<PAGE> 1
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 quarterly period ended June 30, 1997 or
- ----- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from_____________ to_____________
Commission file number 0-19903
METRICOM, INC.
(A Delaware Corporation)
I.R.S. Employer Identification #77-0294597
980 University Avenue
Los Gatos, CA 95030-2375
(408) 399-8200
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 reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of common stock outstanding as of August 12, 1997
was 13,675,756.
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TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations 8
Liquidity and Capital Resources 10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE PAGE 13
EXHIBIT INDEX 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METRICOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 5,982 $ 15,246
Short-term investments ................................. 21,356 46,825
Accounts receivable, net ............................... 2,740 1,126
Inventories ............................................ 4,263 3,115
Prepaid expenses and other ............................. 1,931 1,744
--------- ---------
Total current assets ............................... 36,272 68,056
PROPERTY AND EQUIPMENT, net .............................. 31,862 26,776
LONG-TERM INVESTMENTS .................................... 2,995 3,150
OTHER ASSETS ............................................. 2,124 3,817
--------- ---------
Total assets ....................................... $ 73,253 $ 101,799
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................... $ 3,513 $ 5,517
Accrued liabilities .................................... 5,428 4,801
--------- ---------
Total current liabilities .......................... 8,941 10,318
--------- ---------
LONG-TERM DEBT ........................................... 45,000 45,000
OTHER LIABILITIES ........................................ 807 768
MINORITY INTEREST ........................................ 4,598 2,407
STOCKHOLDERS' EQUITY:
Common stock ........................................... 14 14
Additional paid-in capital ............................. 133,792 133,298
Unrealized holding loss on investments ................. (19) (36)
Accumulated deficit .................................... (119,880) (89,970)
--------- ---------
Total stockholders' equity ......................... 13,907 43,306
--------- ---------
Total liabilities and stockholders' equity ......... $ 73,253 $ 101,799
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
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METRICOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, 1997 JUNE 28, 1996 JUNE 30, 1997 JUNE 28, 1996
------------- ------------- ------------- -------------
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REVENUES:
Service revenues ............. $ 2,209 $ 299 $ 3,373 $ 539
Product revenues ............. 2,533 2,305 3,163 3,718
-------- -------- -------- --------
Total revenues ........... 4,742 2,604 6,536 4,257
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of service revenues ..... 6,792 4,249 13,674 7,477
Cost of product revenues ..... 1,412 1,220 1,687 1,946
Research and development ..... 2,868 2,419 5,889 4,615
Selling, general and
administrative ............ 5,387 3,871 10,764 7,282
Provision for Overall Wireless 3,611 -- 3,611 --
-------- -------- -------- --------
Total costs and expenses .... 20,070 11,759 35,625 21,320
-------- -------- -------- --------
Loss from operations ....... (15,328) (9,155) (29,089) (17,063)
INTEREST EXPENSE ............... 1,172 -- 2,131 --
INTEREST INCOME ................ 549 676 1,310 1,486
-------- -------- -------- --------
Net loss ................... $(15,951) $ (8,479) $(29,910) $(15,577)
======== ======== ======== ========
NET LOSS PER SHARE ............. $ (1.17) $ (0.63) $ (2.20) $ (1.17)
======== ======== ======== ========
WEIGHTED AVERAGE
SHARES OUTSTANDING ........ 13,601 13,368 13,591 13,342
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
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METRICOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
JUNE 30, JUNE 28,
1997 1996
-------- --------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................ $(29,910) $(15,577)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization ............................... 3,819 1,437
Provision for Overall Wireless .............................. 3,611 --
Increase in accounts receivable,
prepaid expenses and other current assets ................. (1,362) (1,849)
(Increase) decrease in inventories .......................... (1,148) 656
(Decrease) increase in accounts payable, accrued liabilities,
customer deposits and other ............................... (1,338) 1,093
-------- --------
Net cash used in operating
activities ............................................ (26,328) (14,240)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ............................. (9,228) (4,158)
Increase in other assets ........................................ (2,034) (1,291)
Sales of short-term and long-term
investments .................................................. 25,641 18,749
-------- --------
Net cash provided by investing activities ............... 14,379 13,300
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock .......................... 494 716
Contributions from minority interest ............................ 2,191 1,103
-------- --------
Net cash provided by financing activities ............... 2,685 1,819
-------- --------
NET (DECREASE) INCREASE IN CASH AND
EQUIVALENTS ..................................................... (9,264) 879
CASH AND EQUIVALENTS, BEGINNING OF PERIOD ......................... 15,246 5,201
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD ............................... $ 5,982 $ 6,080
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
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METRICOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Metricom, Inc. (the
"Company") presented in this Form 10-Q are unaudited. In the opinion of
management, the accompanying condensed consolidated financial statements reflect
all normal recurring adjustments necessary for a fair presentation of operations
for the three- and six-month periods ended June 30, 1997 and June 28, 1996.
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. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes thereto incorporated by reference in the Company's
Annual Report on Form 10-K, as amended, for the year ended December 31, 1996, as
filed with the Securities and Exchange Commission.
Certain amounts have been restated from the previously reported
balances to conform to the 1997 presentation. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The results of operations for the three- and six-month periods ended
June 30, 1997 and June 28, 1996 are not necessarily indicative of the results
expected for the full fiscal year or for any other fiscal period.
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and include purchased parts, labor and manufacturing overhead.
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
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Raw materials $2,231 $ 656
Work-in-progress 691 1,606
Finished goods 1,341 853
------ ------
Total $4,263 $3,115
====== ======
</TABLE>
6
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NOTE 3. NET LOSS PER SHARE
Net loss per share has been computed using the weighted average number
of shares of common stock outstanding. Common equivalent shares from options and
warrants to purchase common stock have been excluded from the calculation as
their effect would be anti-dilutive.
NOTE 4. OPTION TO ACQUIRE OVERALL WIRELESS COMMUNICATIONS CORPORATION
In February 1996, the Company purchased an option to acquire Overall
Wireless Communications Corporation ("Overall Wireless"), a corporation that
holds a nationwide, wireless communications license issued by the Federal
Communications Commission (the "FCC") with respect to 50 kHz of radio spectrum
in the 220 to 222 MHz frequency band. The Company paid $700,000 for the option
and agreed to loan Overall Wireless up to $2 million for the construction of a
system utilizing the license, of which approximately $1.9 million has already
been loaned. In January 1997, the Company paid $500,000 to extend the option
from January 1997 to July 1997. In July 1997, the option was extended to August
31, 1997 for no additional payment. The additional consideration payable upon
exercise of the option includes a combination of cash and stock valued at $7.3
million in the aggregate. The Company's ability to exercise the option is
conditioned upon the occurrence of a number of events, including approval by the
FCC of the transfer of the license. There can be no assurance that these
conditions will be met prior to expiration of the option. If the option expires
unexercised under certain circumstances, the Company may be required to pay a
termination fee of up to $2 million, which would be paid primarily through
cancellation of the indebtedness of Overall Wireless. In June 1997, the Company
recorded a charge of $3.6 million to fully reserve its investment in Overall
Wireless due to uncertainties regarding its realization.
NOTE 5. NEW ACCOUNTING STANDARDS
In February 1997, Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share"("SFAS 128") was issued. SFAS 128 replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share, which excludes dilution. SFAS 128 also requires dual presentation of
basic and diluted earnings per share on the face of the income statement for all
entities with a complex capital structure. Diluted earnings per share is
computed similarly to fully diluted earnings per share pursuant to APB No. 15.
SFAS 128 must be adopted for financial statements issued for interim and annual
periods ending after December 15, 1997. If SFAS 128 had been applied during the
three- and six-month periods ended June 30, 1997 and June 28, 1996, basic
earnings per share and diluted earnings per share would equal earnings per share
as presented.
In July 1997, SFAS No. 130 ("SFAS 130"), "Reporting Comprehensive
Income" was issued and is effective for fiscal years ending after December 15,
1997. The adoption is not expected to have a material effect on the financial
statements.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Except for historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, uncertainty of market acceptance of the Company's products and
services, availability of sufficient financial, management, technical and
marketing resources, technological feasibility and availability of the Company's
Ricochet(R) radios and modems, the ability of the Company to lease or acquire
sites for the location of its network infrastructure and those factors discussed
in the section entitled "Risk Factors" and elsewhere in the Company's Form 10-K,
as amended, for the year ended December 31, 1996, as well as those elsewhere in
this Form 10-Q.
RESULTS OF OPERATIONS
Revenues
Revenues consist of service and product revenues. Service revenues are
derived from the subscriber fees and modem rentals for Ricochet and fees for
UtiliNet(R) customer support and are recognized ratably over the service period.
Product revenues are derived from the sale of UtiliNet products and Ricochet
modems and are recognized upon shipment.
Total revenues increased to $4.7 million in the second quarter of 1997
and to $6.5 million for the first six months of 1997 from $2.6 million in the
second quarter of 1996 and $4.3 million for the first six months of 1996.
Service revenues increased to $2.2 million in the second quarter of 1997 and to
$3.4 million for the first six months of 1997 from $299,000 in the second
quarter of 1996 and $539,000 for the first six months of 1996. The increase in
service revenues is primarily due to increased Ricochet subscriber fees and
modem rentals resulting from a larger Ricochet subscriber base. Product revenues
increased slightly to $2.5 million in the second quarter of 1997 and decreased
to $3.2 million for the first six months of 1997 compared to $2.3 million in the
second quarter of 1996 and $3.7 million for the first six months of 1996. The
changes in product revenues were primarily due to the timing of shipments of
UtiliNet products.
8
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Cost of Revenues
Cost of service revenues increased to $6.8 million in the second
quarter of 1997 from $4.2 million in the second quarter of 1996 and increased to
$13.7 million for the first six months of 1997 from $7,5 million in the
comparable period of 1996. Cost of service revenues are primarily costs incurred
to deploy and operate Ricochet networks, the cost to obtain site agreements for
the Company's network infrastructure, the cost of providing customer support,
certain costs associated with manufacturing the Company's network components and
depreciation of modems rented to Ricochet subscribers. The increase in 1997 is
primarily due to higher Ricochet network operating expenses resulting from
increases in the Ricochet service territory during 1997 and higher customer
service expenses and depreciation of modems rented to Ricochet subscribers as a
result of the larger Ricochet subscriber base in 1997. These increases were
partially offset by a reduced level of activity to obtain site agreements in the
second quarter of 1997 as compared to the same period in 1996. The cost of
service revenues is expected to continue at the current level for the
foreseeable future.
Cost of product revenues increased to $1.4 million in the second
quarter of 1997 from $1.2 million in the second quarter of 1996 and decreased to
$1.7 million for the first six months of 1997 from $1.9 million in the
comparable period of 1996. The changes were primarily due to changes in product
revenues in 1997 as compared to 1996.
Research and Development
Research and development expenses increased to $2.9 million in the
second quarter of 1997 and to $5.9 million for the first six months of 1997 from
$2.4 million in the second quarter of 1996 and from $4.6 million for the first
six months of 1996. Research and development activities include enhancements to
the technology employed by the Company's current networks and development of an
ISDN speed network and Ricochet modems. The Company plans to continue a high
level of investment in research and development in the foreseeable future.
Selling, General and Administrative
Selling, general and administrative expenses increased to $5.4 million
for the second quarter of 1997 and to $10.8 million for the first six months of
1997 from $3.9 million for the second quarter of 1996 and from $7.3 million for
the first six months of 1996. The increases were primarily due to increased
selling expense as a result of personnel increases and additional efforts to
increase the number of Ricochet subscribers. General and administrative expenses
also increased primarily as a result of personnel increases and professional
fees associated with addressing regulatory matters and developing strategic
relationships. Selling, general and administrative expenses are expected to
continue at the current level for the foreseeable future.
9
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Provision for Overall Wireless
In February 1996, the Company purchased an option to acquire Overall
Wireless, a corporation that holds a nationwide, wireless communications license
issued by the FCC with respect to 50 kHz of radio spectrum in the 220 to 222 MHz
frequency band. The Company paid $700,000 for the option and agreed to loan
Overall Wireless up to $2 million for the construction of a system utilizing the
license, of which approximately $1.9 million has already been loaned. In January
1997, the Company paid $500,000 to extend the option from January 1997 to July
1997. In July 1997, the option was extended to August 31, 1997 for no additional
payment. If the option expires unexercised under certain circumstances, the
Company may be required to pay a termination fee of up to $2 million, which may
be paid through cancellation of the indebtedness of Overall Wireless. In June
1997, the Company recorded a charge of $3.6 million to fully reserve its
investment in Overall Wireless due to uncertainties regarding its realizability.
Interest Income and Expense
Interest expense increased to $1.2 million for the second quarter of
1997 and to $2.1 million for the first six months of 1997 from $0 for the
comparable periods in the 1996 as a result of the issuance of $45 million in
principal amount of 8% Convertible Subordinated Notes due 2003 in August 1996.
Interest income decreased to $549,000 for the second quarter of 1997 and to $1.3
million for the first six months of 1997 from $676,000 for the second quarter of
1996 and from $1.5 million for the first six months of 1996 due to a lower level
of cash and investments in 1997 as compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has devoted significant resources to the
development, deployment and commercialization of wireless network products and
services. As a result, as of June 30, 1997, the Company had incurred $119.9
million of cumulative net losses. The Company has financed operations primarily
through the public and private sale of equity and convertible debt securities.
The Company's operations have required substantial capital investments
for the purchase of Ricochet network equipment, Ricochet modems, and computer
and office equipment. Capital expenditures were $9.2 million and $4.2 million in
the first six months of 1997 and 1996, respectively. To the extent capital is
available, the Company expects to make significant capital expenditures in
connection with the development, deployment and commercialization of its
Ricochet networks including the costs associated with renting modems to Ricochet
subscribers. The amount and timing of expenditures, however, may vary
significantly depending on numerous factors including market acceptance of the
Company's products and services, availability of sufficient financial,
management, technical and marketing
10
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resources, technological feasibility and availability of the Company's Ricochet
radios and modems, the ability of the Company to lease or acquire sites for the
location of its network infrastructure and those factors discussed in the
section entitled "Risk Factors" and elsewhere in the Company's Form 10-K, as
amended, for the year ended December 31, 1996, as well as those elsewhere in
this Form 10-Q. At the current level of operating activity and deployment, the
Company believes that additional capital will be required within the next 12
months. The Company is currently pursuing financing alternatives that may
include debt, debt with equity, equity or equity linked securities. In addition,
the Company is currently pursuing additional partnerships to deploy Ricochet
networks. There can be no assurance that such funds would be available on
commercially reasonable terms or at all. If sufficient financing is not
available, the Company would be required to significantly reduce operating
expenses and capital expenditures.
As of June 30, 1997, the Company had cash and equivalents and
short-term and long-term investments of $30.3 million and working capital of
$27.3 million. Accounts receivable increased to $2.7 million as of June 30,
1997, from $1.1 million as of December 31, 1996, due to increased shipments of
UtiliNet products at the end of the second quarter of 1997 as compared to the
end of the fourth quarter of 1996. Inventories increased to $4.3 million as of
June 30, 1997, from $3.1 million as of December 31, 1996 primarily due primarily
to an increase in Ricochet subscriber devices and UtiliNet products. The Company
believes that both accounts receivable and inventories will increase in the
future in order to support the commercialization of Ricochet.
11
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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
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.
METRICOM, INC.
(Registrant)
/s/ Vanessa A. Wittman
-----------------------------------
Date: August 12, 1997 By: Vanessa A. Wittman
Vice President of Finance and Duly
Authorized Officer
13
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EXHIBIT INDEX
27 Financial Data Schedule
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
COMPANY'S REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,982
<SECURITIES> 21,356
<RECEIVABLES> 2,740
<ALLOWANCES> 0
<INVENTORY> 4,263
<CURRENT-ASSETS> 36,272
<PP&E> 41,896
<DEPRECIATION> (10,034)
<TOTAL-ASSETS> 73,253
<CURRENT-LIABILITIES> 8,941
<BONDS> 45,000
0
0
<COMMON> 14
<OTHER-SE> 13,893
<TOTAL-LIABILITY-AND-EQUITY> 73,253
<SALES> 3,163
<TOTAL-REVENUES> 6,536
<CGS> 1,687
<TOTAL-COSTS> 15,361
<OTHER-EXPENSES> 20,264
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,131
<INCOME-PRETAX> (29,910)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,910)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,910
<EPS-PRIMARY> (2.20)
<EPS-DILUTED> (2.20)
</TABLE>
