SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 17, 2003
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SSP SOLUTIONS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 000-26227 33-0757190
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
17861 CARTWRIGHT ROAD, IRVINE, CALIFORNIA 92614
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949) 851-1085
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NOT APPLICABLE
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(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS AND REQUIRED FD DISCLOSURE.
Press Release Regarding Closing of Private Placement
----------------------------------------------------
On November 19, 2003, SSP Solutions, Inc. ("Company") issued the press
release that is attached as Exhibit 99.1 and incorporated by reference into this
Form 8-K regarding the Company's closing of a private placement.
Description of Capital Stock
----------------------------
In connection with the Company's closing of the private placement
described in Exhibit 99.1 to this report, the Company has set forth in
Exhibit 99.2 to this report an updated description of capital stock, which
description is incorporated by reference into this Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. Not applicable.
(b) PRO FORMA FINANCIAL INFORMATION. Not applicable.
(c) EXHIBITS.
Exhibit
Number Description
------ -----------
3.1 Certificate of Correction of Certificate of Amendment
of Amended and Restated Certificate of Incorporation
of SSP Solutions, Inc. filed November 12, 2003
3.2 Certificate of Designation, Preferences and Rights of
Series A Convertible Preferred Stock of SSP
Solutions, Inc. filed November 18, 2003
10.1 Securities Purchase Agreement dated as of November
19, 2003 among SSP Solutions, Inc. and the investors
named in Exhibit A thereto
10.2 Form of Series A-1 Warrant dated as of November 19,
2003 issued by SSP Solutions, Inc. in favor of each
investor named in Exhibit A to the Securities
Purchase Agreement of even date therewith
10.3 Form of Series A-2 Warrant dated as of November 19,
2003 issued by SSP Solutions, Inc. in favor of each
investor named in Exhibit A to the Securities
Purchase Agreement of even date therewith
10.4 Registration Rights Agreement dated as of November
19, 2003 among SSP Solutions, Inc. and each investor
named in Exhibit A thereto
10.5 Form of Secured Convertible Promissory Note dated
November 19, 2003 made by SSP Solutions, Inc. in
favor of Richard P. Kiphart, Crestview Capital Fund,
L.P. and Crestview Capital Fund II, L.P. in the
principal amounts of $1,250,000, $350,000 and
$130,000, respectively (issued as retained note that
replaces note dated April 16, 2002)
10.6 Form of Secured Convertible Promissory Note dated
November 19, 2003 made by SSP Solutions, Inc. in
favor of Richard P. Kiphart, Crestview Capital Fund,
L.P., Crestview Capital Fund II, L.P. and Crestview
Offshore Fund, Inc. in the principal amounts of
$1,000,000, $325,000, $150,000 and $25,000,
respectively (issued as additional retained note that
has automatic conversion feature triggered by
stockholder approval and that replaces note dated
April 16, 2002)
2
Exhibit
Number Description
------ -----------
10.7 Form of Warrant to Purchase Common Stock dated
November 19, 2003 issued by SSP Solutions, Inc. in
favor of Richard P. Kiphart, Crestview Capital Fund,
L.P., Crestview Capital Fund II, L.P. and Crestview
Offshore Fund, Inc. as to 714,286 shares, 232,143
shares, 107,143 shares and 17,857 shares,
respectively (issued in accompaniment with additional
retained note that has automatic conversion feature
triggered by stockholder approval and that replaces
note dated April 16, 2002)
99.1 Press release dated November 19, 2003 regarding
closing of private placement
99.2 Description of capital stock as of November 19, 2003
ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On November 17, 2003, the Company issued a press release that included
a discussion of the Company's results of operations and financial condition as
of and for the three and nine months ended September 30, 2003. The full text of
the press release is included in this Item 12.
The Company prepares its financial statements in accordance with
accounting principles generally accepted in the United States ("GAAP"). However,
the press release included in this Item 12 contains a discussion and pro forma
summary of non-GAAP adjustments to the Company's condensed consolidated
statements of operations for the three and nine months ended September 30, 2003.
The first set of non-GAAP adjustments consisted of the exclusion from the
Company's 2002 and 2003 operating results, selling, general and administrative
expenses, and operating expenses of items such as a benefit and charge related
to a facility lease settlement, a development contract settlement, and gains
from settlements with vendors. The Company's management believes the resulting
non-GAAP pro-forma operating income, selling, general and administrative
expenses, and operating expenses provide investors with useful information
by removing items that caused significant fluctuations between the periods
presented.
The other non-GAAP adjustments consisted of the exclusion from the
Company's net operating loss of depreciation, amortization, interest and taxes
(also known in the financial community as "EBITDA"). The Company's management
believes that disclosing EBITDA provides investors with useful information
regarding the Company's ability to generate earnings before capital-related
costs.
The information contained in this Item 12 is being "furnished to" the
SEC in accordance with SEC Release Nos. 33-8216 and 34-47226 and shall not be
deemed "filed with" the SEC for purposes of Section 18 of the Securities
Exchange of 1934, as amended, or otherwise subject to the liabilities of that
section. The information contained in this Item 12 shall not be deemed
incorporated by reference into any registration statement, proxy statement or
other report except as shall be expressly set forth by specific reference in
such filing and regardless of any general incorporation language in such filing.
3
SSP Solutions, Inc. Editorial Contact: SSP Solutions, Inc. Investor Contact:
Press Relations Thomas E. Schiff, Chief Financial Officer
SSP Solutions, Inc. SSP Solutions, Inc.
(949) 851-1085 (949) 851-1085
pr@sspsolutions.com tom.schiff@sspsolutions.com
---------------------------
SSP ANNOUNCES THIRD QUARTER AND NINE-MONTH OPERATING RESULTS
REVENUES, MARGIN PERCENTAGE, AND GROSS MARGIN
DOLLARS INCREASE THROUGH NINE-MONTHS
IRVINE, Calif., November 17, 2003 - SSP Solutions, Inc. (Nasdaq: SSPX) a leading
provider of identity management software solutions and commercial products
developed to government specifications and industry standards, today announced
financial results for the third quarter and nine months ended September 30,
2003.
The Company reported total revenues of $3.8 million for the third
quarter ended September 30, 2003, versus $3.7 million in the same quarter last
year, or a 3.2% increase; nine month period revenues increased from $7.7 million
to $10.9 million, or a 41.3% increase. Gross margin dollars decreased from $2.5
million to $2.4 million, a 4.4% decrease for the quarter ended September 30,
2003, and increased from $5.0 million to $7.6 million, a 52.1% increase for the
nine-month period then ended.
The total gross margin percentage increased to 69.7% for the nine-month
period ended September 30, 2003 from 64.8% during the same nine-month period in
2002. The overall increase was due to a higher proportion of higher margin
service and license revenue versus products revenue, and an increase in product
margins due to a decrease in the cost products sold earlier in 2003.
However, the gross margin percentage decreased to 62.5% for the quarter
ended September 30, 2003 from 67.5% during the same quarter in 2002. The
decrease was due to a large decrease in the service gross margin from 2002 to
2003, and a change in the mix of product sales that included a larger proportion
of lower margin products in 2003 versus 2002.
The Company reported operating income of $113,000 for the quarter ended
September 30, 2003, versus operating income of $34,000 for the same quarter in
4
SSP Solutions, Inc. Announces Third Quarter 2003 Results
2002. The net loss for the quarter ended September 30, 2003, was $1.7 million,
or $.06 per basic share, versus a net loss of $430,000, or $0.02 per basic
share, in the same quarter last year.
Non-GAAP pro-forma earnings before interest, taxes, depreciation, and
amortization ("EBITDA"), for the quarter ended September 30, 2003, was positive
and increased by $117,000, or 51.3%, to $345,000 from the same period in 2002.
During the nine-month period ended September 30, 2003, EBITDA was negative, but
improved by $5.3 million. The nine-month negative EBITDA decreased to $1.4
million 2003 from $6.6 million in the same period in 2002, a decrease of 79.5%.
Service revenues increased 74.1% from $584,000 to $1.0 million, and
license revenues increased by 414.7% from $75,000 to $386,000 for the quarter
ended September 30 2003, versus the same quarter in 2002. Product sales
decreased 20.7% to $2.4 million from $3.0 million during the quarters ended
September 30, 2003 and September 30, 2002, respectively.
Operating expenses increased by $211,000, or 10.3%, during the same
quarter in 2003. However, adjusting for the research and development contract
cancellation, facilities lease settlement, and vendor settlements in both
quarters ended September 30, 2002 and 2003, respectively, non-GAAP proforma
total operating expenses would have decreased by $205,000, or 7.4%, to $2.6
million with non-GAAP proforma S,G&A expenses decreasing $108,000, or 6.6%, to
$1.5 million for the quarter ended September 30, 2003.
The Company reduced operating expenses by $2.3 million or 21.5% in the
nine months ended September 30, 2003 versus the same period in 2002. However,
adjusting for the research and development contract cancellation, facilities
lease settlement, and vendor settlements in both the nine-month periods ended
September 30, 2002, and 2003, respectively, non-GAAP proforma total operating
expenses would have decreased by $2.6 million, or 25.3%, to $7.6 million, with
non-GAAP proforma S,G&A expenses decreasing by $1.5 million, or 25.2%, to $4.5
million for the nine months ended September 30, 2003.
5
SSP Solutions, Inc. Announces Third Quarter 2003 Results
The net loss from continuing operations for the nine months ended
September 30, 2003 was $5.0 million, or $0.19 per share, versus a loss from
continuing operations of $7.7 million, or $0.36 per share, in the same quarter
of 2002. The net loss for the nine months ended September 30, 2003, was $5.1
million, or $.20 per share, versus a net loss of $8.2 million, or $0.38 per
share, in the same quarter last year. For the nine month period ended September
30, 2003, service revenues increased 170.9% from $1.6 million to $4.3 million,
and license revenues increased by 144.1% from $817,000 to $2.0 million for the
nine month period ended September 30 2003 versus the same nine month period in
2002. Product sales decreased 12.7% to $4.7 million from $5.3 million during the
nine month periods ended September 30, 2003 and September 30, 2002,
respectively.
"This quarter's results were in line with our financial plans for the
year and we are pleased with our revenue growth, margin improvement, and
operating cost reductions," commented Marvin J. Winkler, co-chairman and CEO.
"With our improved operating results and the facility settlement, we have
achieved important steps towards re-capitalizing our balance sheet.
Additionally, based on our current expectations, we anticipate that for fiscal
2003 our revenues will exceed $14 million and believe that revenues, which
reflect only our government related business, will grow in the range of 20% to
25% in 2004. We are currently pursuing a plan to expand our services and
solutions to commercial enterprise markets and will provide guidance related to
these efforts in the first quarter of 2004 as the results of these efforts
become more defined."
The Company prepares its financial statements in accordance with
accounting principles generally accepted in the United States ("GAAP"), but has
included non-GAAP disclosures. The Company believes the presentation of these
non-GAAP financial measures provides useful information to investors because
excluding the effects of these non-recurring items allows investors to more
easily compare the Company's financial performance from period to period. These
non-GAAP financial measures should be viewed in addition to, and not as an
alternative for, the Company's reported results prepared in accordance with
GAAP. Further, these non-GAAP financial measures may differ from similar
measures presented by other companies.
6
SSP Solutions, Inc. Announces Third Quarter 2003 Results
ABOUT SSP SOLUTIONS, INC.
-------------------------
SSP enjoys a 35 year history of supplying security solutions for the
Government and DoD and has positioned its core technologies as the standard for
secure information assurance and protection. The Company designs and develops
innovative data and communication security solutions for both corporate and
government institutions. The Company provides network security, desktop
protection, and secure messaging systems for many organizations of the U.S.
Government. For more information, visit http://www.sspsolutions.com/ or call SSP
Solutions, Inc. (949) 851-1085.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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With the exception of historical information, matters discussed in this
news release, including, in particular, those related to achieving 2003 revenues
and the growth of revenues in 2004, re-capitalizing the balance sheet, and
expanding services and solutions into commercial markets are forward-looking
statements involving a number of risks and uncertainties and may not be achieved
due to factors beyond the Company's control. The Company's actual future results
could differ from those statements. Factors that could cause or contribute to
such differences include, but are not limited to, changing regulatory and
technological environments, difficulties in the Company's ability to obtain key
components from suppliers, the ability of contractors to complete services and
products ordered by the Company on a timely, and the Company's ability to hire
and retain commercial sales staff, the acceptance of our product offerings in
the commercial markets, which could impair the Company's ability to deliver
products under development in a timely fashion and to achieve revenue growth and
continue technological innovation, difficulties in increasing revenue despite
staff reductions needed to control costs, unpredictability of economic recovery
from the heretofore depressed IT markets and the related effect on IT buying
decisions, difficulties we may encounter in obtaining needed capital, which
include the converting of existing debt into equity, the exercise of existing
warrants and the cost of obtaining additional capital, unforeseen technological
difficulties (both for the Company and its suppliers), increased competition,
and changing customer demands. Other risks inherent in the Company's business
include those factors contained in the "Risk Factors" section of the Company's
Form 10-K/A for the fiscal year ended December 31, 2002 and Form 10-QSB for the
quarter ended September 30, 2003. SSP Solutions, Inc. undertakes no obligation
to revise or update any forward-looking statements to reflect events or
circumstances after the date of this release.
7
SSP SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine months Ended
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
2002 2003 2002 2003
------------ ------------ ------------ ------------
Revenues:
Product ......................................... $ 3,023 $ 2,397 $ 5,349 $ 4,671
Service ......................................... 584 1,017 1,578 4,275
License ......................................... 75 386 817 1,994
------------ ------------ ------------ ------------
Total Revenues ............................... 3,682 3,800 7,744 10,940
------------ ------------ ------------ ------------
Cost of Sales:
Product ......................................... 1,015 907 2,084 1,543
Service ......................................... 139 509 504 1,316
License ......................................... 43 9 139 451
------------ ------------ ------------ ------------
Total Cost of Sales .......................... 1,197 1,425 2,727 3,310
------------ ------------ ------------ ------------
Gross Margin ....................................... 2,485 2,375 5,017 7,630
Operating Expenses:
Selling, General and Administrative ............. 1,552 1,235 5,700 5,460
Research and Development ........................ 1,124 1,027 4,178 3,116
Research and Development - cancelled contract ... (625) -- 1,041 --
------------ ------------ ------------ ------------
Total Operating Expenses .................... 2,051 2,262 10,919 8,576
------------ ------------ ------------ ------------
Operating Income (loss) ............................ 434 113 (5,902) (946)
Non-operating Expenses (income):
Realized Loss on Trading Securities ............. (2) (120) 120 (94)
Interest Expense, Net ........................... 170 370 487 960
Non-cash Interest and Financing Expense ......... 441 1,653 808 2,764
Equity Loss from Affiliate ...................... -- -- -- 410
Impairment of Equity Investee ................... -- -- -- 142
Other (income) Expense, Net ..................... 83 (97) 270 (103)
------------ ------------ ------------ ------------
Total Non-operating Expenses ................. 692 1,806 1,685 4,079
------------ ------------ ------------ ------------
Loss Before Income Taxes ........................... (258) (1,693) (7,587) (5,025)
Provision for Income Taxes ......................... -- -- 2 3
Net Loss - Continuing Operations ................... (258) (1,693) (7,589) (5,028)
Net Loss - Discontinued Operations ................. (172) -- (581) (106)
------------ ------------ ------------ ------------
Net Loss ........................................... $ (430) $ (1,693) $ (8,170) $ (5,134)
============ ============ ============ ============
Net Loss Per Share - Continuing Operations ......... (0.01) (0.06) (0.36) (0.19)
------------ ------------ ------------ ------------
Net Loss Per Share - Discontinued Operations ....... (0.01) (0.00) (0.02) (0.01)
------------ ------------ ------------ ------------
Net Loss per Share - Net Loss ...................... (0.02) (0.06) (0.38) (0.20)
------------ ------------ ------------ ------------
Shares Used in Per Share Computations .............. 21,909 26,325 21,084 25,615
------------ ------------ ------------ ------------
8
SSP SOLUTIONS, INC.
PRO FORMA SUMMARY NON-GAAP ADJUSTMENTS
TO CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended Nine months Ended
September 30, September 30,
2002 2003 2002 2003
--------- --------- --------- ---------
Net Loss .................................................. $ (430) $ (1,693) $ (8,170) $ (5,134)
Plus Loss from Discontinued Operation ..................... (172) -- (581) (106)
--------- --------- --------- ---------
Plus Loss from Continuing Operations ...................... (258) (1,693) (7,589) (5,028)
Plus Provision (benefit) for Income Taxes ................. -- -- 2 3
--------- --------- --------- ---------
Operating Loss before Income Taxes ..................... (258) (1,693) (7,587) (5,025)
Plus Non-operating Expenses ............................... 692 1,806 1,685 4,079
--------- --------- --------- ---------
Operating Income (loss) ................................... 434 113 (5,902) (946)
--------- --------- --------- ---------
Less Facilities Lease Settlement ....................... -- (209) -- 1,091
Less Research and Development - cancelled contract .... (625) -- (1,041) --
Less Gains on Vendor Settlements ....................... (95) (95) (270) (95)
--------- --------- --------- ---------
NON-GAAP PRO-FORMA OPERATING INCOME (LOSS) ................ $ (286) $ (191) $ (7,213) $ 50
========= ========= ========= =========
Net Loss .................................................. $ (430) $ (1,693) $ (8,170) $ (5,134)
Plus Depreciation ......................................... 47 15 258 51
Plus Interest Cash ........................................ 170 370 487 960
Plus Interest Non-cash .................................... 441 1,653 808 2,764
Plus Taxes ................................................ -- -- 2 3
--------- --------- --------- ---------
NON-GAAP PRO-FORMA EARNINGS BEFORE INTEREST, TAXES,
DEPRECIATION, AND AMORTIZATION (EBITDA) .................. $ 228 $ 345 $ (6,615) $ (1,356)
========= ========= ========= =========
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE ................... $ 1,552 $ 1,235 $ 5,700 $ 5,460
Plus Facilities Lease Settlement ..................... -- 209 -- (1,091)
Plus Gains on Vendor Settlements ..................... 95 95 270 95
--------- --------- --------- ---------
NON-GAAP PRO-FORMA S,G&A ................................ 1,647 1,539 5,970 4,464
--------- --------- --------- ---------
Plus Research and Development ........................ 1,124 1,027 4,178 3,116
Plus Research and Development Settlement
- cancelled contract (1) ........................... -- -- -- --
--------- --------- --------- ---------
NON-GAAP PRO-FORMA TOTAL OPERATING EXPENSES ............. $ 2,771 $ 2,566 $ 10,148 $ 7,580
========= ========= ========= =========
(1) AMOUNTS RELATED TO CANCELLED RESEARCH AND DEVELOPMENT CONTRACT EXCLUDED FOR
NON-GAAP PURPOSES.
9
SSP SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
December 31, September 30,
2002 2003
---- ----
(Unaudited)
Total Current Assets ......................... $ 2,939 $ 3,699
Property, Plant & Equipment, net ............. 90 41
Other Assets ................................. 600 543
Equity Investment in Affiliate ............... 452 --
Goodwill ..................................... 25,930 25,930
----------- -----------
TOTAL ASSETS ................................. $ 30,011 $ 30,213
=========== ===========
Total Current Liabilities .................... $ 8,888 $ 10,973
Long-Term Debt ............................... -- --
Shareholders' Equity ......................... 21,123 19,240
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ..... $ 30,011 $ 30,213
=========== ===========
10
SIGNATURE
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.
Date: November 20, 2003 SSP SOLUTIONS, INC.
By: /s/ THOMAS E. SCHIFF
--------------------------------------
Thomas E. Schiff,
Chief Financial Officer
11
EXHIBITS FILED WITH THIS REPORT
Exhibit
Number Description
------ -----------
3.1 Certificate of Correction of Certificate of Amendment
of Amended and Restated Certificate of Incorporation
of SSP Solutions, Inc. filed November 12, 2003
3.2 Certificate of Designation, Preferences and Rights of
Series A Convertible Preferred Stock of SSP
Solutions, Inc. filed November 18, 2003
10.1 Securities Purchase Agreement dated as of November
19, 2003 among SSP Solutions, Inc. and the investors
named in Exhibit A thereto
10.2 Form of Series A-1 Warrant dated as of November 19,
2003 issued by SSP Solutions, Inc. in favor of each
investor named in Exhibit A to the Securities
Purchase Agreement of even date therewith
10.3 Form of Series A-2 Warrant dated as of November 19,
2003 issued by SSP Solutions, Inc. in favor of each
investor named in Exhibit A to the Securities
Purchase Agreement of even date therewith
10.4 Registration Rights Agreement dated as of November
19, 2003 among SSP Solutions, Inc. and each investor
named in Exhibit A thereto
10.5 Form of Secured Convertible Promissory Note dated
November 19, 2003 made by SSP Solutions, Inc. in
favor of Richard P. Kiphart, Crestview Capital Fund,
L.P. and Crestview Capital Fund II, L.P. in the
principal amounts of $1,250,000, $350,000 and
$130,000, respectively (issued as retained note that
replaces note dated April 16, 2002)
10.6 Form of Secured Convertible Promissory Note dated
November 19, 2003 made by SSP Solutions, Inc. in
favor of Richard P. Kiphart, Crestview Capital Fund,
L.P., Crestview Capital Fund II, L.P. and Crestview
Offshore Fund, Inc. in the principal amounts of
$1,000,000, $325,000, $150,000 and $25,000,
respectively (issued as additional retained note that
has automatic conversion feature triggered by
stockholder approval and that replaces note dated
April 16, 2002)
10.7 Form of Warrant to Purchase Common Stock dated
November 19, 2003 issued by SSP Solutions, Inc. in
favor of Richard P. Kiphart, Crestview Capital Fund,
L.P., Crestview Capital Fund II, L.P. and Crestview
Offshore Fund, Inc. as to 714,286 shares, 232,143
shares, 107,143 shares and 17,857 shares,
respectively (issued in accompaniment with additional
retained note that has automatic conversion feature
triggered by stockholder approval and that replaces
note dated April 16, 2002)
99.1 Press release dated November 19, 2003 regarding
closing of private placement
99.2 Description of capital stock as of November 19, 2003
12