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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 quarterly period ended September 27, 1996 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 November 6, 1996
was 13,490,091 .
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TABLE OF CONTENTS
PAGE
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 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURE PAGE 15
EXHIBIT INDEX 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METRICOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
Sept. 27, Dec. 31,
1996 1995
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents ................................... $ 33,543 $ 5,201
Short-term investments ................................. 33,803 40,090
Accounts receivable .................................... 733 439
Inventories ............................................ 3,408 4,467
Prepaid expenses and other ............................. 1,805 1,666
--------- ---------
Total current assets ............................... 73,292 51,863
PROPERTY AND EQUIPMENT, net .............................. 21,209 14,923
LONG-TERM INVESTMENTS .................................... 13,129 19,124
OTHER ASSETS ............................................. 3,604 166
--------- ---------
Total assets ....................................... $ 111,234 $ 86,076
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................... $ 5,083 $ 3,296
Accrued liabilities .................................... 3,917 1,796
--------- ---------
Total current liabilities .......................... 9,000 5,092
--------- ---------
DEFERRED RENT ............................................ 479 510
--------- ---------
LONG-TERM DEBT ........................................... 45,000 --
--------- ---------
MINORITY INTEREST ........................................ 1,205 100
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock ........................................... 13 13
Additional capital ..................................... 132,553 130,831
Unrealized holding gain (loss) on investments .......... (60) 155
Accumulated deficit .................................... (79,956) (50,625)
--------- ---------
Total stockholders' equity ......................... 55,550 80,374
--------- ---------
Total liabilities and stockholders' equity ......... $ 111,234 $ 86,076
========= =========
The accompanying notes are an integral part of these consolidated statements.
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METRICOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT. 27, 1996 SEPT. 29, 1995 SEPT. 27, 1996 SEPT. 29, 1995
-------------- -------------- -------------- --------------
REVENUES:
Product revenues ........................ $ 644 $ 1,628 $ 4,362 $ 3,982
Service revenues ........................ 704 192 1,243 542
-------- -------- -------- --------
Total revenues ...................... 1,348 1,820 5,605 4,524
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of product revenues ................ 312 919 2,258 2,446
Cost of service revenues ................ 4,572 2,323 11,479 6,328
Research and development ................ 2,295 2,629 6,910 7,050
Selling, general and
administrative ....................... 5,350 3,089 13,202 8,892
-------- -------- -------- --------
Total costs and expenses .............. 12,529 8,960 33,849 24,716
-------- -------- -------- --------
Loss from operations .................. (11,181) (7,140) (28,244) (20,192)
INTEREST EXPENSE .......................... (349) -- (349) --
INTEREST INCOME, net ...................... 776 1,100 2,262 3,371
-------- -------- -------- --------
Net loss .............................. $(10,754) $ (6,040) $(26,331) $(16,821)
======== ======== ======== ========
NET LOSS PER SHARE......................... $ (0.80) $ (0.46) $ (1.97) $ (1.29)
======== ======== ======== ========
WEIGHTED AVERAGE
SHARES OUTSTANDING ................... 13,462 13,166 13,382 13,047
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
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METRICOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
-----------------
Sept. 27, Sept. 29,
--------- ---------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................. $(26,331) $(16,821)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization ........................................ 2,745 1,048
(Increase) decrease in accounts receivable,
prepaid expenses and other current assets .......................... (433) 318
(Increase) decrease in inventories ................................... 1,059 (672)
Increase in accounts payable, accrued liabilities,
customer deposits and other ........................................ 3,877 2,139
-------- --------
Net cash used in operating activities ............................ (19,083) (13,988)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ....................................... (9,012) (5,144)
(Increase) decrease in other assets ...................................... (1,191) 9
(Purchases) sales of short-term and long-term
investments ........................................................... 12,067 (10,656)
-------- --------
Net cash provided by (used in ) investing activities ............. 1,864 (15,791)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................................... 1,106 1,309
Proceeds from issuance of long-term debt, net ............................ 43,350 --
Contributions from minority interest ..................................... 1,105 100
-------- --------
Net cash provided by financing activities ........................ 45,561 1,409
-------- --------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS .............................................................. 28,342 (28,370)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD .................................. 5,201 35,460
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD ........................................ $ 33,543 $ 7,090
======== ========
The accompanying notes are an integral part of these consolidated statements.
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METRICOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 nine-month periods ended September 27, 1996 and September 29,
1995. 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, 1995, as filed with the Securities and Exchange Commission.
Certain amounts have been restated from the previously reported
balances to conform to the 1996 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 nine-month periods ended
September 27, 1996 and September 29, 1995 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):
SEPTEMBER 27, DECEMBER 31,
1996 1995
------ ------
Raw materials $2,101 $1,786
Work-in-progress 619 1,459
Finished goods 688 1,222
------ ------
Total $3,408 $4,467
====== ======
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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 and common stock issuable upon conversion of
the Company's 8% Convertible Subordinated Notes have been excluded from the
calculation as their effect would be anti-dilutive.
NOTE 4. LONG-TERM DEBT
On August 28, 1996, the Company issued $45 million principal amount of
unsecured, 8% Convertible Subordinated Notes (the "Notes") due September 15,
2003. Interest is payable semi-annually on March 15 and September 15, commencing
March 15, 1997. The Notes are convertible into shares of the Company's Common
Stock, unless previously redeemed or repurchased, at a conversion price of
$14.55 per share, subject to adjustment in certain events. The Notes are
redeemable, in whole or in part, at the option of the Company at any time on or
after September 15, 1999, at the following redemption prices if redeemed during
the 12-month period commencing September 15 of the years indicated below:
YEAR PERCENTAGE
1999 104.0
2000 102.7
2001 101.3
2002 100.0
In the event of a Change of Control, as defined in the indenture, each
holder of the Notes will have the right to require the Company to purchase all
or any part of such holder's Notes at 101% of the principal amount, plus accrued
and unpaid interest and liquidated damages, if any.
NOTE 5. 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 to Overall Wireless up to $2 million for the construction of
a system utilizing the license, of which approximately $500,000 had been loaned
as of September 27, 1996. The option, which terminates in January 1997, may be
extended until July 1997 upon payment by the Company of an additional $500,000.
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 Overall Wireless' completion of 40% of the system
prior to July
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29, 1997 and 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 may be paid
through cancellation of the indebtedness of Overall Wireless.
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 radios and modems, the ability of the Company to lease or acquire sites
for its network infrastructure and those discussed in the section entitled "Risk
Factors" and elsewhere in the Company's Form 10-K, as amended, for the year
ended December 31, 1995, as well as those elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
Revenues
Total revenues decreased to $1.3 million in the third quarter of 1996
and increased to $5.6 million for the first nine months of 1996 from $1.8
million in the third quarter of 1995 and $4.5 million for the first nine months
of 1995. Product revenues decreased to $644,000 in the third quarter of 1996 and
increased to $4.4 million for the first nine months of 1996 compared to $1.6
million in the third quarter of 1995 and $4.0 million for the first nine months
of 1995. The decrease in product revenues in the third quarter of 1996 was due
to an expected decline in shipments of UtiliNet(R) products to the Company's
largest electric utility customer. UtiliNet is Metricom's customer-owned
wireless data communications system for industrial control and monitoring.
Service revenues increased to $704,000 in the third quarter of 1996 and to $1.2
million for the first nine months of 1996 from $192,000 in the third quarter of
1995 and $542,000 for the first nine months of 1995. The increase in service
revenues is primarily due to increased subscriber fees and modem rentals for the
Company's Ricochet(TM) service. Ricochet service provides subscriber-based,
wireless data communications and Internet access for users of portable and
desktop computers.
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A broad market for wide area wireless data communications has not yet
developed. As a result, the extent of the potential demand for the Ricochet
service cannot be reliably estimated, and there can be no assurance that the
Company will be able to achieve or sustain profitability. Additionally, the
Company's revenues have historically fluctuated from quarter to quarter based on
such factors as the timing of significant customer orders, the timing of product
shipments and customer buying patterns.
Cost of Revenues
Cost of product revenues decreased to $312,000 in the third quarter of
1996 from $919,000 in the third quarter of 1995 and decreased to $2.3 million
for the first nine months of 1996 from $2.4 million in the comparable period of
1995. The cost of product revenues as a percent of product revenues decreased to
48% in the third quarter of 1996 and to 52% for the first nine months of 1996
from 56% in the third quarter of 1995 and 61% for the first nine months of 1995.
The increase on a dollar basis was primarily due to increased product sales
during 1996. The decrease on a percentage basis was primarily due to a more
favorable mix of the Company's UtiliNet products.
Cost of service revenues increased to $4.6 million in the third quarter
of 1996 from $2.3 million in the third quarter of 1995 and increased to $11.5
million for the first nine months of 1996 from $6.3 million in the comparable
period of 1995. 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 and certain costs associated with manufacturing
the Company's network components. The increase in 1996 is due to a higher level
of Ricochet network deployment and activity to obtain necessary site agreements
in 1996 as compared to 1995. These costs are expected to increase significantly
as a result of the continued deployment of Ricochet networks. Revenues from the
sale of Ricochet services are not expected to be sufficient to cover the cost of
revenues for the foreseeable future.
Research and Development
Research and development expenses decreased slightly to $2.3 million in
the third quarter of 1996 and to $6.9 million for the first nine months of 1996
from $2.6 million in the third quarter of 1995 and from $7.0 million for the
first nine months of 1995. Research and development activities include
enhancements to the technology employed by the Company's networks and
development of Ricochet modems. The Company plans to continue a high level of
investment in research and development for the foreseeable future.
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Selling, General and Administrative
Selling, general and administrative expenses increased to $5.3 million
in the third quarter of 1996 and to $13.2 million for the first nine months of
1996 from $3.1 million in the third quarter of 1995 and from $8.9 million for
the first nine months of 1995. These increases were primarily due to increased
selling and customer support expense as a result of personnel additions and
increased marketing and promotion activity for Ricochet. In addition,
administrative expenses increased primarily due to increases in personnel
throughout the first nine months and due to higher professional fees associated
with addressing regulatory matters and developing strategic relationships in the
third quarter. Selling, general and administrative expense is expected to
increase in the foreseeable future as a result of the continued
commercialization of Ricochet.
LIQUIDITY AND CAPITAL RESOURCES
As of September 27, 1996, the Company had cash and equivalents and
short-term and long-term investments of $80.5 million and working capital of
$64.3 million. On August 28, 1996, the Company issued $45 million principal
amount of unsecured, 8% Convertible Subordinated Notes (the "Notes") due
September 15, 2003. Interest is payable semi-annually on March 15 and September
15, commencing March 15, 1997. The Notes are convertible into shares of the
Company's Common Stock, unless previously redeemed or repurchased, at a
conversion price of $14.55 per share, subject to adjustment in certain events.
Accounts receivable increased to $733,000 as of September 27, 1996,
from $439,000 as of December 31, 1995, due to increased shipments of UtiliNet
products at the end of the third quarter of 1996 as compared to the fourth
quarter of 1995 and increased Ricochet sales. Inventories decreased to $3.4
million as of September 27, 1996, from $4.5 million as of December 31, 1995,
primarily as a result of improved inventory management. The Company believes
that both accounts receivable and inventories will increase in the future in
order to support the commercialization of Ricochet.
Capital expenditures were $9.0 million and $5.1 million in the
nine-month periods ended September 27, 1996 and September 29, 1995,
respectively. Capital spending was primarily due to capital expenditures for
Ricochet network equipment, Ricochet modems rented to subscribers and computer
and office equipment. The Company expects to continue to make significant
capital expenditures in connection with the development, deployment and
commercialization of its Ricochet networks. The Company also expects that, to
the extent the Ricochet subscriber base grows, significant capital expenditures
will be required to fund the cost of Ricochet modems rented to subscribers. The
timing and amount of such expenditures, however, may vary significantly
depending on numerous factors including market acceptance, availability and
financial terms of site agreements for the Company's network infrastructure,
availability of radios and portable radio modems and availability of sufficient
management, technical, marketing and financial resources.
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The Company has agreed to loan up to $2 million to Overall Wireless, of
which approximately $500,000 had been loaned as of September 27, 1996, in
connection with the construction of a wireless communication system in the 220
to 222 MHz frequency band. The Company has also purchased an option to acquire
Overall Wireless. The option, which terminates in January 1997, may be extended
until July 1997 upon payment by the Company of an additional $500,000. 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 believes that significant additional capital will be
required in the future to fund further development, deployment and
commercialization of its Ricochet networks. There can be no assurance that such
additional funds will be available on commercially reasonable terms or at all.
The Company believes that its existing available cash and interest income from
cash investments will be adequate to satisfy its working capital and capital
expenditure requirements at least through the third quarter of 1997. The amount
and timing of such expenditures, however, may vary significantly depending on
the factors listed above.
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PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
In connection with its acquisition of an option to acquire
Overall Wireless, the Company was named as a defendant in US
MobilComm Inc., et al. ("US MobilComm") v. Warren, et al., an
action filed in the United States District Court for the
Western District of Oklahoma in September 1994. US MobilComm
alleged that Overall Wireless breached an oral agreement to
transfer an interest in its national FCC license. In May 1996,
US MobilComm filed an amended complaint naming the Company as
a defendant, alleging that the Company tortiously interfered
with its oral agreement with Overall Wireless. US MobilComm
seeks specific performance, including transfer of the license
to them, subject to the approval of the FCC, and alleges
damages for, among other things, lost revenues, profits and
business opportunities in excess of $100 million. Although the
Company is entitled to indemnification with respect to the
litigation by the sole stockholder of Overall Wireless, it is
possible that the indemnitor will not have sufficient assets
to reimburse the Company for any damages awarded. While
management believes that the allegations are without merit and
that the resolution of this matter will not have a material
adverse effect on the Company's business, financial condition
or operating results, there can be no assurance to that
effect. In September 1996, the Company was dismissed from the
action for lack of jurisdiction.
ITEM 2: CHANGES IN SECURITIES
On August 28, 1996, the Company issued $45 million aggregate
principal amount of 8% Convertible Subordinated Notes due 2003
(the "Notes") in a private placement without registration
under the Securities Act of 1933, as amended (the "Act"), in
reliance on Section 4(2) of the Act, or Regulation D
promulgated thereunder, and Regulation S under the Act. The
Notes were sold only to qualified institutional buyers and a
limited number of other accredited investors that represented
to the Company their intention to acquire the securities for
investment only and not with a view to or for sale in
connection with any distribution thereof and to certain
non-U.S. persons in sales outside the United States within the
meaning of Regulation S under the Act. Furman Selz LLC and
Feshbach Brothers Investor Services Inc. acted as placement
agents and received a 3% placement fee with respect the
original issuance of the Notes.
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The Notes are convertible into Common Stock of the Company at any time
on or after November 26, 1996 and prior to the close of business on
September 15, 2003, unless previously redeemed or repurchased, at a
conversion price of $14.55 per share, subject to adjustment in certain
events.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) A Special Meeting of Stockholders of Metricom, Inc. was held
on August 7, 1996.
b) The matters voted upon at the meeting and the voting of
stockholders with respect thereto are as follows:
1) Approve an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of
Common Stock from 20,000,000 to 50,000,000.
For: 9,323,499 Against: 939,576 Abstain: 17,331
2) Approve an amendment to the Company's 1993 Non-Employee
Directors' Stock Option Plan, as amended, to permit additional
non-discretionary grants of options to non-employee directors.
For: 9,351,112 Against: 722,452 Abstain: 38,183
No Vote: 168,659
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation, as amended
4.6(1) Form of Notes
4.7(1) Indenture dated as of August 15, 1996 between the
Company and U.S. Trust Company of California, N.A.
10.15 1993 Non-Employee Directors' Plan, as amended
10.29(1) Registration Rights Agreement dated August 28, 1996, among
the Company, Furman Selz LLC and Fesbach Brothers Investor
Services, Inc.
10.30(1) Placement Agreement dated August 20, 1996, among
the Company, Furman Selz LLC and Fesbach Brothers Investor
Services, Inc.
27.0 Financial Data Schedules
(1) Incorporated by reference from the Company's current
report on Form 8-K filed September 11, 1996.
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(b) Reports on Form 8-K
1. Form 8-K filed on September 11, 1996, regarding the private
placement of $45,000,000 of 8% convertible subordinated
notes due 2003.
2. Form 8-K filed on August 26, 1996, regarding the Company's
announcement of a private placement of 8% convertible
subordinated notes due 2003.
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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/ William D. Swain
Date: November 7, 1996 --------------------------------------
By: William D. Swain
Chief Financial Officer, Secretary
and Duly Authorized Officer
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Exhibit Index
3.1 Restated Certificate of Incorporation, as amended
4.6(1) Form of Notes
4.7(1) Indenture dated as of August 15, 1996 between the Company and U.S.
Trust Company of California, N.A.
10.15 1993 Non-Employee Directors' Plan, as amended
10.29(1) Registration Rights Agreement dated August 28, 1996, among the
Company, Furman Selz and Fesbach Brothers Investor Services Inc.
10.30(1) Placement Agreement dated August 20, 1996, among the Company, Furman
Selz and Fesbach Brothers Investor Services Inc.
27.0 Financial Data Schedules
(1) Incorporated by reference from the Company's current report on Form 8-K
filed September 11, 1996
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