-----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, R/d+bxdQs1rRO+A2Wu6sFgulu1vMpcbF6xRWmsNHATi8qQKiXec+UgOEPtckJttt BxRdAaaKDDFUIt0mq3G4eQ== 0000808220-96-000010.txt : 19960816 0000808220-96-000010.hdr.sgml : 19960816 ACCESSION NUMBER: 0000808220-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19960814 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: 96611471 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 12 _______________________________________________________________________ _______ 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 JUNE 29, 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 August 2, 1996, the following number of shares of each of the issuer's classes of common stock were outstanding: Common Stock 5,584,546 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements Page Consolidated Balance Sheets as of June 29, 1996 and September 30, 1995 3 Consolidated Statements of Operations for the three months and nine months ended June 29, 1996 and July 1, 1995 4 Consolidated Statements of Cash Flows for the nine months ended June 29, 5 1996 and July 1, 1995 Notes to Consolidated Financial Statements 6- 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of 8-10 Operations PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11-14 PART I - FINANCIAL INFORMATION Item 1. Financial Statements SSE TELECOM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) Assets June 29, 1996 September 30, 1995 Current Assets (Unaudited) Cash and cash equivalents $ 781 $3,548 Short-term investments -- 4,350 Accounts receivable, net of allowance 11,978 6,968 for doubtful accounts of $328 at June 29, 1996, and $223 at September 30, 1995 Inventory 11,739 6,093 Other current assets 1,561 915 Total current assets 26,059 21,874 Net property, equipment and leasehold 3,199 2,088 improvements Long-term investments 26,001 13,575 Intangible assets 659 -- Other assets 389 285 Total assets $56,30 $37,82 7 2 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $4,550 $2,772 Short term debt 3,280 -- Accrued salaries and employee benefits 1,900 771 Other accrued liabilities 645 679 Total current liabilities 10,375 4,222 Deferred tax liabilities 8,058 4,618 Notes payable 9,881 9,426 Commitments and contingencies -- -- Stockholders' Equity Common stock $.01 par value per share, 60 55 10,000,000 shares authorized; 5,746,306 and 5,531,346 shares issued and outstanding at June 29, 1996 and September 30,1995, respectively. Additional paid in capital 8,040 6,745 Retained earnings 5,478 6,594 Net unrealized gain on available for sale investments 16,129 7,051 Treasury stock, at cost, 253,275 shares and (1,714) (889) 143,275 shares at June 29, 1996, and September 30, 1995 respectively Total stockholders' equity 27,993 19,556 Total liabilities & stockholders' equity $56,30 $37,82 7 2 The Notes are an integral part of these statements SSE TELECOM, INC. CONSOLIDATED STATEMENTS of OPERATIONS (Unaudited) For The Three Months and Nine Months Ended June 29, 1996 and July 1, 1995 (dollars in thousands, except earnings per share) Three Months Ended Nine Months Ended 6/29/96 7/1/95 6/29/96 7/1/95 Sales $12,606 $9,180 $34,557 $25,509 Cost of sales 9,592 6,054 24,804 16,922 Gross margin 3,014 3,126 9,753 8,587 Expense Research and development 1,238 754 2,858 2,145 Selling, general and administrative 2,243 1,476 5,588 4,077 Amortization - intangibles 48 8 78 25 Write-off of acquired in- process -- -- 1,404 -- R & D Acquisition-related asset write-off -- -- 1,105 -- Operating income (loss) (515) 888 (1,280) 2,340 Net interest expense 139 63 278 246 Other (income) and expense 58 49 34 155 Income (loss) before income (712) 776 (1,592) 1,939 taxes Provision (benefit) for income (214) 233 (503) 581 taxes Net income (loss) $(498 $543 $(1,089 $1,358 ) ) Net income (loss) per share $(.09 $.10 $(.20 $.2 ) ) 4 Shares used in computing primary net income (loss) per share 5,514,87 5,547,01 5,406,43 5,554,8 9 7 1 70 The Notes are an integral part of these statements SSE TELECOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For The Nine Months Ended June 29, 1996 and July 1, 1995 (dollars in thousands) Operating Activities: June 29, 1996 July 1, 1995 Net income (loss) $ (1,089) $ 1,358 Adjustments to reconcile net income (loss) to net cash provided (used)by operating activities: Depreciation and amortization 813 457 Acquisition related charges 2,509 -- Interest expense 454 -- Changes in operating assets and liabilities: Accounts receivable (3,174) (848) Inventory (3,208) 75 Other current assets (608) (1) Accounts payable 303 (502) Accrued salaries and employee benefits 811 71 Other accrued liabilities (720) 363 Net cash provided (used) by operating (3,909) 973 activities Investing Activities: Cash purchases of equipment (1,398) (524) Purchases of short-term investments (8,826) (2,500) Sales of short-term investments 13,145 -- Acquisition of net assets of Fairchild (4,400) -- Data Other assets 3 (720) Net cash provided (used) by operating (1,476) (3,744) activities Financing Activities: Increase/(decrease) in short term debt 3,280 (657) Proceeds from issuance of common stock 191 124 Treasury stock purchase (825) (270) Payment of stockholders' notes -- 135 receivable Other (28) -- Net cash provided (used) by financing 2,618 (668) activities Net (decrease) in cash and cash equivalents (2,767) (3,439) Cash and cash equivalents beginning of 3,548 6,118 period Cash and cash equivalents end of period $ $ 781 2,679 Non-cash transactions Acquisition of net assets of Fairchild Data by issuance of common stock and warrants $ 1,109 -- The Notes are an integral part of these statements SSE TELECOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated financial statements include the accounts of SSE Telecom, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated. While the financial information furnished is unaudited, the financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. 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. The results of operations for the period ended June 29, 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 June 29, 1996 and September 30, 1995, inventory consisted of: ($000's) June 29, 1996 September 30, (unaudited) 1995 Manufacturing raw $7,443 $3,727 materials Work-in-process 4,143 1,784 Finished Goods 153 582 Total $11,73 $6,09 9 3 3. COMMITMENTS, NOTES PAYABLE, AND LONG TERM DEBT The Company leases office and manufacturing space, for its operations, under leases that expire from October 1996 to 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 Company also has short term lease agreements related to office and manufacturing equipment. The Company maintains a secured operating line of credit with a national bank. The Company's lines of credit require the Company to meet certain financial covenants, including minimum tangible net worth, minimum debt coverage ratios, and profitability requirements. As of June 29, 1996, the Company was not in compliance with certain of these covenants. The Company has obtained a waiver for these covenants. Under an agreement with Echostar Communications Corporation ("Echostar"), the Company sold to Echostar $8.8 million of the Company's 6.5% seven-year convertible subordinated debentures in fiscal year 1994. The debentures are convertible into the Company's common stock at $12.00 per share. Interest expense has been accrued with payment deferred until March 1997. The accrued interest balance was $1.1 million at June 29, 1996. 4. NET INCOME (LOSS) PER SHARE Net income per share is computed using the weighted average number of common and common equivalent shares (stock options and warrants) outstanding during the period (using the treasury stock method). Net loss per share is computed using only the weighted average number of common shares outstanding during the period. Common equivalent shares are excluded in the calculation of the net loss per share because their effect would be anti-dilutive. 5. 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 transaction is summarized in the Company's 8-K and 8-K/A filed February 7, 1996 and April 11, 1996, respectively. A portion of the cash purchase price has not yet been paid to The Fairchild Corporation. The Company issued to the Fairchild Corporation 200,000 shares of SSE Telecom common stock on January 29, 1996, 100,000 of which were contingently issued and placed in escrow. These contingent shares will be issued to The Fairchild Corporation only upon Fairchild Data achieving certain performance requirements. 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 June 29, 1996. 6. SUBSEQUENT EVENTS On July 25, 1996 the Company announced that it had agreed in principle to sell 525,000 shares of its common stock to Alcatel Telspace, S.A., a unit of Alcatel Telecom, at a price of $12.57 per share, for a total of $6.6 million. In connection with this transaction, Alcatel Telspace also would purchase an additional 100,000 SSE common shares for $12.28 per share from certain members of the Company's senior management. Upon closing, Alcatel Telspace would own approximately 10% of SSE's outstanding common stock. The closing is subject to completion of definitive agreements and is expected to occur by the end of September 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 for the periods indicated, certain income and expense items expressed as a percentage of the Company's total sales. Three months ended Nine months ended 6/29/96 7/01/95 6/29/96 7/01/95 Sales 100% 100% 100% 100% Gross margin 24% 34% 28% 34% Research and development 10% 8% 8% 8% Selling, G&A expenses 18% 16% 16% 16% Write-off of acquired asset in-process R & D 4% Acquisition-related asset write-offs 4% Operating income (loss) (4)% 10% (4)% 10% Net interest expense 2% 1% 1% 2% Income(loss)before taxes (6)% 9% (5)% 8% Provision (benefit)for income taxes (2)% 3% (2)% 3% Net income (loss) (4)% 6% (3)% 5% Sales increased 37% to $12.6 million for the third quarter ending June 29, 1996 when compared to the corresponding period of fiscal 1995. The increase in sales is mainly attributable to digital modems sales from the consolidation of Fairchild Data. For the first nine months of fiscal 1996, sales increased 35% to $34.6 million from $25.5 million for the same period last year. Gross margin as a percentage of sales decreased from 34% in the third quarter of fiscal 1995 to 24% in the comparable quarter in fiscal 1996. In the third quarter of fiscal 1996 higher costs and manufacturing inefficiencies associated with the ramp-up of production of its newest generation of the Company's transceivers contributed to the lower gross margin. In addition the Company experienced price pressure for certain of its products. There can be no assurance that competitive pressures or other factors will not impact negatively gross margins in the future. For the first nine months of fiscal 1996, gross margin was 28% compared to 34% for the same period of fiscal 1995. Research and development expenses were $1.2 million for the third quarter of fiscal 1996, a $0.5 million or 64% increase over the same period in fiscal 1995. As a percentage of sales, research and development expense was 10% in third quarter of 1996 and 8% in the third quarter of fiscal 1995. For the first nine months of fiscal 1996, research and development expense was $2.9 million compared to $2.1 million in the same period last fiscal year. The Company has funded and expects to fund its research and development programs at a higher dollar amount in support of the development of high power C and Ku band STAR transceivers, and in development of additional advanced digital modem products. However, research and development expense may vary as a percentage of sales. Selling, general and administrative expenses in the third quarter of fiscal 1996 were $2.2 million compared to $1.5 million for the similar period of fiscal 1995. For the first nine months of fiscal 1996, selling, general and administrative expenses were $5.6 million compared to $4.1 million in the first nine months of fiscal 1995. The increases were primarily the result of continued investment in customer service personnel, as well as increased advertising and promotion of new products. As a percentage of sales, these expenses increased in the third quarter of fiscal 1996 to 18% from 16% in similar period in fiscal 1995. On a nine month basis, the percentage remained at a 16% of sales for fiscal 1995 and fiscal 1996. Net interest expense in the third quarter of fiscal 1996 was $139,000 compared to $63,000 in the similar period of fiscal 1995. While the Company did have the full effect of the Echostar debenture outstanding in both fiscal 1996 and 1995, during the three months ended June 29, 1996 the Company borrowed against its operating line of credit, whereas during the same period in fiscal 1995 the Company had reduced the line outstanding. For the first nine months of fiscal 1996, net interest expense was $278,000 as compared to $246,000 in the same period of fiscal 1995. The Company recorded a tax benefit of $214,000 in the third quarter of fiscal 1996 compared to a tax provision of $233,000 in the similar period in fiscal 1995. For the first nine months of fiscal 1996, the Company booked a tax benefit of $503,000 compared to a tax provision of $581,000 in the similar period of fiscal 1995. The effective tax benefit rate was 32% for the first nine months of fiscal 1996 as compared to 30% tax provision rate in the same period of fiscal 1995. Liquidity and Capital Resources At June 29, 1996, the Company had working capital of $15.7 million, including cash, cash equivalents, and short-term investments of $0.8 million, compared to working capital of $17.7 million on September 30, 1995, including cash, cash equivalents, and short-term investments of $7.9 million. Net cash used in operating activities was $3.9 million for the nine months ended June 29, 1996. Cash flow from operations was negative due to the operating loss, the working capital required to fund the increase in accounts receivable from higher sales levels, and increases in inventory to support new product introductions. Net fixed assets increased from $2.1 million at September 30, 1995 to $3.2 million at June 29, 1996. The Company acquired $.4 million in fixed assets in conjunction with the Fairchild Data acquisition, and has purchased $.7 million of capital consisting of production equipment, R&D equipment, computer hardware and software, and leasehold improvements. Other long-term assets, primarily the market value of the Company's 912,717 shares of Echostar Communication Corporation (NASDAQ: DISH), Class A common stock, increased $12.6 million from September 30, 1995. As of June 28, 1996, the last trading day of the quarter, Echostar stock closed at $28.25 per share. This adjustment to the asset, net of deferred tax, is reflected as a separate component of stockholders' equity. For the nine month period ending June 29, 1996, the Company used cash of $0.9 million to acquire an aggregate of 110,000 shares of the Company's common stock under its stock repurchase program. At June 29, 1996, the Company's principle sources of liquidity consisted of $0.8 million in cash and cash equivalents, and the bank lines of credit of $5.0 million for operations and $2.0 million for capital equipment. $3.3 million of the operating line and none of the capital equipment line was outstanding at June 29, 1996. These facilities expire May 30, 1997, and December 31, 1996, respectively. The lines of credit require the Company to meet certain financial covenants, including minimum tangible net worth, minimum debt coverage ratios, and profitability requirements. As of June 29, 1996, the Company was not in compliance with certain of these covenants. The Company has obtained a waiver for these covenants. The Company believes that its current cash position, funds from operations, funds available from its equity investment in Echostar common stock, and funds from its credit facilities will be adequate to meet its requirements for working capital, capital expenditures, debt service, and external investments for the foreseeable future. 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 13 earnings 27 Financial Data Schedule Page 14 (b) Reports on Form 8-K The Company filed a report 8-K/A related to the asset purchase of Fairchild Data, 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: August 13, 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 June 29, 1996 and July 1, 1995 Three Months Ended Nine Months Ended 06/29/96 07/01/9 06/29/96 07/01/95 5 Primary Weighted common average shares outstanding before applying the treasury 5,514,879 5,399,6 5,350,18 5,401,74 stock method 68 1 6 Increase in weighted average shares due to repurchases applying the treasury 0 174,349 0 153,124 stock method for stock options and warrants Weighted contingent shares in connection with Fairchild Data asset purchase 0 56,250 0 0 Primary weighted average 5,514,879 5,574,0 5,406,43 5,554,87 shares 17 1 0 Primary net income (loss) ($498,357) $543,04 ($1,089,7 $1,358,0 3 61) 21 Net income (loss) per share ($.09) $.10 ($.20) $.24 Fully diluted Weighted common average shares outstanding before applying the treasury 5,514,879 5,399,6 5,350,18 5,401,74 stock method 68 1 6 Increase in weighted average shares due to repurchases applying the treasury 0 189,180 0 212,749 stock method for stock options and warrants Weighted contingent shares in connection with Fairchild Data asset purchase 0 56,250 0 0 Fully diluted weighted average shares 5,514,879 5,588,8 5,406,43 5,614,49 48 1 5 Fully diluted net income ($498,357) $543,04 ($1,089,7 $1,358,0 (loss) 3 61) 21 Fully diluted net income (loss) per share ($.09) $.10 ($.20) $.24 EX-27 3 ARTICLE 5 FIN. DATA SCHEDULE FOR 3RD QTR 10-Q WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 Sep-28-1996 Oct-01-1995 Jun-29-1996 9-MOS 781 0 12,306 (328) 11,739 26,059 9,663 6,464 56,307 10,375 9,881 0 0 60 27,933 56,307 0 34,557 24,804 24,804 11,033 0 278 (1,592) (503) (1,089) 0 0 0 (1,089) (.20) (.20)
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