UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended September 25, 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) (Zip Code)
Registrant's telephone number, including area code:
(510) 657-7552
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
The aggregate market value of voting Common Stock held by non-affiliates of the
Registrant, based upon the closing sale price of Common Stock on December 2,
1999 as reported on the Nasdaq National Market, was approximately $21,312,972.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes. On December 2, 1999,
there were 6,137,441 shares of the Registrant's Common Stock issued.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's Notice of Annual Meeting of Stockholders
and proxy statement for the Annual Meeting of Stockholders (the "Proxy
Statement") are incorporated by reference in Part III of this Form
10-K.
(2) Portions of the registrant's Annual Report to Stockholders for the
fiscal year ended September 25, 1999.
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PART I
ITEM 1. BUSINESS
SSE Telecom, Inc.'s (the "Company" or "SSE Telecom" or "SSET") principal
business is the manufacture and sale of satellite telecommunication equipment,
which it provides to domestic and international service providers, system
integrators and enterprises. The Company designs, manufactures and markets
satellite communications products and systems for the transmission of voice,
data, fax and video. The Company has recently refocused its engineering
activities towards developing an Internet over satellite solution. This product,
iP^3TM gateway, has been developed and demonstrated successfully. SSE Telecom
has a large worldwide installed base.
The Company's principal executive offices and manufacturing operations are
located in Fremont, California at 47823 Westinghouse Drive, Fremont, CA
94539-7437.
SATELLITE COMMUNICATION INDUSTRY OVERVIEW
Growing international demand for telecommunications capacity, technical
innovation and deregulation trends continue to contribute to the growth in the
worldwide satellite communications market. The growth is fueled by user
requirements for information. Satellite communication systems are often a
preferred medium for communications over a large geographic area and have
specific advantages over traditional terrestrial networks in many applications.
The industry is driven by the high launch rate of geostationary communications
satellites for international applications.
The equipment portion of the satellite communications market is generally
segmented into earth station and component submarkets. The earth station market
is further divided into large, medium, small, very small aperture terminal
("VSAT") and mobile segments. The Company's primary product focus is on the
small and medium segments of the market.
PRODUCTS
A satellite earth station system generally consists of three primary components:
(1) transceivers (2) modems and (3) antennas. SSE Telecom manufactures and sells
two of the three key components for earth stations: transceivers and modems.
These products are complex assemblies of devices and components designed to
perform multiple-circuit functions in a single package. The Company's products,
particularly transceivers, have a significant engineering content and require
skilled technical labor for assembly and test. In addition to selling separate
components, the Company designs and markets a wide range of integrated satellite
hardware. The Company also selectively provides systems integration services to
certain sophisticated end users of satellite earth station products. SSET is
also in the process of developing its iP^3TM satellite Internet gateway product
line. Products within this product line address protocol processing and routing
functionality.
The Company offers various configurations of its products, including STAR
satellite transceivers, modems, and T-series Tri-band transceivers. The Company
is focused on combining its product capabilities into satellite communications
solutions.
Transceivers
Transceivers manufactured by the Company contain microwave downconverters,
upconverters, frequency synthesizers and power amplifiers. SSE Telecom
designs and manufactures, or procures from qualified outside vendors, all
of these individual subassemblies of the transceiver. The transceivers are
designed for worldwide use in satellite earth stations such as those using
standards set by Intelsat and Eutelsat. SSE Telecom offers a variety of
transceivers at X, C and Ku-band satellite frequencies. Specific power and
frequency requirements may be adjusted to individual customer requirements.
Transceiver options support many different types of specific applications
and, therefore, prices may vary over a wide range. However, most of these
products are standard elements of communications systems and, as such, are
competitively priced.
Modems
SSET manufactures a range of high performance satellite modems ranging from
closed network modems that are ideal for asymmetrical internet application
to fully featured open network IBS/IDR modems. The Company's modems and
complementary redundancy switches provide voice, data, and video
communications where industry standard modulation techniques and
programmable coding options are required. These modems support industry
standard BPSK, QPSK and 8PSK/TCM modulation methods.
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Transportable Satellite Terminals
SSET manufactures several configurations of small transportable terminals
(Fly-Away earth stations) for X, C, and Ku as well as Tri-Band
configurations. The transportable Tri-Band terminals are lightweight and
designed to permit rapid change to X, C and Ku band frequencies with
minimal changes to the physical configuration of the system. These are
designed for maximum performance in a small package with quick and easy set
up with no tools.
iP^3(TM)
SSET is currently in the process of developing a product that would provide
Internet gateway solutions over satellite. SSET recently demonstrated its
iP^3 gateway which is a carrier-grade, integrated terminal consisting of an
indoor unit (IDU), outdoor unit (ODU) and optional antenna. It provides IP
(Internet Protocol) connectivity with a combination of scalability,
flexibility, speed, bandwidth aggregation and remote SNMP (Simple Network
Management Protocol) monitoring and control.
CUSTOMERS
Customers of the Company's products include domestic and international
telecommunication systems integrators and service providers, private
communication networks and foreign and domestic government agencies. These key
customers represent a wide range of applications including internet access,
business networks, government usage, training and distance learning. Companies
in broadcast television also contribute to demand in some regions of the world.
The Company's customer base includes a concentration of five customers which
accounted for 40% of revenues in fiscal 1999. The U.S. Government and Nortel
Dasa each accounted for 10% of revenues in fiscal 1999. The U.S. Government and
Loral/Orion, Inc. each accounted for 10% of revenues in fiscal 1998. The U.S.
Government accounted for 11% of revenues in fiscal 1997.
The evolving international markets continue to be an important source of revenue
for the Company. Continued requirements for telephone and Internet service
internationally drive the demand, particularly in the market segments addressed
by the Company. Satellite systems are very well suited for quick installation of
service in remote geographic regions and interface well with other transmission
media. The Company has an installed base of products in over 110 countries.
Direct export revenues accounted for 50% of the Company's revenues in fiscal
1999, 44% of the Company's revenues in fiscal 1998 and 45% of the Company's
revenues in fiscal 1997. No individual geographic region represented a
significant portion of revenues.
SALES, MARKETING AND CUSTOMER SUPPORT
SSET directs its marketing activities and programs toward domestic and
international systems integrators of telecommunications equipment and to
establishing direct relationships with certain substantial companies or
government agencies who provide their own systems installations. The Company
markets and supports its products through a direct sales force supplemented in
international markets by independent sales representatives. Sales promotion is
accomplished by direct mail, participation in domestic and international trade
shows, advertising in industry and trade publications, telemarketing, and
through the World Wide Web.
The Company believes an essential element of its marketing strategy is its
establishment and maintenance of close relationships with its customers through
multi-functional teams composed of technical, marketing, sales, training, and
operations personnel. Field engineers, customer service representatives,
application engineers and sales support personnel provide support services to
customers. Customers receive direct support from customer service
representatives throughout the order entry, manufacturing and delivery
scheduling processes so that customer equipment specifications and scheduling
needs are met. Warranty and repair services are administered by the same
representatives, thus enhancing the continuity of customer support. Technical
and service support is offered directly by personnel based in the USA, Europe
and Asia, which ensures that the majority of the Company's worldwide customers
can contact a representative during business hours. Most support services are
provided through direct contact via telephone, e-mail and facsimile. When
appropriate, technical and training support is also provided in the field at
customer sites. Customers may also receive training at the Company's facilities.
MANUFACTURING
The Company manufactures its products in Fremont, California. This facility is
certified ISO 9001 compliant. The primary manufacturing focus during fiscal 1999
was to improve the manufacturability and reliability of transceiver and modem
products that had been introduced in late 1996 and in 1997. The STAR
transceivers are the Company's advanced satellite transceiver product line and
utilize Monolithic Microwave Integrated Circuit (MMIC) technology. During fiscal
1999 SSET
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outsourced its modem product line as well as subassembly build of the STAR
transceiver product line. As a result, the Company's manufacturing operations
are currently focused on integration and final testing of its products and
systems.
COMPETITION
The satellite communications equipment market is competitive and the Company
expects that competition will increase. Significant competitive factors include
price, quality, delivery, product performance and features, timing of new
product introductions by the Company and its competitors, and customer service
and support. The Company believes it competes favorably in each of these areas.
Price pressure is expected to continue in the satellite market in the
foreseeable future. The Company's future gross margin is dependent upon its
ability to reduce costs in line with or faster than declines in sales prices on
current products and the successful introduction and launch of its new iP^3(TM)
platform product line.
RESEARCH AND DEVELOPMENT AND SUSTAINING ENGINEERING
The Company's research and development efforts focus on new product development,
enhancing features on existing products, and sustaining engineering on mature
products. Research and development expenses were approximately $4.0 million, or
18.1% of revenue during fiscal 1999, $5.6 million, or 15.3% of revenue in fiscal
1998, and $5.1 million, or 11.1% of revenue in fiscal 1997. The decrease in
dollars from fiscal 1998 to fiscal 1999 reflects an overall reduction in
employees involved in research and development and in material and services
related to research and development. While the Company reduced research and
development expenditures in fiscal 1999, it has also refocused its efforts from
sustaining activities for current products to the development of new product
platforms and to the Company's outsourcing initiatives. A shift in emphasis from
basic RF transceiver and modem products to the development of software
feature-rich offerings has also resulted in a skill mix adjustment within
product development. A new product line, released in the first quarter of fiscal
2000, positions the Company to exploit the demand for integrated communications
terminals optimized for internet-over-SATCOM applications. The new product line
has a higher software content allowing higher projected gross profit per unit
and a more cost-effective feature upgrade capability. Support of the existing
product line and customer base will be continued with the planned addition of
personnel specifically focused on the sustaining engineering and application
engineering efforts.
PERSONNEL
On September 25, 1999, the Company employed a total of ninety-four regular
employees and six temporary employees. The Company's employees are not
represented by a labor organization nor is the Company party to any collective
bargaining agreement. The Company has never experienced an employee strike or
work stoppage. In fiscal 1999, the Company implemented a strategic plan
encompassing the outsourcing of non-strategic elements of the business which
necessitated reduction in force activities affecting seventy-five employees. The
Company provided forty-six hours of High Powered Work Team training, partially
funded under a State of California Employment Training Panel grant in fiscal
1999. The Company continues to provide a competitive benefit package including
stock option grants for all employees, health care benefits, personal paid time
off, 401(k) with employer match, flexible spending accounts and employee stock
purchase plan. The Company considers its relationship with its employees to be
good.
BACKLOG
SSE Telecom had a backlog of firm orders of $3.2 million at September 25, 1999,
and management expects all of the orders to be delivered within fiscal 2000. The
current backlog compares to a backlog of $5.9 million at September 26, 1998 and
$11.0 million at September 27, 1997. The decrease in backlog in 1999 was due to
lower order bookings primarily due to economic conditions in Latin America and
Asia, in addition to reduced U.S. Government demand. The backlog is generally
representative of the historical product and customer mix. Backlog as of
December 4, 1999 was approximately $4.6 million.
Timing differences from year to year as to the receipt of large orders and
changes in factory production make meaningful year to year comparisons of
backlog difficult.
FOREIGN CURRENCY
All contracts with foreign customers are negotiated in United States dollars.
RISK FACTORS
Information contained in this document 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
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thereon or comparable terminology. There are a number of important factors with
respect to such forward-looking statements, including certain risks and
uncertainties 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 in 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 risks and uncertainties described below are no the only ones facing SSET.
Additional risks and uncertainties not presently known to the Company, or those
currently considered immaterial, may also harm the Company. Particular factors
that may affect future financial results are:
Market Acceptance of Products
The market for SSET's products is subject to technological change, new
product introductions and continued market acceptance. Current competitors
or new market entrants may develop new products with features that could
cause a significant decline in sales, price reductions or loss of market
acceptance of SSET's existing and future products. SSET's success will
depend, among other factors, upon its ability to enhance its existing
products and to introduce new products on a timely basis. In particular,
SSET's future results of operations will be highly dependent on the
successful completion of the design, development, introduction, marketing
and manufacture of its iP^3(TM) platform which was recently introduced. To
date, SSET has made no commercial shipments of these products. This product
line may require additional development work, enhancement, testing or
further refinement before it can be introduced and made commercially
available. If iP^3(TM) has performance, reliability, quality or other
shortcomings, then the product could fail to achieve market acceptance. The
failure by SSET's new or existing products to achieve or enjoy market
acceptance, whether for these or other reasons, could cause SSET to
experience reduced orders, higher manufacturing costs, delays in collecting
accounts receivable and additional warranty and service expenses, which in
each case could have a material adverse effect on SSET's reputation and
financial performance.
Emerging Market For Internet-Over-Satellite Communications
Since approximately the second half of fiscal 1999, SSET has shifted
emphasis away from its previous RF transceiver and modem products to the
development and marketing of Internet-over-satellite products and
applications. The market for Internet-over-satellite communications
products is only beginning to emerge. SSET's future success will be largely
dependent on the demand for Internet-over-satellite communications products
in general, and upon SSET's ability to develop and introduce new products
and technologies that meet customer requirements. SSET faces challenges in
demonstrating the value of its Internet-over-satellite communications
products. If SSET is unable to successfully educate potential customers as
to the value of, and thereby obtain broad market acceptance for, its
products, it will continue to rely primarily on selling existing products
to its base of existing customers, which will significantly limit any
opportunity for growth. To the extent that a specific method other than
SSET's is adopted as the standard for implementing Internet-over-satellite
communications, sales of SSET's planned products in that market segment
would be adversely impacted, which would have a material adverse effect on
SSET's business. In addition, the commercial success of SSET's
Internet-over-satellite communications products will depend, in part, upon
a robust commercial industry and infrastructure for providing access to
public switched networks, such as the Internet. The infrastructure or
complementary products necessary to make these networks into viable
commercial marketplaces may not be fully developed, and once developed,
these networks may not become viable commercial marketplaces.
Potential Fluctuations in Quarterly Operating Results
SSET's operating results have fluctuated in the past and may fluctuate in
the future as a result of a number of factors, including market acceptance
of SSET's product line of STAR satellite transceivers and SSET's high speed
high data rate modems, delays in the delivery of SSET's products, delays in
the closing of sales, performance of SSET's suppliers, new product
introductions, such as iP^3(TM), and product enhancements by SSET or its
competitors, the prices of SSET's or its competitors products, the mix of
products sold, manufacturing costs, the level of warranty claims and
changes in general economic conditions. In addition, competitive pressure
on pricing in a given quarter could adversely affect SSET's operating
results for such period, and such price pressure over an extended period
could materially adversely affect SSET's long term profitability. SSET
expects that the gross margin for existing products will continue to be
under pressure to decline due to price reductions as well as continuing
competitive price pressure in the satellite telecommunication equipment
market. SSET's ability to maintain or increase net revenues and gross
margin will depend upon its ability to increase unit sales volumes, reduce
manufacturing costs and introduce new products or product enhancements.
SSET typically ships a substantial amount of its products near the end of
each quarter. Accordingly, SSET's net revenues for any particular quarter
cannot be predicted with any degree of accuracy. In addition, SSET has, in
the past, experienced delays with shipping its products which has caused
its revenues and net income to fluctuate significantly from anticipated
levels and from quarter to quarter. Due to all of the foregoing factors, it
is likely that in some future quarter SSET's operating
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results will be below the expectations of public market analysts and
investors. In such event, the price of SSET's Common Stock may decrease
significantly.
Product Concentration
Sales of SSET's STAR transceivers accounted for approximately 45% of net
revenues in fiscal 1999. SSET anticipates that its STAR transceivers will
continue to account for a substantial portion of its net revenues during
fiscal 2000. Any factor adversely affecting the demand or supply for the
STAR transceiver product line could materially adversely affect SSET's
business and financial performance.
Limited Number of Principal Customers
Sales of SSET's products are concentrated in a small number of customers.
For fiscal 1999, the largest five customers accounted for 40% of sales.
SSET expects that revenues from a relatively small number of customers will
continue to account for a significant portion of revenue through fiscal
2000. There can be no assurance that SSET will realize equivalent sales
from their top customers in the future. The loss of any existing customer
or a significant reduction in the level of sales to any existing customer
could have a material adverse effect on SSET's business, financial
condition and results of operations.
Dependence on Suppliers
SSET's manufacturing operations are highly dependent upon the timely
delivery of quality components, subassemblies, assemblies and other
equipment by outside suppliers. From time to time SSET has experienced
delivery delays from key suppliers which impacted sales. In addition, as
was experienced in 1998 and 1997, certain vendor supplied materials may
have quality issues which could impact sales and increase customer support
costs. There can be no assurance that SSET will not experience material
supply problems or component issues in the future.
Competition
The market for satellite telecommunication equipment is highly competitive
and subject to rapid technological change. SSET competes with a number of
companies that manufacture components of satellite earth station systems
similar to those manufactured by SSET. Certain of these companies have
substantially greater financial resources and production, marketing,
engineering and other capabilities than SSET with which to develop,
manufacture, market and sell their products. SSET believes that its ability
to compete successfully will depend on a number of factors both within and
outside its control, including price, quality, delivery, product
performance and features, timing of new product introductions by SSET and
customer service and support.
SSET expects its competitors to continue to improve the performance of
their current products and to introduce new products or new technologies
that provide improved performance characteristics. New product
introductions by existing competitors and the entry of new competitors into
the satellite telecommunication equipment market has in the past and may in
the future cause SSET to reduce the prices of its products. SSET expects
this increased competitive pressure to lead to intensified price-based
competition, resulting in lower prices and may result in lower gross
margins which would adversely affect SSET's business, financial condition
and results of operations.
Attraction and Retention of Qualified Personnel
SSET's manufacturing and development capabilities are highly dependent upon
hiring and retaining the required technical personnel. In particular, SSET
will need to hire additional qualified engineering and other employees in
order to continue the timely development of its iP^3TM product line. SSET
competes for such personnel with other companies, government entities and
organizations. From time to time SSET has experienced difficulties in
recruiting and retaining key qualified personnel which impacted operations.
SSET may experience personnel resource problems in the future.
Lengthy Sales Cycle
Sales of SSET's products often involve, or are integral components of,
significant capital commitments by customers, with the attendant delays
frequently associated with large capital expenditures. For these and other
reasons, the sales cycle associated with SSET's products is often lengthy
and subject to a number of significant risks over which SSET has little or
no control. SSET is often required to ship products shortly after it
receives orders and, consequently, order backlog at the beginning of any
period has in the past represented only a small portion of that period's
expected revenue. As a result, product revenue in any period is
substantially dependent on orders booked and shipped in that period. SSET
typically plans its production and inventory levels based on internal
forecasts of customer demand, which are highly
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unpredictable and can fluctuate substantially. If revenue falls
significantly below anticipated levels, as it has at times in the past,
SSET's financial condition and results of operations would be materially
and adversely affected. In addition, SSET's operating expenses are based on
anticipated revenue levels and a high percentage of SSET's expenses are
generally fixed in the short term. Based on these factors, a small
fluctuation in the timing of sales can cause operating results to vary
significantly from period to period. It is possible that in the future
SSET's operating results will be below the expectations of securities
analysts and investors. In such an event, or in the event that adverse
conditions prevail or are perceived to prevail generally or with respect to
SSET's business, the price of SSET's Common Stock would likely be
materially adversely affected.
Risks Associated with International Sales
SSET plans to continue to expand its foreign sales channels and to enter
additional international markets, both of which will require significant
management attention and financial resources. International sales are
subject to a number of risks, including unexpected changes in regulatory
requirements, export control laws, tariffs and other trade barriers,
political and economic instability in foreign markets, difficulties in the
staffing, management and integration of foreign operations, longer payment
cycles, greater difficulty in collecting accounts receivable, currency
fluctuations and potentially adverse tax consequences. Since SSET's foreign
sales are denominated in U.S. dollars, SSET's products become less price
competitive in countries in which local currencies decline in value
relative to the U.S. dollar. The uncertainty of monetary exchange values
has caused, and may in the future cause, some foreign customers to delay
new orders or delay payment for existing orders. The long-term impact of
such devaluation, including any possible effect on the business outlook in
other developing countries, cannot be predicted. SSET's ability to compete
successfully in foreign countries is dependent in part on SSET's ability to
obtain and retain reliable and experienced in-country distributors and
other strategic partners. SSET does not have long-term relationships with
any of its value added resellers and distributors and, therefore, has no
assurance of a continuing relationship within a given market.
Year 2000
SSET 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. SSET has created a Year 2000 project team to
review and evaluate SSET's products, computer systems, test equipment
systems and other non-IT systems. SSET has modified or replaced portions of
its software so that its computer and non-IT systems will properly utilize
dates beyond 1999. SSET believes that with the modifications and
conversions to new software, the Year 2000 issue has been mitigated, and
anticipates the test phase of all Year 2000 efforts to be completed in
December 1999. SSET has also initiated discussions with its suppliers
regarding their plans to investigate and address their Year 2000 problems,
if any. Failures by SSET's suppliers' computer systems could adversely
affect the demand for its products. There can be no assurance that the
systems of other companies on which SSET'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 SSET's business,
financial condition or results of operations.
SSET 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 SSET's operations. The total remaining estimated cost
for addressing the Year 2000 issue is not expected to be material to SSET's
operations and is included in SSET's operating budget. All remaining Year
2000 issue costs will be funded through operating cash flows.
As the efforts of the Year 2000 project team continue, SSET may identify
situations that present material Year 2000 risks 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 SSET's business, financial condition and results of operations. For
example, because a significant percentage of the purchase orders received
from SSET's customers are computer generated and electronically
transmitted, a failure of one or more of the computer systems of SSET'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 SSET's significant suppliers or service providers cause or
contribute to delays or interruptions in the delivery of products or
services to SSET, such delay or interruptions could have a material adverse
effect on SSET's business, financial condition and results of operations.
Finally, disruption in the economy generally resulting from Year 2000
issues could also materially adversely affect SSET. 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 SSET's business, financial condition and
results of operations.
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SSET's Year 2000 project team's activities have included the development of
contingency plans in the event SSET has not completed all of its
remediation programs in a timely manner. In addition, the Year 2000 project
team has developed contingency plans in the event that any third parties
who provide goods and services essential to SSET's business fail to
appropriately address their Year 2000 issues. 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 SSET's business, financial condition
and results of operations
ITEM 2. PROPERTIES
SSET leases a facility of 51,500 square feet at 47823/29/35 Westinghouse Drive,
Fremont, California. The Company occupies 32,600 square feet and subleases
18,900 to two companies. The Company maintains its executive offices in the
Fremont facility at 47823 Westinghouse Drive, Fremont which also houses
manufacturing, administration, and research and development. The lease on the
facility expires June 2001. SSE Telecom also leases a facility of 7,000 square
feet in Phoenix, Arizona that was once occupied by SSE Datacom. This facility is
not currently utilized and the Company is actively marketing the facility for
sublease.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation and is not aware of any litigation
that would have a material adverse effect on the Company or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Company has one series of common stock, $.01 par value, the holders of which
have full voting rights. At December 2, 1999, there were approximately 148
holders of record of the Company's common stock. This number is based upon the
number of stockholders of record as reported by the American Stock Transfer &
Trust Company, 40 Wall Street, New York, New York 10005.
The Company's common stock is listed on the National Association of Securities
Dealers, Inc. Automated Quotation System (NASDAQ) under the trading symbol
"SSET" and is listed in the Wall Street Journal and other newspapers. The
following table sets forth representative high and low closing prices in the
NASDAQ system for the specified periods.
1999 High Low
---- ---- ---
First quarter $2.19 $1.25
Second quarter 2.63 1.25
Third quarter 1.50 1.13
Fourth quarter 3.19 1.50
1998 High Low
---- ---- ---
First quarter $7.25 $4.56
Second quarter 4.94 3.50
Third quarter 4.84 3.50
Fourth quarter 2.75 1.31
The Company follows the policy of reinvesting all earnings to finance expansion
of its business. No change in this policy is contemplated in the foreseeable
future. The board of directors has not declared dividends in the last five years
and does not have present plans to declare dividends in the foreseeable future.
The Company's credit facility requires the Company's bank to give prior written
approval before declaring or paying cash dividends.
RECENT SALES OF UNREGISTERED SECURITIES
In fiscal 1999, the Company appointed Mr. Frank Trumbower Chairman of the Board.
In connection with Mr. Trumbower's appointment and consultant responsibilities,
the Company and Mr. Trumbower entered into, among other things, (i) a common
stock purchase agreement dated May 13, 1999 pursuant to which Mr. Trumbower
purchased and the Company sold an aggregate of 50,000 shares of the Company's
Common Stock at a purchase price of $1.125 per share, the fair market value of
the stock on the date of purchase, and (ii) a nonqualified stock option
agreement to purchase 70,000 shares of the Company's Common Stock at an exercise
price of $1.50 per share, which exceeded the fair market value of the stock on
the date of grant. The sale and issuance of the common stock was deemed exempt
from registration under the Securities Act by virtue of Rule 4(2) or Rule 506
under Regulation O promulgated thereunder. With respect to grant of the stock
option, an exemption from registration was unnecessary in that it did not
involve a "sale" of securities as that term is used in Section 2(3) of the
Securities Act.
In the fourth quarter of fiscal 1999, the Company entered into a financing
agreement, among other things, with Silicon Valley Bank for a $5.0 million
revolving line of credit. In lieu of $25,000 in fees the Company issued a
warrant to purchase 9,766 shares of Common Stock to Silicon Valley Bank with an
exercise price of $2.56 per share, the fair market value of the stock on the
date of issue. The sale and issuance of the common stock was deemed exempt from
registration under the Securities Act by virtue of Rule 4(2) or Rule 506 under
Regulation O promulgated thereunder.
9
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATIONS:
REVENUE $ 22,012 $ 36,739 $ 45,764 $ 46,220 $ 33,569
Cost of revenue 21,322 34,618 36,431 33,697 22,952
-------- -------- -------- -------- --------
GROSS MARGIN 690 2,121 9,333 12,523 10,617
OPERATING EXPENSES:
Research and development 3,983 5,622 5,071 4,179 2,958
Marketing, general and administrative 7,648 8,681 9,512 7,721 5,829
Write-off of acquired in-process R&D -- -- -- 1,404 --
Acquisition related asset write down -- -- -- 1,105 --
Restructuring -- 1,236 850 -- --
-------- -------- -------- -------- --------
OPERATING (LOSS) INCOME (10,941) (13,418) (6,100) (1,886) 1,830
Net (gain) on sale of investments (5,598) (10,020) (3,730) (2,584) --
Net loss (gain) on sale of assets 103 (5,094) -- -- --
Net interest expense 146 411 524 479 223
Other (income) expense (286) 133 14 -- 94
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (5,306) 1,152 (2,908) 219 1,513
Provision (benefit) for income taxes 439 484 (1,018) 88 414
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ (5,745) $ 668 $ (1,890) $ 131 $ 1,099
======== ======== ======== ======== ========
NET INCOME (LOSS) PER SHARE:
Basic net income (loss) per share $ (0.99) $ 0.12 $ (0.32) $ 0.02 $ 0.20
======== ======== ======== ======== ========
Diluted net income (loss) per share $ (0.99) $ 0.12 $ (0.32) $ 0.02 $ 0.20
======== ======== ======== ======== ========
Cash dividends paid
Shares used in computing basic
net income (loss) per share 5,818 5,743 5,820 5,368 5,370
======== ======== ======== ======== ========
Shares used in computing diluted
net income (loss) per share 5,818 5,744 5,820 5,595 5,587
======== ======== ======== ======== ========
BALANCE SHEET
Total current assets $ 19,859 $ 20,883 $ 28,547 $ 27,214 $ 21,874
Total assets 22,508 31,049 47,557 55,263 37,823
Total current liabilities 7,509 10,490 14,823 11,238 4,222
Total long-term liabilities 2,229 2,381 9,191 12,737 14,044
Stockholders' equity 12,770 18,178 23,543 31,288 19,557
</TABLE>
The table above sets forth selected consolidated financial data of SSE Telecom
and should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included elsewhere in this report.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the consolidated financial
statements and notes thereto in Item 8. This Annual Report on Form 10-K contains
certain forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those herein. Factors that
cause or contribute to such differences include, but are not limited to, those
discussed in "Business-Risk Factors" in Part 1 of this Annual Report on Form
10-K and in the Company's other filings with the SEC.
OVERVIEW
Fiscal 1999 was a challenging year for SSE Telecom. The Company's financial
results were adversely impacted by unfavorable international economic
conditions, market pressure on prices, and first quarter production problems
related to both the transceiver and modem product lines.
As a result, the Company implemented a number of strategic initiatives. These
initiatives included outsourcing of non-strategic activities such as the
manufacture of modem products and certain subassemblies for STAR transceiver
products and the development of a new product focusing on the Internet over
satellite market. The Company has completed the outsourcing of its modem and
transceiver products and the Company's manufacturing operations are currently
focused on integration and final test of products and systems. In addition, the
Company has accelerated its investment in the development and marketing of its
new product, iP3TM, and has released basic versions to prospective customers in
the first quarter of fiscal 2000.
The Company financed its research and development and outsourcing efforts, in
part, by the sale of $8.2 million of EchoStar Communication Corporation
("Echostar") common stock owned by the Company.
The Company's backlog at September 25, 1999 was $3.2 million. This was a 46%
decrease from September 26, 1998 backlog of $5.9 million, and a 71% decrease
from the September 27, 1997 backlog of $11.0 million. The decrease was due to
several factors, including decreased demand in the satellite communications
market in general, particularly impacted by poor economic conditions in Latin
American and Asia, a decrease in orders from the U.S. Government, and
difficulties in factory throughput experienced early in the year.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS 1999, 1998 AND 1997
REVENUE: Revenues were $22.0 million for fiscal 1999 as compared to $36.7
million in fiscal 1998 and $45.8 million in fiscal 1997, representing a decrease
from 1998 to 1999 of 40.0% compared to a decrease of 19.7% from 1997 to 1998.
The decline in revenue for fiscal 1999 is attributable to lower bookings
resulting from negative market conditions in Latin America and Asia, price
pressures in the overall satellite communications market and a decline in U.S.
Government orders.
GROSS MARGIN: The gross margin was $690,000 or 3.1% of revenues in fiscal 1999,
compared to $2.1 million or 5.8% of revenues in fiscal 1998 and $9.3 million or
20.4% of revenues in fiscal 1997. The gross margin decline in fiscal 1999 was
due to the reduced unit volume in the Company's transceiver and modem products,
higher rework and warranty costs related to STAR transceivers, and a decline in
the average selling price of the Company's products. Gross margin decrease in
1998 was due to manufacturing problems in the Company's transceiver product
line, a $3.9 million expense associated with the elimination of obsolete
products, and a decline in the average selling price of the Company's products.
OPERATING EXPENSES: Research and development spending was $3.9 million in fiscal
1999, compared to $5.6 million in fiscal 1998, and $5.1 million in fiscal 1997.
Research and development expenses as a percentage of sales were 18.1%, 15.3% and
11.1% in fiscal 1999, 1998 and 1997, respectively. The dollar decrease in fiscal
1999 was due to a reduction of engineering effort related to sustaining current
products and to a refocusing of the development efforts towards a specific new
product platform, iP^3TM, demonstrated in the fourth quarter of calendar 1999.
This resulted in overall reduced research and development headcount and related
expenses. In fiscal 1998, the increase in research and development expense over
fiscal 1997 was due to the Company's continued sustaining engineering and
improved manufacturability efforts on the STAR product line, development of
advanced digital modem products, and increased system content in various
products. The Company plans to continue its commitment to research and
development in fiscal 2000.
Marketing, general and administrative expenses were $7.6 million or 34.7% of
revenues in fiscal 1999, compared to $8.7 million or 23.6% of revenues in fiscal
1998, and $9.5 million or 20.8% of revenues in fiscal 1997. The dollar decrease
in fiscal 1999 from fiscal 1998 was in part due to a one time charge of $500,000
recognized for the reorganization and refocusing of the Company in fiscal 1998.
In addition, in fiscal 1999 expenses were lower for outside services, management
11
<PAGE>
incentives, and recruitment costs. The decrease in absolute dollars in fiscal
1998 from fiscal 1997 was due to the reduction of expenses as a result of the
consolidation in June 1997 of the Company's operations in Arizona. The Company's
investment in its marketing, general and administrative functions may vary as a
percentage of sales in the future.
The fiscal 1998 restructuring expenses of $1.2 million principally includes
charges associated with the closing and relocation of its modem development
facility from Scottsdale, Arizona to Fremont, California, staffing adjustments
and severance payments. The fiscal 1997 restructuring expense was for charges
associated with the consolidation of the Company's manufacturing facilities and
consisted of a write down for certain intangibles acquired as part of the
purchase of the assets of Fairchild Data Corporation in fiscal 1996, severance
for employees and other various costs incurred in transferring the manufacturing
capability in Scottsdale, Arizona and consolidating it with the transceiver
product line in Fremont, California.
GAIN ON SALES OF INVESTMENTS: During fiscal 1999, the Company sold 183,900
shares of class A common stock (the "Stock") of Echostar. The Stock was acquired
in December 1994 in exchange for the Company's 91.2% interest in Directsat
Corporation, a direct broadcast satellite licensee and from the exchange of the
Company's investment in MEDIA4, Inc (see Note 4). The Company realized a pre-tax
gain of approximately $5.6 million, net of commission and transaction expenses,
on the sale of the Stock in fiscal 1999. The proceeds generated from these sales
were used for repayment of convertible debentures payable to Echostar, and to
fund general working capital requirements. A pre-tax gain of approximately $10.0
million and $3.7 million, net of commission and transaction expenses, was
realized on the sale of shares of Echostar Stock in fiscal 1998 and fiscal 1997,
respectively. As of September 25, 1999, the Company held a total of 50,536
shares of Echostar Stock. Echostar has announced a 2 for 1 stock split for
holders of record on October 18, 1999.
SALES OF ASSETS: In fiscal 1999 the Company recognized a $103,000 loss on the
sale of assets. In fiscal 1998 the sale of the Company's investment in Corporate
Telecom Services ("CTSI") generated a pre-tax gain of $5.1 million.
NET INTEREST EXPENSE: Net interest expense was $146,000, $411,000 and $524,000
in fiscal 1999, 1998 and 1997, respectively. The decrease in interest expense
during fiscal 1999 compare to fiscal 1998 reflects lower levels of borrowing
throughout the year and repayment of convertible notes payable outstanding at
September 26, 1998. During fiscal 1999, 1998, and 1997 the Company had earned
interest income, which lowered net interest expense.
PROVISION FOR INCOME TAXES: The Company's effective income tax rate was (8%),
42% and (35%) in fiscal 1999, 1998 and 1997 respectively. In fiscal 1999 the
Company has recorded a tax provision on pretax losses principally because of the
limitations on net operating loss carrybacks and a valuation allowance provided
on deferred tax assets due to lack of sufficient assurance that deferred tax
assets will be realized in future periods. The higher tax rate in fiscal 1998
was principally due to an increase in state taxes from the gain on sale of CTSI.
The income tax benefit for fiscal 1997 relates principally to the federal tax
effect of that year's loss.
LIQUIDITY AND CAPITAL RESOURCES: At September 25, 1999, the Company had working
capital of $12.3 million, including cash and cash equivalents of $3.8 million
compared to working capital at September 26, 1998 of $10.4 million, including
cash and cash equivalents of $3.3 million.
Net cash used in operating activities was $4.2 million in fiscal 1999 compared
to $4.8 million and $3.4 million in fiscal 1998 and 1997, respectively. Cash
used in operations in fiscal 1999 was principally due to operating losses,
partially offset by decreases in accounts receivable and inventories. Cash used
in operations in fiscal 1998 was principally due to operating losses, decrease
in accounts payable and non-cash charges, partially offset by decreases in
accounts receivable, inventory, other assets and a non-cash consolidation
charge.
The Company's investing activities provided $7.9 million in fiscal 1999 as
compared to $12.9 million in fiscal 1998 and $2.7 million in 1997. The cash
provided in fiscal 1999 resulted from the sales of Echostar common stock. The
cash provided in fiscal 1998 resulted from the sale of Echostar common stock and
the proceeds from the sale of CTSI to Western Wireless Corporation, partially
offset by purchases of equipment and MEDIA4 convertible debentures. The Company
financed a portion of its operating cash requirements and the repayment of
outstanding debt from the sale of assets and long-term investments.
The Company's financing activities used $3.3 million in fiscal 1999. Financing
activities in fiscal 1999 included $2.0 million for repayment of outstanding
line of credit obligations and $1.2 million for repayment of convertible
debentures. Financing activities in fiscal 1998 included the expenditure of $5.2
million primarily for repayment of the Company's 6-1/2% convertible subordinated
debentures to Echostar and repayments on the Company's bank line-of-credit.
During fiscal 1999 the Company sold its MEDIA4, Inc. investment to Echostar in
exchange for 77,769 share of Echostar common stock. Set Note 4 in the Notes to
Consolidated Financial Statements.
12
<PAGE>
At September 25, 1999, the Company's principal sources of liquidity consisted of
$3.8 million in cash and cash equivalents. On July 30, 1999 the Company entered
into a credit facility which allows for a line-of-credit of $5.0 million. Funds
borrowed under the line-of-credit bear interest at prime plus 2.0%. See Note 5
under Notes to Consolidated Financial Statements.
A principal source of financing is the Company's holdings of Echostar common
stock which is subject to the volatility of the stock market. On September 25,
1999 the Company held 50,536 shares of Echostar stock with a value of $4.5
million and an unrealized gain, net of tax, of approximately $2.0 million
recorded in stockholders' equity.
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 service and external investment for the
foreseeable future. Due to trading 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.
YEAR 2000
The Company is aware that many existing Information Technology ("IT") systems,
such as computer and software products, as well as non-IT systems that included
embedded technology, were not designed to correctly process data after December
31, 1999. The Company has created a Year 2000 project team to review, and
evaluate the Company's products, computer systems, test equipment systems and
other non-IT systems. The Company determined that it was necessary to modify or
replace portions of its software so that its IT and non-IT computer systems will
properly utilize dates beyond 1999. The Company believes that with the
modifications and conversions to new software, the Year 2000 issue has been
mitigated. 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 its products. 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 total remaining estimated cost
for addressing the Year 2000 issue is not expected to be material to the
Company's operations and is included in the Company's operating budget. 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 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 have included 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
has developed 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. 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.
13
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," at the
beginning of fiscal 1999. The adoption had no impact on net income or total
stockholders' equity. Comprehensive income consists of net income and net
unrealized gain on available-for-sale investments. Comprehensive income is
presented in the Consolidated Statements of Stockholders' Equity.
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" in fiscal 1999. This statement requires that financial
information be reported on the basis used internally for evaluating segment
performance and deciding how to allocate resources to segments. The Company has
evaluated the effects of this change on its reporting of segments and has made
the determination that it has one reportable segment.
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivatives Instruments and Hedging Activities" was issued which
defines derivatives, requires all derivatives be carried at fair value, and
provides for hedging accounting when certain conditions are met. This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000. The Company is currently assessing the impact of the adoption of this
statement on the Company's financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
On October 14, 1998 Echostar announced it had signed a letter of intent to
acquire MEDIA4 through the exchange of Common Stock. On February 1, 1999 in
connection with the purchase by Echostar of MEDIA4 the Company sold its interest
in MEDIA4 in exchange for 77,769 shares of Echostar common stock. On March 30,
1999 the Company sold 40,000 shares of Echostar stock. On July 19, 1999 Echostar
effected a 2-for-1 split of common stock for stockholders of record at the close
of business on July 1, 1999. On September 9, 1999 the Company sold 25,000 shares
of Echostar common stock. As of September 25, 1999 the Company had 50,536 shares
remaining with the closing price on that date of $89.50. Echostar effected a 2
for 1 stock split for holders of record on October 18, 1999. The 52 week range
for Echostar's Common Stock as of December 2, 1999, giving retroactive effect to
stock splits, was a low of $9.56 and a high of $80.00. Subsequent to the fiscal
year end and the October 18, 1999 stock split, the Company has sold 30,400
shares and has 70,672 shares remaining as of December 2, 1999 with a fair market
value of approximately $5.0 million based on the closing price.
At September 25, 1999, the Company was operating under a credit facility with
outstanding borrowings of $0.9 million. This facility allows for a $5.0 million
operating line-of-credit. Funds borrowed under this line-of-credit bear interest
at prime plus 2.00% (prime rate was 8.25% at September 25, 1999). Certain assets
of the Company secure the line-of-credit and the Company is required under this
line-of-credit to be in compliance with a tangible net worth covenant. The
credit agreement expires July 30, 2001.
The Company's exposure to market risk due to fluctuations in interest rates
primarily relates to the Company's credit facility. If market interest rates
were to increase immediately and uniformly by 10% from levels prevailing at
September 25, 1999, 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 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.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders of
SSE Telecom, Inc.
We have audited the accompanying consolidated balance sheets of SSE Telecom,
Inc. and subsidiaries ("Company") as of September 25, 1999 and September 26,
1998 and the related consolidated statements of operations, stockholders' equity
and cash flows for years then ended. Our audits also included the financial
statement schedule for each of the two years in the period ended September 25,
1999 and September 26, 1998 listed at Item 14(a)2. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such 1999 and 1998 consolidated financial statements present
fairly, in all material respects, the financial position of SSE Telecom, Inc.
and subsidiaries at September 25, 1999 and September 26, 1998 and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule for the years ended September 25, 1999 and
September 26, 1998, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Deloitte & Touche LLP
San Jose, California
November 24, 1999
15
<PAGE>>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SSE Telecom, Inc.
We have audited the accompanying consolidated statements of operations, cash
flows, and stockholders' equity of SSE Telecom, Inc. for the year ended
September 27, 1997. Our audit also included the financial statement schedule
listed in the index at Item 14(a). These consolidated financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and schedule
based on our audit.
We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
asssessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of SSE Telecom, Inc. for the year ended September 27, 1997, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
San Jose, California
December 4, 1997
16
<PAGE>
SSE Telecom, Inc.
Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 25, September 26,
1999 1998
-------- --------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 3,828 $ 3,327
Accounts receivable (net of allowance for doubtful accounts
of $584 and $781 in 1999 and 1998, respectively) 4,337 5,396
Related party accounts receivable 17 306
Inventories 4,184 8,894
Deferred tax assets 2,723 2,762
Short-term investments 4,523 --
Other current assets 247 198
-------- --------
Total current assets 19,859 20,883
Property, equipment and leasehold improvements, at cost
Equipment 7,148 7,520
Furniture, fixtures and leasehold improvements 4,659 4,172
-------- --------
11,807 11,692
Less accumulated depreciation and amortization 9,298 8,109
-------- --------
Property, equipment and leasehold improvements, net 2,509 3,583
Long-term investments -- 6,583
Notes receivable from employees 140 --
-------- --------
Total assets $ 22,508 $ 31,049
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Line of credit $ 907 $ 2,229
Accounts payable 2,689 3,028
Related party accounts payable 601 717
Accrued salaries and employee benefits 753 1,217
Warranty 2,312 1,696
Other accrued liabilities 57 454
Income taxes payable 81 342
Current portion of capital lease liability 109 109
Current portion of convertible notes payable -- 82
Current portion of bank note payable -- 616
-------- --------
Total current liabilities 7,509 10,490
Deferred tax liabilities 2,029 930
Convertible notes payable -- 1,139
Capital lease liability 200 312
Commitments and contingencies (Notes 8 and 9)
Stockholders' Equity:
Common stock $.01 par value per share
(30,000,000 shares authorized; 6,107,457 and 5,984,281 shares
issued in 1999 and 1998, respectively) 61 60
Additional paid in capital 12,739 12,579
Treasury stock (at cost, 224,643 shares in 1999 and 1998) (1,782) (1,782)
Retained earnings (accumulated deficit) (242) 5,503
Accumulated other comprehensive income 1,994 1,818
-------- --------
Total stockholders' equity 12,770 18,178
-------- --------
Total liabilities and stockholders' equity $ 22,508 $ 31,049
======== ========
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
17
<PAGE>
SSE Telecom, Inc.
Consolidated Statements of Operations
For years ended September 25, 1999, September 26, 1998, and September 27, 1997
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue $ 22,012 $ 36,739 $ 45,764
Cost of revenue 21,322 34,618 36,431
-------- -------- --------
Gross margin 690 2,121 9,333
Operating expenses:
Research and development 3,983 5,622 5,071
Marketing, general and administrative 7,648 8,681 9,512
Restructuring -- 1,236 850
-------- -------- --------
Operating loss (10,941) (13,418) (6,100)
Gain on sale of long-term investments 5,598 10,020 3,730
Gain (loss) on sale of assets, net (103) 5,094 --
Net interest expense (146) (411) (524)
Other income (expense), net 286 (133) (14)
-------- -------- --------
Income (loss) before income taxes (5,306) 1,152 (2,908)
Provision (benefit) for income taxes 439 484 (1,018)
-------- -------- --------
Net income (loss) $ (5,745) $ 668 $ (1,890)
======== ======== ========
Basic net income (loss) per share $ (0.99) $ 0.12 $ (0.32)
======== ======== ========
Diluted net income (loss) per share $ (0.99) $ 0.12 $ (0.32)
======== ======== ========
Shares used in computing basic net income (loss) per share 5,818 5,743 5,820
======== ======== ========
Shares used in computing diluted net income (loss) per share 5,818 5,744 5,820
======== ======== ========
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
18
<PAGE>
SSE Telecom, Inc.
Consolidated Statements of Cash Flows
For years ended September 25, 1999, September 26, 1998, and September 27, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net income (loss) $ (5,745) $ 668 $ (1,890)
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization 1,510 1,503 1,372
Non-cash portion of restructuring charge -- 461 517
Non-cash portion of special warranty reserve -- -- 1,157
(Gain) on sale of long-term investments (5,598) (10,020) (3,730)
(Gain) loss on sale of assets 103 (5,094) --
Issuance of warrants 12 -- --
Deferred income taxes 497 72 (1,068)
Changes in operating assets and liabilities:
Accounts receivable 1,348 5,358 (20)
Inventories 4,710 3,994 (864)
Other current assets (49) 834 133
Accounts payable (455) (2,605) 1,795
Accrued salaries and employee benefits (464) (286) 56
Income taxes payable (261) 342 (983)
Other accrued liabilities 219 (46) 162
-------- -------- --------
Net cash used by operating activities (4,173) (4,819) (3,363)
-------- -------- --------
Investing activities:
Purchases of equipment (548) (1,428) (1,303)
Proceeds from sale of investments 8,475 10,964 4,056
Proceeds from sale of assets 9 5,831 --
Purchases of Media4 debentures/equity -- (2,425) (96)
-------- -------- --------
Net cash provided by investing activities 7,936 12,942 2,657
-------- -------- --------
Financing activities:
Borrowings (payment) under debt obligations (2,050) (2,141) 1,617
Payments on convertible debentures (1,221) (3,156) (675)
Proceeds from issuance of common stock 149 93 211
Loans to employees (140) -- --
Repurchase of common stock -- -- (1,280)
-------- -------- --------
Net cash used by financing activities (3,262) (5,204) (127)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 501 2,919 (833)
Cash and cash equivalents, beginning of period 3,327 408 1,241
-------- -------- --------
Cash and cash equivalents, end of period $ 3,828 $ 3,327 $ 408
======== ======== ========
Non-cash investing activities
Exchange of Media4 investment for Echostar common stock $ 3,566 -- --
Conversion of Media4 convertible debenture into equity -- -- $ 175
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements.
19
<PAGE>
SSE Telecom, Inc.
Consolidated Statements of Stockholders' Equity
For years ended September 25, 1999, September 26, 1998, and September 27, 1997
(amounts in thousands)
<TABLE>
<CAPTION>
Common Stock Treasury Stock Accumulated Total
-------------------- Additional ------------------- Other Stock-
Number of Paid-in Number of Retained Comprehensive holders'
Shares Amount Capital Shares Amount Earnings Income Equity
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 28, 1996 5,912 $ 59 $ 12,276 57 $ (502) $ 6,725 $ 12,730 31,288
Net loss -- -- -- -- -- (1,890) -- (1,890)
Unrealized loss on available-for-sale
investments, net of income tax
benefit of $1,271 -- -- -- -- -- -- (2,361) (2,361)
Less: Adjustment for gains included
in net loss, net of tax of $1,305 -- -- -- -- -- -- (2,425) (2,425)
--------
Total comprehensive loss (6,676)
--------
Issuance of common stock
upon exercise of options 43 1 180 -- -- -- -- 181
Issuance of warrants to Echostar -- -- 30 -- -- -- -- 30
Repurchase of common stock -- -- -- 168 (1,280) -- -- (1,280)
-------- -------- -------- -------- -------- -------- -------- --------
Balance, September 27, 1997 5,955 60 12,486 225 (1,782) 4,835 7,944 23,543
Net income -- -- -- -- -- 668 -- 668
Unrealized gain on available-for-sale
investments, net of tax of $208 -- -- -- -- -- -- 387 387
Less: Adjustment for gains included
in net income, net of tax of $3,507 -- -- -- -- -- -- (6,513) (6,513)
--------
Total comprehensive loss (5,458)
--------
Issuance of common stock under
Employee Stock Purchase Plan 29 -- 93 -- -- -- -- 93
-------- -------- -------- -------- -------- -------- -------- --------
Balance, September 26, 1998 5,984 60 12,579 225 (1,782) 5,503 1,818 18,178
Net loss -- -- -- -- -- (5,745) -- (5,745)
Unrealized gain on available-for-sale
investments, net of tax of $2,357 -- -- -- -- -- -- 3,535 3,535
Less: Adjustments for gains included
in net loss, net of tax of $2,239 -- -- -- -- -- -- (3,359) (3,359)
--------
Total comprehensive loss (5,569)
--------
Issuance of warrants to
obtain line of credit -- -- 12 -- -- -- -- 12
Issuance of common stock under
Employee Stock Purchase Plan 73 1 92 -- -- -- -- 93
Other issuance of common stock 50 -- 56 -- -- -- -- 56
-------- -------- -------- -------- -------- -------- -------- --------
Balance, September 25, 1999 6,107 $ 61 $ 12,739 225 $ (1,782) $ (242) $ 1,994 $ 12,770
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The Notes to Consolidated Financial Statements
are an integral part of these statements
20
<PAGE>
SSE Telecom, Inc.
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and method of consolidation: The Company's principal business is
the manufacture and sale of satellite telecommunications equipment. The Company
consolidates its majority owned subsidiaries and all intercompany amounts have
been eliminated in consolidation.
Cash and cash equivalents: The Company considers all highly liquid investments
with minimum yield risks and maturities of less than ninety days at the date of
purchase to be cash equivalents. Cash and cash equivalents are stated at cost,
which approximates market value.
Revenue recognition: Revenue from product sales is recognized when goods are
shipped to customers. A warranty reserve for future costs related to product
warranties is established and maintained based on estimated costs to be incurred
for delivered products.
Inventories: Inventories consist 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 a method that approximates actual cost on a
first-in, first-out (FIFO) basis.
At September 25, 1999 and September 26, 1998 inventories consisted of:
1999 1998
------ ------
(in thousands)
Raw materials $2,030 $3,440
Work-in-process 1,521 3,657
Finished goods 633 1,797
------ ------
Total $4,184 $8,894
====== ======
Depreciation and amortization: Depreciation and amortization is provided on a
straight-line basis over estimated useful lives of the related assets ranging
from two to five years. Asset purchases under capitalized lease arrangements are
generally depreciated over the shorter of the assets estimated useful life or
the lease term. Leasehold improvements are amortized over the term of the lease
or their estimated useful lives, whichever is shorter.
Advertising expenses: The Company accounts for advertising costs as an expense
in the period in which they are incurred. Advertising expenses for fiscal 1999,
1998, and 1997 were approximately $266,000, $341,000, and $515,000,
respectively.
Net income (loss) per share: Basic earnings per share is computed using the
weighted average number of common shares outstanding. Diluted earnings per share
is computed using the weighted average number of common shares and potentially
dilutive common shares outstanding during the period. Potentially dilutive
common shares consist of employee stock options, restricted stock, warrants, and
convertible securities. The effects of options and warrants were not included in
1999 and 1997 as they are anti-dilutive. The effects of the convertible
debentures were not included in any of the fiscal years presented, as they are
anti-dilutive.
21
<PAGE>
Notes to Consolidated Financial Statements (continued)
The following table sets forth the computations of basic and diluted income
(loss) per share:
1999 1998 1997
------- ------- -------
(in thousands, except
per share amounts)
BASIC:
Net income (loss) $(5,745) $ 668 $(1,890)
Weighted average common shares outstanding 5,818 5,743 5,820
Basic net income (loss) per share $ (0.99) $ 0.12 $ (0.32)
DILUTED:
Weighted average common shares outstanding 5,818 5,743 5,820
Increase in weighted average shares due to dilutive
stock options and warrants -- 1 --
------- ------- -------
Diluted shares 5,818 5,744 5,820
Diluted net income (loss) per share $ (0.99) $ 0.12 $ (0.32)
Stock-based compensation: The Company accounts for employee stock options in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees."
Concentration of credit risk: The Company designs, develops, manufactures,
markets, and supports satellite telecommunication equipment and systems for
customers in diversified geographic locations. The Company performs ongoing
credit evaluations of its customers' financial condition and in some cases
requires a letter of credit or cash in advance for foreign customers. The
Company has a policy that requires a letter of credit or credit insurance for
credit-worthy customers that request sales under extended terms.
Market Risk: Sales of the Company's products are concentrated in a small number
of customers. For fiscal 1999, five customers accounted for 40% of sales. The
loss of any existing customer, a significant reduction in the level of sales to
any existing customer, or the failure of the Company to gain additional
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
Long-lived Assets: The Company reviews long-lived assets, certain identifiable
intangibles and goodwill related to these assets for impairment in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and For
Long-lived Assets to be Disposed Of." For assets to be held and used, including
acquired intangibles, the Company initiates its review whenever events or
changes in circumstances indicate that the carrying amount of a long-lived asset
may not be recoverable. Recoverability of an asset is measured by comparison of
its carrying amount to the future undiscounted cash flows that the asset is
expected to generate. Any impairment to be recognized is measured by the amount
by which the carrying amount of the asset exceeds its fair market value. Assets
to be disposed of and for which management has committed to a plan to dispose of
the assets, whether through sale or abandonment, are reported at the lower of
carrying amount or fair value less cost to sell.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Such estimates relate to the useful lives of
fixed assets, allowances for doubtful accounts, recoverability of deferred tax
assets, inventory reserves, accrued liabilities, and other reserves. Actual
results could differ from those estimates.
Effect of New Accounting Pronouncements: The Company adopted SFAS No. 130,
"Reporting Comprehensive Income," at the beginning of fiscal 1999. The adoption
had no impact on net income or total stockholders' equity. Comprehensive income
consists of net income and net unrealized gain on available-for-sale
investments. Comprehensive income is presented in the Consolidated Statements of
Stockholders' Equity.
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" in fiscal 1999. This statement requires that financial
information be reported on the basis used internally for evaluating segment
performance and deciding how to allocate resources to segments. The Company has
evaluated the effects of this change on its reporting of segments and has made
the determination that it has one reportable segment.
22
<PAGE>
Notes to Consolidated Financial Statements (continued)
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivatives Instruments and Hedging Activities" was issued which
defines derivatives, requires all derivatives be carried at fair value, and
provides for hedging accounting when certain conditions are met. This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000. Although the Company has not fully assessed the implications of this new
statement, the Company does not believe adoption of this statement will have a
material impact on the Company's financial statements.
2. RELATIONSHIP WITH ALCATEL TELSPACE
In September 1996, Alcatel Telspace S. A. ("Alcatel Telspace"), a unit of
Alcatel Telecom of France, purchased 525,000 shares of the Company's common
stock. In addition, Alcatel Telspace received a three year warrant to purchase
up to another 300,000 shares of the Company's common stock at the quoted market
price at the date of exercise but not less than $11.00 per share. The Company
received aggregate proceeds of $6,751,500 in connection with this transaction.
Additionally, in September 1996, Alcatel Telspace also purchased an additional
100,000 shares of common stock from two members of the Company's senior
management for $1,075,000 or $10.75 per share, which was the fair market value
of the Company's common stock at that time. As a result of these transactions
Alcatel Telspace owns approximately 10% of the Company's outstanding common
stock.
Alcatel Telspace and the Company also entered into an agreement outlined in a
Joint Product Policy to identify certain satellite telecommunications products
which may be jointly developed and marketed by each party. The intent of the
Joint Product Policy is to add additional products to each company's product or
systems offerings thereby potentially increasing market share. The two companies
have collaborated in the development of certain satellite communications
equipment in the past, although there can be no assurance that future products
or systems will be jointly developed. Alcatel Telspace is currently a primary
supplier of a key component in the Company's STAR satellite transceiver
products (see note 11).
3. INVESTMENTS
The Company has classified investment securities as available for sale.
Available-for-sale securities are stated at fair value with the unrealized gain
and losses, net of taxes, reported as a separate component of stockholders'
equity. Realized gains and losses, and declines in value judged to be other than
temporary on available-for-sale securities are included in the consolidated
statements of operations. The cost of securities sold is based on the average
cost method.
Investments with maturities of less than one year at the balance sheet date are
classified as short-term investments. Investments with maturities greater than
one year at the balance sheet date are classified as long-term investments.
On December 30, 1994, the Company completed the exchange of its 91.2% interest
in Directsat Corporation, a direct broadcast satellite licensee, which resulted
in the receipt of 912,717 shares of Echostar Communications Corporation
("Echostar"), Class A common stock. The Company sold 118,905, 506,880 shares and
176,937 shares of Echostar at net realized gains before taxes of $3,196,000,
$10,020,000 and $3,730,000 in fiscal 1999, 1998 and fiscal 1997, respectively.
On February 1, 1999, the Company sold its interest in MEDIA4 at book value in
exchange for 77,769 shares of EchoStar common stock. On March 30, 1999 the
company sold 40,000 shares of Echostar shares for approximately $2.8 million. On
July 19, 1999 Echostar effected a 2-for-1 split of common stock for stockholders
of record at the close of business on July 1, 1999. On September 9, 1999, the
Company sold 25,000 shares of Echostar common stock. At September 25, 1999 the
Company had 50,536 shares of Echostar valued at $4.5 million. The EchoStar
common stock has been classified as an available-for-sale investment. During
fiscal 1998, the Company invested $2,425,000 in MEDIA4 and as of September 26,
1998, the Company had invested approximately $965,000 in MEDIA4 common stock and
held $2.6 million in MEDIA4 convertible 7% and 9.5% debentures.
The following is a summary of available-for-sale securities at September 25
1999:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------ ------ ------ ------
(in thousands)
Common Stock - Echostar $1,200 $3,323 $ -- $4,523
------ ------ ------ ------
23
<PAGE>
Notes to Consolidated Financial Statements (continued)
The following is a reconciliation of the investment categories and their balance
sheet classifications at September 25, 1999:
Cash and
Cash Short-term
Equivalents Investments Total
------ ------ ------
(in thousands)
Cash $3,828 $ -- $3,828
Available-for-sale securities (Echostar) -- 4,523 4,523
------ ------ ------
$3,828 $4,523 $8,351
====== ====== ======
The following is a summary of available-for-sale securities at September 26,
1998:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------ ------ ------ ------
(in thousands)
Convertible debenture - Media4 $2,601 $ -- $ -- $2,601
Common Stock - Echostar 220 2,797 -- 3,017
------ ------ ------ ------
$2,821 $2,797 $ -- $5,618
====== ====== ====== ======
The following is a reconciliation of the investment categories and their balance
sheet classifications at September 26, 1998:
Cash and
Cash Long-term
Equivalents Investments Total
------ ------ ------
(in thousands)
Cash $ 752 $ -- $ 752
Certificates of deposit 2,575 -- 2,575
Available-for-sale securities -- 5,618 5,618
Non-marketable equity investments -- 965 965
------ ------ ------
$3,327 $6,583 $9,910
====== ====== ======
4. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment, the design, manufacturing and
sale of satellite telecommunications equipment. The Company had exports of
approximately 50% of revenue in 1999, 44% of revenue in 1998 and 45% of revenue
in 1997. Export revenues are primarily to Western Europe (Germany and France),
Asia Pacific (Thailand and India), Argentina, Mexico, and Canada. In 1999, the
U.S. Government and Nortel Dasa each accounted for 10% of the Company's revenue.
In 1998, the U.S. Government and Loral/Orion, Inc, each accounted for 10% of the
Company's total revenue. In 1997, the U.S. Government accounted for 11% of the
Company's revenue. No other customers accounted for more than 10% during 1999,
1998, or 1997. All export sales were denominated in U.S. dollars.
5. CREDIT FACILITIES AND NOTES PAYABLE
At September 25, 1999, the Company was operating under a $5.0 million
line-of-credit facility with outstanding borrowings of $907,000. Funds borrowed
under this line-of-credit bear interest at prime (8.25% at September 25, 1999)
plus 2.0%. The Company is required under this line-of-credit to be in compliance
with a tangible net worth covenant and certain assets of the Company secure the
line-of-credit. The Company is in compliance with all covenants. The
line-of-credit expires July 30, 2001.
24
<PAGE>
Notes to Consolidated Financial Statements (continued)
At September 25, 1999, the Company had no long-term debt, excluding capital
lease obligations disclosed in Note 9. At September 26, 1998, long-term debt
obligations consisted of the following (in thousands):
1998
-------
Bank note payable $ 616
6 1/2% convertible debenture 1,221
-------
1,837
Less: Current portion 698
-------
Total long-term debt $ 1,139
=======
Interest paid in fiscal 1999, 1998, and 1997 was approximately $250,000,
$768,000, and $385,000, respectively.
6. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
1999 1998 1997
------- ------- -------
(in thousands)
Federal
Current $ (69) $ (254) $ 73
Deferred 135 504 (1,091)
------- ------- -------
66 250 (1,018)
------- ------- -------
State
Current 11 596 --
Deferred 362 (362) --
------- ------- -------
373 234 --
------- ------- -------
Total $ 439 $ 484 $(1,018)
======= ======= =======
The following table accounts for the differences between the actual tax
provision and the amounts obtained by applying the U.S. Federal income tax rate
of 35% to the income before income taxes:
1999 1998 1997
------- ------- -------
(in thousands)
Tax at statutory US rate $(1,857) $ 403 $ (989)
State taxes (net of federal benefit) (257) 152 --
Other 12 (71) (29)
------- ------- -------
(2,102) 484 (1,018)
Change in valuation allowance 2,541 -- --
------- ------- -------
$ 439 $ 484 $(1,018)
======= ======= =======
25
<PAGE>
Notes to Consolidated Financial Statements (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities consists of the following:
1999 1998
------- -------
(in thousands)
Deferred tax assets:
Inventories $ 868 $ 1,379
Accruals and reserves 4,396 1,383
Valuation allowance (2,541) --
------- -------
Total deferred tax assets 2,723 2,762
Deferred tax liabilities:
Available for sale securities (1,371) (730)
Tax over book depreciation (658) (200)
------- -------
Net deferred taxes $ 694 $ 1,832
======= =======
Income taxes paid were $485,000, $567,500, and $1,053,000 in 1999, 1998, and
1997, respectively.
7. RETIREMENT PLAN
The Company maintains a 401(k) tax deferred plan that is available to all
eligible employees. In fiscal year 1999, the Company's matching amount with
respect to employees' contributions was $1,000, subject to a cap of 3% of the
employees' salary, whichever is lower. The Company's contribution to this plan
totaled $125,000 in 1999, $148,000 in 1998, and $137,000 in 1997.
8. CAPITAL LEASES
At September 25, 1999 equipment under capital leases amounted to $535,000
(before accumulated depreciation of $227,000). Lease terms range from three to
five years.
The following is a schedule of future minimum lease payments under capital
leases as of September 25, 1999 (in thousands):
2000 $ 142
2001 120
2002 85
-------
Total minimum lease payments 347
Less amount representing interest 38
-------
309
Less current portion 109
-------
$ 200
=======
9. COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment, as well as its headquarters
and manufacturing facilities under non-cancelable operating leases which expire
at various periods through 2001. At September 25, 1999, the future minimum
payment obligations under these leases were as follows (in thousands):
2000 $ 723
2001 447
2002 --
-------
Total $ 1,170
=======
The total rent expense under all operating leases was approximately $629,000,
$806,000, and $1,103,000 for fiscal years 1999, 1998, and 1997, respectively.
26
<PAGE>
Notes to Consolidated Financial Statements (continued)
A special warranty cost of $1.8 million before tax is reflected in the results
of operations for the fiscal year ended September 27, 1997. This charge, of
which $100,000 remains accrued as of September 25, 1999, reflects costs incurred
and estimated to be incurred for retrofitting certain of the Company's satellite
transceiver products. The problem stems from the identification by one of the
Company's vendors that a component sold to the Company, and used in many of the
transceivers produced prior to July 1997, was found to be defective in certain
cases. The warranty cost accrued is an estimate; actual results could differ
materially.
10. STOCKHOLDERS' EQUITY
Stock Option Repricing: During the first quarter of fiscal 1999, the Company
approved a cancellation and re-granting of outstanding stock options from all
holders of outstanding options with exercise prices in excess of $2.50 per share
as set by the Company's board of directors on October 16, 1998. 283,750 options
were repriced at an exercise price of $2.50 per share. The repriced options
become exercisable in accordance with the same schedule in effect under the
higher priced option to which such new option relates except that no portion of
the option may be exercised prior to one year from the re-granting date. The
re-granting applied to all employees of the Company, except the chief executive
officer of the Company, who was excluded from the repricing agreements.
Stock Option Incentive Plan: At the Company's June 2, 1997 Annual Meeting of
Shareholders, approval was granted on the Company's 1997 Equity Participation
Plan, 1997 Directors' Stock Option Plan, and amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of the
Company's common stock from 10,000,000 to 30,000,000. Under the 1997 Equity
Participation Plan, the Company may grant incentive stock options and
non-statutory stock options to employees, directors and consultants. The total
shares authorized under the 1997 Equity Participation Plan are 250,000. Options
may be granted to purchase common stock at an exercise price that may be no less
than 100% of the market value of the stock at the grant date and will expire
after ten years. The options generally become exercisable over four years from
date of grant. The Company also has a 1992 Incentive Stock Option Plan which has
terms similar to the 1997 plans.
The 1997 Directors' Stock Option Plan gives management the ability to grant
stock options to directors that are not employees of the Company or any
subsidiary of the Company. The total shares authorized under the 1997 Directors'
Stock Option Plan are 100,000. Options may be granted to purchase common stock
at an exercise price that may be no less than 100% of the market value of the
stock at the grant date and will expire after ten years. The options generally
become exercisable over three years from date of grant.
In 1999, the Company granted an option to purchase 70,000 shares of the
Company's common stock at a purchase price of $1.50 per share, which exceeded
the fair market value on the date of grant ( See Note 11). The option was
granted outside of any of the Company's stock option or equity incentive plans.
The options generally become exercisable over four years from date of grant and
expire after 10 years.
In 1999, the Company issued warrants to purchase 9,766 shares of common stock at
$2.56 per share to obtain the line-of-credit facility (see note 5). The warrants
expire in July 2004. The estimated fair value of these warrants of $12,000 was
recorded as interest expense in fiscal year 1999.
27
<PAGE>
Notes to Consolidated Financial Statements (continued)
Following is a summary of stock option activity:
Outstanding Options
---------------------------------
Weighted average
Available Number of exercise price
for grant shares per share
-------- -------- --------
Balance at September 28, 1996 50,875 472,432 $7.81
Additional shares available to grant 287,333 -- --
Options granted (304,000) 304,000 $6.22
Options exercised -- (43,516) $4.17
Options canceled 124,230 (124,230) $8.99
-------- --------
Balance at September 27, 1997 158,438 608,686 $7.03
Additional shares available to grant 175,000 -- --
Options granted (500,444) 500,444 $3.49
Options exercised -- (374) $3.76
Options canceled 282,606 (282,606) $6.25
-------- --------
Balance at September 26, 1998 115,600 826,150 $5.15
Additional shares available to grant 120,000 -- --
Options granted (782,350) 782,350 $2.15
Options exercised -- -- --
Options canceled 738,750 (738,750) $4.89
-------- --------
Balance at September 25, 1999 192,000 869,750 $2.62
======== ========
The following table summarizes the information about options outstanding at
September 25, 1999:
<TABLE>
<CAPTION>
Outstanding options Exerciseable options
---------------------------------- ------------------
Weighted
Average Weighted Weighted
Number Contractual life Exercise Number Exercise
Range of Exercise Prices of shares (in years) Price of shares Price
- ------------------------ ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
$1.130 - $1.310 104,500 4.79 $1.268 13,300 $1.310
$1.500 - $1.875 175,000 6.68 $1.661 0 $0.000
$2.000 - $2.250 160,700 4.59 $2.168 0 $0.000
$2.500 - $2.500 212,050 4.06 $2.500 0 $0.000
$4.000 - $4.070 182,500 4.01 $4.054 54,997 $4.050
$6.000 - $7.375 35,000 3.70 $6.750 32,498 $6.808
------- ------ ------ ------- ------
$1.130 - $7.375 869,750 4.74 $2.619 100,795 $4.578
</TABLE>
192,000 shares of common stock were reserved for future issuance as of September
25, 1999. At September 26, 1998, and September 27, 1997, options exercisable
were 238,254 and 173,124 with weighted average exercise prices of $6.92 and
$6.08, respectively.
Employee Stock Purchase Plan: The Company established an Employee Stock Purchase
Plan (the "Purchase Plan") in 1997 under which 150,000 shares of common stock
were reserved for purchase. At September 25, 1999, 48,105 shares remain reserved
for future purchases. Each eligible employee may purchase shares of common stock
through the accumulation of payroll deductions of up to 10% of each
participating employee's gross wages not to exceed a maximum of $5,040 per
purchase period. The Purchase Plan authorizes the purchase of shares of common
stock at the end of semi-annual purchase periods beginning May 1 and November 1
of each year. The purchase price is the lower of 85% of its fair value
determined as of the beginning of an offering period or the end of a purchase
period. Employees purchased 73,176 shares in fiscal 1999 for $92,282 or a
weighted average of $1.26 per share and 28,719 shares in fiscal 1998 for $91,542
or a weighted average of $3.19 per share. The Purchase Plan will expire upon
either the issuance of all shares reserved for issuance or at the discretion of
the Board of Directors.
Stock-Based Compensation: As permitted under FASB Statement No. 123, "Accounting
for Stock-Based Compensation" (FASB 123), the Company has elected to continue to
follow Accounting Principles Board Opinion No. 25, "Accounting for
28
<PAGE>
Notes to Consolidated Financial Statements (continued)
Stock Issued to Employees" (APB 25) and related Interpretations in accounting
for its stock-based awards to employees. Under APB 25, the Company generally
recognizes no compensation expense with respect to such awards. Pro forma
information regarding net income and earnings per share is required by FASB 123
and has been determined as if the Company had accounted for awards to employees
under the fair value method of FASB 123. The fair value of options under the
Company's option plans was estimated as of the date of grant using the
Black-Scholes option pricing model. The Black-Scholes model was originally
developed for use in estimating the fair value of traded options that do not
have vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions, including
expected stock price volatility. Because the Company's options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, the existing models, in management's opinion, do not
necessarily provide a reliable single measure of the fair value of its
stock-based awards to employees. The fair value of options granted in fiscal
years 1999, 1998 and 1997 was estimated at the date of grant assuming no
expected dividends and the following weighted average assumptions:
Years Ended
----------------------------------
September 25, September 26, September 27,
1999 1998 1997
----- ----- -----
Expected life (years) 4.50 4.50 4.50
Expected stock price volatility 0.80 0.53 0.50
Risk-free interest rate 5.23% 5.66% 6.39%
The weighted-average fair value of stock options granted during 1999, 1998 and
1997 was $1.02, $1.80, and $3.44 per share, respectively. The weighted-average
estimated fair value of options granted under the Purchase Plan during 1999 and
1998 were $0.85 and $2.32 per share, respectively. For purposes of pro forma
disclosures, the estimated fair value of stock-based awards is amortized against
pro forma net income over the options' vesting period of four years and the
Purchase Plan purchase period of six months. Because FASB 123 is applicable to
only the Company's awards granted subsequent to September 30, 1995, the pro
forma effect under the fair value method will not be fully reflected until
approximately fiscal 2000. Had the Company accounted for stock-based awards to
employees under the fair value method on a pro forma basis, the Company's net
loss for 1999 would have been $6,021,000 and $1.03 per basic and diluted share;
the Company's net income for 1998 would have been $178,000 and $0.03 per basic
and diluted share; and the Company's net loss for 1997 would have been
$2,326,000 and $0.40 per basic and diluted share.
Treasury stock: The Company acquired no shares of its common stock on the open
market in fiscal years 1999 and 1998. In 1997, the Company acquired 167,600
shares of its common stock on the open market. As of September 25, 1999, the
Company had 224,643 shares of treasury stock.
Warrants: Warrants issued in 1999, 1998, and 1997 to acquire common stock were
9,766, zero, and 10,125, respectively. At September 25, 1999, outstanding
warrants for the purchase of the Company's common stock were as follows:
Common Stock
Subject to Warrant
Exercise of Exercise Price Exercise
Warrants per Share Period Ends
-------- --------- -----------
9,766 $ 2.56 July 2004
17,625 $12.00 February 2000
52,500 $12.00 April 2000
29
<PAGE>
Notes to Consolidated Financial Statements (continued)
11. RELATED PARTY TRANSACTIONS
During the fourth quarter of 1999, the Company loaned $140,000 to certain
officers of the Company in exchange for unsecured notes receivable. The loan
proceeds were used to purchase SSET common stock on the open market. The notes
generally bear interest at 8% per year and are due no later than August 31,
2003, earlier under certain circumstances.
SSET has a significant investment in Echostar and in 1999, 1998 and 1997 the
Company had a significant investment in MEDIA4. In addition Alcatel Telespace
owns approximately 10% of the Company's outstanding common stock (see notes 2
and 3).
The Company had revenue from Alcatel Telspace of $764,000 and purchases from
Alcatel Telspace of $1.0 million, during fiscal 1999. As of September 25, 1999,
the Company had trade receivables and payables with Alcatel Telspace of $17,000
and $601,000, respectively. During fiscal 1998, revenue from Alcatel Telspace
was $917,000 and purchases from Alcatel Telspace were $1.8 million. As of
September 26, 1998, the Company had trade receivables and payables with Alcatel
Telspace of $81,000 and $680,000, respectively. During fiscal 1997, revenue from
Alcatel Telspace was $2.2 million and purchases from Alcatel Telspace were $3.5
million. Gross margins realized on related party transactions in fiscal 1999,
1998, and 1997 have not been materially different from gross margins realized on
similar types of transactions with unaffiliated companies.
During fiscal 1999, SSE Telecom had no sales or purchases from MEDIA4. In fiscal
1998, the Company purchased $55,000 of products for resale to MEDIA4 and
purchased $36,000 from MEDIA4. At September 26, 1998, the Company had
receivables and payables with MEDIA4 of $225,000 and $38,000, respectively.
During fiscal 1997, purchases for resale to MEDIA4 were $156,000. At September
27, 1997, the Company had receivables of $170,000 from MEDIA4.
On May 6, 1999 Mr. Frank Trumbower, holder of 9% of the outstanding Common Stock
of the Company as of July 28, 1999, was appointed Chairman of the Board of SSE
Telecom, Inc. In this capacity the Company entered into the following agreements
with Mr. Trumbower: (i) A Common Stock Purchase Agreement pursuant to which Mr.
Trumbower purchased 50,000 shares of the Company's Common Stock at $1.125 per
share for an aggregate purchase price of $56,250. The purchase price for the
shares represented the closing price of the stock on the date of sale, as
reported on the Nasdaq National Market; (ii) Nonqualified Stock Option
Agreements to purchase 70,000 shares of the Company's Common Stock at a purchase
price of $1.50 per share. The option was granted outside of any of the Company's
stock option or equity incentive plans; (iii) Nonqualified Stock Option
Agreement to purchase an aggregate of 10,000 shares of the Company's Common
Stock at a purchase price of $1.50 per share pursuant to the Company's Directors
Stock Option Plan; and (iv) Nonqualified Stock Option Agreements to purchase an
aggregate of 20,000 shares of the Company's Common Stock pursuant to the
Company's 1997 Equity Participation Plan at a purchase price of $1.50 per share.
12. RESTRUCTURING CHARGES
On June 25, 1998, the Company announced a program designed to focus the Company
on its strengths in satellite communication transceivers and modems. As a result
of this decision, the Company recorded a restructuring charge of $1.2 million
before taxes in the third quarter of fiscal 1998. The restructuring charge
includes: $670,000 for personnel actions (36 technical and support personnel) of
which $647,000 has been paid and the remaining amount will be paid in fiscal
2000; $429,000 for the write-off of certain fixed assets and for the write-off
of intangibles assets associated with the acquisition of Fairchild Data; and
$137,000 for facility closing costs in Arizona and Virginia. In addition, the
Company charged $3,855,000 to cost of revenue for certain inventory write-offs.
Total remaining restructuring expenses accrued at September 25, 1999 was $51,000
consisting of $23,000 for personnel actions and $28,000 for fixed assets and
facility closing cost.
In the third quarter of fiscal 1997, the Company approved a plan to consolidate
its manufacturing operation and transfer its satellite modem manufacturing
operation from its facility in Scottsdale, Arizona to the Company's Fremont,
California facility. A charge of $2.1 million before tax for this consolidation
was reflected in the results of operations for the three month period ended June
28, 1997 and includes the following components: $900,000 in cost of revenue,
$350,000 for bad debt expense included in marketing, general and administrative,
and $850,000 as restructuring charges. The restructuring amount included
$193,000 for employee severance of which the balance was paid in early fiscal
year 1998, $40,000 for the facility lease in Scottsdale, $100,000 reserve for
certain liabilities, $100,000 for a write off on leasehold improvements and
capital assets, and $417,000 write down of intangibles associated with the
acquisition of Fairchild Data.
30
<PAGE>
Notes to Consolidated Financial Statements (continued)
13. CTSI
In 1989, Corporate Telecom Services ("CTSI") a wholly-owned subsidiary of the
Company, was an applicant before the Federal Communications Commission for the
award of certain cellular telephone licenses for certain rural statistical areas
("RSA"). In 1989, in order to comply with certain FCC rules, the Company
transferred its ownership interest in CTSI to a former Board of Director of the
Company (the "Trustee"), pursuant to a trust agreement among SSE Telecom, CTSI
and the Trustee. On December 22, 1997, CTSI entered into an agreement with
Western Wireless Corporation ("Western") under which agreement the parties
agreed to seek FCC approval for the transfer by CTSI of its authorization to
operate a cellular telephone system in Boone, Nebraska RSA. The application was
approved and the transfer by CTSI to Western was effected June 22, 1998. Upon
the transfer of the license to Western, CTSI received $6,960,000. After the
payment of all expenses and liabilities arising from the obtaining of the
license and its transfer, the termination of the trust, and all expenses
associated with such termination, CTSI had net assets of approximately $5.8
million, before provision for taxes. On July 16, 1998, pursuant to an Agreement
for Termination by and among SSE Telecom, CTSI and the Trustee, the trust was
terminated and the ownership interest of CTSI was conveyed by the Trustee to the
Company and, accordingly, the Company recognized a gain of $5.8 million.
14. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA
Fiscal 1999
--------------------------------------------
1st 2nd 3rd 4th
------- ------- ------- -------
(in thousands, except per share data)
Sales $ 7,703 $ 4,718 $ 4,758 $ 4,833
Gross margin 497 (248) 206 235
Net income (loss) 513 (1,858) (3,076) (1,324)
Income (loss) per share:
Basic 0.09 (0.32) (0.53) (0.23)
Diluted 0.09 (0.32) (0.53) (0.23)
Fiscal 1998
--------------------------------------------
1st 2nd 3rd 4th
------- ------- ------- -------
(in thousands, except per share data)
Sales $12,337 $11,095 $ 6,160 $ 7,148
Gross margin 3,232 2,269 (3,920) 540
Net income (loss) 1,786 1,652 (5,989) 3,220
Income (loss) per share:
Basic 0.30 0.29 (1.04) 0.56
Diluted 0.29 0.28 (1.04) 0.54
The results of operations for the third quarter in fiscal 1998 reflect the
effects of a $1.2 million restructuring (refer to Note 12 of the Notes to
Consolidated Financial Statements) and the gain on sale in the 4th quarter of
fiscal 1998 of $5.8 million relating to the CTSI transaction (refer to Note 13
of the Notes to Consolidated Financial Statements).
31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company dismissed Ernst & Young LLP as its independent auditors for the
fiscal year ending September 26, 1998. Such dismissal was approved by the
Company's Board of Directors on April 24, 1998.
The reports of Ernst & Young LLP on the Company's financial statements for the
past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles. In connection with the audits of the Company's financial
statements for each of the two fiscal years ended September 27, 1997, and
September 28, 1996 and in the subsequent interim period, there were no
disagreements with Ernst & Young LLP on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of Ernst & Young LLP would have
caused Ernst & Young LLP to make reference to the matter in their reports.
There has not occurred, during the two fiscal years ended September 27, 1997,
and September 28, 1996 or any subsequent interim period prior to September 26,
1998, any reportable events, as defined in paragraph(a)(1)(v) of Item 304, with
respect to Ernst & Young LLP, except as set forth in a letter from Ernst & Young
LLP to Company's Audit Committee, dated December 4, 1997, noting a material
weakness in Company's internal control structure relative to the preparation of
accurate financial statements for the Company's fiscal year ended September 27,
1997. The Company believes that it has effectively addressed the issues raised
in such letter.
The Company requested Ernst & Young LLP to furnish it a letter addressed to the
Commission stating whether it agrees with the above statements. Ernst & Young
LLP responded to the Company's request and a copy of the response of Ernst &
Young LLP is filed as Exhibit 1 to Form 8-K, dated April 17, 1998, File
#33-10965.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All information required by Items 10, 11, 12, and 13 is incorporated herein by
reference to the Company's definitive proxy statement for its annual meeting of
stockholders which will be filed with the Securities and Exchange Commission
within 120 days of the company's fiscal year end pursuant to Regulation 14A.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. The following documents are filed as a part of this report:
1. Financial Statements: Reference Page
COVERED BY REPORT OF INDEPENDENT AUDITORS
Report of Deloitte & Touche LLP, Independent Auditors 15
Report of Ernst & Young LLP, Independent Auditors 16
Consolidated Balance Sheets - September 25, 1999
and September 26, 1998 17
Consolidated Statements of Operations - Fiscal Years
Ended September 25, 1999, September 26, 1998,
and September 27, 1997 18
Consolidated Statements of Cash Flows - Fiscal Years
Ended September 25, 1999, September 26, 1998,
and September 27, 1997 19
Consolidated Statements of Stockholders' Equity -
Fiscal Years Ended September 25, 1999,
September 26, 1998, and September 27, 1997 20
Notes to Consolidated Financial Statements
NOT COVERED BY REPORT OF INDEPENDENT AUDITORS 21-31
Note 14 of Notes to Consolidated Financial Statements 31
2. Financial Statement Schedule: The following financial statement schedule of
SSE Telecom for the fiscal years ended September 25, 1999, September 26,
1998, and September 27, 1997 is filed as part of this Report and should be
read in conjunction with the Consolidated Financial Statements of SSE
Telecom, Inc.
Schedule II Valuation and Qualifying Accounts 35
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes
thereto.
3. Exhibits
See Exhibits Index.
b) Reports on Form 8-K:
None.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SSE TELECOM, INC.
Dated: December 22, 1999 /s/ Leon F. Blachowicz
----------------------------------------
Leon F. Blachowicz
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Frank Trumbower Chairman of the Board December 22, 1999
- --------------------------
Frank Trumbower
/s/ Leon F. Blachowicz Director and December 22, 1999
- -------------------------- Chief Executive Officer
Leon F. Blachowicz (Principle Executive Officer)
/s/ James J. Commendatore Chief Financial Officer December 22, 1999
- -------------------------- (Principle Finance and
James J. Commendatore Accounting Officer)
/s/ Joseph T. Pisula Director December 22, 1999
- --------------------------
Joseph T. Pisula
/s/ Daniel E. Moore Director December 22, 1999
- --------------------------
Daniel E. Moore
/s/ Olin L. Wethington Director December 22, 1999
- --------------------------
Olin L. Wethington
/s/ Lawrence W. Roberts Director December 22, 1999
- --------------------------
Lawrence W. Roberts
/s/ D. Jonathan Merriman Director December 22, 1999
- --------------------------
D. Jonathan Merriman
34
<PAGE>
SCHEDULE II
SSE TELECOM
VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
Balance at Deductions Balance
Beginning Additions and at End
of Period Charged Write-offs of Period
--------- ------- ---------- ---------
Allowance for Doubtful Accounts:
Year Ended September 25, 1999 $ 781 $ 100 $ (297) $ 584
Year Ended September 26, 1998 $ 622 $ 653 $ (494) $ 781
Year Ended September 28, 1997 $ 420 $ 447 $ (245) $ 622
35
<PAGE>
Exhibit Index
These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of
Regulation S-K.
Exhibit
Number
- -------
2.1 Plan and Agreement of Merger among Echostar Communications
Corporation, Directsat Corporation And SSE Telecom (Incorporated by
reference to Exhibit 2.1 filed with Form 8-K on March 29, 1994,
#33-10965)
2.2 Asset Purchase Agreement among SSE Telecom, Inc.,SSE Datacom, Inc.,
The Fairchild Corporation, and the Fairchild Data Corporation, and VSI
Corporation, Dated January 28, 1996 (Incorporated by reference to
Exhibit 2.2, filed with Form 8-K dated January 28, 1996, #33-10965)
3.1 Certificate of Incorporation of Registrant (Incorporated by reference
to Exhibit 3.1, filed With Form S-8, #33-10965)
3.2 Certificate of Amendment to Certificate of Incorporation of Registrant
(Incorporated by reference to Exhibit 3.2, filed with Form S-8
#33-10965)
3.3 Bylaws of Registrant (Incorporated by reference to Exhibit 3.3, with
Form S-8 #33-10965)
3.4 Certificate of Amendment to Certificate of Incorporation of Registrant
(Incorporated by reference to Exhibit 3.4, filed with Form 10-K dated
September 30, 1989, #33-10965)
4.1 Specimen Stock Certificate (Incorporated by reference to Exhibit 4.1,
filed with Form 10-K dated September 26, 1992 #33-10965)
4.4 Specimen Form of Debenture (Incorporated by reference to Exhibit 4.4,
filed with Form 8-K dated March 29, 1994, #33-10965)
4.5 Security Pledge and Limited Recourse Agreement (Incorporated by
reference to Exhibit 4.5, filed with Form 8-K dated March 29, 1994,
#33-10965)
4.6 Warrant from SSE Telecom, Inc. to Fairchild Data Corporation dated
January 28, 1996 (Incorporated by reference to Exhibit 4.6, filed with
Form 8-K dated January 28, 1996, #33-10965)
4.7 Warrant from SSE Telecom, Inc. to Alcatel Telspace, S.A., dated
September 6, 1996 (Incorporated by reference to Exhibit 4.7, filed
with Form 8-K dated September 6, 1996, #33-10965)
4.8 Warrant to Purchase Common Stock agreement by and between the Company
and Silicon Valley Bank dated August 4, 1999 (Incorporated by
reference to Exhibit 10.7, filed with Form 10-Q dated June 26, 1999,
#0-16473)
9.2 Voting Agreement by and among SSE Telecom, Inc., Alcatel Telspace,
S.A., and certain stockholders of SSE Telecom, Inc., dated September
6, 1996 (Incorporated by reference to Exhibit 9.2, filed with Form 8-K
dated September 6, 1996, #33-10965)
9.3 Stockholder Agreement by and among SSE Telecom, Inc., Alcatel
Telspace, S.A., and certain stockholders of SSE Telecom, Inc., dated
September 6, 1996 (Incorporated by reference to Exhibit 9.3, filed
with Form 8-K dated September 6, 1996, #33-10965)
10.1 Stock Purchase Agreement by and between the Company and Frank
Trumbower dated May 13, 1999 (Incorporated by reference to Exhibit
10.1, filed with Form 10-Q dated June 26, 1999, #0-16473)
10.11 Non Qualified Stock Option Agreement by and between the Company and
Frank Trumbower dated May 13, 1999 (Incorporated by reference to
Exhibit 10.2, filed with Form 10-Q dated June 26, 1999, #0-16473)
36
<PAGE>
10.12 Offer letter and Consultant agreement by and between the Company and
Frank Trumbower dated May 13, 1999 (Incorporated by reference to
Exhibit 10.3, filed with Form 10-Q dated June 26, 1999, #0-16473)
10.18 Non-Qualified Stock Option Agreement (Incorporated by reference,
Exhibit 10.18, filed with Form 10-K, dated September 30, 1988,
#33-10965)
10.19 1992 Stock Option Plan Agreement (Incorporated by reference, Exhibit
10.18.1, filed with Form 10-K dated September 25, 1993, #33-10965)
10.20 1997 Equity Participation Pan (Incorporated by reference to Exhibit
10.18.2 Proxy Statement, Form 14A, dated April 15, 1997, #33-10965)
10.21 Directors' Stock Option Plan (Incorporated by reference to Exhibit
10.18.3 Proxy Statement, Form 14A, dated April 15, 1997, #33-10965)
10.22 SSE Telecom 401(k) Profit Sharing Plan and Trust (Incorporated by
reference to Exhibit 10.19, filed with Form 10-K dated September 25,
1988, #33-10965)
10.23 Lease regarding SSE Technologies' offices at 47823 Westinghouse Drive,
Fremont, CA dated February 19, 1991 between SSE Technologies and Warm
Springs Associates I Ltd. Partnership (Incorporated by reference to
Exhibit 10.20, filed with Form 10-K dated September 26, 1992,
#33-10965)
10.24 Lease regarding SSE Technologies' offices at 47823 Westinghouse Drive,
Fremont, CA dated February 19, 1991 between SSE Technologies and Warm
Springs Associates II Ltd. Partnership (Incorporated by reference to
Exhibit 10.20.1, filed with Form 10-K dated September 26, 1992,
#33-10965)
10.24.1 Amendment to lease regarding SSE Technologies offices at 47823
Westinghouse Drive, Fremont, CA between SSE Technologies and Warm
Springs Associated II Ltd. Partnership (Incorporated by reference to
Exhibit 10.20.2, filed with Form 10-K dated September 27, 1997,
#0-16473)
10.24.2 Amendment to lease regarding SSE Technologies offices at 47835
Westinghouse Drive, Fremont, CA between SSE Technologies and Warm
Springs Associates II Ltd. Partnership (Incorporated by reference to
Exhibit 10.5, filed with Form 10-Q dated June 26, 1999, #0-16473)
10.24.3 Sublease Agreement regarding SSE Technologies, Inc offices at 47835
Westinghouse Drive, Fremont, CA between SSE Technologies and
Streamsoft, Inc. dated July 6, 1999 (Incorporated by reference to
Exhibit 10.4, filed with Form 10-Q dated June 26, 1999, #0-16473)
10.25 Lease regarding SSE Technologies, Inc. offices at 47436 Fremont Blvd.,
Fremont, CA between SSE Technologies and Phylon Communications, Inc.
(Incorporated by reference to Exhibit 10.20.3, filed with Form 10-K
dated September 27, 1997 #0-16473)
10.26 Lease regarding SSE Datacom, Inc. offices at 5025 East Washington
Drive, Phoenix, AZ between SSE Technologies and 5025 East Washington
Associates (Incorporated by reference to Exhibit 10.20.4, filed with
Form 10-K dated September 27, 1997 #0-16473)
10.27 Sublease Agreement regarding SSE Technologies, Inc. offices at 47835
Westinghouse Drive, Fremont, CA between SSE Technologies and
Boehringer Mannheim (Incorporated by reference to Exhibit 10.20.5,
filed with Form 10-K dated September 27, 1997 #0-16473)
10.28 Lease Amendment regarding the Company offices at 8230 Leesburg Pike,
Vienna, VA between SSE Telecom, Inc. and NVC Limited Partnership
(Incorporated by reference to Exhibit 10.20.6, filed with Form 10-K
dated September 27, 1997 #0-16473)
10.29 Agreement dated March 14, 1994, between the Company and Echostar
Communications Corporation (Incorporated by reference to Exhibit
10.21, filed with Form 8-K dated March 29, 1994, #33-10965)
10.30 Sublease Agreement between SSE Datacom, Inc. and Fairchild Data
Corporation, dated January 28, 1996 (Incorporated by reference to
Exhibit 10.22, filed with Form 8-K dated January 28, 1996, #33-10965)
37
<PAGE>
10.31 Registration Agreement between the Company and Fairchild Data
Corporation, dated January 28, 1996 (Incorporated by reference to
Exhibit 10.23, filed with Form 8-K, dated January 28, 1996, #33-10965)
10.32 Stock Purchase and Investment Agreement by and between the Company and
Alcatel Telspace, S.A., dated September 6, 1996 (Incorporated by
reference to Exhibit 10.25, filed with Form 8-K dated September 6,
1996, #33-10965)
10.33 Registration Rights Agreement between the Company and Alcatel
Telspace, S.A., dated September 6, 1996 (Incorporated by reference to
Exhibit 10.26, filed with Form 8-K dated September 6, 1996, #33-10965)
10.34 Employment Agreement between the Company and Leon F. Blachowicz dated
April 28, 1998 (Incorporated by reference to Exhibit 10.34, filed with
Form 10-K dated September 26, 1998, #0-16473)
10.35 Employment Agreement between the Company and Michael Wytyshyn dated
May 18, 1998 (Incorporated by reference to Exhibit 10.35, filed with
Form 10-K dated September 26, 1998, #0-16473)
10.36 Employment Agreement between the Company and Myron Gilbert dated June
3, 1998 (Incorporated by reference to Exhibit 10.36, filed with Form
10-K dated September 26, 1998, #0-16473)
10.37 Employment Agreement between the Company and James J. Commendatore
dated November 23, 1998 (Incorporated by reference to Exhibit 10.37,
filed with Form 10-K dated September 26, 1998, #0-16473)
10.38 Agreement dated July 16, 1998 among SSE Telecom, Inc., Corporate
Telecom Services Inc. and Wilbur L. Pritchard (Incorporated by
reference to Exhibit 10.38, filed with Form 10-K dated September 26,
1998, #0-16473)
10.39 Trust Agreement among SSE Telecom, Inc., Corporate Telecom Services
Inc. and Wilbur L. Pritchard dated February 23, 1989 (Incorporated by
reference to Exhibit 4 filed with Form 8-K dated March 2, 1989,
#33-10965)
10.40 Loan and Security Agreement by and between the Company and Comerica
Bank - California, dated October 21, 1997 (Incorporated by reference
to Exhibit 10.40, filed with Form 10-K dated September 26, 1998,
#0-16473)
10.40.1 First Modification to Loan and Security Agreement by and between the
Company and Comerica Bank - California dated August 14, 1998
(Incorporated by reference to Exhibit 10.40.1, filed with Form 10-K
dated September 26, 1998, #0-16473)
10.50 Loan and Security Agreement by and between the Company and Silicon
Valley Bank dated August 4, 1999 (Incorporated by reference to Exhibit
10.6, filed with Form 10-Q dated June 26, 1999, #0-16473)
10.50.1 Registration Rights Agreement by and between the Company and Silicon
Valley Bank dated August 4, 1999 (Incorporated by reference to Exhibit
10.8, filed with Form 10-Q dated June 26, 1999, #0-16473)
10.50.2 Antidilution Agreement by and between the Company and Silicon Valley
Bank dated August 4, 1999 (Incorporated by reference to Exhibit 10.9,
filed with Form 10-Q dated June 26, 1999, #0-16473)
10.60 Promissory Note from Leon F. Blachowicz to the Company dated August
12, 1999
10.61 Promissory Note from James J. Commendatore to the Company dated August
12, 1999
10.62 Promissory Note from Myron Gilbert to the Company dated August 12,
1999
10.63 Promissory Note from Mike Wytyshyn to the Company dated August 12,
1999
10.64 Promissory Note from George Walley to the Company dated August 12,
1999
16.1 Letter from Ernst & Young LLP, dated April 17, 1998 (Incorporated by
reference to Exhibit 16.1, filed with Form 8-K dated April 17, 1998
#33-10965)
21.2 Subsidiaries of Registrant
38
<PAGE>
23.1 Consent of Deloitte & Touche LLP, Independent Auditors
23.2 Consent of Ernst & Young LLP, Independent Auditors
27.0 Financial Data Schedule (Page 42)
39
EXHIBIT 10.60
PROMISSORY NOTE
$40,000 August 12, 1999
Fremont, California
FOR VALUE RECEIVED, Leon F. Blachowicz ("Employee"), an employee of SSE
Telecom, Inc. ("Company"), hereby unconditionally promises to pay to the order
of Company, in lawful money of the United States of America and in immediately
available funds, the principal sum of Forty Thousand Dollars ($40,000) (the
"Loan") due and payable on the date and in the manner set forth below.
1. Intent. It is the intent of the parties that the purpose of this Note is
not for consumer, family or household purposes.
2. Purchase of Shares. Employee agrees, within 25 days of the date hereof,
to use the Loan proceeds to purchase shares of the Company's stock (the
"Shares") and to present to the Company evidence reasonably satisfactory to the
Company that the foregoing purchase has been made. Employee further agrees that
Employee will not sell or otherwise transfer the Shares at any time from the
date Employee purchases the Shares until August 31, 2001.
3. Principal Repayment. The outstanding principal amount of the Loan shall
be due and payable on the earlier of the following (the "Maturity Date"):
(a) August 31, 2003;
(b) Or, at the sole option of the Company, after August 31, 2001 on the date on
which the closing price of a Share as reported by NASDEQ has been equal to
or greater than $5 per Share for a period of thirty consecutive days.
4. Interest Rate Upon Acceleration. Any principal payment on the Loan
hereunder not paid when due, whether at stated maturity, by acceleration or
otherwise, shall bear interest at eight percent (8%) per annum.
5. Place of Payment; Prepayment. All amounts payable hereunder shall be
payable at the office of Company unless another place of payment shall be
specified in writing by Company. This is a full recourse loan. Prepayment is
permitted.
6. Application of Payments. Payment on this Note shall be applied first to
accrued interest, if any, and thereafter to the outstanding principal balance
hereof.
7. Default. Each of the following events shall be an "Event of Default"
hereunder:
1
<PAGE>
(a) Employee fails to pay timely any of the principal amount due under this
Note on the date the same becomes due and payable or any accrued interest
or other amounts due under this Note, if any, on the date the same becomes
due and payable, or fails to perform any other obligations hereunder;
(b) Employee files a petition or action for relief under any bankruptcy,
insolvency or moratorium law or any other law for the relief of, or
relating to, debtors, now or hereafter in effect, or makes any assignment
for the benefit of creditors or takes any action in furtherance of any of
the foregoing;
(c) An involuntary petition is filed against Employee (unless such petition is
dismissed or discharged within sixty (60) days) under any bankruptcy
statute now or hereafter in effect, or a custodian, receiver, trustee,
assignee for the benefit of creditors (or other similar official) is
appointed to take possession, custody or control of any property of
Employee; or
(d) Employee's employment by or association with the Company is terminated for
any reason or no reason, including, without limitation, death of Employee.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder, if any, shall, at the option
of Company, and, in the case of an Event of Default pursuant to (b) or (c)
above, automatically, be immediately due, payable and collectible by Company
pursuant to applicable law. . Notwithstanding the foregoing, if an Event of
Default has occurred under (d) above due to, in the Company's sole discretion,
no malfeasance or misfeasance on the part of Employee, this Note shall be due
and payable 90 days after Employee's employment or association with the Company
has been terminated. The Company shall have all rights and may exercise any
remedies available to it under law, successively or concurrently. Employee
expressly acknowledges and agrees that Company shall have the right to offset
any obligations of Employee hereunder against salaries, bonuses or other amounts
that may be payable to Employee by Company. Upon the occurrence of an Event of
Default the stated requirements in Item 2 above are expressly waived.
8. Waiver. Employee waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable attorneys'
fees, costs and other expenses.
The right to plead any and all statutes of limitations as a defense to any
demands hereunder is hereby waived to the full extent permitted by law.
9. Governing Law. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
2
<PAGE>
10. Successors and Assigns. The provisions of this Note shall inure to the
benefit of and be binding on any successor to Employee and shall extend to any
holder hereof. Employee shall not, without the prior written consent of holder,
assign any of its rights or obligations hereunder.
Dated: August 12, 1999
EMPLOYEE
By: Leon F. Blachowicz
Printed Name: Leon F. Blachowicz
Title: CEO
3
EXHIBIT 10.61
PROMISSORY NOTE
$20,000 August 12, 1999
Fremont, California
FOR VALUE RECEIVED, James J. Commendatore ("Employee"), an employee of SSE
Telecom, Inc. ("Company"), hereby unconditionally promises to pay to the order
of Company, in lawful money of the United States of America and in immediately
available funds, the principal sum of Twenty Thousand Dollars ($20,000) (the
"Loan") due and payable on the date and in the manner set forth below.
1. Intent. It is the intent of the parties that the purpose of this Note is
not for consumer, family or household purposes.
2. Purchase of Shares. Employee agrees, within 25 days of the date hereof,
to use the Loan proceeds to purchase shares of the Company's stock (the
"Shares") and to present to the Company evidence reasonably satisfactory to the
Company that the foregoing purchase has been made. Employee further agrees that
Employee will not sell or otherwise transfer the Shares at any time from the
date Employee purchases the Shares until August 31, 2001.
3. Principal Repayment. The outstanding principal amount of the Loan shall
be due and payable on the earlier of the following (the "Maturity Date"):
(a) August 31, 2003;
(b) Or, at the sole option of the Company, after August 31, 2001 on the date on
which the closing price of a Share as reported by NASDEQ has been equal to
or greater than $5 per Share for a period of thirty consecutive days.
4. Interest Rate Upon Acceleration. Any principal payment on the Loan
hereunder not paid when due, whether at stated maturity, by acceleration or
otherwise, shall bear interest at eight percent (8%) per annum.
5. Place of Payment; Prepayment. All amounts payable hereunder shall be
payable at the office of Company unless another place of payment shall be
specified in writing by Company. This is a full recourse loan. Prepayment is
permitted.
6. Application of Payments. Payment on this Note shall be applied first to
accrued interest, if any, and thereafter to the outstanding principal balance
hereof.
7. Default. Each of the following events shall be an "Event of Default"
hereunder:
1
<PAGE>
(a) Employee fails to pay timely any of the principal amount due under this
Note on the date the same becomes due and payable or any accrued interest
or other amounts due under this Note, if any, on the date the same becomes
due and payable, or fails to perform any other obligations hereunder;
(b) Employee files a petition or action for relief under any bankruptcy,
insolvency or moratorium law or any other law for the relief of, or
relating to, debtors, now or hereafter in effect, or makes any assignment
for the benefit of creditors or takes any action in furtherance of any of
the foregoing;
(c) An involuntary petition is filed against Employee (unless such petition is
dismissed or discharged within sixty (60) days) under any bankruptcy
statute now or hereafter in effect, or a custodian, receiver, trustee,
assignee for the benefit of creditors (or other similar official) is
appointed to take possession, custody or control of any property of
Employee; or
(d) Employee's employment by or association with the Company is terminated for
any reason or no reason, including, without limitation, death of Employee.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder, if any, shall, at the option
of Company, and, in the case of an Event of Default pursuant to (b) or (c)
above, automatically, be immediately due, payable and collectible by Company
pursuant to applicable law. . Notwithstanding the foregoing, if an Event of
Default has occurred under (d) above due to, in the Company's sole discretion,
no malfeasance or misfeasance on the part of Employee, this Note shall be due
and payable 90 days after Employee's employment or association with the Company
has been terminated. The Company shall have all rights and may exercise any
remedies available to it under law, successively or concurrently. Employee
expressly acknowledges and agrees that Company shall have the right to offset
any obligations of Employee hereunder against salaries, bonuses or other amounts
that may be payable to Employee by Company. Upon the occurrence of an Event of
Default the stated requirements in Item 2 above are expressly waived.
8. Waiver. Employee waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable attorneys'
fees, costs and other expenses.
The right to plead any and all statutes of limitations as a defense to any
demands hereunder is hereby waived to the full extent permitted by law.
9. Governing Law. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
2
<PAGE>
10. Successors and Assigns. The provisions of this Note shall inure to the
benefit of and be binding on any successor to Employee and shall extend to any
holder hereof. Employee shall not, without the prior written consent of holder,
assign any of its rights or obligations hereunder.
Dated: August 12, 1999
EMPLOYEE
By: James J. Commendatore
Printed Name: James J. Commendatore
Title: CFO
3
EXHIBIT 10.62
PROMISSORY NOTE
$20,000 August 12, 1999
Fremont, California
FOR VALUE RECEIVED, Myron Gilbert ("Employee"), an employee of SSE Telecom,
Inc. ("Company"), hereby unconditionally promises to pay to the order of
Company, in lawful money of the United States of America and in immediately
available funds, the principal sum of Twenty Thousand Dollars ($20,000) (the
"Loan") due and payable on the date and in the manner set forth below.
1. Intent. It is the intent of the parties that the purpose of this Note is
not for consumer, family or household purposes.
2. Purchase of Shares. Employee agrees, within 25 days of the date hereof,
to use the Loan proceeds to purchase shares of the Company's stock (the
"Shares") and to present to the Company evidence reasonably satisfactory to the
Company that the foregoing purchase has been made. Employee further agrees that
Employee will not sell or otherwise transfer the Shares at any time from the
date Employee purchases the Shares until August 31, 2001.
3. Principal Repayment. The outstanding principal amount of the Loan shall
be due and payable on the earlier of the following (the "Maturity Date"):
(a) August 31, 2003;
(b) Or, at the sole option of the Company, after August 31, 2001 on the date on
which the closing price of a Share as reported by NASDEQ has been equal to
or greater than $5 per Share for a period of thirty consecutive days.
4. Interest Rate Upon Acceleration. Any principal payment on the Loan
hereunder not paid when due, whether at stated maturity, by acceleration or
otherwise, shall bear interest at eight percent (8%) per annum.
5. Place of Payment; Prepayment. All amounts payable hereunder shall be
payable at the office of Company unless another place of payment shall be
specified in writing by Company. This is a full recourse loan. Prepayment is
permitted.
6. Application of Payments. Payment on this Note shall be applied first to
accrued interest, if any, and thereafter to the outstanding principal balance
hereof.
1
<PAGE>
7. Default. Each of the following events shall be an "Event of Default"
hereunder:
(a) Employee fails to pay timely any of the principal amount due under this
Note on the date the same becomes due and payable or any accrued interest
or other amounts due under this Note, if any, on the date the same becomes
due and payable, or fails to perform any other obligations hereunder;
(b) Employee files a petition or action for relief under any bankruptcy,
insolvency or moratorium law or any other law for the relief of, or
relating to, debtors, now or hereafter in effect, or makes any assignment
for the benefit of creditors or takes any action in furtherance of any of
the foregoing;
(c) An involuntary petition is filed against Employee (unless such petition is
dismissed or discharged within sixty (60) days) under any bankruptcy
statute now or hereafter in effect, or a custodian, receiver, trustee,
assignee for the benefit of creditors (or other similar official) is
appointed to take possession, custody or control of any property of
Employee; or
(d) Employee's employment by or association with the Company is terminated for
any reason or no reason, including, without limitation, death of Employee.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder, if any, shall, at the option
of Company, and, in the case of an Event of Default pursuant to (b) or (c)
above, automatically, be immediately due, payable and collectible by Company
pursuant to applicable law. . Notwithstanding the foregoing, if an Event of
Default has occurred under (d) above due to, in the Company's sole discretion,
no malfeasance or misfeasance on the part of Employee, this Note shall be due
and payable 90 days after Employee's employment or association with the Company
has been terminated. The Company shall have all rights and may exercise any
remedies available to it under law, successively or concurrently. Employee
expressly acknowledges and agrees that Company shall have the right to offset
any obligations of Employee hereunder against salaries, bonuses or other amounts
that may be payable to Employee by Company. Upon the occurrence of an Event of
Default the stated requirements in Item 2 above are expressly waived.
8. Waiver. Employee waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable attorneys'
fees, costs and other expenses.
The right to plead any and all statutes of limitations as a defense to any
demands hereunder is hereby waived to the full extent permitted by law.
9. Governing Law. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
2
<PAGE>
10. Successors and Assigns. The provisions of this Note shall inure to the
benefit of and be binding on any successor to Employee and shall extend to any
holder hereof. Employee shall not, without the prior written consent of holder,
assign any of its rights or obligations hereunder.
Dated: August 12, 1999
EMPLOYEE
By: Myron Gilbert
Printed Name: Myron Gilbert
Title: EVP Operations
3
EXHIBIT 10.63
PROMISSORY NOTE
$20,000 August 12, 1999
Fremont, California
FOR VALUE RECEIVED, Mike Wytyshyn ("Employee"), an employee of SSE Telecom,
Inc. ("Company"), hereby unconditionally promises to pay to the order of
Company, in lawful money of the United States of America and in immediately
available funds, the principal sum of Twenty Thousand Dollars ($20,000) (the
"Loan") due and payable on the date and in the manner set forth below.
1. Intent. It is the intent of the parties that the purpose of this Note is
not for consumer, family or household purposes.
2. Purchase of Shares. Employee agrees, within 25 days of the date hereof,
to use the Loan proceeds to purchase shares of the Company's stock (the
"Shares") and to present to the Company evidence reasonably satisfactory to the
Company that the foregoing purchase has been made. Employee further agrees that
Employee will not sell or otherwise transfer the Shares at any time from the
date Employee purchases the Shares until August 31, 2001.
3. Principal Repayment. The outstanding principal amount of the Loan shall
be due and payable on the earlier of the following (the "Maturity Date"):
(a) August 31, 2003;
(b) Or, at the sole option of the Company, after August 31, 2001 on the date on
which the closing price of a Share as reported by NASDEQ has been equal to
or greater than $5 per Share for a period of thirty consecutive days.
4. Interest Rate Upon Acceleration. Any principal payment on the Loan
hereunder not paid when due, whether at stated maturity, by acceleration or
otherwise, shall bear interest at eight percent (8%) per annum.
5. Place of Payment; Prepayment. All amounts payable hereunder shall be
payable at the office of Company unless another place of payment shall be
specified in writing by Company. This is a full recourse loan. Prepayment is
permitted.
6. Application of Payments. Payment on this Note shall be applied first to
accrued interest, if any, and thereafter to the outstanding principal balance
hereof.
1
<PAGE>
7. Default. Each of the following events shall be an "Event of Default"
hereunder:
(a) Employee fails to pay timely any of the principal amount due under this
Note on the date the same becomes due and payable or any accrued interest
or other amounts due under this Note, if any, on the date the same becomes
due and payable, or fails to perform any other obligations hereunder;
(b) Employee files a petition or action for relief under any bankruptcy,
insolvency or moratorium law or any other law for the relief of, or
relating to, debtors, now or hereafter in effect, or makes any assignment
for the benefit of creditors or takes any action in furtherance of any of
the foregoing;
(c) An involuntary petition is filed against Employee (unless such petition is
dismissed or discharged within sixty (60) days) under any bankruptcy
statute now or hereafter in effect, or a custodian, receiver, trustee,
assignee for the benefit of creditors (or other similar official) is
appointed to take possession, custody or control of any property of
Employee; or
(d) Employee's employment by or association with the Company is terminated for
any reason or no reason, including, without limitation, death of Employee.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder, if any, shall, at the option
of Company, and, in the case of an Event of Default pursuant to (b) or (c)
above, automatically, be immediately due, payable and collectible by Company
pursuant to applicable law. . Notwithstanding the foregoing, if an Event of
Default has occurred under (d) above due to, in the Company's sole discretion,
no malfeasance or misfeasance on the part of Employee, this Note shall be due
and payable 90 days after Employee's employment or association with the Company
has been terminated. The Company shall have all rights and may exercise any
remedies available to it under law, successively or concurrently. Employee
expressly acknowledges and agrees that Company shall have the right to offset
any obligations of Employee hereunder against salaries, bonuses or other amounts
that may be payable to Employee by Company. Upon the occurrence of an Event of
Default the stated requirements in Item 2 above are expressly waived.
8. Waiver. Employee waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable attorneys'
fees, costs and other expenses.
The right to plead any and all statutes of limitations as a defense to any
demands hereunder is hereby waived to the full extent permitted by law.
9. Governing Law. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
2
<PAGE>
10. Successors and Assigns. The provisions of this Note shall inure to the
benefit of and be binding on any successor to Employee and shall extend to any
holder hereof. Employee shall not, without the prior written consent of holder,
assign any of its rights or obligations hereunder.
Dated: August 12, 1999
EMPLOYEE
By: Mike Wytyshyn
Printed Name: Mike Wytyshyn
Title: EVP Business Development
3
EXHIBIT 10.64
PROMISSORY NOTE
$20,000 August 12, 1999
Fremont, California
FOR VALUE RECEIVED, George Walley ("Employee"), an employee of SSE Telecom,
Inc. ("Company"), hereby unconditionally promises to pay to the order of
Company, in lawful money of the United States of America and in immediately
available funds, the principal sum of Twenty Thousand Dollars ($20,000) (the
"Loan") due and payable on the date and in the manner set forth below.
1. Intent. It is the intent of the parties that the purpose of this Note is
not for consumer, family or household purposes.
2. Purchase of Shares. Employee agrees, within 25 days of the date hereof,
to use the Loan proceeds to purchase shares of the Company's stock (the
"Shares") and to present to the Company evidence reasonably satisfactory to the
Company that the foregoing purchase has been made. Employee further agrees that
Employee will not sell or otherwise transfer the Shares at any time from the
date Employee purchases the Shares until August 31, 2001.
3. Principal Repayment. The outstanding principal amount of the Loan shall
be due and payable on the earlier of the following (the "Maturity Date"):
(a) August 31, 2003;
(b) Or, at the sole option of the Company, after August 31, 2001 on the date on
which the closing price of a Share as reported by NASDEQ has been equal to
or greater than $5 per Share for a period of thirty consecutive days.
4. Interest Rate Upon Acceleration. Any principal payment on the Loan
hereunder not paid when due, whether at stated maturity, by acceleration or
otherwise, shall bear interest at eight percent (8%) per annum.
5. Place of Payment; Prepayment. All amounts payable hereunder shall be
payable at the office of Company unless another place of payment shall be
specified in writing by Company. This is a full recourse loan. Prepayment is
permitted.
6. Application of Payments. Payment on this Note shall be applied first to
accrued interest, if any, and thereafter to the outstanding principal balance
hereof.
1
<PAGE>
7. Default. Each of the following events shall be an "Event of Default"
hereunder:
(a) Employee fails to pay timely any of the principal amount due under this
Note on the date the same becomes due and payable or any accrued interest
or other amounts due under this Note, if any, on the date the same becomes
due and payable, or fails to perform any other obligations hereunder;
(b) Employee files a petition or action for relief under any bankruptcy,
insolvency or moratorium law or any other law for the relief of, or
relating to, debtors, now or hereafter in effect, or makes any assignment
for the benefit of creditors or takes any action in furtherance of any of
the foregoing;
(c) An involuntary petition is filed against Employee (unless such petition is
dismissed or discharged within sixty (60) days) under any bankruptcy
statute now or hereafter in effect, or a custodian, receiver, trustee,
assignee for the benefit of creditors (or other similar official) is
appointed to take possession, custody or control of any property of
Employee; or
(d) Employee's employment by or association with the Company is terminated for
any reason or no reason, including, without limitation, death of Employee.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder, if any, shall, at the option
of Company, and, in the case of an Event of Default pursuant to (b) or (c)
above, automatically, be immediately due, payable and collectible by Company
pursuant to applicable law. . Notwithstanding the foregoing, if an Event of
Default has occurred under (d) above due to, in the Company's sole discretion,
no malfeasance or misfeasance on the part of Employee, this Note shall be due
and payable 90 days after Employee's employment or association with the Company
has been terminated. The Company shall have all rights and may exercise any
remedies available to it under law, successively or concurrently. Employee
expressly acknowledges and agrees that Company shall have the right to offset
any obligations of Employee hereunder against salaries, bonuses or other amounts
that may be payable to Employee by Company. Upon the occurrence of an Event of
Default the stated requirements in Item 2 above are expressly waived.
8. Waiver. Employee waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable attorneys'
fees, costs and other expenses.
The right to plead any and all statutes of limitations as a defense to any
demands hereunder is hereby waived to the full extent permitted by law.
9. Governing Law. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
2
<PAGE>
10. Successors and Assigns. The provisions of this Note shall inure to the
benefit of and be binding on any successor to Employee and shall extend to any
holder hereof. Employee shall not, without the prior written consent of holder,
assign any of its rights or obligations hereunder.
Dated: August 12, 1999
EMPLOYEE
By: George Walley
Printed Name: George Walley
Title: EVP Product Development
3
Exhibit 21.2
SSE TELECOM
SUBSIDIARIES OF REGISTRANT
SSE Technologies Inc.
SSE Datacom, Inc.
Corporate Telecom Services, Inc.
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement Nos.
33-57700, 33-65084, 33-10965, 333-51403, 333-51405, and 333-51407 of SSE
Telecom, Inc. on Form S-8 and in Rgistration Statement No. 33-57046 of SSE
Telecom, Inc. on Form S-3 of our report dated November 24, 1999, appearing in
and incorporated by reference in this Annual Report on Form 10-K for SSE
Telecom, Inc. for the year ended September 25, 1999.
/s/ Deloitte & Touche LLP
San Jose, CA
November 24, 1999
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Regiatration Statement (Form
S-8 Nos. 33-57700, 33-65084, 33-10965, 333-51403, 333-51405, and 333-51407)
pertaining to the SSE Telecom, Inc. 1992 Stock Option Plan, the SSE Telecom,
Inc. Directors' Stock Option Plan, the SSE Telecom, Inc. 1997 Equity
Participation Plan, and the SSE Telecom, Inc. Employee Stock Purchase Plan and
in the Registration Statement (Form S-3 No. 33-57046) of SSE Telecom, Inc. and
in the related Prospectuses, of our report dated December 4, 1997, with respect
to the consolidated financial statements and schedule of SSE Telecom, Inc.
included in the Annual Report (Form 10-K), for the year ended September 25,
1999.
/s/ Ernst & Young LLP
San Jose, California
December 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-25-1999
<PERIOD-START> SEP-27-1998
<PERIOD-END> SEP-25-1999
<CASH> 3,828
<SECURITIES> 4,523
<RECEIVABLES> 4,938
<ALLOWANCES> 584
<INVENTORY> 4,184
<CURRENT-ASSETS> 19,859
<PP&E> 11,807
<DEPRECIATION> 9,298
<TOTAL-ASSETS> 22,508
<CURRENT-LIABILITIES> 7,509
<BONDS> 0
0
0
<COMMON> 61
<OTHER-SE> 12,709
<TOTAL-LIABILITY-AND-EQUITY> 22,508
<SALES> 22,012
<TOTAL-REVENUES> 22,012
<CGS> 21,322
<TOTAL-COSTS> 32,953
<OTHER-EXPENSES> (5,781)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> (5,306)
<INCOME-TAX> 439
<INCOME-CONTINUING> (5,745)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,745)
<EPS-BASIC> (0.99)
<EPS-DILUTED> (0.99)
</TABLE>
