-----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, Uh7x8eEiQ9u4bfIoY0/sXrVGkfGsURC8JNSXXSu+QyL25kDC659dJwNFocmlRytx YwXo/PrmILeO0X4RKPiScQ== 0000808220-96-000005.txt : 19960515 0000808220-96-000005.hdr.sgml : 19960515 ACCESSION NUMBER: 0000808220-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960330 FILED AS OF DATE: 19960514 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-16473 FILM NUMBER: 96564195 BUSINESS ADDRESS: STREET 1: SUITE 710 8230 LEESBURG PIKE CITY: VIENNA STATE: VA ZIP: 22182 BUSINESS PHONE: 7034424503 MAIL ADDRESS: STREET 1: SUITE 710 8230 LEESBURG PIKE CITY: VIENNA STATE: VA ZIP: 22182 10-Q 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 QUARTER ENDED MARCH 30, 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 33-10965 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.) 8230 Leesburg Pike, Suite 710 Vienna, Virginia 22182 (Address of principal executive office) Registrant's telephone number, including area code: (703) 442-4503 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 May 3, 1996, the following number of shares of each of the issuer's classes of common stock were outstanding: Common Stock 5,771,638 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements Page Consolidated Balance Sheets as of March 30, 1996 and September 30, 1995 3 Consolidated Statements of Operations for the three months and six months ended March 30, 1996 and April 1, 1995 4 Consolidated Statements of Cash Flows for the six months ended March 30, 1996 and April 1, 1995 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12-16 PART I - FINANCIAL INFORMATION Item 1. Financial Statements SSE TELECOM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS Assets March 30, 1996 September 30,1995 Current Assets (Unaudited) Cash and cash equivalents $ -- $3,547,574 Short term investments 1,018,151 4,350,132 Accounts receivable, net of allowance 12,175,662 6,968,103 for doubtful accounts of $156,101 at March 30, 1996, and $223,439 at September 30, 1995 Inventory 11,185,346 6,093,315 Other current assets 1,357,025 915,249 Total current assets 25,736,184 21,874,373 Net property, equipment and leasehold 2,633,663 2,088,084 improvements Long-term investments 31,002,900 13,575,197 Intangible assets 707,565 -- Other assets 371,176 285,064 Total assets $60,451,488 $37,822,718 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $5,385,434 $2,772,277 Short term debt 1,030,000 -- Accrued salaries and employee benefits 1,095,507 770,873 Other accrued liabilities 1,764,746 678,950 Total current liabilities 9,275,687 4,222,100 Deferred tax liabilities 9,896,470 4,617,524 Notes payable 9,724,196 9,426,252 Commitments and contingencies -- -- Stockholders' Equity Common stock $.01 par value per share, 56,342 55,313 10,000,000 shares authorized; 5,746,306 and 5,531,346 shares issued and outstanding in 1996 and 1995 respectively Additional paid in capital 7,858,957 6,745,236 Retained earnings 6,002,848 6,594,253 Net unrealized gain on available for sale investments 19,322,013 7,051,021 Treasury stock, at cost, 253,275 shares and (1,685,025) (888,981) 143,275 shares at March 30, 1996, and September 30, 1995 respectively Total stockholders' equity 31,555,135 19,556,842 Total liabilities & stockholders' $60,451,488 $37,822,718 equity See accompanying notes SSE TELECOM, INC. CONSOLIDATED STATEMENTS of OPERATIONS (Unaudited) For The Three Months and Six Months Ended March 30, 1996 and April 1, 1995 Three Months Ended Six Months Ended 3/30/96 4/1/95 3/30/96 4/1/95 Revenue $12,930,954 $8,805,402 $21,950,296 $16,328,520 Cost of revenue 9,081,933 5,744,206 15,211,564 10,868,065 Gross margin 3,849,021 3,061,196 6,738,732 5,460,455 Expense Research and development 933,824 791,338 1,620,629 1,391,068 Marketing, general and administrative 1,964,089 1,369,185 3,344,608 2,600,845 Amortization - intangibles 30,128 8,375 30,128 16,750 Write off of acquired in- process 1,403,747 -- 1,403,747 -- R & D Acquisition-related asset writeown 1,104,579 -- 1,104,579 -- Operating income (loss) (1,587,346) 892,298 (764,959) 1,451,792 Net interest expense 94,508 119,791 137,436 183,086 Other (income) and expense (43,234) 90,856 (22,108) 105,727 Income (loss) before income (1,638,620) 681,651 (880,287) 1,162,979 taxes Provision (benefit) for income (553,882) 204,000 (288,882) 348,000 taxes Net income (loss) $(1,084,738) $477,651 $(591,405) $814,979 Net income (loss) per share $(.20) $.09 $(.11) $.15 Shares used in computing primary net income (loss) per 5,429,510 5,532,435 5,377,653 5,533,116 share See accompanying notes SSE TELECOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For The Six Months Ended March 30, 1996 and April 1, 1995 Operating Activities: March 30, April 1, 1995 1996 Net income (loss) $(591,405) $814,979 Adjustments to reconcile net income (loss) to net cash provided (used)by operating activities: Depreciation and amortization 506,645 306,758 Acquisition related charges 2,508,326 -- Interest expense 297,944 -- Changes in operating assets and liabilities: Accounts receivable (3,372,559) (594,715) Inventory (2,360,736) (321,818) Other current assets (647,670) (56,043) Accounts payable 1,138,158 (729,800) Accrued salaries and employee benefits 6,634 653,863 Other accrued liabilities 348,897 195,969 Net cash provided (used) by operating (2,165,766) 269,193 activities Investing Activities: Cash purchases of equipment (572,865) (366,222) Purchases of short-term investments (7,769,084) (2,054,666) Sales of short-term investments 11,081,201 -- Acquisition of net assets of Fairchild (4,400,000) -- Data Other assets 39,236 (228,843) Net cash provided (used) by operating (1,621,512) (2,649,731) activities Financing Activities: Increase in short term debt 1,030,000 300,000 Proceeds from issuance of common stock -- 90,750 Payments on notes payable -- (751,635) Treasury stock purchase (796,046) (270,027) Payment of stockholders' notes -- 135,000 receivable Other 5,750 -- Net cash provided (used) by financing 239,704 (495,912) activities Net (decrease) in cash and cash equivalents (3,547,574) (2,876,450) Cash and cash equivalents beginning of 3,547,574 6,118,201 period Cash and cash equivalents end of period -- 3,241,751 Short term investments end of period 1,018,151 2,054,666 Non-cash transactions Acquisition of net assets of Fairchild Data by issuance of common stock and warrants 1,109,000 -- The Notes are an integral part of these statements See accompanying notes SSE TELECOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED FINANCIAL STATEMENTS The financial information contained herein has been prepared by the Company without audit except for information as of September 30, 1995 which has been audited. In the opinion of management, all adjustments (which include only 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. On January 28, 1996 the Company acquired Fairchild Data in a transaction accounted for as an asset purchase. Results of operations of Fairchild Data from January 29, 1996 to March 30, 1996 have been included in the Company's results of operations, and in the balance sheet as of March 30, 1996. The Company issued 100,000 shares of common stock, $4.4 million in cash, and warrants to purchase 50,000 shares of common stock in exchange for net assets of Fairchild Data at January 28, 1996. 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 30, 1995 annual report on Form 10-K, and the Company's reports on Form 8-K and 8-K/A, dated February 7, 1996 and April 11, 1996, respectively. The results of operations for the period ended March 30, 1996 are not necessarily indicative of the operating results for the full year. 2. INVENTORY Inventory consists of manufacturing raw materials, work-in process and finished goods. Inventories are valued at the lower of cost or realizable current value. Cost is based on the average cost method, which approximates actual cost on the first-in, first-out ("FIFO") basis. At March 30, 1996 and September 30, 1995, inventory consisted of: ($000's) March 30, 1996 September 30, 1995 (unaudited) Manufacturing raw $6,696 $3,727 materials Work-in-process 3,631 1,784 Finished Goods 858 582 Total $11,185 $6,093 3. COMMITMENTS, NOTES PAYABLE AND LONG TERM DEBT The Company leases office and manufacturing space, for its SSE Technologies subsidiary, under leases that expire in June 2001. The terms of the leases provide for periodic escalation in rent payments that have been expensed on a straight line basis over the term of the lease. The Fairchild Data subsidiary leases office and manufacturing space under a lease that expires in January 1998. The Company also leases office space in Vienna, Virginia, and Singapore. The Virginia lease expires in October 1996, while the Singapore lease expires in June 1997. The Company leases equipment under leases expiring in various amounts through 1997. The Company also has short term lease agreements related to office and manufacturing equipment. Pursuant to its existing agreement with Media4, Inc., the Company purchased $100,000 of 7% convertible debentures of Media4 Inc. on February 1, 1996, and has a commitment to purchase an additional $100,000 convertible debentures. Based upon the progress of Media4, relative to product and market development, management anticipates the purchase of additional debentures in fiscal year 1996. The Company maintains a secured operating line of credit with a national bank. On March 30, 1996 the maximum available under the line of credit was approximately $3.2 million of which the Company utilized $1.0 million. Amounts borrowed under the line are subject to interest equal to prime rate plus .375%. The Company has negotiated a new operating line of credit facility with the same bank of $5.0 million and a $2.0 million equipment line of credit facility through May 30, 1997, and December 31, 1996, respectively. The Company is subject to and in compliance with certain financial covenants and requirements. 4. BUSINESS COMBINATIONS On January 29, 1996, the Company completed the acquisition of the business of Fairchild Data Corporation ("Fairchild Data"), a subsidiary of The Fairchild Corporation, (NYSE:FA) via an asset purchase agreement. Accordingly, the results of operation of Fairchild Data are included in the financial statements from the date of acquisition. The Company acquired substantially all the assets of Fairchild Data, subject to certain liabilities at a cost of approximately $5.5 million, consisting of approximately $4.4 million in cash, 100,000 shares of SSE Telecom common stock, and a warrant to acquire 50,000 shares of SSE Telecom common stock. A portion of the cash purchase price of approximately $500,000 has not yet been paid and is subject to certain adjustments under the asset purchase agreement. The cash portion of the purchase of Fairchild Data was partially financed with short-term bank financing under a separate loan agreement. The Company borrowed $2.0 million on January 29, 1996 and the note was retired on March 29, 1996 with the proceeds from the sale of the Company's short term investments. The allocation of the purchase price, as of March 30, 1996, based upon independent valuation, is as follows: (000's) Net tangible assets acquired $3,368 In-process technology 1,404 Developed Technology 524 Other purchased assets- assembled workforce, trade name, distributor relationships 213 $5,509 ======= The in-process technology was expensed in connection with the acquisition. After amortization of developed technology and other purchased assets the March ending intangible balance is $708,000. Current balances and associated valuations for net tangible assets acquired were based upon initial negotiations and are subject to change based on final negotiations which are pending. The Company issued to the Fairchild Corporation an additional 100,000 contingent shares of SSE Telecom common stock on January 29, 1996. Such shares are restricted as to transfer by Fairchild Corporation until the contingency is finalized. The additional stock may be recorded as a purchase price adjustment after twelve months based on the performance of Fairchild Data during that same period. This consideration has not yet been recorded and will not be until it is determined that the related contingency has been satisfied, and as such the actual purchase price may be adjusted. The shares are reflected as issued and outstanding as of March 30, 1996. The following unaudited pro-forma information assumes the acquisition occurred at the beginning of the six months presented: Year to date (000's) March 30, 1996 April 1, 1995 Net Sales $26,233 $23,177 Net Profit/(Loss) $ (912) $ 828 Net Profit/(Loss) per share $ (.17) $ .15 The Company filed an 8-K, related to the asset purchase of Fairchild Data, on February 7, 1996, and a 8-K/A on April 11, 1996. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Safe Harbor" Statement: The statements contained in this management discussion and analysis which are not historical facts may be deemed to contain forward-looking statements with respect to events, the occurrence of which involve risks and uncertainties, including, without limitations, demand and competition for the Company's services and products, and other risks or uncertainties detailed in the Company's Securities and Exchange Commission filings. RESULTS OF OPERATIONS The following table sets forth consolidated results of operations and includes two months of Fairchild Data operations, for the quarter ended March 30, 1996, as compared to the quarter ended April 1, 1995, in which Fairchild Data was not included. 03/30/96 04/01/95 Revenue 100% 100% Gross margin 30% 35% Research and development 7% 9% Marketing, G&A expenses 15% 16% Write off of acquired asset in process R&D 11% -- Acquisition-related asset write down 9% -- Operating income (loss) (12)% 10% Net interest expense 1% 2% Income(loss)before taxes (13)% 8% Provision (benefit)for income taxes (4)% 2% Net income (loss) (9)% 6% The Company's revenues increased by 47% from $8,805,000 for the second quarter of fiscal year 1995 to $12,931,000 for second quarter of fiscal year 1996. The increase in revenue reflected a 16% sales gain at the Company's SSE Technologies subsidiary and sales of $2,688,000 at the Company's Fairchild Data subsidiary for February and March. For the six months ended March 30, 1996, revenue increased 34% to $21,950,000 from $16,329,000 for the same period last year. Gross margin increased $788,000 or 26%, as a result of higher revenue; gross margin for the second quarter of fiscal 1996, was 30%, as compared to 35% in the second quarter of fiscal year 1995. The Company, in this year's second quarter, shipped an unusually high proportion of OEM equipment and lower margin products. In addition the Company has experienced some additional manufacturing costs related to the start up of its newest generation of satellite transceiver products. The Company commenced shipping production units of the transceivers (STAR), in the second quarter of 1996. For the first six months of fiscal 1996 the margin was 31% versus 33% for the same period in 1995. There can be no assurance that competitive pressures or other factors will not impact gross margins in the future. The Company announced on May 9, 1996 that after tax income before non- recurring write-offs associated with the acquisition of Fairchild Data, increased 25% to $601,000, for the second quarter of fiscal 1996, from $478,000, for the second quarter of fiscal 1995. Research and development expense for the second quarter of fiscal 1996 was $934,000, a $143,000 or 18% increase over the same period in fiscal 1995. As a percentage of revenue, research and development expense was 7% in second quarter of 1996 and 9% in the second quarter of fiscal 1995. Research and development expense increased $230,000 for the first six months from the same period a year ago. The Company expects to fund its research and development programs at a higher dollar amount and a higher percentage of revenue to support new product development. This is due to the additional development of high power C and Ku band STAR transceivers, as well new product introductions in the digital modem markets. Marketing, general and administrative expenses increased $595,000 or 43% from second quarter of 1995. As a percentage of revenue, marketing, general and administrative expenses decreased from 16% in 1995 to 15% in 1996. For six months the expense was $3,345,000 as compared to $2,601,000 for the prior year. In connection with the Fairchild Data acquisition, the Company recorded non-recurring write-offs in the fiscal 1996 second quarter totaling $2,509,000 before taxes. These one-time charges consisted of $1,404,000 related to the purchased in-process research and development at Fairchild Data, and $1,105,000 write down of duplicative assets at SSE Technologies as a result of the acquisition, including network software and several models of modems. Net interest expense was $95,000 for the second quarter 1996 as compared to $120,000 in 1995. For the six months in fiscal 1996 net interest expense was $137,000 as compared to $183,000 in fiscal 1995. Other (income)/expense was $(43,000) in the second quarter of 1996 as compared to $91,000 other (income)/expense for the same period in 1995. For the six months ended March 30, 1996 other (income)/expense was $(22,000) in 1996, and $106,000 in 1995. The benefit for income taxes in the second quarter of 1996 was $(554,000) as compared to a income tax provision of $204,000 in 1995. For the first six months of fiscal 1996 the benefit was $(289,000) as compared to a tax provision of $348,000 in 1995. The tax rate decreased from 35% in the first quarter of 1996 to 33% for the first six months of fiscal 1996. The decease in the provisional tax rate was due to lower expected income levels for 1996 as a result of the write down of assets and write off of in-process R&D due to the Company's acquisition of Fairchild Data in the March 1996 quarter. The net loss was $(1,085,000) for the second quarter of fiscal 1996. The second quarter of 1995 net profit was $478,000. For the six months ended March 30, 1996 the net loss was $(591,000) as compared to a net profit of $815,000 for the same period in 1995. The Company's total backlog at March 30, 1996 was $8,400,000 including $1,767,000 backlog at Fairchild Data, compared to backlog of $7,800,000 at December 30, 1995 and $7,000,000 at April 1, 1995. Backlog as of May 10, 1996 was approximately $10,800,000. The Company does not believe that backlog is necessarily indicative of future revenues. Timing differences from quarter to quarter as to the receipt of large orders and changes in factory production make meaningful quarter to quarter comparison of backlog difficult. Liquidity and Capital Resources Working capital decreased from $17.7 million on September 30, 1995 to $16.4 million on March 30, 1996. The decreases of $6.9 million in cash, cash equivalents, and short term investments were mainly attributable to the cash used to purchase the net assets of Fairchild Data. Accounts receivable increased from $6,968,000 at September 30, 1995 to $12,176,000 at March 30, 1996, mainly attributable to increase in sales. During the same period inventory increased from $6,093,000 to $11,185,000 including $3,641,000 acquired from Fairchild Data. Net fixed assets increased from $2,088,000 at September 30, 1995 to $2,634,000 at March 30, 1996. Other long-term assets, primarily the market value of the Company's 912,717 shares of Echostar Communication Corporation (NASD: DISH), Class A common Stock increased $17.4 million. As of March 29, 1996, the last trading day of the quarter, the Echostar stock closed at $33.75 per share. This adjustment to the asset, net of deferred tax, is reflected as a separate component of stockholders' equity. The increase in other accrued liabilities was due mainly to the increase in warranty accrual. Short term debt increased $1,030,000 as the Company drew against its operating line of credit. Amounts borrowed under the line are subject to interest rate equal to prime plus .375%. The Company has re- negotiated a new operating line of credit facility of $5.0 million and $2.0 million equipment line of credit facility through May 30, 1997, and December 31, 1996, respectively. Deferred tax liabilities increased $5,279,000. This increase was due to the deferred tax on the Company's holding of Echostar common stock. In addition to the acquisition of the business of Fairchild Data, the Company may pursue additional strategic acquisitions and investments in the satellite communications and related markets that will complement and expand its current position. The Company believes it has the necessary capital resources available for such a program. The Company's capital requirements could change in the event of factors such as lower than anticipated demand for the Company's products, unusual or unanticipated manufacturing or engineering costs, or unanticipated limitations on debt financing. If any of these or other events should occur, the Company could experience a need to raise additional capital. 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 11 Computation of Per Share Page 14 Earnings 27 Financial Data Schedule Page 15 (b) Reports on Form 8-K The Company filed the 8-K related to the asset purchase of Fairchild Data, on February 7, 1996, and a 8-K/A on April 11, 1996. 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: May 14, 1996 SSE TELECOM, INC. By: /s/ Frederick C. Toombs Frederick C. Toombs, President By: /s/ Daniel E. Moore Daniel E. Moore, Chief Financial Officer EX-11 2 EXHIBIT 11 Attached and Made Part of Part II Of 10Q for the Quarters Ended March 30, 1996 and September 30, 1995 Three Months Ended Six Months Ended 03/30/96 04/01/95 03/30/96 04/01/95 Primary Weighted common average shares outstanding before applying the treasury stock method 5,359,847 5,396,170 5,343,399 5,395,546 Increase in weighted average shares due to repurchases applying the treasury 0 136,265 0 137,570 stock method for stock options and warrants Weighted contingent shares in connection with Fairchild Data asset purchase 69,663 0 34,254 0 Primary weighted average 5,429,510 5,532,435 5,377,653 5,533,116 shares Primary net income (loss) $(1,084,738) $477,651 $(591,405) $814,979 Net income (loss) per share $(.20) $.09 $(.11) $.15 Fully diluted Weighted common average shares outstanding before applying the treasury 5,359,847 5,396,170 5,343,399 5,395,546 stock method Increase in weighted average shares due to repurchases applying the treasury stock method for stock options and warrants 0 145,778 0 145,198 Weighted contingent shares in connection with Fairchild Data asset purchase 69,663 0 34,254 0 Fully diluted weighted average shares 5,429,510 5,541,948 5,377,653 5,540,744 Fully diluted net income $(1,084,738) $477,651 $(591,405) $814,979 (loss) Fully diluted net income $(.20) $.09 $(.11) $.15 (loss) per share EX-27 3 ARTICLE 5 FIN. DATA SCHEDULE FOR 2ND QTR 10-Q WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 Sep-28-1996 Oct-01-1995 Mar-30-1996 6-MOS 0 1,018 12,332 (156) 11,185 25,736 8,922 6,288 60,451 9,276 9,724 0 0 56 31,499 60,451 0 21,951 15,212 15,212 7,505 0 137 (880) (289) (591) 0 0 0 (591) (.11) @^^^^^(.11)
-----END PRIVACY-ENHANCED MESSAGE-----