Months Ended March 31,
Services: 2000 1999
---- ----
<S> <C> <C>
United States $ 104 $ 83
Asia 192 153
Latin & South America 153 133
Africa & Middle East 33 37
Europe 100 59
-------- --------
Total $ 582 $ 465
======== ========
</TABLE>
Product sales to DTPI for the three months ended March 31, 2000, were
approximately $1,013,000. DTPI revenues for the three months ended March
31, 1999, were approximately $990,000. (See notes 1 and 6).
8
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<TABLE>
<CAPTION>
Three Months Ended March 31,
Operating income (loss) by geographic area: 2000 1999
---- ----
<S> <C> <C>
United States $ 1,759 $ (4,928)
Asia 41 (208)
Latin & South America 60 (1,336)
Africa & Middle East -- --
Europe -- --
------- --------
Total $1,860 $ (6,472)
======= ========
</TABLE>
Operating income for the three months ended March 31, 2000 includes the
recovery of a note receivable of $3,175,000 that has been included as part of
operating income for the United States. See note 6.
The operating loss for DTPI for the three months ended March 31, 1999, was
approximately $2,200,000.
<TABLE>
<CAPTION>
March 31, December 31,
Identifiable assets by geographic area: 2000 1999
---- ----
<S> <C> <C>
United States $33,128 $ 32,220
Asia 1,054 926
Latin & South America 3,977 1,332
Africa & Middle East -- --
Europe -- --
-------- --------
Total $ 38,159 $ 34,478
======== ========
</TABLE>
6. RECOVERY OF NOTE RECEIVABLE FROM AFFILIATE AND GAIN ON DISPOSAL OF AFFILIATE:
On March 28, 2000, DTPI completed a $45 million financing which
reduced STM's ownership to approximately 15% of DTPI on a fully diluted
basis. Coinciding with this financing, STM received $3,750,000 in cash from
DTPI representing a partial repayment of a $7,500,000 note receivable from
DTPI. The remaining balance of the note receivable, which is fully
reserved, will be converted into preferred stock of DTPI, 60 days after the
close of the financing.
The $7,500,000 note receivable from DTPI was fully reserved through a
combination of the Company's equity interest in the losses of DTPI recorded
through June 17, 1999, and additional provisions effectively made at the
date of deconsolidation on June 17, 1999. The total recovery on the note of
$3,750,000 is reflected on two line items in the income statement:
$3,175,000 is shown in operating income as a "Recovery of note receivable
from affiliate; and $575,000 is reflected as non-operating income under the
caption "Gain on disposal of affiliate". The portion treated as "Gain on
disposal of affiliate" was the portion of the reserve that was effectively
established at the date of
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deconsolidation. The remaining portion was reported as operating income as
the reserve against the note through June 17, 1999, was originally recorded
through losses from operations.
7. SHORT-TERM BORROWINGS:
On March 27, 2000, the Company completed a new revolving line of
credit for approximately $3,300,000 of which $2,800,000 is available for
on-going working capital requirements.
Availability to borrow the $2,800,000 is based upon a percentage of
eligible inventory and accounts receivable. Borrowings under the line of
credit at March 31, 2000, were approximately $1,500,000. The lender was
granted a security interest in substantially all of the Company's assets.
10
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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
developer, manufacturer, supplier and provider of wireless-based satellite
communications infrastructure and user terminal products utilized in public and
private telecommunications networks for broadband and telephony applications.
These networks support IP based data, fax, voice and video communication and are
used to either bypass or extend terrestrial networks. The Company's product line
is based on proprietary hardware and software and primarily consists of two-way
earth stations sometimes referred to as VSATs (very small aperture terminals),
associated infrastructure equipment and software. The Company's proprietary
equipment and software are utilized by businesses, government agencies and
telephone companies in Europe, the Americas, Africa and Asia.
RESULTS OF OPERATIONS:
The results of operations for the three months ended March 31, 1999 include
the results of DTPI, the Company's former subsidiary.
Total revenues were $3,817,000 for the three-month period ended March 31,
2000, compared to $3,091,000 for the corresponding period of 1999, an increase
of 23%. Product revenues were $3,235,000 for the three-month period ended March
31, 2000, compared to $2,626,000 for the corresponding period in 1999, an
increase of 23%. Service revenues were $582,000 for the three-month period ended
March 31, 2000, compared to $465,000 for the corresponding period of 1999, an
increase of 25%.
Product revenues for the three months ended March 31, 2000 included
approximately $1,013,000 of sales to DTPI. Product revenues for the three months
ended March 31, 1999 included sales of approximately $990,000 by DTPI.
Service revenues for the three months ended March 31, 2000 were positively
impacted by an increased number of projects earning service revenues in 2000
compared to the corresponding period of 1999. However, the level of service
revenue can vary period on period, depending upon the level of service revenue
for a given project.
The 23% increase in total revenues for the three months ended March 31,
2000 compared to the corresponding period of 1999 is the first quarter on
quarter increase in revenues that the Company has achieved since the fourth
quarter of 1998. However, due to the low level of revenues in both the three
months ended March 31, 2000 and 1999, and the fact that revenues in the three
months ended March 31, 2000 are lower than the revenues earned in the three
months ended December 31, 1999, it is premature to conclude if this is a trend
that the Company can continue in future quarters. In addition, the Company's
revenues in total and by region can vary significantly depending upon the timing
of projects and the value of individual projects.
11
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The total gross profit margin in the three-month period ended March 31,
2000 was 34% compared to negative 43% for the comparable period in 1999.
Excluding DTPI, the gross profit for the three months ended March 31, 1999 would
have been negative 9%. Product gross profit margin in the three-month period
ended March 31, 2000 was 38% compared to negative 6% for the comparable period
in 1999 excluding DTPI. The improved product gross profit percentage in 2000
reflects higher margins earned on sales of the Company's lower cost products, a
reduced level of relatively fixed costs associated with program management, as
well as a higher factory throughput compared with the corresponding period of
the prior year. The service gross profit in the three months ended March 31,
2000 was 13% compared with negative 20% for the three months ended March 31,
1999 excluding DTPI and reflects a relatively lower level of spares amortization
and customer support costs in 2000. The decrease in program management and
customer service costs in 2000 compared to 1999 is primarily due to the cost
reduction program that the Company implemented in the first and second quarters
of 1999.
Selling, general and administrative expenses (SG&A) for the three-month
period ended March 31, 2000 decreased by $1,663,000 to $1,347,000 or 35% of
revenues, from $3,010,000, or 97% of revenues, in the corresponding period of
1999. Excluding DTPI in 1999, SG&A would have been $2,233,000. The decrease in
SG&A in 2000 compared to 1999 was primarily due to the cost reduction programs
implemented by the Company in the first and second quarters of 1999.
Research and development (R&D) expenses for the three-month period ended
March 31, 2000 decreased to $1,262,000, or 33% of total revenues, from
$1,516,000, or 49% of total revenues, in the corresponding period of 1999. The
decrease in R&D costs compared to the corresponding period of the prior year
reflects cost reductions arising due to completion of the development of the
Company's low cost SpaceWeb and SES products.
The recovery of the note receivable from affiliate of $3,175,000 relates to
the $3,750,000 received from DTPI as a result of DTPI's recent financing. See
note 6 to the condensed consolidated financial statements. $3,175,000 of this
recovery was classified as part of operating income and the balance of $575,000
was classified as a gain on disposal of affiliate in the accompanying condensed
consolidated financial statements for the three months ended March 31, 2000.
The restructuring costs of $617,000 recognized in the three months ended
March 31, 1999, comprised severance costs associated with approximately 30
terminated employees, the write-off of assets in the Company's Brazilian
subsidiary and an accrual for the estimated costs associated with lease
commitments, a certain portion of which had been determined to be in excess of
current requirements. All restructuring related accruals had been paid as of
December 31, 1999.
The foreign currency devaluation costs of $1,554,000 recognized in the
three months ended March 31, 1999, arose primarily from the devaluation of the
Brazilian Real and comprised losses on cash balances, on certain account
receivable balances (where the Company had negotiated a settlement of its
long-term receivable due to the currency devaluation) and on other
12
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accounts receivable balances (where the customer had partially compensated the
Company for the reduction in the value of the Brazilian Real). The Company
reduced its exposure to foreign currency losses subsequent to March 31, 1999.
Interest income decreased by $9,000 to $257,000 for the three-month period
ended March 31, 2000, compared with $266,000 for the three-month period ended
March 31, 1999. Excluding DTPI from 1999, interest income would have increased
by $134,000 in 2000 compared to 1999. The increase in interest income excluding
DTPI was primarily due to interest earned and recognized on the note receivable
from DTPI (see note 6 to the condensed consolidated financial statements) in
2000 compared to 1999 as a result of STM deconsolidating DTPI in June 1999. In
1999, the interest on such note was eliminated on consolidation.
Interest expense decreased by $350,000 to $161,000 for the three-month
period ended March 31, 2000, over the three-month period ended March 31, 1999.
The decrease was primarily due to a lower average level of short-term borrowings
in 2000 as compared to 1999 as a result of the Company fully repaying its line
of credit with its former lender in December 1999, partially offset by a higher
level of long term debt as a result of the Company refinancing its corporate
headquarters in the fourth quarter of 2000.
The absence of a tax provision in 2000 is due to continued prior year net
operating losses available to the Company to offset current year income. No tax
provision was recorded in 1999 due to losses in the period.
The minority interest charge in 1999 relates to accrued dividends on the
mandatory redeemable shares issued in March 1998 by DTPI. No comparable balance
exists in 2000 due to the June 1999 deconsolidation of DTPI by STM.
The equity in the net loss of unconsolidated affiliate in 1999 represented
the Company's share of the losses of DTPI's Venezuelan affiliate which was
accounted for under the equity method. No comparable balance exists in 2000 due
to the June 1999 deconsolidation of DTPI by STM.
LIQUIDITY AND CAPITAL RESOURCES:
On March 27, 2000, the Company completed a new revolving line of credit
facility of approximately $3,300,000 of which $2,800,000 is available for
on-going working capital requirements. Borrowings under this line of credit at
March 31, 2000 were approximately $1,500,000.
Coinciding with the DTPI financing, the Company received $3,750,000 from
DTPI in cash representing 50% of a note receivable of $7,500,000 due from DTPI.
See note 6 to the condensed consolidated financial statements.
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For the first three months of 2000, the Company had positive cash flows
from operating activities of $1,743,000, compared to $96,000 in the same period
of 1999. The positive cash flows in 2000 are primarily due to the $3,175,000
portion of the $3,750,000 note recovery from DTPI shown as operating income
partially offset by a decrease in accounts payable and losses for the period.
Cash flows from investing activities in the first three months of 2000
totaled $339,000, comprising an increase in restricted cash and short-term
investments, the acquisition of property plant and equipment offset by the
$575,000 non operating cash proceeds from DTPI.
Cash provided by financing activities during the first three months of 2000
totaled $2,064,000, comprising an increase in short term borrowings under the
new line of credit, proceeds from the issuance of stock upon the exercise of
stock options partially offset by repayments of long-term debt.
Overall, the Company's cash and cash equivalents totaled $8,593,000 at
March 31, 2000, as compared to $4,441,000 at December 31, 1999.
Management expects to have sufficient cash generated from operations,
through availability under lines of credit, cash received from DTPI and through
other sources to meet the anticipated cash requirements for the next twelve
months.
NEW ACCOUNTING STANDARDS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133, as amended by SFAS 137, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS 133 establishes accounting and reporting standards for derivative
instruments including derivative instruments embedded in other contracts and for
hedging activities. Adoption of SFAS 133 is not expected to have a material
impact on the Company's consolidated financial position, results of operations
or liquidity.
In December 1999, the United States Securities and Exchange Commission
issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements," as amended, which for the Company is effective April 1,
2000. SAB No. 101 summarizes certain of the SEC staff's views regarding the
appropriate recognition of revenue in financial statements. The Company believes
that adoption of SAB No. 101 will have no material impact on its financial
statements.
14
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YEAR 2000:
The Company has experienced no material disruption in the operation of its
business as a result of the transition from 1999 to 2000. The Company estimates
that it spent less than $1 million in out-of-pocket expenses through December
31, 1999, to address the year 2000 issue. The Company continues to monitor the
year 2000 issue. It is possible that year 2000 problems (or leap year issues)
may become evident as the year progresses. Such issues could have a material
adverse impact on the Company's results of operations, financial condition and
cash flows if the Company is unable to conduct its business in the ordinary
course.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
To avoid the risk of fluctuating exchange rates associated with
international sales, the Company conducts most international sales in United
States currency. However, prior to the devaluation of the Brazilian currency in
January 1999, the Company had generated revenues in Brazil based in the local
currency of Brazil. While the contracts relating to such arrangements generally
contained provisions that called for payments to be adjusted to take into
account fluctuations in foreign currency exchange rates, the Company's customers
in Brazil have expressed an unwillingness to adjust contract amounts to fully
reflect the exchange rate fluctuations. Brazilian counsel has advised the
Company that there is uncertainty as to the enforceability of provisions that
tie payments to foreign currency rates. The Company, therefore, whenever
possible, negotiates sales from Brazilian customers in U.S. dollars to avoid any
uncertainty as to the value of receivables although there are certain remaining
foreign currency denominated balances of approximately $800,000. The Company's
interest income and expense is sensitive to fluctuations in the general level of
U.S. interest rates. Changes in U.S. interest rates affect the interest earned
on the Company's cash and cash equivalents and the interest expense on the
Company's debt.
The Company does not use derivative financial instruments in its investment
portfolio.
RISK FACTORS AND FORWARD LOOKING STATEMENTS:
THIS DOCUMENT 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 FORWARD
LOOKING STATEMENTS, ORALLY OR IN WRITING. THE WORDS "ESTIMATE", "PROJECT",
"POTENTIAL", "INTENDED", "EXPECT", "BELIEVE" AND SIMILAR EXPRESSIONS OR WORDS
ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED OR SUGGESTED IN ANY FORWARD LOOKING STATEMENTS
AS A RESULT OF A WIDE VARIETY OF FACTORS AND CONDITIONS, AMONG OTHERS, LACK OF
LIQUIDITY AND WORKING CAPITAL, INABILITY TO RAISE DEBT OR EQUITY FINANCING, 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, THE EFFECTS OF
THE YEAR 2000 ISSUES, POLITICAL AND ECONOMIC RISKS INVOLVED IN FOREIGN MARKETS
AND FOREIGN CURRENCIES AND THE TIMING OF OPERATING AND
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OTHER EXPENDITURES. REFERENCE IS HEREBY MADE TO "RISK FACTORS" IN THE COMPANY'S
FOR 10-K FOR THE YEAR ENDED DECEMBER 31, 1999.
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.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - 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 March 31,
1999, 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 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K on February 11, 2000 in which
the Company announced the election of Dr. Mark Shahriary to its Board
of Directors and the resignation of Laurance D. Lenihan Jr. as a
director of the Company.
17
<PAGE>
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 19, 2000 By: JOSEPH WALLACE
--------------------
Joseph Wallace
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
18
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