-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O11MynFrml0FvUbKAQyepj+c/rVgANkzDP+6s3hHXXAJiVfroSvxe6iVdQIWGC5J PdpIgBbDCXKJNfWc7dkj9w== 0000808220-99-000007.txt : 19990210 0000808220-99-000007.hdr.sgml : 19990210 ACCESSION NUMBER: 0000808220-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981226 FILED AS OF DATE: 19990209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SSE TELECOM INC CENTRAL INDEX KEY: 0000808220 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 521466297 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16473 FILM NUMBER: 99525718 BUSINESS ADDRESS: STREET 1: 47823 WESTINGHOUSE DRIVE STREET 2: STE 710 CITY: FREMONT STATE: CA ZIP: 94539 BUSINESS PHONE: (510) 657-7552 MAIL ADDRESS: STREET 1: 47823 WESTINGHOUSE DRIVE STREET 2: STE 710 CITY: FREMONT STATE: CA ZIP: 94539 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED DECEMBER 26, 1998 - -------------------------------------------------------------------------- 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 QUARTER ENDED DECEMBER 26, 1998 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 0-16473 SSE TELECOM, INC. (Exact name of registrant as specified in its charter) Delaware 52-1466297 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 47823 Westinghouse Dr. Fremont, California 94539 (Address of principal executive office) Registrant's telephone number, including area code: (510) 657-7552 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 ____ As of January 23, 1999, the following number of shares of each of the issuer's classes of common stock were outstanding: Common Stock 6,016,099 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements Page Condensed Consolidated Statements of Income for the three months ended December 26, 1998 and December 27, 1997 3 Condensed Consolidated Balance Sheets as of December 26, 1998 and September 26, 1998 4 Condensed Consolidated Statements of Cash Flows for the three months ended December 26, 1998 and December 27, 1997 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 Item 3. Quantitative and Qualitative Disclosure About Market Risk 11 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12-14 PART I - FINANCIAL INFORMATION
Item 1. Financial Statements SSE Telecom, Inc. Condensed Consolidated Statements of Income For The Three Months Ended December 26, 1998 and December 27, 1997 (in thousands, except per share data) December 26, 1998 December 27, 1997 Revenue $7,703 $12,337 Cost of revenue 7,206 9,105 ---------------------- ---------------------- Gross margin 497 3,232 Expense Research and development 994 1,414 Marketing, general and administrative 1,975 1,739 ---------------------- ---------------------- Operating (loss) income (2,472) 79 Net interest expense 19 181 Gain on sale of investment, net (3,198) (2,888) Other (income) expense (82) 39 ---------------------- ---------------------- Income before income taxes 789 2,747 Provision for income taxes 276 961 ---------------------- ---------------------- Net income $513 $1,786 ---------------------- ---------------------- Basic net income per share $0.09 $0.30 ====================== ====================== Diluted net income per share $0.09 $0.29 ====================== ====================== Shares used in computing basic net income per share 5,779 5,955 ====================== ====================== Shares used in computing diluted net income per share 5,854 6,185 ====================== ======================
The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
SSE Telecom, Inc. Condensed Consolidated Balance Sheets (in thousands) December 26, 1998 September 26, 1998* ASSETS Current Assets: Cash and cash equivalents $3,756 $3,327 Accounts receivable, net 6,046 5,702 Inventories 7,594 8,894 Deferred tax assets 2,762 2,762 Other current assets 368 198 --------------------------------------------- Total current assets 20,526 20,883 Property, plant and equipment 11,801 11,692 Less accumulated depreciation 8,453 8,109 --------------------------------------------- Property, plant and equipment, net 3,348 3,583 Long-term investments 3,566 6,583 --------------------------------------------- TOTAL ASSETS $27,440 $31,049 ============================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $3,434 $3,745 Accrued salaries and employee benefits 1,078 1,217 Short-term debt 2,794 3,036 Other accrued liabilities 2.894 2,492 --------------------------------------------- Total current liabilities 10,200 10,490 Deferred tax liabilities -- 930 Long-term debt 312 1,451 Stockholders' equity Common stock and paid in capital 12,694 12,639 Treasury stock (1,782) (1,782) Retained earnings 6,016 5,503 Net unrealized gain on available for sale investments -- 1,818 --------------------------------------------- Total stockholders' equity 16,928 18,178 --------------------------------------------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $27,440 $31,049 =============================================
* Derived from audited Financial Statements The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
SSE Telecom, Inc. Condensed Consolidated Statements of Cash Flows For the three months ended December 26, 1998 and December 27, 1997 (in thousands) December 26, 1998 December 27, 1997 Cash provided by (used for) operating activities: Net income $ 513 $ 1,786 Adjustments to reconcile net income to net cash provided by (used for): Depreciation and amortization 343 297 Net gain on sale of Echostar stock (3,198) (2,888) Deferred interest expense -- 58 Changes in operating assets and liabilities: Accounts receivable (345) 49 Inventories 1,301 (1,648) Other current assets (121) 158 Accounts payable (312) 2,888 Other accrued liabilities 264 80 ---------------------------------------------- Net cash provided by (used for) operating activities (1,555) 780 ---------------------------------------------- Cash provided by (used for) investing activities: Purchases of equipment (109) (224) Proceeds from sale of Echostar stock 3,419 3,162 Purchase of Media4 debenture -- (175) ---------------------------------------------- Net cash provided by investing activities 3,310 2,763 ---------------------------------------------- Cash provided by (used for) financing activities: Net payments under operating lines of credit -- (30) Net payments under equipment note (160) -- Net payments on convertible notes payable (1,221) (1,335) Payments of deferred interest -- (164) Proceeds from issuance of common stock 55 -- ---------------------------------------------- Net cash used for financing activities (1,326) (1,529) ---------------------------------------------- Net increase in cash and cash equivalents 429 2,014 ---------------------------------------------- Cash and cash equivalents beginning of period 3,327 408 ---------------------------------------------- Cash and cash equivalents end of period $ 3,756 $ 2,422 ==============================================
The Notes to Condensed Consolidated Financial Statements are an integral part of these statements. SSE TELECOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The financial information at December 26, 1998 and for the three month periods ended December 26, 1998 and December 27, 1997 is unaudited. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows for the interim periods have been made. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's September 26, 1998 Form 10-K. The results of operations for the three months ended December 26, 1998, are not necessarily indicative of the operating results for the full year. 2. INVENTORIES Inventories consist of manufacturing raw materials, work-in process and finished goods. Inventories are valued at the lower of cost or market. Cost is based on the average cost method, which approximates actual cost on the first-in, first-out ("FIFO") basis. At December 26, 1998 and September 26, 1998 inventories consisted of:
(in thousands) December 26, 1998 September 26, 1998* ----------------- ------------------- (unaudited) Manufacturing raw materials $3,279 $3,440 Work-in-process 3,770 3,657 Finished goods 545 1,797 ========================= ========================== Total $7,594 $8,894 ========================= ==========================
* Derived from audited financial statements 3. INVESTMENTS During the three month period ended December 26, 1998, the Company disposed of 118,905 shares of Echostar Communications Corporation (NASDAQ: DISH). The proceeds generated from the sale totaled approximately $3.4 million. 4. LONG TERM DEBT At December 26, 1998, the Company's long term portion of capital lease balance outstanding was $312,000. During the first three months of fiscal 1999 the Company repaid $1.2 million of convertible subordinated debentures due Echostar Communications Corporation. 5. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per shares: (in thousands, except per share) December 26, 1998 December 27, 1997 ---------------------- ----------------------- Numerator: Net income $513 $1,786 Numerator for basic net income per share 513 1,786 Effect of dilutive securities: Interest expense, net of taxes on 61/2% convertible debentures 4 38 ---------------------- ----------------------- Numerator for diluted net income per share $517 $1,824 Denominator: Denominator for basic net income per share-weighted average shares 5,779 5,955 Effect of dilutive securities: Employee stock options 16 2 Warrants 61/2% convertible debentures 59 228 ---------------------- ----------------------- Dilutive potential common shares 75 230 Denominator for diluted net income per share-adjusted weighted average shares and assumed conversions 5,854 6,185 ====================== ======================= Basic net income per share $0.09 $0.30 ====================== ======================= Diluted net income per share $0.09 $0.29 ====================== =======================
6. STOCKHOLDERS' EQUITY Stock Option Repricing. During the first quarter of fiscal 1999, the Company approved a cancellation and re-granting of outstanding stock options from all holders of outstanding options with exercise prices in excess of $2.50 per share as set by the Company's board of directors on October 16, 1998. 283,750 options were repriced at an exercise price of $2.50 per share. The repriced options become exercisable in accordance with the same exercise schedule in effect under the higher priced option to which such new option relates except that no portion of the option may be exercised prior to one year from the re-granting date. The re-granting applied to all employees of the Company, except the chief executive officer of the Company, who was excluded from the repricing agreements. 7. SUBSEQUENT EVENTS As of December 26, 1998, the Company held an investment in Media4 consisting of $966,000 in equity and $2,600,000 in convertible debentures. On February 1, 1999, Media4, Inc., a Georgia Corporation ("Media4") was merged with and into Echostar Acquisition Corporation, a Colorado corporation ("Merger Sub") and wholly owned subsidiary of Echostar Communications Corporation, a Nevada corporation ("Echostar"), pursuant to an Agreement and Plan of Merger dated February 1, 1999 (the "Merger Agreement"). Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Information contained in this Form 10-Q that is not historical fact, including any statements about expectations for the fiscal year and beyond, involve certain risks and uncertainties. This Form 10-Q contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995, many of which can be identified by the use of forward-looking terminology such as "may", "will", "believe", "expect", "anticipate", "estimate", "plan", "intend", or "continue" or the negative thereof or other variations thereon or comparable terminology. There are a number of important factors with respect to such forward-looking statements that could cause actual results to differ materially from those contemplated in such forward-looking statements. Numerous factors, such as economic and competitive conditions, incoming order levels, timing of product shipments, product margins, new product development, and reliance on key vendors and consumers and international sales could cause actual results to differ from those described in these statements and current and prospective investors and stockholders should carefully consider these factors in evaluating these forward-looking statements. Overview First quarter sales increased to approximately $7.7 million from approximately $7.1 million in the fourth quarter and approximately $6.2 million in the third quarter last year. New orders in the first quarter were below expectations, as evidenced by the reduction in the Company's backlog to $3.7 million from $5.9 million at September 26, 1998. The Company reduced expenses, and reduced manufacturing headcount by approximately 20 percent on January 22, 1999. During the first quarter of fiscal 1999 the Company experienced production difficulties and market pressure on price. In response to these difficulties the Company made production improvements during the first quarter of fiscal 1999. The first quarter results, which benefited from the sale of shares of common stock of EchoStar Communications Corp. ("Echostar"), provided an improved balance sheet. The Company's cash position was $3.8 million, inventories were reduced to $7.6 million, and total debt was reduced to $3.1 million as of December 26, 1998 Results of Operations for the three months period ended December 26, 1998 and December 27, 1997 Revenue: Sales decreased to $7.7 million for the first quarter of fiscal 1999 from $12.1 million for the same period in fiscal 1998. The decline is in response to lower demand in the market for satellite transceivers and modems and reduction in orders due to past reliability problems with some of the Company's products. Gross Margin: Gross margin decreased to $497,000 or 6% of sales, in the first quarter of fiscal 1999, compared to $3.2 million or 26% of sales for the first quarter of fiscal 1998. The gross margin reduction is primarily due to a reduction in volume, a lower average selling price for the Company's products, and higher manufacturing costs. Operating Expenses: Research and development expenses decreased to $994,000, or 13% of sales for the first quarter of fiscal 1999 from $1.4 million, or 11% of sales, for the first quarter of fiscal 1998. The reduction of expenses is due to lower labor costs associated with the closing of the Company's Arizona research and development facilities, and the lower cost of contracted engineering services. Marketing, general and administrative expenses increased to $2.0 million, or 26% of sales, in the first quarter of fiscal 1999 as compared to $1.7 million, or 14% of sales, for the same period in fiscal 1998. The increase in marketing, general and administrative expenses is due to higher cost of outside marketing and general and administrative services and increased travel. Net Interest Expense. Net interest expense was $19,000 in the first quarter of fiscal 1999. During the same period of last fiscal year, net interest expense was $181,000. The lower interest expense was due to retirement of convertible debentures held by Echostar and higher interest income from the Company's Media4 convertible debentures. Net Gain on Sale of Investments. During the first quarter of fiscal 1999 the Company realized a gain of $3.2 million on sales of 118,905 shares of Echostar Common Stock (the "shares"). The proceeds generated from these sales were used to repay convertible debentures payable to Echostar, to fund operating expenditures, and to increase liquidity. Provision for Income Taxes. The effective tax benefit rate was 35% for the first quarter of fiscal year 1999 and for the first quarter of fiscal year 1998, respectively. Backlog. The Company's total backlog was $3.7 million at the end of the first quarter of fiscal year 1999, as compared to backlog of $5.8 million at the end of fiscal year 1998. The decline in customer orders is in response to lower demand in the market for satellite transceivers and modems and reduction in orders due to past reliability problems with some of the Company's products. The Company has experienced some reduction in export orders, especially in the Asian and Latin American markets. Management expects substantially all backlog to be delivered in fiscal 1999. Timing differences from quarter to quarter as to the receipt of large orders and changes in factory production make meaningful quarter to quarter comparisons of backlog difficult. LIQUIDITY AND CAPITAL RESOURCES At December 26, 1998, the Company had working capital of $10.3 million, including $3.8 million in cash and cash equivalents, compared with working capital of $10.4 million, including cash and cash equivalents of $3.3 million at September 26, 1998. Net cash used by operating activities was $1.6 million during the first quarter of fiscal 1999 as compared to net cash provided of $780,000 in the similar period of fiscal 1998. Cash used by operating activities was principally due to operating losses. The Company's investing activities provided $3.3 million during the first quarter of fiscal 1999 as compared to cash provided of $2.8 million during the same period in fiscal year 1998. During the first quarter of fiscal 1999, $3.4 million was realized from the sale of Echostar Shares, which offset capital expenditures of $109,000. The Company's financing activities used $1.3 million during the first quarter of fiscal 1999 as compared to net cash used of $1.5 million during the first quarter of fiscal year 1998. The Company reduced convertible debentures by $1.2 million. At December 26, 1998, the Company's principal sources of liquidity consisted of $3.8 million in cash and a bank line of credit. At December 26, 1998, $2.2 million was outstanding on a $3.0 million operating line of credit. In addition, the Company had a bank term loan with a principal balance of $455,000. The line of credit and term loans require the Company to be in compliance with certain financial covenants. As of December 26, 1998 the Company was in compliance with all covenants, except the profitability covenant, for which the Company has received a waiver. The Company's capital requirements could change in the event of factors such as lower than anticipated demand for the Company's products, the uncertainty of the cost associated with the special warranty expense or unanticipated limitations on debt financing. The Company believes that its current cash position, funds generated from operations, funds available from its lines of credit will be adequate to meet its requirements for working capital, capital expenditures, debt services and external investment for the foreseeable future. Impact of Year 2000 The Company is aware that many existing Information Technology ("IT") systems, such as computer and software products, as well as non-IT systems that included embedded technology, were not designed to correctly process data after December 31, 1999. The Company has created a Year 2000 project team to review, and evaluate the Company's products, computer systems, test equipment systems and other non-IT systems. The Company has determined that it will be necessary to modify or replace portions of its software so that its computer and non-IT systems will properly utilize dates beyond 1999. The Company believes that with modifications and conversions to new software, the Year 2000 issue can be mitigated, and anticipates completion of all Year 2000 efforts by the end of fiscal 1999. However, if such modifications and conversions are not made, or are not completed in a timely manner, the Year 2000 issue could have a material impact on the operations of the Company. The Company has also initiated discussions with its suppliers regarding their plans to investigate and address their Year 2000 problems, if any. Failures by the Company's suppliers' computer systems could adversely affect the demand for product. There can be no assurance that the systems of other companies on which the Company's systems, services, and products rely will be timely converted, or that any such failure to convert by another company would not have an adverse affect on the Company's business financial conditions or results of operations. The Company has been using both external and internal resources to upgrade its commercial software programs for the Year 2000 issue. To date, the amounts incurred and expensed for developing and carrying out the plan have not had a material effect on the Company's operations. The Company plans to complete the Year 2000 modifications, including testing, by the end of 1999. The total remaining estimated cost for addressing the Year 2000 Issue of approximately $220,000,which is based on management's current estimates, is not expected to be material to the Company's operations. All remaining Year 2000 issue costs will be funded through operating cash flows. As the efforts of the Year 2000 project team continue, the Company may identify situations that present material Year 2000 risks and/or that will require substantial time and material expense to address. In addition, if any customers, suppliers or service providers fail to appropriately address their Year 2000 issues, such failure could have a material adverse effect on the Company's business, financial condition and results of operations. For example, because a significant percentage of the purchase orders received from the Company's customers are computer generated and electronically transmitted, a failure of one or more of the computer systems of the Company's customers could have a significant adverse effect on the level and timing of orders from such customers. Similarly, if Year 2000 problems experienced by any of the Company's significant suppliers or service providers cause or contribute to delays or interruptions in the delivery of products or services to the Company, such delay or interruptions could have a material adverse effect on the Company's business, financial condition and results of operations. Finally, disruption in the economy generally resulting from Year 2000 issues could also materially adversely affect the Company. Although the Year 2000 project team has not determined the most likely worst-case Year 2000 scenarios or quantified the likely impact of such scenarios, it is clear that the occurrence of one or more of the risks described above could have a material adverse effect on the Company's business, financial conditions or results of operations. The Company's Year 2000 project team's activities will include the development of contingency plans in the event the Company has not completed all of its remediation programs in a timely manner. In addition, the Year 2000 project team will develop contingency plans in the event that any third parties who provide goods and services essential to the Company's business fail to appropriately address their Year 2000 issues. The Year 2000 project team expects to conclude the development of these contingency plans by the end of fiscal 1999. Even if these plans are completed on time and put in place, there can be no assurance that such plans will be sufficient to address any third party failures or that unresolved or undetected internal and external Year 2000 issues will not have a material adverse effect on the Company's business, financial condition and results of operations The Company is reviewing the material risk associated with the Year 2000 issue on computer hardware and software. Computer systems are at risk where the date using "00" is recognized as the year 1900 rather than the year 2000. The Company is currently assessing its exposure and will have a plan in place by Q4 of FY '99. While the Company doesn't anticipate costs for the Year 2000 issue to be material final results of this review could be significantly different. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK As of December 26, 1998, the Company had invested approximately $966,000 in Media4 Common Stock and held $2,600,000 in Media4 convertible 7% & 9.5% debentures. At December 26, 1998, the Company was operating under a credit facility with outstanding borrowings of $2.2 million. This facility allows for a $3.0 million operating line-of-credit. Borrowings under this line-of-credit bear interest at prime plus 1.25% (prime rate was 8.5% at December 26, 1998). On August 14, 1998 the Company and the bank modified the borrowing agreement. Pursuant to the amendment, the amount of the line-of-credit available was reestablished at $3.0 million, the borrowing base was modified to measure availability based on a formula and several covenants were modified. The Company was in compliance with all covenants, except the profitability covenant, for which the Company received a waiver for the quarter ending December 26, 1998. The credit agreement was extended until March 15, 1999. The Company also had a term note outstanding at December 26, 1998. The total principal outstanding on this note was $455,000 with interest payable at prime plus 1.25%. Interest payments are made on a monthly basis. The term note has a maturity date of August 31, 1999. The Company's exposure to market risk due to fluctuations in interest rates primarily relates to the Company's credit facility and term note. If market interest rates were to increase immediately and uniformly by 10% from levels prevailing at December 26, 1998, the fair value of the debt obligations would not change materially. The Company does not use derivative financial instruments to mitigate interest rate risk. Notwithstanding the foreign analysis of the direct effects of interest rate risk, the indirect effects of fluctuations could have a material adverse effect on the Company's business, financial condition and results of operations. For example, worldwide demand for the Company's products could be effected by interest rate fluctuations that could change the buying patterns of the Company's customers. PART II - OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits included herein (numbered in accordance with Item 601 of Regulation S-K)
Exhibit Number Description Sequential Page Number 27 Financial Data Schedule Page 14
(b) Reports on Form 8-K None. 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 hereunto duly authorized. Dated: February 9, 1999 SSE TELECOM, INC. By:/s/ Leon F. Blachowicz Leon F. Blachowicz, Chief Executive Officer By:/s/ James J. Commendatore James J. Commendatore, Chief Financial Officer EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 1ST QTR 10-Q
5 1,000 Sep-25-1999 Sep-27-1998 Dec-26-1998 3-MOS 3,756 0 6,701 655 7,594 20,526 11,801 8,453 27,440 10,200 312 0 0 60 16,868 26,432 0 7,703 7,207 2,969 (3,281) 0 19 789 276 513 0 0 0 513 0.09 0.09
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