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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 27, 1999
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 Drive
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 April 20, 1999, the number of shares outstanding of the registrant's
common stock, par value $.01 was 5,791,456.
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page
Condensed Consolidated Statements of Operations for the
three months and six months ended March 27, 1999
and March 28, 1998 (unaudited) 3
Condensed Consolidated Balance Sheets as of March 27, 1999
(unaudited) and September 26, 1998 4
Condensed Consolidated Statements of Cash Flows
for the six months ended March 27, 1999
and March 28, 1998 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosure about Market Risk 11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12-13
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
SSE Telecom, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
For The Three Months and Six Months Ended March 27, 1999 and March 28, 1998
(dollars and shares in thousands, except per share data)
Three Months Ended Six Months Ended
March 27, March 28, March 27, March 28,
1999 1998 1999 1998
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue $4,718 $11,095 $12,422 $23,432
Cost of revenue 4,966 8,826 12,173 17,931
--------------- ------------- ------------- -------------
Gross margin (248) 2,269 249 5,501
Expenses
Research and development 957 1,632 1,951 3,027
Marketing, general and
administrative 2,062 2,164 4,037 3,903
Amortization - intangible -- 15 -- 34
--------------- ------------- ------------- -------------
Operating income (loss) (3,267) (1,542) (5,739) (1,463)
Net interest expense 29 150 49 331
Gain on sale of investment, net -- (4,229) (3,198) (7,117)
Other expense (income) (128) (5) (211) 34
--------------- ------------- ------------- -------------
Income (loss) before income taxes (3,168) 2,542 (2,378) 5,289
Provision (benefit) for income taxes (1,310) 890 (1,034) 1,851
--------------- ------------- ------------- -------------
Net income (loss) ($1,858) $1,652 ($1,345) $3,438
--------------- ------------- ------------- -------------
Basic income (loss) per share $(0.32) $0.29 $(0.23) $0.60
=============== ============= ============= =============
Diluted income (loss) per share $(0.32) $0.28 $(0.23) $0.59
=============== ============= ============= =============
Shares used in computing basic income (loss) per share 5,791 5,731 5,785 5,731
=============== ============= ============= =============
Shares used in computing diluted income (loss) per share 5,791 5,959 5,785 5,969
=============== ============== ============ =============
The Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SSE Telecom, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
March 27, 1999 September 26, 1998*
<S> <C> <C>
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $1,193 $3,327
Accounts receivable, net 5,186 5,702
Inventories 7,495 8,894
Deferred tax assets 3,845 2,762
Other current assets 262 198
--------------------------------------------
Total current assets 17,981 20,883
Property, plant and equipment 11,967 11,692
Less accumulated depreciation 8,789 8,109
--------------------------------------------
Property, plant and equipment, net 3,178 3,583
Long-term investments 5,357 6,583
--------------------------------------------
Total Assets $ 26,516 $31,049
============================================
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $3,168 $3,745
Accrued salaries and employee benefits 1,336 1,217
Short-term debt 2,016 3,036
Other accrued liabilities 2,878 2,492
--------------------------------------------
Total current liabilities 9,398 10,490
Deferred tax liabilities 627 930
Long-term debt 257 1,451
Stockholders' equity
Common stock and paid in capital 12,694 12,639
Treasury stock (1,782) (1,782)
Retained earnings 4,158 5,503
Net unrealized gain on available for sale investments 1,164 1,818
--------------------------------------------
Total stockholders' equity 16,234 18,178
--------------------------------------------
Total Liabilities & Stockholders' Equity $ 26,516 $31,049
============================================
</TABLE>
* Derived from audited Financial Statements.
The Notes to Condensed Consolidated Financial Statements are an integral part
of these statements.
<PAGE>
<TABLE>
<CAPTION>
SSE Telecom, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
For The Six Months Ended March 27, 1999, and March 28, 1998
(dollars in thousands)
March 27, 1999 March 28, 1998
<S> <C> <C>
Cash used for operating activities:
Net income $ (1,345) $ 3,438
Adjustments to reconcile net income to net cash used for:
Depreciation and amortization 680 687
Gain on sale of investment, net (3,198) (7,117)
Deferred interest expense -- 99
Deferred income taxes 26 --
Changes in operating assets and liabilities:
Accounts receivable 516 587
Inventories 1,399 (211)
Other current assets (16) 153
Accounts payable (577) 274
Other accrued liabilities (606) 979
----------------------------------------------
Net cash used for operating activities (3,121) (1,111)
----------------------------------------------
Cash provided by investing activities:
Purchases of equipment (275) (596)
Proceeds from sale of investment 3,419 7,847
Purchase of Media4 debenture/equity -- (931)
----------------------------------------------
Net cash provided by investing activities 3,144 6,320
----------------------------------------------
Cash used for financing activities:
Net (payment) under debt obligations (992) (2,105)
Net payments on convertible notes payable (1,220) (1,767)
Proceeds from issuance of common stock 55 1
Payments of debenture interest -- (232)
----------------------------------------------
Net cash used for financing activities (2,157) (4,103)
----------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,134) 1,106
----------------------------------------------
Cash and cash equivalents beginning of period 3,327 408
----------------------------------------------
Cash and cash equivalents end of period $ 1,193 $ 1,514
==============================================
</TABLE>
The Notes to Condensed Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
SSE TELECOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial information at March 27, 1999, and for the three month and six
month periods ended March 27, 1999 and March 28, 1998, 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
interim results presented are not necessarily indicative of results for any
subsequent quarter or for the year ending September 25, 1999.
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 27, 1999 and September 26, 1998, inventories
consisted of:
<TABLE>
<CAPTION>
(in thousands) March 27, 1999 September 26, 1998*
-------------- -------------------
<S> <C> <C>
(unaudited)
Manufacturing raw materials $3,800 $3,440
Work-in-process 2,948 3,657
Finished goods 746 1,797
========================= ==========================
Total $7,494 $8,894
========================= ==========================
</TABLE>
* Derived from audited financial statements.
3. INVESTMENTS
On February 1, 1999, in connection with the purchase by EchoStar Communications
Corp. (NASDAQ: DISH) of MEDIA4 Inc., the Company sold its interest in MEDIA4 in
exchange for 77,768 shares of EchoStar common stock. The EchoStar common stock
has been classified as an available-for-sale investment and was valued at $5.4
million at March 27, 1999.
4. LONG TERM DEBT
At March 27, 1999, the Company's long term portion of capital lease balance
outstanding was $256,917. During the first six months of fiscal 1999 the Company
repaid $1.2 million of convertible subordinated debentures due Echostar
Communication Corporation.
<PAGE>
5. NET INCOME PER SHARE
<TABLE>
<CAPTION>
The following table sets forth the computation of basic and diluted net (loss)/income per shares:
(in thousands, except per share)
Three Months Ended Six Months Ended
March 27, 1999 March 28, 1998 March 27, 1999 March 28, 1998
<S> <C> <C> <C> <C>
Numerator:
Net Income $ (1,858) $1,652 $(1,345) $3,438
Numerator for basic net (loss)/income per share (1,858) 1,652 (1,345) 3,438
Effect of dilutive securities:
Interest expense, net of taxes on
61/2% convertible securities -- 26 -- 64
---------------- --------------- ---------------- ---------------
Numerator for diluted net (loss)/income per share (1,858) 1,678 (1,345) 3,502
Denominator:
Denominator for basic net (loss)/income per share-
weighted average shares 5,791 5,731 5,785 5,731
Effect of dilutive securities:
Employee stock options -- -- -- 1
61/2% convertible debentures -- 228 -- 238
---------------- --------------- ---------------- ---------------
Dilutive potential common shares -- 228 -- 239
Denominator for diluted net (loss)/income per share-
adjusted weighted average shares and assumed
conversions 5,791 5,959 5,785 5,969
Basic income (loss) per share $(0.32) $0.29 $(0.23) $0.60
Diluted income (loss) per share $(0.32) $0.28 $(0.23) $0.59
</TABLE>
6. RELATED PARTY TRANSACTIONS
On March 8, 1999, the Company issued a promissory note in the principal amount
of $150,000 to the Executive Vice President of Product Development, George M.
Walley. The promissory note is due and payable one year from the date of
issuance and is interest free. The funds are for relocation expenses and closing
costs associated with Mr. Walley's principal residence. The loan principal of
$150,000 is classified as a current asset under accounts receivables, net.
7. SUBSEQUENT EVENTS
On March 26, 1999 the Company entered into a stock purchase agreement with
NationsBanc Montgomery Securities to sell a portion of its holdings of Echostar
common stock. On March 31, 1999 the Company sold 40,000 shares, at a price of
$69.25 per share, for an aggregate of $2.8 million.
<PAGE>
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
Sales for the quarter ended March 27, 1999 decreased substantially and were
affected by adverse economic conditions in Asia, Latin America, and Eastern
Europe. Profitability was impacted by these poor market conditions and
continuing weakness in the world Satcom market. The Company is concerned about
continued operating losses and has undertaken a number of strategic initiatives.
On April 23, 1999, the Company announced a 44% reduction in workforce. The
reduction was focused on the Company's operations and material operations
employees and will become effective on June 25, 1999. During the quarter ended
March 27, 1999 the Company commenced outsourcing of its SM3000 and SM4000 modem
products which enabled the Company to reduce overhead expenses and improve its
speed and flexibility in meeting customer requirements. Manufacturing operations
were not interrupted. During the quarter ended March 27, 1999, significant
effort was expended on marketing and development of a new product line in an
effort to reposition the Company to address the opportunities in the
Internet-via-satellite market.
Results of Operations for the Three Months and Six Months Periods Ended
March 27, 1999 and March 28, 1998
Revenue: Sales decreased to $4.7 million for the second quarter of fiscal 1999
from $11.1 million for the same period in fiscal 1998. The decline is
attributable in part to past production flow problems, and an overall weakness
in the Satcom market for the Company's products largely driven by international
economic conditions. The Company's products represent a capital item to its
customers and funding for capital has been either reduced, delayed or canceled
in several international markets. Sales for the first six months of fiscal 1999
were $12.4 million as compared to $23.4 million for the same period in fiscal
1998.
Gross Margin: Gross margin decreased to ($248,000) in the second quarter of
fiscal 1999, compared to $2.3 million for the second quarter of 1998. Gross
margin for the first six months of fiscal year 1999 was $249,000 as compared to
$5.5 million in fiscal year 1998. The decline in gross margin was primarily due
to (1) pricing pressure, (2) continued decreases in satellite transceiver and
modem orders leading to reduced shipments and lower absorption of fixed costs,
and (3) higher warranty costs.
Research and Development: Research and development expenses decreased to
$957,000 for the second quarter of fiscal 1999 from $1.6 million for the second
quarter of fiscal 1998. Research and development declined to $1.9 million for
the first six months of fiscal year 1999 from $3.0 million for the first six
months of fiscal year 1998. The decrease reflects an overall reduction in
research and development project labor, material and services in fiscal 1999.
While the Company reduced expenditures in fiscal 1999, it has also refocused it
efforts from sustaining activities for current products to the development of
new product platforms and to the Company's outsourcing initiatives.
Marketing, General and Administrative: Marketing, general and administrative
expenses were $2.1 million in the second quarter of fiscal 1999 as well as the
second quarter of fiscal 1998. For the first six months of fiscal year 1999
expenses were $4.0 million as compared to $3.9 million in fiscal year 1998. The
expense level remained constant due to increases in marketing activity and
travel in the second quarter of fiscal year 1999 related to business development
initiatives for the Company's new product platforms, offset by decreases in
international sales representative commissions and general and administrative
expenses.
Net Interest Expense. Net interest expense was $29,000 in the second quarter of
fiscal 1999 as compared to $150,000 for the same period last year. For the first
six months of fiscal year 1999 interest expense was $49,000 as compared to
$331,000 during the same period in fiscal year 1998. As of March 27, 1999 all of
the Company's debentures held by EchoStar Communication Corp. had been retired.
Net Gain on Sale of Investments. During the first six months of fiscal 1999 the
Company realized a gain of $4.2 million on sales of 118,905 shares of Echostar
Communication Corporation (NASDAQ: DISH) common stock at an average selling
price of $28.75 per share. The proceeds generated from these sales were used for
repayment of convertible debentures payable to Echostar, repayment of operating
line of credit, and to fund operating expenditures. As of March 27, 1999 the
Company holds a total of 77,768 shares of Echostar common stock valued at $5.4
million.
Other Income/Expense. Other income for the second quarter of fiscal 1999 was
$128,000 as compared to $5,000 during the same period in fiscal 1998. For the
first six months of fiscal 1999 other income was $211,000 as compared to other
expense of $34,000 in fiscal 1998. Other income in fiscal 1999 included a
$100,000 payment to the Company under a sublease agreement with Roche Industries
for subleasing space at Westinghouse Drive, and a insurance claim payment for
stolen property.
Provision for Income Taxes. The effective tax (benefit) rate was 35% for the
second quarter and the first six months of fiscal year 1999 as well as 35% for
the second quarter and first six months of fiscal year 1998.
Backlog. The Company's total backlog was approximately $2.5 million at the end
of the second quarter of fiscal year 1999, as compared to backlog of
approximately $3.0 million at the end of the second quarter in fiscal year 1998.
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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 27, 1999, the Company had working capital of $8.6 million, including
$1.2 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 $3.1 million during the first six
months of fiscal 1999 as compared to net cash used of $1.1 million in the
similar period of fiscal 1998. Cash used was principally due to operating
losses. The Company expects continued operating losses for the current fiscal
year.
The Company's investing activities provided $3.1 million during the first six
months of fiscal 1999 as compared to cash provided of $6.3 million during the
same period in fiscal year 1998. During the first six months of fiscal 1999 $3.4
million was realized from the sale of Echostar shares which offset $275,000 in
capital expenditures.
The Company's financing activities used $2.2 million during the first six months
of fiscal 1999 as compared to net cash used of $4.1 million during the first six
months of fiscal year 1998. The Company reduced convertible debentures by $1.2
million and made payments of debt obligations of $992,000.
At March 27, 1999, the Company's principal sources of liquidity consisted of
$1.2 million in cash, a $3.0 million bank line of credit, and 77,768 shares of
Echostar common stock. At March 27, 1999, $1.6 million was outstanding on a $3.0
million operating line of credit. In addition, the Company had a term loan with
a principal balance of $295,000. The line of credit and term loan requires the
Company to be in compliance with certain financial covenants. As of March 27,
1999, the Company was not in compliance with the operating profitability and
quick ratio covenants and has obtained a waiver from the bank. In addition, the
Company has $365,000 outstanding under capital lease financing.
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 equity
holdings in Echostar common stock and its lines of credit will be adequate to
meet its requirements for working capital, capital expenditures, and debt
services for the near term. 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.
Impact of Year 2000
The following constitutes a "Year 2000 Disclosure" under the Year 2000
Information and Readiness Disclosure Act of 1998.
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
On February 1, 1999, in connection with the purchase by EchoStar Communications
Corp. (NASDAQ: DISH) of MEDIA4 Inc., the Company sold its interest in MEDIA4 in
exchange for 77,768 shares of EchoStar common stock. The value of these shares
is subject to market risk and general economic conditions. As of March 27, 1999,
the Company had 77,768 shares with the closing price on that date of $68.88. The
52-week range for Echostar's common stock as of May 4, 1999 was a low of $17.00
and a high of $115.12.
At March 26, 1999, the Company was operating under a credit facility with
outstanding borrowings of $1.6 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 7.875% at March 26, 1999).
The Company was in compliance with all covenants, except the profitability and
quick ratio covenants, for which the Company received a waiver for the quarter
ending March 27, 1999. The credit facility agreement, originally set to expire
March 15, 1999, was extended until June 15, 1999.
The Company also had a term note outstanding at March 27, 1999. The total
principal outstanding on this note was $295,000 with interest payable at prime
plus 1.0%. 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 March 27, 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.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In February 1999, in connection with its 1999 Annual Meeting
of Stockholders (the "Annual Meeting"), held on March 22,
1999, the Company solicited the written consent of its
stockholders with respect to various matters. The matters for
which stockholder consent was solicited were as follows:
PROPOSAL 1: To elect directors to serve for the ensuing year
and until their successors are elected.
At the Annual Meeting, the voting of stockholders with respect
to Proposal 1 was as follows:
<TABLE>
<CAPTION>
---------------------------------------- ------------------ ------------- -------------------
Director For % Withheld
---------------------------------------- ------------------ ------------- -------------------
<S> <C> <C> <C>
---------------------------------------- ------------------ ------------- -------------------
Leon F. Blachowicz 4,409,311 73.2 47,554
---------------------------------------- ------------------ ------------- -------------------
---------------------------------------- ------------------ ------------- -------------------
Daniel E. Moore 4,409,311 73.2 47,554
---------------------------------------- ------------------ ------------- -------------------
---------------------------------------- ------------------ ------------- -------------------
Joseph T. Pisula 4,409,311 73.2 47,554
---------------------------------------- ------------------ ------------- -------------------
---------------------------------------- ------------------ ------------- -------------------
Lawrence W. Roberts 4,409,311 73.2 47,554
---------------------------------------- ------------------ ------------- -------------------
---------------------------------------- ------------------ ------------- -------------------
Erik H. van der Kaay 4,409,311 73.2 47,554
---------------------------------------- ------------------ ------------- -------------------
---------------------------------------- ------------------ ------------- -------------------
Olin L. Wethington 4,409,311 73.2 47,554
---------------------------------------- ------------------ ------------- -------------------
</TABLE>
<TABLE>
<CAPTION>
PROPOSAL 2: To approve the Company's 1999 Employee Stock Purchase Plan.
At the Annual Meeting, the voting of stockholders with respect
to Proposal 2 was as follows:
For Against Abstain
<S> <C> <C> <C>
4,373,778 76,587 6,500
</TABLE>
PROPOSAL 3: To approve an amendment to the Company's 1997
Directors' Stock Option Plan to increase the aggregate number
of shares of Common Stock authorized for issuance under such
plan by 50,000 shares.
At the Annual Meeting, the voting of stockholders with respect
to Proposal 3 was as follows:
<TABLE>
For Against Abstain
<S> <C> <C> <C>
4,237,720 210,745 8,400
</TABLE>
PROPOSAL 4: To ratify the selection of Deloitte & Touche LLP,
as independent public auditors for the Company.
At the Annual Meeting, the voting of stockholders with respect
to Proposal 4 was as follows:
<TABLE>
For Against Abstain
<S> <C> <C> <C>
4,316,581 13,487 126,797
</TABLE>
Item 5. OTHER EVENTS
Reduction in Force
On April 23, 1999, in an effort to reduce fixed costs, the
Company issued a news release announcing its decision to
reduce total employee headcount by 68 of its 153 employees, or
approximately 44% of its workforce. The news release is
incorporated herein by reference to Exhibit 99.1 attached
hereto.
Board of Directors
On March 3, 1999, Erik van der Kaay resigned from the
Company's Board of Directors to pursue other interests. In
addition, on April 12, 1999 Daniel E. Moore resigned from his
position as Chairman of the Board of Directors. Mr. Moore
will, nevertheless, continue to remain a member of the Board.
On May 6, 1999 Mr. Frank Trumbower was appointed Chairman of
the Board. The news release announcing such appointment is
incorporated herein by reference to Exhibit 99.2
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herein (numbered in accordance with Item 601 of Regulation
S-K)
<TABLE>
<CAPTION>
Exhibit Number Description Sequential Page Number
<S> <C> <C>
27 Financial Data Schedule Page 13
99.1 Press release dated April 23, 1999 Page 14
99.2 Press release dated May 6, 1999 Page 15
</TABLE>
(b) Reports on Form 8-K
February 12, 1999, reporting under item 2 - Acquisition or Disposition
of Assets, acquisition of Media4, Inc. by EchoStar Communications
Corp.
<PAGE>
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 7, 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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Sep-25-1999
<PERIOD-START> Sep-27-1998
<PERIOD-END> Mar-27-1999
<PERIOD-TYPE> 6-MOS
<CASH> 1,193
<SECURITIES> 0
<RECEIVABLES> 5,888
<ALLOWANCES> 702
<INVENTORY> 7,495
<CURRENT-ASSETS> 17,981
<PP&E> 11,967
<DEPRECIATION> 8,789
<TOTAL-ASSETS> 26,516
<CURRENT-LIABILITIES> 9,398
<BONDS> 0
0
0
<COMMON> 60
<OTHER-SE> 16,234
<TOTAL-LIABILITY-AND-EQUITY> 26,516
<SALES> 0
<TOTAL-REVENUES> 12,422
<CGS> 12,173
<TOTAL-COSTS> 5,988
<OTHER-EXPENSES> (3,409)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49
<INCOME-PRETAX> (2,378)
<INCOME-TAX> (1,034)
<INCOME-CONTINUING> (1,344)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,344)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
Exhibit 99.1
For Immediate Release
- --------------------------------------------------------------------------------
Company Contacts: 47823 Westinghouse Drive
- --------------------------------------------------------------------------------
Lee Blachowicz/Chief Executive Officer Fremont, CA 94539 USA
- --------------------------------------------------------------------------------
Tel: (510) 657-7552
- --------------------------------------------------------------------------------
Agency Contact: Fax: (510) 490-5891
- --------------------------------------------------------------------------------
Berkman Associates (310) 277-5162
- --------------------------------------------------------------------------------
SSE TELECOM DOWNSIZES WORKFORCE
FREMONT, CALIFORNIA - April 23, 1999 - SSE TELECOM, INC. (NASDAQ: SSET) today
announced a headcount reduction of approximately 44% of its 153 employee
workforce. The staffing reduction primarily affects manufacturing and material
operations employees and will become effective in 60 days.
Lee Blachowicz, SSE Telecom's CEO and President commented, "This
workforce reduction significantly lowers our fixed costs and frees financial
resources for investment in marketing and new product development. We are
currently completing local outsourcing arrangements for product manufacturing
which will enable the Company to continue offering our customers quality
products with competitive manufacturing lead times."
"We are implementing a program over the coming sixty days to assist
affected employees in finding new positions, and hope this, combined with the
currently strong economy in the Silicon Valley area, will result in minimal
disruption of our employees' careers."
Headquartered in Fremont, California, SSE Telecom, Inc. () is a
leading satellite earth station product provider. To date, more than 40,000 of
the Company's transceivers or modems have been installed in satellite earth
stations in more than 110 countries worldwide.
The statements contained in this release 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
limitation, demand and competition for the Company's products, and other risks
or uncertainties detailed in the Company's Securities and Exchange Commission
filings.
* * * *
Exhibit 99.2
For Immediate Release
Company Contacts:
Lee Blachowicz/Chief Executive Officer
Agency Contact:
Berkman Associates (310) 277-5162
47823 Westinghouse Drive
Fremont, CA 94539 USA
Tel: (510) 657-7552
Fax: (510) 490-5891
SSE TELECOM, INC. ELECTS FRANK S. TRUMBOWER
CHAIRMAN OF THE BOARD
FREMONT, CALIFORNIA - May 6, 1999 - SSE TELECOM, INC. (NASDAQ: SSET) announced
today that its Board of Directors has elected Frank S. Trumbower to its Board as
Chairman. Daniel E. Moore, a Board member since 1989, resigned as chairman on
April 12, 1999 and remains a Board member. The Company also announced that Erik
H. van der Kaay has resigned from its Board so that he can devote more effort to
his position as President and CEO of Datum, Inc.
Commenting on the changes, Lee Blachowicz, CEO and President of SSET
said: "I am delighted to welcome Frank Trumbower back to the SSET Board. His
experience in developing technology businesses and his commitment to the Company
are exactly what we need as we reposition ourselves in the Internet era of
telecommunications. His perspective as our largest individual shareholder will
be valuable to the Board and management as well.
I wish to thank Dan Moore for his able assistance in the management
transition of the last year, and Erik van der Kaay for his many years of service
to the Company. We wish them every success in their new endeavors."
Mr. Trumbower said: "I look forward to working with SSET's new
management team. We agree our immediate task is to reposition the company
with new products and services that create value for our worldwide
customers as they roll out modern telecommunications infrastructure."
Frank S. Trumbower, 61, served as President, Chief Executive Officer of
SSE Telecom from 1990 to 1994 and served as a Director from 1989 to 1994. He
also served as President and Chief Executive Officer of DirectSat Corporation, a
Direct Broadcast Satellite (DBS) licensee partly owned by SSE Telecom (now part
of EchoStar Communications Corp.), from 1990 to 1994. Mr. Trumbower subsequently
served as a Director of SSE Telecom from 1995 to 1997. Mr. Trumbower is
currently the President of Cambridge Technology Partners, Inc., a private
venture capital firm specializing in telecommunications and related computer
technology. Mr. Trumbower did undergraduate studies at the University of San
Francisco and, as a Marshall Scholar, did graduate work in microeconomics at the
London School of Economics.
Headquartered in Fremont, California, SSE Telecom, Inc. ( is a leading
satellite earth station product provider. To date, more than 40,000 of SSE's
transceivers or modems have been installed in satellite earth stations in more
than 110 countries worldwide.
The statements contained in this release 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
limitation, demand and competition for the Company's products, and other risks
or uncertainties detailed in the Company's Securities and Exchange Commission
filings.
* * * * *
