UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 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 Dr.
Fremont, California 94539
(Address of principal
executive office)
Registrant's telephone number, including area code:
(510) 657-7552
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
As of February 4, 2000, the following number of shares of each of the
registrant's classes of common stock were outstanding: Common Stock 5,932,184
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SSE Telecom, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data; unaudited)
<CAPTION>
Three Months Ended
-------------------------------
December 25, December 26,
1999 1998
---- ----
<S> <C> <C>
Revenue $ 4,871 $ 7,703
Cost of revenue 4,346 7,206
------- -------
Gross margin 525 497
Operating expenses:
Research and development 928 994
Marketing, general and administrative 1,876 1,975
------- -------
Operating loss (2,279) (2,472)
Gain on sale of investments 1,652 3,198
Net interest expense (36) (19)
Other income 5 82
------- -------
Income (loss) before income taxes (658) 789
Provision for income taxes - 276
------- -------
Net income (loss) $ (658) $ 513
======= =======
Basic net income (loss) per share $ (0.11) $ 0.09
======= =======
Diluted net income (loss) per share $ (0.11) $ 0.09
======= =======
Shares used in computing basic net income (loss) per share 5,902 5,779
======= =======
Shares used in computing diluted net income (loss) per share 5,902 5,854
======= =======
<FN>
The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
SSE Telecom, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except share amounts)
<CAPTION>
December 25, September 25,
1999 1999 *
------- -------
Assets (unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,496 $ 3,828
Accounts receivable (net of allowances of $566 and $584) 4,354 4,337
Related party accounts receivable 5 17
Inventories 3,648 4,184
Deferred tax assets 2,643 2,723
Short-term investments 6,679 4,523
Other current assets 399 247
------- -------
Total current assets 22,224 19,859
Property, equipment and leasehold improvements, at cost
Equipment 7,297 7,148
Furniture, fixtures and leasehold improvements 4,518 4,659
------- -------
11,815 11,807
Less accumulated depreciation and amortization 9,649 9,298
------- -------
Property, equipment and leasehold improvements, net 2,166 2,509
Notes receivable from employees 140 140
------- -------
Total assets $24,530 $22,508
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Line of credit $ 1,605 $ 907
Accounts payable 2,566 2,689
Related party accounts payable 624 601
Accrued salaries and employee benefits 824 753
Warranty 1,812 2,312
Other accrued liabilities 122 138
Current portion of capital lease liability 109 109
------- -------
Total current liabilities 7,662 7,509
Deferred tax liabilities 3,075 2,029
Capital lease liability 176 200
Stockholders' Equity:
Common stock $.01 par value per share (30,000,000 shares
authorized; 6,141,189 and 6,107,457 shares issued) 61 61
Additional paid in capital 12,786 12,739
Treasury stock (at cost, 224,643 shares) (1,782) (1,782)
Accumulated deficit (900) (242)
Accumulated other comprehensive income 3,452 1,994
------- -------
Total stockholders' equity 13,617 12,770
------- -------
Total liabilities and stockholders' equity $24,530 $22,508
======= =======
<FN>
* Derived from audited Financial Statements
The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
SSE Telecom, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands; unaudited)
<CAPTION>
Three Months Ended
-------------------------------
December 25, December 26,
1999 1998
------- -------
<S> <C> <C>
Operating Activities:
Net income (loss) $ (658) $ 513
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization 351 343
Gain on sale of investments (1,652) (3,198)
Deferred income taxes 80 -
Changes in operating assets and liabilities:
Accounts receivable (5) (345)
Inventories 536 1,301
Other current assets (152) (121)
Accounts payable (100) (312)
Other accrued liabilities (445) 264
------- -------
Net cash used by operating activities (2,045) (1,555)
------- -------
Investing activities:
Purchases of equipment (8) (109)
Proceeds from sale of investments 2,000 3,419
------- ------
Net cash provided by investing activities 1,992 3,310
------- ------
Financing activities:
Borrowings (payment) under debt obligations 674 (160)
Payments on convertible debentures - (1,221)
Proceeds from issuance of common stock 47 55
------- -------
Net cash provided (used) by financing activities 721 (1,326)
------- -------
Net increase in cash and cash equivalents 668 429
Cash and cash equivalents, beginning of period 3,828 3,327
------- -------
Cash and cash equivalents, end of period $ 4,496 $ 3,756
======= =======
<FN>
The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
</FN>
</TABLE>
4
<PAGE>
SSE TELECOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial information at December 25, 1999 and for the three month periods
ended December 25, 1999 and December 26, 1998 is unaudited. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
changes in cash flows for the interim periods have been made.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended September 25, 1999. The results of operations for the three months ended
December 25, 1999, are not necessarily indicative of the operating results for
the full year.
2. INVENTORIES
Inventories consist of manufacturing raw materials, work-in process and finished
goods. Inventories are valued at the lower of cost or market. Cost is based on a
method that approximates actual cost on a first-in, first-out (FIFO) basis. At
December 25, 1999 and September 25, 1999 inventories consisted of the following
(in thousands):
December, 25 September 25,
1999 1999 *
------------ -------------
(unaudited)
Raw materials $ 1,825 $ 2,030
Work-in-process 1,304 1,521
Finished goods 519 633
------- -------
Total $ 3,648 $ 4,184
======= =======
* Derived from audited financial statements
3. INVESTMENTS
During the three month period ended December 25, 1999, the Company sold 30,400
shares of Echostar Communications Corporation (Echostar) common stock. The
proceeds generated from the sale totaled approximately $2.0 million. At December
25, 1999, the Company had 70,672 shares of Echostar common stock valued at $6.7
million.
5
<PAGE>
4. NET INCOME (LOSS) PER SHARE
<TABLE>
The following table sets forth the computation of basic and diluted net income
(loss) per share (in thousands, except per share; unaudited):
<CAPTION>
Three Months Ended
-------------------------------
December 25, December 26,
1999 1998
------------ ------------
<S> <C> <C>
BASIC:
Net income (loss) $ (658) $ 513
Weighted average common shares outstanding 5,902 5,779
Basic net income (loss) per share $ (0.11) $ 0.09
DILUTED:
Weighted average common shares outstanding 5,902 5,779
Increase in weighted average shares due to dilutive
options and 6 1/2% convertible debentures - 75
------- -------
Diluted shares 5,902 5,854
Diluted net income (loss) per share $ (0.11) $ 0.09
For the quarter ended December 25, 1999, the Company's only potentially dilutive
securities were shares of common stock issuable pursuant to currently
outstanding stock options and warrants. All potentially dilutive securities have
been excluded from the computation of diluted earnings (loss) per share for the
first quarter of fiscal 2000 as their effect is anti-dilutive on the loss from
continuing operations.
5. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) are as follows:
Three Months Ended
-------------------------------
December 25, December 26,
1999 1998
------------ ------------
(in thousands; unaudited)
Net income (loss) $ (944) $ 513
Other comprehensive income (loss) 1,458 (1,818)
------- -------
Total comprehensive income (loss) $ 514 $(1,305)
======= =======
</TABLE>
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Information contained in this Form 10-Q that is not historical fact, including
any statements about expectations for the fiscal year and beyond, involve
certain risks and uncertainties. This Form 10-Q contains "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995, many of which can be identified by the use of forward-looking terminology
such as "may", "will", "believe", "expect", "anticipate", "estimate", "plan",
"intend", or "continue" or the negative thereof or other variations thereon or
comparable terminology. There are a number of important factors with respect to
such forward-looking statements that could cause actual results to differ
materially from those contemplated in such forward-looking statements. Numerous
factors, such as economic and competitive conditions, incoming order levels,
timing of product shipments, product margins, new product development, and
reliance on key vendors and consumers and international sales could cause actual
results to differ from those described in these statements and current and
prospective investors and stockholders should carefully consider these factors
in evaluating these forward-looking statements.
Overview
Revenue for the first quarter of fiscal 2000 decreased 2.8 million, or 37%, to
$4.9 million from $7.7 million in the first quarter of last fiscal year. Revenue
for the fourth quarter of fiscal 1999 was $4.8 million. New orders in the first
quarter of fiscal 2000 were approximately the same as the fourth quarter of
fiscal 1999, as evidenced by the Company's backlog of $3.0 million and $3.2
million at December 25, 1999 and September 25, 1999. Timing differences from
quarter to quarter as to the receipt of large orders and changes in factory
production make meaningful quarter to quarter comparisons of backlog difficult.
During the first quarter of fiscal 2000 the Company continued to be affected by
unfavorable economic conditions impacting satellite communications business in
Latin America, Asia and Eastern Europe. The Company is continuing its investment
in the development of the iP3 TM satellite Internet gateway product line. This
product was demonstrated in October 1999 at the Geneva Telecom '99 trade show.
The Company released basic versions of this product to two prospective European
customers for evaluation during December 1999. As of February 2000, evaluation
and testing of the iP3 TM products is ongoing.
The Company's financial position as of December 25, 1999 has improved in
comparison to the end of last fiscal year due, in part, to the increase in value
of the Company's investment in Echostar. The Company's cash position was $4.5
million, inventories were reduced to $3.6 million, and short-term investments
were $6.7 million as of December 25, 1999
Results of Operations for the Three Month Period Ended December 25, 1999 and
December 26, 1998
Revenue: Sales decreased to $4.9 million for the first quarter of fiscal 2000
from $7.7 million for the same period in fiscal 1999. The decrease is primarily
a result of lower unit volumes due to the aforementioned lower demand in the
market for satellite transceivers and modems in Latin America, Asia and Eastern
Europe. Also contributing to the decrease was a reduction in orders and
shipments to the U.S. government and past production and product reliability
issues with some of the Company's products.
Gross Margin: Gross margin increased to $525,000, or 11% of sales, in the first
quarter of fiscal 2000 compared to $497,000 or 6% of sales, for the first
quarter of fiscal 1999. The gross margin increase is primarily due to cost
reductions resulting from the Company's reorganization of its manufacturing
activities including outsourcing the assembly of certain products and components
and a consolidation of the Company's manufacturing into one facility.
Operating Expenses: Research and development expenses decreased to $928,000, or
19% of sales, for the first quarter of fiscal 2000 from $994,000, or 13% of
sales, for the first quarter of fiscal 1999. Marketing, general and
administrative expenses decreased to $1.9 million, or 39% of sales, in the first
quarter of fiscal 2000 as compared to $2.0 million, or 26% of sales, for the
same period in fiscal 1999. The small decrease in operating expenses was due to
lower average headcount. However, the Company expects operating expenses to
increase in absolute dollars in the remaining quarters of fiscal 2000 as overall
headcount is expected to increase.
7
<PAGE>
Net Interest Expense. Net interest expense was $36,000 in the first quarter of
fiscal 2000. During the same period of last fiscal year, net interest expense
was $19,000. Although average debt balances were higher in the first quarter of
fiscal 1999 as compared to the same period of fiscal 2000, net interest expense
was lower due to lower overall interest rates on outstanding debt and to
interest earned on an investment in convertible debentures.
Gain on Sale of Investments. During the first quarter of fiscal 2000 the Company
realized a gain of $1.7 million on sales of 30,400 shares of Echostar common
stock. In the first quarter of fiscal 1999, the Company realized a gain of $3.2
million on the sales of 118,905 shares of Echostar common stock.
Provision for Income Taxes. The Company's effective tax rate was 0% and 35% for
the first quarter of fiscal 2000 and 1999, respectively. No tax benefit was
provided on the pretax loss for the first quarter of fiscal 2000 due to
limitations on net operating loss carrybacks and a valuation allowance provided
on deferred tax assets due to lack of sufficient assurance that such assets will
be realized in future periods.
LIQUIDITY AND CAPITAL RESOURCES
At December 25, 1999, the Company had working capital of $14.6 million,
including $4.5 million in cash and cash equivalents, compared with working
capital of $12.3 million, including cash and cash equivalents of $3.8 million at
September 25, 1999.
Net cash used by operating activities was $2.0 million during the first quarter
of fiscal 2000 as compared to net cash used of $1.6 million in the same period
of fiscal 1999. Cash used by operating activities was principally due to
operating losses partially offset by depreciation and amortization and, in the
first quarter of fiscal 1999, by a decrease in net assets related to operating
activities.
The Company's investing activities provided $2.0 million during the first
quarter of fiscal 2000 as compared to cash provided of $3.3 million during the
same period in fiscal year 1999. During the first quarter of fiscal 2000, $2.0
million was realized from the sale of Echostar shares compared with $3.4 million
in the first quarter of fiscal 1999.
The Company's financing activities provided $721,000 during the first quarter of
fiscal 2000 as compared to net cash used of $1.3 million during the first
quarter of fiscal year 1999. In the first quarter of fiscal 2000, cash was
provided primarily by drawing down on the Company's line-of-credit facility. The
Company reduced convertible debentures by $1.2 million in the first quarter of
fiscal 1999.
At December 25, 1999, the Company's principal sources of liquidity consisted of
$4.5 million in cash and a bank line of credit. At December 25, 1999, $1.6
million was outstanding on this $5.0 million operating line of credit.
Additionally, a principle source of financing is the Company's holdings of
Echostar common stock, which is subject to the volatility of the stock market.
On December 25, 1999, the Company held 70,672 shares of Echostar stock with a
value of $6.7 million and an unrealized gain, net of tax, of $3.5 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 line 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 potential volatility in the value of Echostar common
stock, there could be a significant reduction in funding available from the
liquidation of these shares. Further there can be no assurance that our
predictions with respect to our operating expenses and capital expenditure
requirements are accurate. Therefore, we may require additional funds to support
our working capital, debt service and operationg expenses or for other purposes
sooner than expected. We may seek to raise additional funds through public or
private offerings or debt financings. We cannot assure you that financings will
be available, or if available will be on reasonable terms, nor can we assure you
that these financings will not be dilutive to our stockholders.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of December 25, 1999 the Company had 70,672 shares of Echostar common stock
with a closing price on that date of $94.50. The 52 week range for Echostar's
Common Stock as of January 26, 2000, giving retroactive effect to stock splits,
was a low of $11.50 and a high of $96.25.
At December 25, 2000, the Company was operating under a credit facility with
outstanding borrowings of $1.6 million. This facility allows for up to 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 8.50% at December 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.
8
<PAGE>
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
December 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.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herein (numbered in accordance with Item 601 of Regulation
S-K)
Exhibit Number Description Sequential Page Number
-------------- ----------- ----------------------
27 Financial Data Schedule Page 12
(b) Reports on Form 8-K
None.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 8, 2000 SSE TELECOM, INC.
By: /s/ Leon F. Blachowicz
----------------------
Leon F. Blachowicz,
Chief Executive Officer
By: /s/ James J. Commendatore
-------------------------
James J. Commendatore,
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Sep-30-2000
<PERIOD-START> Sep-26-1999
<PERIOD-END> Dec-25-1999
<CASH> 4496
<SECURITIES> 6679
<RECEIVABLES> 4925
<ALLOWANCES> 566
<INVENTORY> 3648
<CURRENT-ASSETS> 22224
<PP&E> 11815
<DEPRECIATION> 9649
<TOTAL-ASSETS> 24530
<CURRENT-LIABILITIES> 7662
<BONDS> 0
0
0
<COMMON> 61
<OTHER-SE> 13556
<TOTAL-LIABILITY-AND-EQUITY> 24530
<SALES> 4871
<TOTAL-REVENUES> 4871
<CGS> 4346
<TOTAL-COSTS> 2804
<OTHER-EXPENSES> (1657)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> (658)
<INCOME-TAX> 0
<INCOME-CONTINUING> (658)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (658)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
