-----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, NwAmgMnDIbR1kJno9sA5sf2PpUO305fE25Udf/ydly65kskzLZrXF5qEmYk5vfOH mkUQIkQ467oMWyNC18WDvg== 0000808220-97-000004.txt : 19970514 0000808220-97-000004.hdr.sgml : 19970514 ACCESSION NUMBER: 0000808220-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970513 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: 97602002 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 3 _________________________________________________________________________ _____ 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 29, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 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 9, 1997, the following number of shares of each of the issuer's classes of common stock were outstanding: Common Stock 5,949,504 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1.Financial Statements Page Consolidated Statements of Operations for the three months and six months ended March 29, 1997 and March 30, 1996 3 Consolidated Balance Sheets as of March 29, 1997 and September 28, 1996 4 Consolidated Statements of Cash Flows for the six months ended March 29, 1997 and March 30, 1996 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 9-12 PART I - FINANCIAL INFORMATION Item 1. Financial Statements SSE Telecom, Inc. Consolidated Statements of Operations (Unaudited) For The Three Months and Six Months Ended March 29, 1997 and March 30, 1996 (dollars and shares in thousands, except per share) Three Months Six Months Ended Ended 3/29/97 3/30/96 3/29/97 3/30/96 Revenue $11,167 $12,931 $23,462 $21,950 Cost of revenue 8,148 9,082 17,154 15,211 Gross margin 3,019 3,849 6,308 6,739 Expense Research and development 1,313 934 2,501 1,621 Marketing, general and 2,243 1,964 4,115 3,345 administrative Amortization - intangible 45 30 80 30 Write off of acquired in- -- 1,404 -- 1,404 process R&D Acquisition-related asset -- 1,104 -- 1,104 write-off Operating income (loss) (582) (1,587) (388) (765) Net interest expense 134 95 261 137 Gain on sale of investment, -- -- (2,642) -- net Other expense (income) (41) (43) (41) (22) Income (loss) before income (675) (1,639) 2,034 (880) taxes Provision (benefit) for (236) (554) 712 (289) income taxes Net income (loss) $(439) $(1,085) $1,322 $(591) Primary earnings (loss) per $(.07) $(.20) $0.22 $(.11) share Shares used in computing primary earnings (loss) per 5,934 5,430 5,908 5,378 share The Notes to Consolidated Financial Statements are an integral part of these statements. SSE Telecom, Inc. Condensed Consolidated Balance Sheet (dollars in thousands) Assets March 29, 1997 September 28, 1996 Current Assets (unaudited) (audited) Cash and cash equivalents $172 $1,241 Accounts receivable, net 10,047 11,041 Inventories 11,354 12,024 Other current assets 2,737 3,314 Total current assets 24,310 27,620 Net property, equipment and 4,585 3,501 leasehold improvements Long-term investments 15,615 22,376 Intangible assets 633 611 Other assets 1,149 1,155 Total assets 46,292 55,263 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $3,294 $4,275 Short-term debt 2,521 3,342 Accrued salaries and employee 1,190 1,447 benefits Other Liabilities 1,558 1,830 Total current liabilities $8,563 $10,894 Deferred tax liabilities 5,177 8,310 Convertible notes payable 4,205 4,771 Stockholders' Equity Common stock $.01 par value 59 59 Additional paid in capital 12,456 12,276 Retained earnings 8,047 6,725 Net unrealized gain on available 9,296 12,730 for sale investments Treasury stock (1,511) (502) Total stockholders' equity 28,347 31,288 Total liabilities & stockholders'equity $46,292 $55,263 The Notes to Consolidated Financial Statements are an integral part of these statements. SSE Telecom, Inc. Consolidated Statements of Cash Flows (unaudited) For the six months ended March 29, 1997, and March 30, 1996 (dollars in thousands) 1997 1996 Cash provided by operating activities: Net income $1,322 $(591) Adjustments to reconcile net income to net cash (used) by operating activities: Depreciation and amortization 719 507 Acquisition related charges -- 2,508 Gain on sale of Echostar stock (2,642) -- Deferred interest expense 110 298 Changes in operating assets and liabilities: Accounts receivable 994 (3,373) Inventories 669 (2,361) Other current assets 578 (648) Accounts payable (982) 1,138 Other accrued liabilities (529) 356 Net cash provided (used) by operating 239 (2,166) activities Cash provided by investing activities: Purchases of equipment (1,723) (573) Proceeds from sale of Echostar stock 2,835 Purchases of short-term investments -- (7,769) Proceeds from sales of short-term investments -- 11,081 Acquisition of net assets of Fairchild Data -- (4,400) Purchase of equity interest in Media4 (96) -- Other assets -- 39 Net cash provided (used) by investing 1,016 (1,622) activities Cash provided by financing activities: Net (payments)/borrowings under lines of credit (1,485) 1,030 Net borrowings under equipment line of credit 664 -- Net payments on convertible notes payable (675) -- Proceeds from issuance of common stock 181 -- Treasury stock purchases (1,009) (796) Other -- 6 Net cash provided (used) by financing (2,324) 240 activities Net (decrease) in cash and cash equivalents (1,069) (3,548) Cash and cash equivalents beginning of period 1,241 3,548 Cash and cash equivalents end of period $ 172 $ -- Non-cash transactions: Acquisition of net assets of Fairchild Data by -- $1,109 issuance of common stock and warrants The Notes to Consolidated Financial Statements are an integral part of these statements. SSE TELECOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED FINANCIAL STATEMENTS The financial information at March 29, 1997, and for the three months and six months periods ended March 29, 1997 and March 30, 1996, is unaudited. 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. 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 28, 1996 Form 10-K. The results of operations for the three and six month periods ended March 29, 1997 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 March 29, 1997 and September 28, 1996, inventories consisted of: (in thousands) March 29, September 28, 1997 1996 (unaudited) Manufacturing raw $6,851 $5,693 materials Work-in-process 3,046 6,016 Finished goods 1,457 315 Total $11,354 $12,024 3. CONVERTIBLE NOTES PAYABLE At March 29, 1997, the Company had an outstanding balance of $4.08 million on its 6 1/2% convertible subordinated debentures due March 1, 2001, payable to Echostar Communication Corporation. During the first six months of fiscal 1997 the Company repaid $0.5 million of the debenture principle and $0.2 million of debenture interest. 4. NET INCOME PER SHARE Net income per share is computed using the weighted average number of common and dilutive common equivalent shares (stock options and warrants) outstanding during the period (using the treasury stock method). 5. FINANCIAL ACCOUNTING STANDARD NO. 128 The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS 128 replaces primary earnings per share ("EPS") with basic EPS, which excludes dilutive common equivalent shares, and requires presentation of both basic and diluted EPS on the face of the statements of income. Diluted EPS is computed similarly to the current fully diluted EPS. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997, and requires restatement of all prior-period EPS data presented. The computed basic earnings per share are not materially different to the earnings per share as reported for the quarters ended March 29, 1997 and March 30, 1996, respectively. The computed diluted earnings per share is not materially different from the earnings per share as reported for these quarters. 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 facts, 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 consumers and international sales could cause actual results to differ from those described in these statements and prospective investors and stockholders should carefully consider these factors in evaluating these forward- looking statements. The following table sets forth, for the three months and six months ended on the dates indicated, certain income and expense items expressed as an approximate percentage of the Company's total revenues: Three months ended Six months ended March March March March 29, 30, 29 30, 1997 1996 1997 1996 Revenue 100% 100% 100% 100% Gross margin 27% 30% 27% 31% Research and development expense 12% 7% 11% 7% Marketing, general and administrative 20% 15% 18% 15% expenses Write off of acquired asset in - 11% - 6% process R & D Acquisition-related asset write-off - 9% - 5% Operating income (loss) (5%) (12%) (2%) (3%) Net interest expense 1% 1% 1% 1% Other expense (income) - - - - Gain on sale of investments, net - - 12% - Income (loss) before income taxes (6%) (13%) 9% (4%) Provision (benefit) for income taxes (2%) (4%) 3% (1%) Net income (loss) (4%) (9%) 6% (3%) Overview On January 28, 1996, the Company acquired the business and assets of Fairchild Data (the Company's SSE Datacom subsidiary), a leading manufacturer of satellite modems and related earth station products. Comparisons between the three months and six months results of fiscal year 1997 and 1996 on an absolute and percentage change basis are affected by the results of the Company's SSE Datacom subsidiary. Revenue. Sales were $11.2 million for the second quarter of fiscal year 1997 as compared to $12.9 million for the same period in fiscal year 1996, representing a decrease of 14%. Sales for the first six months of fiscal year 1997 were $23.5 million as compared to $22.0 million for the same period in fiscal year 1996, representing an increase of 7%. The decrease in the second quarter reflects lower than anticipated sales in general as well as to several large accounts including the U.S. Government. The sales increase for the first six months of fiscal year 1997 reflects $6 million in sales from SSE Datacom as opposed to $2.7 million from Datacom in the first six months of fiscal 1996. Gross Margin. Gross margin was $3.0 million or 27% of sales in the second quarter of fiscal year 1997, compared to $3.8 million or 30% of sales for the second quarter of 1996. Gross margin for the first six months was $6.3 million or 27% of sales in fiscal year 1997 versus $6.7 million or 31% in fiscal year 1996. The decline in gross margin percentage from 1996 was due primarily to the loss of economies of scale from lower sales and continued pricing pressures. The Company did maintain the same gross margin percentage of 27% in the second quarter as in the first quarter of fiscal year 1997 despite lower sales. Research and Development. Research and development expenses grew by 41% to $1.3 million or 12% of sales for the second quarter of fiscal 1997 from $.9 million or 7% of sales for the second quarter of fiscal 1996. Research and development grew 51% to $2.5 million or 11% of sales for the first six months of fiscal year 1997 from $1.6 million or 7% of sales in fiscal year 1996. The increase in R&D expenditures reflect the Company's focus on enhancing in-house capabilities in core technologies and the development of advanced products including advanced modem products at SSE Datacom. Marketing, General and Administrative. Marketing, general and administrative expenses were $2.2 million or 20% of sales in the second quarter of fiscal year 1997 as compared to $2.0 million or 15% of sales for the same period in fiscal 1996. For the first six months of fiscal year 1997 expenses were $4.1 million or 18% of sales as compared to $3.3 million or 15% of sales in fiscal year 1996. The majority of the increase in expense relates to the expansion of sales and marketing and increased customer service activity including a new repair center in Bangkok, Thailand. Net Interest Expense. Net interest expense was $134,000 in the second quarter of fiscal 1997. During the same period of last fiscal year, net interest expense was $95,000. The increase in interest expense reflects the redirection of funds previously invested in short term securities that were utilized for the purchase of Fairchild Data, and a need of the Company to borrow against its credit lines to fund operating and capital expenditures. Net (Gain) on Sale of Investments. During the first six months of fiscal 1997 the Company realized a gain of $2.6 million on sales of 92,937 shares of Echostar Communication Corporation (NASDAQ: DISH) common stock. The proceeds generated from these sales were used for repayment of convertible debentures payable to Echostar, purchase of treasury stock, and to fund operating expenditures. As of March 29, 1997 the Company has a total of 709,780 shares of Echostar common stock. Provision for Income Taxes. The effective tax rate (benefit) was 35% for the second quarter and first six months of fiscal year 1997 as well as 35% for the second quarter and first six months of fiscal year 1996. Backlog. The Company's total backlog was $4.5 million at the end of the second quarter of fiscal year 1997, as compared to backlog of $8.9 million at the end of fiscal year 1996. Management expects substantially all backlog to be delivered in fiscal 1997. 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 March 29, 1997, the Company had working capital of $15.8 million, including $0.2 million in cash and cash equivalents, compared with working capital of $16.7 million, including cash and cash equivalents of $1.2 million at September 28, 1996. Net cash provided by operating activities was $239,000 during the first six months of fiscal year 1997 as compared to net cash used of $2,166,000 in the similar period of fiscal year 1996. Cash provided by operations was primarily due to a decrease in accounts receivable, inventory and other assets. The decrease in accounts receivable of $994,000 in the first six months of fiscal year 1997 was due to lower sales and better collections including the collection of a large receivable with the U.S. Government. The lowering of inventories is a continuing effort by the Company to reduce the dollar amount of inventory held in raw materials at the same time maintain adequate levels to meet customers' needs. The Company's investing activities provided $1.0 million during the first six months of fiscal 1997 as compared to cash used of $1.6 million during the same period in fiscal year 1996. During the first six months of fiscal 1997 $2.8 million was realized from the sale of Echostar shares which offset capital expenditures of $1.7 million. The Company participated in Media4's recent equity funding of $2.4 million by investing an additional $100,000 during the second quarter of fiscal year 1997. In addition, the Company converted $175,000 of Media4's 7% convertible debentures into equity. The Company's financing activities used $2.3 million during the first six months of fiscal 1997 as compared to net cash provided of $240,000 during the first six months of fiscal year 1996. The Company repaid its operating line of credit by $1.5 million, reduced convertible debentures by $675,000 and purchased 126,200 shares of treasury stock valued at $1.0 million. At March 29, 1997 the Company's principal sources of liquidity consisted of $0.2 million in cash, and bank lines of credit. At March 29, 1997, $1.5 million was outstanding under the operating line of credit and $1.0 million under its equipment line of credit. The lines of credit require the Company to be in compliance with certain financial covenants. As of March 29, 1997 the Company was not in compliance with certain covenants and has obtained a bank waiver for those covenants not in compliance. The Company intends to renew these lines of credit in fiscal year 1997, as well as seek additional capital equipment financing from other sources. The Company's capital requirements could change in the event of factors such as lower than anticipated demand for the Company's products or unanticipated limitations on debt financing. The Company believes that its current cash position, funds generated from operations, funds available from its equity holdings in Echostar common stock and 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. Due to certain constraints on the ability to sell Echostar shares and potential volatility of the value of the stock, there could be a significant reduction in funding available from the liquidation of Echostar stock. If these events occur, the Company may be required to raise additional capital using other means to meet all of its needs. 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 11 Earnings 27 Financial Data Schedule Page 12 (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: May 13, 1997 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 3 EXHIBIT 11 Attached and Made Part of Part II Of 10Q for the Quarters Ended March 29, 1997 and March 30, 1996 (dollars and shares in thousands, except per share) Three Months Ended Six Months Ended March March March March 29, 30, 29, 30, 1997 1996 1997 1996 Primary Weighted common average shares outstanding 5,934 5,430 5,851 5,377 Increase in weighted average shares due to applying the treasury stock method for stock options and warrants -- -- 57 -- Primary weighted average shares 5,934 5,430 5,908 5,377 Primary net income (loss) $(439) $(1,085) $1,322 $(591) Net income (loss) per share $(.07) $(.20) $.22 $(.11) Fully diluted Weighted common average shares outstanding 5,934 5,430 5,851 5,377 Increase in weighted average shares due to applying the treasury stock method for stock options and warrants -- -- 57 -- Fully diluted weighted average shares 5,934 5,430 5,908 5,377 Net income (loss) $(439) $(1,085) $1,322 $(591) Total fully diluted net income (loss) $(.07) $(.20) $.22 $(.11) per share EX-27 3 ARTICLE 5 FIN. DATA SCHEDULE FOR 2ND QTR 10-Q
5 1,000 Sep-27-1997 Sep-29-1996 Mar-29-1997 6-MOS 172 0 10,463 416 11,354 24,310 11,959 7,374 46,292 8,563 4,205 0 0 59 28,288 46,292 0 23,462 17,154 6,696 (2,642) 0 261 2,034 712 1,322 0 0 0 1,322 .22 .22
-----END PRIVACY-ENHANCED MESSAGE-----