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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File
December 31, 1999 Number 0-11685
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RADYNE COMSTREAM INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 11-2569467
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3138 East Elwood Street, Phoenix, Arizona 85034
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (602) 437-9620
Securities Registered Under Section 12(b) of the Exchange Act: None
Securities Registered Under Section 12(g) of the Exchange Act:
Common Stock, $.002 Par Value
Common Stock Purchase Warrants
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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 of 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 amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
(deemed by the registrant to be persons, along with members of their families,
known to the registrant to beneficially own, exclusive of shares subject to
options, less than 5% of the outstanding shares of the registrant's common
stock) of the registrant as of February 22, 2000 was approximately $67,800,000
As of February 22, 2000, there were 13,552,496 shares of the registrant's
common stock outstanding.
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PART I
DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
constitute "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievements of Radyne ComStream Inc.,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following:
o loss of, and failure to replace, any significant customers;
o timing and success of new product introductions;
o product developments, introductions and pricing of competitors;
o timing of substantial customer orders;
o availability of qualified personnel;
o the impact of local political and economic conditions and foreign
exchange fluctuations on international sales;
o performance of suppliers and subcontractors;
o market demand and industry and general economic or business
conditions;
o availability, cost and terms of capital;
o the "Risk Factors" set forth in our Registration Statement on Form S-2
(No. 333-90731), dated February 7, 2000;
o other factors to which this report refers.
ITEM 1. BUSINESS
Overview
We design, manufacture, and sell equipment used in the ground-based portion
of satellite communication systems to receive, and transmit data, video, audio
and Internet over satellite communications links. We also design, manufacture,
and sell equipment used in cable television systems. Our products are used in
applications for telephone, data, video and audio broadcast communications,
private and corporate data networks, Internet applications, and digital
television for cable. We serve customers in over 80 countries, including
customers in the television broadcast industry, international telecommunications
companies, Internet service providers, private communications networks, and the
United States government.
Our products have been utilized in major communications systems worldwide,
including the following:
o The world's highest capacity domestic, digital satellite telephone
network -- PT Telkom, Indonesia.
o Italy's first digital telephone/data network -- Telespacio, Italian
Railways.
o Colombia's first alternate telecommunications network -- Americatel.
o Earth stations for the first international satellite links in China,
India, Pakistan, Brazil, Haiti and Zambia.
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o The world's largest private satellite broadcast network -- Reuters.
o International Cablecasting Technologies -- utilizing 40,000 digital
audio broadcast receivers.
Industry Overview
Satellite technology has been established as a key element in the growth of
communications systems. Satellites enable high-speed communications service
where there is no suitable alternative available. Unlike the cost of land-based
networks, such as microwave and fiber cable, the cost to provide services via
satellite does not increase with the distance between sending and receiving
stations. Satellite networks can be rapidly installed, upgraded, and
reconfigured as compared with land-based networks, which require rights-of-way
and are expensive and time consuming to install and upgrade. The three principal
categories of satellite communications service applications are fixed satellite
services, mobile satellite services, and direct broadcast services.
Fixed Satellite Services. Fixed satellite services provide point-to-point
and point-to-multipoint satellite communication of voice, data, and video
between fixed ground-based earth stations. The introduction of high-power
satellites has created additional growth within the fixed satellite services
segment by enabling the use of smaller, less costly earth stations for
applications such as corporate data networks, intranet access, and rural
telephony.
Mobile Satellite Services. Mobile satellite services operate between fixed
earth stations and mobile user earth stations, or terminals. These services
provide mobile voice and data transmission capability on land, sea, and air. New
mobile satellite services are being developed to bring more extensive coverage
and circuit reliability for mobile telephone and data services to underserved
populations throughout the world.
Direct Broadcast Services. Direct broadcast satellite services provide a
direct transmission link from high-power satellites to customers over a wide
geographic area. This includes direct-to-home television services, direct
broadcast data services, and Internet access.
Satellite communication systems used to provide these services consist of
two elements: satellites (the "space segment") and ground-based transmission and
reception systems (the "ground segment"). The space segment consists of a single
satellite or a constellation of satellites in earth orbit, which typically
provide continuous communications coverage over a wide geographic area. These
satellites typically contain multiple transponders, each of which is capable of
simultaneously receiving and transmitting one or more signals to or from
multiple users. The satellite ground segment consists principally of one or more
earth stations. An earth station is an integrated system consisting of antennae,
radio signal transmitting and receiving equipment, a satellite modem, a
frequency controller, and voice, data, and video network interface equipment.
Earth stations provide a communications link to the end user either directly or
through land-based networks.
We have participated principally in the ground segment products, systems,
and networks portion of the market. The Satellite Industry Association estimates
the global market for satellite ground equipment and integration services was
$15.2 billion in 1998, of which our management estimates $800 million was for
the type of equipment we develop, manufacture, and market.
Industry Growth
We believe that growth in demand for satellite system ground-based
equipment has been and will continue to be driven by, among other things, the
growth of satellite-delivered communications services such as the fixed, mobile,
and direct broadcast services described above. According to the Satellite
Industry Indicators Survey: Selected 1998 Survey Results conducted by the
Satellite Industry Association and Futron Corporation, total revenues for
providers of satellite communications services grew at an 18% compound growth
rate to $26.2 billion in 1998, from $21.2 billion in 1997 and $15.9 billion in
1996.
We believe that future growth in satellite communications services will be
driven principally by the following major factors:
o Global deregulation and privatization of government-monopolized
telecommunications carriers, which will stimulate growth in the
communications industry in general.
o Growing worldwide demand for communications services in general,
including data communications services over the Internet and corporate
Intranets.
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o The relative cost-effectiveness of satellite communications for many
applications, such as digital television delivery.
o Technological advancements that broaden applications for and increase
the capacity in satellite networks.
Deregulation and Privatization. Many developing countries that had
previously not committed significant resources to or placed a high priority on
developing and upgrading their communications systems are now doing so,
primarily through deregulation and privatization. A significant number of these
countries do not have the resources, or have large geographic areas or terrain
that make it difficult, to install extensive land-based networks on a
cost-effective basis. This provides an opportunity for satellite communications
services systems to meet the requirement for communications services in these
countries.
Growing Worldwide Demand for Communications Services. Factors contributing
to the growing demand for communications services include worldwide economic
development and the increasing globalization of commerce. Businesses have a
growing need for higher bandwidth services to communicate with their customers
and employees around the world and are increasingly reliant upon Internet and
multimedia applications. We expect demand for these kinds of higher bandwidth
services to grow in both developed and developing countries.
Cost-Effectiveness of Satellite Communications. The relative
cost-effectiveness of satellite communications services is a major factor
driving the growth of satellite communications services in areas with rapidly
growing telecommunications infrastructures. Large geographic areas, where
population concentrations are separated by significant distances, require a
technology whose cost and speed of implementation is relatively insensitive to
distance. Unlike the cost of land-based networks, the cost to provide services
via satellite does not increase with the distance between sending and receiving
stations.
Technological Advances. Technological advances continue to increase the
capacity of a single satellite and reduce the overall cost of a system and the
service it delivers. This increases the number of potential end-users for the
services and expands the available market. We believe that recent technological
developments such as bandwidth on demand, digital television compression
technology, and signal processing methods will continue to simulate the demand
for the use of satellite communication services.
Market Opportunities
Satellite communication systems provide a number of advantages over
land-based networks for a variety for applications. We have identified several
key markets and customer groups that we believe provide opportunities to sell
our products.
International and Rural Telephony
Satellite communication systems enjoy advantages in international
telecommunications markets for several reasons:
o It is not cost-effective to utilize land-based networks in many areas
of the world, especially developing countries where modern
communications capabilities are just beginning to develop.
o All areas within a satellite beam receive the same level of service,
making it highly attractive in rough terrain or underdeveloped
regions.
o Satellites can be deployed much more rapidly to offer international
services.
We believe there are certain communication requirements that can be
reasonably satisfied only with satellite systems. For example, satellite
communications offer a cost-effective solution that can be installed relatively
quickly to provide communications services in remote or sparsely populated
areas, in rugged or in mountainous terrain, or in nations composed of many
islands, a geographical feature which is relatively common in the Pacific
region.
The potential to reach areas of low subscriber density without costly
construction of land-based networks makes satellite communication systems a
viable solution for rural telephony systems. Rural telephony can be described as
an intra-country telecommunications network linking many remote locations, such
as small villages or islands in the Philippines. These networks allow villages
to communicate with each other and with the world. In a typical rural telephony
system, a small village might install a satellite earth station in a central
location such as the local post office. Residents then use this convenient
location to communicate throughout the country and the world.
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Private Networks
As businesses and other organizations expand into regions of the world
where the telecommunications infrastructure is inadequate for land-based
networks, the need for alternative communications connections among multiple
facilities becomes evident. A private network is a dedicated communications
and/or data transmission network. Such a network may link employees of a
multiple-location business with co-workers located throughout the world. Users
can consolidate multiple-applications over a single satellite network and
receive the same quality of service at a lower over-all cost. We believe the
satellite communications industry is poised to gain a foothold in this market by
offering reliable high-speed connectivity. Satellite systems can bypass the
complexity of land-based networks, multiple carriers, and varying price and
billing schedules.
Information and Radio Broadcasts
Satellites are an ideal transmission medium for broadcast services, as a
single satellite has the ability to communicate with ground locations spread
across up to one-third of the surface of the earth. Financial news providers,
merchandise retailers, and others use satellite systems to provide financial
data and other audio and video transmissions for a variety of applications, such
as news wire services and supermarket in-store radio.
Television Video Distribution
Compressed digital video is a recently developed technology that provides
significant new market opportunities for the satellite communications industry.
The development of digital compression technology allows the transmission of
television signals via satellite in a smaller bandwidth than is currently
possible through alternative technologies. This advance in communications
technology is enabling a wider application of satellite solutions for television
and video broadcast services, including the following:
o Satellites provide television broadcasters with an efficient and
economical method to distribute their programming to cable service
providers and direct broadcast satellite operators.
o Compressed video encoding and decoding make satellites available for
less demanding video transmissions, including business
teleconferencing, private business networks, and telemedicine.
o The economics of compressed video allow the use of satellite
transmission for long-distance teaching applications.
o Digital cinema distribution is emerging as a viable alternative to the
physical distribution of feature length films.
o There is an emerging market to provide data and video directly to the
personal computer via satellite.
Internet Communications
The Internet is evolving into a global medium, allowing millions of
individuals throughout the world to communicate, share information, and engage
in electronic commerce. According to International Data Corporation, the number
of people worldwide accessing the Internet will grow from approximately 100
million at year end 1998 to 320 million by 2002. This growth is expected to be
driven by the large and growing number of personal computers installed in homes
and offices, the declining prices of personal computers, improvements in network
infrastructure, the availability of faster and cheaper Internet access, and the
increasing familiarity with and acceptance of the Internet by businesses and
consumers. Internet usage also is expected to continue to grow rapidly due to
unique characteristics that differentiate it from traditional media, such as
real-time access to interactive content, real-time communication capabilities,
and the absence of geographic or temporal limitations.
According to DTT Consulting, a satellite industry consulting and research
firm, there has been significant growth in the use of satellites for Internet
traffic in recent years. This growth has been centered on connecting Internet
service providers, or ISPs, with Internet servers. DTT Consulting estimates
there were 948 satellite ISP links in operation in January 1999, up from 222 at
the same time in the prior year. Satellite capacity is being used for ISP links
primarily where fiber cable is prohibitively expensive or rare, such as in
underdeveloped or emerging countries or where there is insufficient transoceanic
fiber. Although ISPs rarely use satellites to provide point-to-point
infrastructure for the Internet within the United States, the following table
sets forth data that indicates that nearly one in ten ISPs worldwide use
satellite capacity to link with an Internet server for point-to-point traffic.
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Internet Service Providers Connections by Region
As of January 1999
% ISPS
No. Satellite Connected
Geographic Area No. of ISPS Links via Satcoms*
--------------- ----------- ------------- ------------
Western Europe .................. 2,273 84 3.7%
CEE and CIS** ................... 359 280 78.0
Sub-Saharan Africa .............. 288 131 45.5
Latin America ................... 577 138 23.9
Middle East & North Africa ...... 156 48 30.8
Asia ............................ 825 85 10.3
Australasia ..................... 748 86 11.5
North America ................... 4,512 96 2.1
----- ----- ----
Total .................. 9,738 948 9.7%
===== ===== ====
Source: DTT Consulting
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* Satcoms are communications satellites.
** CEE stands for Central and Eastern Europe and CIS stands for the
Commonwealth of Independent States.
We expect satellite communications to continue to offer a cost-effective
augmentation capability for Internet service providers, particularly in markets
where land-based networks are unlikely to be either cost-effective or abundant,
such as rural areas. Additionally, satellite broadcast architecture provides an
attractive alternative for Internet service providers, which presently are
dealing with the bottlenecks associated with rapid and uneven Internet growth.
Satellite systems can relieve congestion by providing a low-cost means of
selectively distributing content to sites closer to end-users. Today, only 1,000
Websites represent over 80% of the most frequently accessed content on the
Internet. These Web pages can be transmitted via satellite at regular intervals
to designated server destinations and then stored in servers for local users to
access. This cached content reduces the need to retrieve the most popular data
from the source, thus reducing delays and congestion on the Internet. Likewise,
we expect Internet multicasting to serve as a solution for the distribution of
large applications, such as database updates.
Government and Military
The United States government provides a significant market opportunity for
satellite equipment manufacturers as the defense budget shrinks and government
policies encourage the use of commercial off-the-shelf components whenever
feasible. This provides us with the opportunity to configure our standard
products for a customer that is sizable and likely to provide consistent
business.
Strategy
Our business goals are to expand our market share in our ground-based
satellite systems business and improve profitability. We intend to achieve these
goals through the following strategies:
Target Providers of Fixed, Mobile, and Direct Broadcast Communications
Services Worldwide. We plan to target developing markets that we believe will
account for a significant portion of the demand for satellite-based systems.
These markets typically lack terrestrial infrastructure adequate to support
demand for domestic and international communications services. We plan to target
providers of rural telephony services and Internet service providers in
developing markets because we believe they will rely extensively upon satellite
communication solutions. In developed countries, we plan to target emerging
satellite communications service providers such as those offering direct
broadcast applications.
Exploit New Applications for Our Existing Satellite Technology. We plan to
adapt existing products for use in the Internet broadband, cable television, and
television news gathering markets, which utilize digital receivers and
transmission equipment using many of the same modulation, coding, interface, and
protocol technologies as the satellite business. We have adapted some of our
products for the television distribution market, including satellite modems that
we converted for use in cable television systems. We also recently entered into
a strategic relationship with DiviCom Inc., a major producer of compressed
digital television systems. Under this arrangement, our strategic partner will
utilize our products in cable systems that it markets to cable television system
operators.
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Develop New Products to Exploit New Market Opportunities. We plan to use
our international sales force and our research and development capabilities to
identify new market opportunities and develop new products to exploit these
opportunities. We intend to develop new products to penetrate and increase our
presence in the markets for Internet communications, rural telephony for
developing markets, high-speed satellite communications, government data
equipment, cable television distribution, and private networks for businesses
and governments.
Provide High-Margin Customized Products to Niche Markets. We design our
products so we can adapt them to differing specifications with minimal
engineering. We plan to design and produce customized products for niche
markets, particularly military and government markets, which require customized
technology.
Pursue Strategic Acquisitions. We intend to pursue strategic acquisitions
of competitive or complementary companies in order to gain market share,
increase our revenues, expand our product line, improve our sales force or
increase our profitability.
Products
We offer the following product families:
o Satellite modems and earth stations.
o Frequency converters.
o Data, audio, and video broadcast equipment.
o Digital video broadcast (DVB) and high speed modems.
o Cable and microwave modems.
Satellite Modems and Earth Stations
We produce satellite modems that are sold individually and earth stations
that are a bundled solution built around our satellite modems. Satellite modems
transform user information, such as data, video or audio, into a signal that can
be further processed for transmission via satellite. We produce several
varieties of satellite modems, which operate at different speeds using a variety
of modulation techniques.
Our earth stations commonly consist of several components, including a
satellite modem, a frequency converter, a transceiver, a transmitter, and an
antenna. Earth stations serve as an essential link in transmitting signals to,
and receiving signals from, satellites. Our earth stations enable users to
program power levels and operating parameters in order to compensate for low
signal levels, extreme weather conditions, and other variables. We design and
manufacture our earth stations using components that we manufacture as well as
components that we obtain from other manufacturers.
Our Star Network Management System augments these product offerings. The
Star Network Management System, which consists of a Windows NT(R) point and
click system, is used to remotely monitor and maintain the functioning of an
entire network of modems, earth stations, and ancillary equipment. This can be
done from a single location, thereby eliminating the need to travel to each
remote location. This system provides local and remote modem management, control
of the equipment connected to the modems and earth stations, collection of
network status and alarm information, remote channel monitoring, and dial-up
control.
Frequency Converters
We currently market two varieties of converters used to transmit signals to
satellites and three converters used to receive signals relayed from satellites.
We also produce a redundancy control unit, which will switch a satellite system
to stand-by equipment in the event of a malfunction in a satellite modem or
converter. Such redundancy is a critical element for many of our customers, such
as rural or international telephony networks, that strive to provide
uninterrupted satellite communications services to their customers.
Each satellite is configured to receive or transmit a particular radio wave
pattern, otherwise called a frequency band, which is typically different from
the frequency of the satellite modem. Frequency converters are used to alter the
input/output of a satellite
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modem into a wave pattern that can be interpreted by the particular satellite
being used in the satellite system to relay communication signals.
Data, Audio and Video Broadcast Equipment
Our digital audio distribution products provide radio networks, service
providers, and merchandise retailers with a satellite distribution system for
the broadcast of in-store advertising and background music. Our data
distribution products deliver real-time, high-value data and digital video
broadcast services. To date, the primary customers for our data distribution
products have been participants in the financial industry. For example, our
IntelliCast Digital Data Broadcast Receiver is used by customers, such as
Reuters, to distribute financial information, up-to-date news stories or image
files of weather information and database updates from a central location to
many remote outlets.
Our Mediacast Satellite PC/Receiver card allows personal computers to
request information over a telephone link and then receive a digital video
broadcast of a wide range of data, audio, and video information directly from a
satellite. This speeds the reception of information, particularly in regions
with underdeveloped telephony, and is often used by Internet service providers.
Digital Video Broadcast (DVB) and High Speed Modems
Our DVB modems facilitate the transmission of high-quality video images
among multiple locations via satellite. These modems utilize digital compression
technology that allows users to transmit television signals in a smaller
bandwidth than is possible using older technology, thereby making television
transmission by satellite more economical. Video compression allows for the
transmission by satellite of a much higher number of channels than was
previously the case, thus producing a significant new market for our products.
Satellites are often used in industries where live, high-quality video images
are essential, such as direct television broadcasts.
Our high-speed digital modems transmit a greater volume of data than
standard satellite modems. Our modems are used in large satellite system
connections that transmit significant amounts of data at high speeds. Internet
service providers and government agencies are principal customers for our
high-speed and digital high-speed products.
Cable and Microwave Modems
Our cable modems are used primarily in the distribution of digital video
for use by cable television distributors and in high-definition television. The
design of our cable modems allows for the transmission of digital video on
terrestrial, broadband cable and enables system operators to manage and control
the available bandwidth. Our microwave modems transmit over microwave
frequencies and usually feature high-speed and multidata-rate capabilities that
provide a complete point-to-multipoint communication link that facilitates
microwave link upgrades. For example, television stations use our microwave
modems to transmit audio and video over a microwave link to and from digital
news gathering trucks.
Research and Development
We conduct an active and ongoing research and development program that
focuses on advancing technology, developing improved design and manufacturing
processes, and improving the overall quality of the products we provide. Our
goal is to provide our customers with new solutions that address their needs.
Our research and development personnel concentrate on technology for the
satellite communications, telecommunications, and cable television industries.
Our future growth depends on increasing the market share of our new products,
adapting our existing satellite communications products to new applications, and
introducing new communications products that will find market acceptance and
benefit from our established international distribution channels. Accordingly,
we are actively applying our communications technology expertise to improving
the performance of our existing products and developing new products to serve
existing and new markets.
We work closely with our customers and potential customers to assess their
needs in order to facilitate our design and development of new products. We
believe that this approach minimizes our development risk and improves the
potential for market acceptance of our product introductions. Additionally, we
use information obtained from our customers and our technological expertise to
develop custom-designed products for our customers' special applications.
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Research and development expenses amounted to $9.1 million for the year
ended December 31, 1999, $4.3 million for the year ended December 31, 1998, and
$2.3 million for the year ended December 31, 1997. A number of new products were
either launched or reached an advanced stage of development during these
periods.
Much of the increase in research and development expenses is due to
developmental products acquired in the 1998 acquisition of ComStream Holdings,
Inc., but the remainder is directly related to our ongoing commitment to expand
our product line and penetrate new markets. We intend to use a significant
portion of the proceeds obtained through a public offering of our common stock
to fund our research into Internet-related products for satellite ISP links, and
other new telecommunications products. This offering became effective on
February 7, 2000. We also plan to target our research and development activities
at digital audio, video, and data products. However, there is no assurance that
we will continue to have access to sufficient capital to fund the necessary
research and development or that such efforts, even if adequately funded, will
prove successful.
Sales and Marketing
We sell our products through an international sales force with sales and/or
service offices in San Diego, Phoenix, Boca Raton, Beijing, Singapore, London,
Amsterdam, and Jakarta. Our direct sales force consists of 14 individuals
supported by systems and applications engineers. We focus direct sales
activities on expanding our international sales by identifying emerging markets
and establishing new customer accounts. Additionally, we directly target certain
major accounts that may provide entry into new markets or lead to subsequent
distribution arrangements. International representatives, distributors and
systems integrators sell our products, supported by our sales and marketing
personnel.
We participate in approximately six trade shows each year. We also generate
new sales leads through advertising in trade magazines, direct mail, and our Web
site (http://www.RadyneComStream.com).
We maintain a customer service and support staff that primarily supports
customers and distributors and is responsible for after-sale support and
installation supervision. In certain instances, we use third-party companies to
install and maintain our products at our customers' sites.
Customers
Our customers generally include national and international
telecommunications providers, digital television users, including broadcast and
cable networks, Internet service providers, financial information providers,
systems integrators, and the U.S. government.
For the years ended December 31, 1999 and 1998, no single customer
represented more than 10% of our net sales. During the year ended December 31,
1997, one customer represented 14.5% of our net sales. Because of the nature of
our business, we anticipate that any customers that represent 10% or more of our
total revenue will vary from period to period depending upon the placement of
significant orders by a particular customer or customers in any given year.
Our sales in principal foreign markets for the periods indicated consisted
of the following percentages of total sales.
Region Year ended Year ended Year ended
------ 12-31-99 12-31-98 12-31-97
---------- ---------- ----------
Asia 25% 7% 32%
Africa/Middle East 4% 8% 0%
Latin America 4% 9% 12%
Europe 21% 23% 7%
Canada 2% 3% 5%
-- -- --
Total Exports 56% 50% 56%
We believe that the amount of our total exports may rise in subsequent
periods. We consider our ability to continue to sell our products in developing
markets to be important to our future growth. We may not, however, succeed in
our efforts to cultivate such markets.
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Competition
We have a number of major competitors in the satellite communications
field. These include large companies, such as Hughes Network Systems, NEC, and
Adaptive Broadband Corp., all of which have significantly larger and more
diversified operations and greater financial, marketing, human and other
resources than we possess. We estimate that our major competitors in the
principal markets in which we compete have the following market shares as
compared to our market share:
Digital Video
Satellite Modems & Broadcast & Government & Data, Audio &
Competitor Earth Stations High Speed Modems Military Modems Video Broadcast
- ---------- -------------- ----------------- --------------- ---------------
Adaptive Broadband............ 19% 30% 35% *
Hughes Network Systems........ 19 * * *
SSE Telecom................... 8 * 10 *
NEC........................... 24 * * *
Wegener....................... * * * 25
IDC........................... * * * 25
Radyne ComStream.............. 8 35 35 40
- ---------
* Competitor does not participate in product category.
We do not believe that any other single competitor has a greater than 10%
market share for any of these product classes. However, the foregoing market
share figures represent estimates based on the limited information available to
us, and we cannot assure you that it is accurate.
We compete by concentrating our sales efforts in the international market
and emphasizing our product features and quality. We believe that the quality,
performance, and capabilities of our products, our ability to customize certain
network functions, and the relatively lower overall cost of our products as
compared to the cost of the competing products generally offered by our major
competitors represent major factors in our ability to compete. However, our
major competitors have the resources to develop products with features and
functions that are competitive with or superior to our products. Competition
from current competitors or future entrants in the markets in which we compete
could cause us to lose orders or customers or could force us to lower the prices
we charge for our products.
We believe we are well positioned to capitalize on the increased demand for
satellite ground segment systems and that our future success in this market will
be based upon our ability to leverage our competitive advantages, which include
the following:
o An experienced management group, which has extensive technological and
engineering expertise and excellent customer relationships. The
members of our management team have an average of over 20 years of
experience in the satellite communications industry.
o Our expansive line of well-known, well-respected, off-the-shelf,
state-of-the-art equipment that enables us to meet our customers'
requirements.
o Our ability to custom design products for our customers' special
applications and to provide a one-stop shopping option to our
customers.
o Our ability to meet the complex satellite ground communications
systems requirements of our customers in diverse political, economic,
and regulatory environments in various locations around the world.
o Our worldwide sales and service organization with the expertise to
successfully conduct business internationally through sales and
service offices staffed by our employees in most of our major markets
throughout the world, including in Beijing, Singapore, London,
Jakarta, and Amsterdam.
o Our October 1998 acquisition of ComStream, which:
o significantly expanded our product lines,
o enhanced our sales force,
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o increased our market share, and
o increased our profitability.
Manufacturing
We assemble and test certain of our products at our Phoenix, Arizona and
San Diego, California facilities using subsystems and circuit boards that we
obtain from subcontractors. We obtain the remainder of our products, completely
assembled and tested, from subcontractors. Although we believe that we maintain
adequate stock to reduce the procurement lead time for certain components, our
products use a number of specialized chips and customized components or
subassemblies produced by a limited number of suppliers. In the event that such
suppliers were unable or unwilling to fulfill our requirements, we could
experience an interruption in production until we develop an alternative supply
source. We maintain an inventory of certain chips and components and
subassemblies to limit the potential for such an interruption. We believe that
there are a number of companies capable of providing replacements for the types
of chips and customized components and subassemblies used in our products.
In 1999, our Phoenix facility was awarded ISO-9001 certification, the
international quality control standard for research and development, marketing,
sales, manufacturing, and distribution processes. This certification will assist
in increasing the acceptance of our products in foreign markets. We intend to
pursue certification of our San Diego facility. We cannot provide assurance,
however, that certification will be granted.
Intellectual Property
We rely on our proprietary technology and intellectual property to maintain
our competitive position. We protect a significant portion of our proprietary
technology as trade secrets by relying on confidentiality agreements with our
employees and some of our suppliers. We also control access to and distribution
of confidential information concerning our proprietary information.
We also have patents which protect certain of our proprietary technology.
We have been cautious in seeking to obtain patent protection for our products,
since patents often provide only narrow protection that may not prevent
competitors from developing products that function in a manner similar to those
covered by our patents. In addition, some of the foreign countries in which we
sell our products do not provide the same level of protection to intellectual
property as the laws of the United States provide. We will continue to seek
patent protection for our proprietary technology in those cases where we think
it can be obtained and will provide us with a competitive advantage.
Employees
As of December 31, 1999, we had 183 full-time employees, including three
executive officers, 123 in engineering and manufacturing, 34 in marketing
operations, and 23 in administration. These figures include 23 employees who are
based outside the United States. None of our employees are represented by a
union in collective bargaining with us. We believe that our relationships with
our employees are satisfactory.
ITEM 2. PROPERTIES
In order to accommodate our recent growth, we moved into new leased
facilities in both Phoenix, Arizona and San Diego, California in late 1998. We
currently have 76,000 square feet available in Phoenix and 66,400 square feet
available in the San Diego facility. The lease for our Phoenix facility expires
in July 2008 and we have an option to renew for two consecutive terms of five
years each. The lease for our San Diego facility expires in March 2005 and we
have an option to renew for two consecutive terms of five years each. We expect
these facilities will be adequate for meeting our needs in the immediate future.
We also have regional sales and service offices in Boca Raton, Beijing,
Singapore, London, Jakarta, and Amsterdam. All of these facilities are leased.
ITEM 3. LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of securities holders during the three
months ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock was traded on the OTC Bulletin Board under the symbol
"RADN" as of December 31, 1999. As a result of our public offering, which became
effective February 7, 2000, our common stock and warrants now trade on the
Nasdaq SmallCap Market under the symbols "RADN" and "RADNW," respectively. The
following table sets forth the range of high and low trading prices as reported
by the OTC Bulletin Board for the periods indicated. At February 22, 2000, we
had approximately 419 stockholders of record and approximately 2,460 beneficial
owners of our common stock.
High $ Low $
------ -----
1997:
First Quarter ..................... 6 3 1/8
Second Quarter .................... 3 1/4 3
Third Quarter ..................... 10 3/4 5
Fourth Quarter .................... 10 1/2 4
1998:
First Quarter ..................... 5 1/4 2 1/8
Second Quarter .................... 5 2 3/4
Third Quarter ..................... 4 15/16 3 1/4
Fourth Quarter .................... 5 2 1/2
1999:
First Quarter ..................... 4 1/4 2 1/4
Second Quarter .................... 3 3/4 2 1/2
Third Quarter ..................... 3 9/16 2 1/4
Fourth Quarter .................... 8 1/2 2 3/4
On March 1, 2000 the last sale price of the common stock as reported by the
NASDAQ SmallCap Market was $28.50 per share.
We have not paid dividends on the Common Stock since inception and we do
not intend to pay any dividends to our stockholders in the foreseeable future.
The Company currently intends to reinvest earnings, if any, in the development
and expansion of its business. The declaration of dividends in the future will
be at the election of the Board of Directors and will depend upon the earnings,
capital requirements and financial position of the Company, general economic
conditions and other pertinent factors.
12
ITEM 6. SELECTED FINANCIAL DATA
The following selected statement of operations data for the years ended
December 31, 1999, 1998 and 1997, the six months ended December 31, 1996, the
year ended June 30, 1996 and the six and one-half month period ended June 30,
1995, and the selected balance sheet data at those dates, are derived from our
consolidated financial statements and notes thereto audited by our independent
auditors: KPMG LLP (in the case of the years ended December 31, 1999 and 1998)
and Deloitte & Touche LLP (in the case of the year ended December 31, 1997, the
six months ended December 31, 1996, the year ended June 30, 1996, and the six
and one-half months ended June 30, 1995). Per share data and shares outstanding
reflect an adjustment for the effects of the 1-for-5 reverse split of our common
stock, which became effective on January 9, 1997. The following data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto included elsewhere in this 10-K Annual Report.
The variations in the duration of the respective periods in the table on
the following page are due to a series of changes in our fiscal year. Upon our
emergence from bankruptcy on December 16, 1994, our fiscal year ended. We then
adopted the fiscal year of our new parent, which ran through June 30, 1995 which
created a 6 1/2 month period, followed by a full year ended June 30, 1996. We
then became a subsidiary of ST in August 1996 and adopted its fiscal year (the
calendar year), which created a stub fiscal period from July 1, 1996 through
December 31, 1996.
13
STATEMENT OF OPERATIONS DATA:
Years Ended December 31, 6 Months 6 1/2 Months
---------------------------------------- Ended Year Ended Ended
1999 1998 1997 12/31/96 6/30/96 6/30/95
------------ ------------ ------------ ------------ ------------ ------------
Net sales ..................................... $ 55,839,792 $ 21,111,704 $ 13,446,852 $ 4,905,059 $ 3,829,523 $ 1,861,262
Cost of sales ................................. 29,970,560 15,808,459 8,022,262 4,052,433 2,559,350 1,228,747
------------ ------------ ------------ ------------ ------------ ------------
Gross profit .................................. 25,869,232 5,303,245 5,424,590 852,626 1,270,173 632,515
------------ ------------ ------------ ------------ ------------ ------------
Selling, general and administrative expense ... 12,355,188 5,531,213 4,242,138 1,437,971 1,843,576 961,162
Research and development expense .............. 9,126,545 4,296,268 2,262,066 808,025 1,794,823 --
Stock option compensation expense ............. 350,000 1,566,075 -- -- -- --
In-process research and development expense ... -- 3,909,000 -- -- -- --
Restructuring costs ........................... -- 3,100,000 -- -- -- --
Asset impairment charges(1) ................... -- 262,935 -- 421,000 -- --
------------ ------------ ------------ ------------ ------------
Total operating expenses ...................... 21,831,733 18,665,491 6,504,204 2,666,996 3,638,399 961,162
------------ ------------ ------------ ------------ ------------ ------------
Earnings (loss) from operations ............... 4,037,499 (13,362,246) (1,079,614) (1,814,370) (2,368,226) (328,647)
Interest expense .............................. 1,910,422 1,198,777 677,102 255,604 256,871 36,209
Other income .................................. (76,045) (23,480) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes and
extraordinary item ............................ 2,203,122 (14,537,543) (1,756,716) (2,069,974) (2,625,097) (364,856)
Income taxes .................................. 85,000 -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Earnings (loss) before extraordinary item ..... 2,118,122 (14,537,543) (1,756,716) (2,069,974) (2,625,097) (364,856)
Extraordinary item ............................ 188,182 -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net earnings (loss) ........................... $ 2,306,304 ($14,537,543) ($ 1,756,716) (2,069,974) (2,625,097) (364,856)
============ ============ ============ ============ ============ ============
Basic earnings (loss) per share:
Earnings (loss) before extraordinary item .. $ 0.30 $ (2.45) $ (0.35) $ (0.55) $ (0.70) $ (0.10)
Extraordinary item ......................... 0.02 0.00 0.00 0.00 0.00 0.00
------------ ------------ ------------ ------------ ------------ ------------
Net earnings (loss) ........................ $ 0.32 $ (2.45) $ (0.35) $ (0.55) $ (0.70) $ (0.10)
============ ============ ============ ============ ============ ============
Diluted earnings (loss) per share:
Earnings (loss) before extraordinary item .. $ 0.28 $ (2.45) $ (0.35) $ (0.55) $ (0.70) $ (0.10)
Extraordinary item ......................... 0.02 0.00 0.00 0.00 0.00 0.00
------------ ------------ ------------ ------------ ------------ ------------
Net earnings (loss) ........................ $ 0.30 $ (2.45) $ (0.35) $ (0.55) $ (0.70) $ (0.10)
============ ============ ============ ============ ============ ============
Weighted average shares used in computation
Basic ......................................... 7,111,777 5,931,346 5,012,664 3,750,699 3,742,227 3,729,721
============ ============ ============ ============ ============ ============
Diluted 7,571,425 5,931,346 5,012,664 3,750,699 3,742,227 3,729,721
============ ============ ============ ============ ============ ============
EBITDA (2) .................................... $ 6,948,568 ($12,297,678) ($ 625,431) ($ 1,636,835) ($ 2,091,313) ($ 181,124)
BALANCE SHEET DATA:
Cash and cash equivalents ..................... $ 2,947,660 $ 254,956 $ 569,692 $ 186,488 $ 971 $ 2,109
Working capital (deficit) ..................... (2,255,064) (8,803,970) 1,654,857 (5,851,527) (4,082,987) (1,343,018)
Total assets .................................. 28,236,062 29,190,714 10,231,617 6,572,917 272,686 3,452,999
Long-term liabilities ......................... 760,085 16,862,337 4,649,404 161,968 130,414 168,304
Total liabilities ............................. 23,909,150 44,427,634 11,381,678 11,019,543 5,669,338 3,264,554
Stockholder's equity (deficiency) ............. 4,326,912 (15,236,920) (1,150,061) (4,446,626) (2,396,652) 188,445
(1) Consists of the writedown of designs and drawings in light of the
introduction of replacement products.
(2) Earnings before interest, taxes, depreciation and amortization
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
In reviewing the following discussion and analysis, the reader should take
note of the fact that the respective periods being compared are of various
durations. When we became an indirect subsidiary of Singapore Technologies Pte
Ltd ("ST") in August 1996, we adopted ST's calendar fiscal year, which created a
stub fiscal period from July 1, 1996 through December 31, 1996.
Radyne Corp., our predecessor, was incorporated in 1980 and filed for
Chapter 11 bankruptcy protection in April 1994. It successfully emerged from
bankruptcy in December 1994 upon the acquisition of approximately 91% of its
common stock by Engineering and Technical Services, Inc. ("ETS"), then a major
customer. On August 12, 1996, ST acquired ETS through its indirect wholly owned
subsidiary, Stetsys US, Inc. ST held approximately 71% of our common stock as of
February 11, 2000.
In 1995, we installed a new management team, which moved our operations
from New York to Phoenix, Arizona. As part of this management change, we hired
an almost entirely new staff of engineering, sales and support personnel.
On October 15, 1998, we purchased ComStream Holdings, Inc. (a corporation
incorporated under the laws of the State of Delaware with an office currently
located at 6340 Sequence Drive, San Diego, California) from Spar Aerospace
Limited ("Spar"), a Canadian advanced technology company. ComStream is an
international provider of digital transmission solutions for voice, data, audio
and video applications with offices in the United States, Singapore, Indonesia,
China and the United Kingdom. ComStream recorded revenue of approximately $37
million in fiscal 1998. We acquired ComStream in an effort to expand our core
business and to supplement our product lines with a number of viable developed
products and superior quality products in the design stage, all of which have
since been released for production. In addition, we based our decision to
acquire ComStream on the strategic belief that the combined companies could
compete more effectively and realize certain synergies. We believe that our
acquisition of ComStream has had and will have a number of positive effects,
including the following:
1. The combined annual revenue of Radyne ComStream for fiscal 1999 was
approximately $56 million versus Radyne Corp.'s 1998 stand-alone
revenue of approximately $13 million. This dramatic difference in size
provides us with better control over prices and margins and enables us
to compete in larger markets.
2. The acquisition has produced positive synergistic effects by combining
Radyne's newer product lines with ComStream's established products and
sales channels. We have experienced positive results from the efforts
of the ComStream sales force as compared with our historic reliance on
independent sales representatives. The addition of ComStream's
technology in the satellite communications industry has strengthened
our market share and provided new customers for our existing products.
3. While we viewed ComStream's gross margins as excellent, its
profitability had suffered from extremely high expenses. During 1999,
we reduced ComStream's recurring expenses by approximately $1,000,000
per month. The continued efficiencies and restructuring of our product
lines have resulted in significant cost savings.
We recorded the acquisition of ComStream under the "purchase method" of
accounting. Accordingly, we allocated the purchase price to the assets purchased
and the liabilities assumed based upon the estimated fair values at the date of
acquisition. The excess of the purchase price over the fair values of the net
assets acquired was approximately $8.7 million, of which $3.9 million was
allocated to in-process research and development, $2.5 million was valued as
purchased technology, which is being amortized over 6.25 years, and $2.3 million
has been recorded as goodwill, which is being amortized over ten years. As a
result of the recent completion of our settlement negotiations with Spar, the
amount of goodwill recorded in the transaction was reduced by $516,000 to $1.5
million (after amortization of $254,000) in the year ended December 31, 1999.
See " -- Liquidity and Capital Resources." We have included ComStream's results
in our combined statement of operations from the acquisition date.
15
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1998
The Company's net sales increased 164% to $55,840,000 during the year ended
December 31, 1999 from $21,112,000 during the year ended December 31, 1998. This
increase is primarily attributable to the increased product sales resulting from
our acquisition and integration of ComStream in October 1998 and new product
development.
The Company's cost of sales as a percentage of net sales decreased to 54%
during the year ended December 31, 1999 from 75% for the year ended December 31,
1998. Costs associated with the delivery of new products to the marketplace
accounted for the high period costs in 1998. We expensed $911,000 during 1998 to
write off these costs and to increase our provision for obsolescence; we
anticipate that neither of these adjustments will have an impact on our future
results of operations. In addition, we were able to realize certain synergies in
our operations as a result of the acquisition and integration of ComStream,
which enabled us to significantly increase our margins on product sales.
Selling, general and administrative costs increased to $12,355,000 or 22%
of sales during the year ended December 31, 1999 from $5,531,000 or 26% of sales
for the year ended December 31, 1998. The increase in real costs and the
reduction, in terms of percentage of sales, was primarily a result of higher
expense levels and sales amounts due to our acquisition and integration of
ComStream into our operations.
Research and development expenditures increased to $9,127,000 or 16% of
sales from $4,296,000 or 20% of sales during the year ended December 31, 1998.
These expenses reflect our continued commitment to invest in our future through
technological advances and our efforts to improve our older product lines for
manufacturability and lower costs. The increase in real costs and the reduction,
in terms of percentage of sales, was primarily a result of the higher expense
levels and sales amounts due to our acquisition and integration of ComStream
into our operations. It is anticipated that the Company will continue to
experience high research and development expenses as it positions itself,
through the introduction of new products, to gain market share.
Based on the increases in our gross margins and our lower operating costs
as a percentage of sales (39% in 1999 compared to 88% in 1998) we recorded
earnings before interest and taxes ("EBIT") of $4,037,000 during 1999 compared
to a loss before interest and taxes of $13,362,000 in 1998. In addition to lower
sales and higher operating costs as a percentage of sales in 1998, we recorded
stock option expense of $1,566,000 (as compared to $350,000 in 1999) and other
costs of $7,272,000 as a result of the acquisition of ComStream which
significantly reduced our EBIT in 1998.
Interest expense increased to $1,910,000 or 3% of sales in 1999 from
$1,199,000 or 6% of sales in 1998 due to our increased level of debt for the
first three quarters of 1999.
We recorded extraordinary income of $188,000 during 1999 as a result of
negotiated forgiveness of previously recorded and accrued interest expense in
connection with the note payable to Spar related to the ComStream acquisition.
We have recorded income tax expense in 1999 of $85,000, which related
solely to Alternative Minimum Tax. Additionally, the effective tax rate is 3.6%
which is significantly below statutory income tax rates because of the
utilization of net operating loss carryforwards.
Based on all of the above, we recorded net earnings of $2,306,000 or $.30
per diluted weighted average share outstanding during 1999 as compared to a net
loss of ($14,538,000) or ($2.45) per diluted weighted average share outstanding
during 1998.
Our new-orders-booked (Bookings) increased 151% to $62,531,000 for the year
ended December 31, 1999 from $24,904,000 for the year ended December 31, 1998.
This increase was primarily a result of our acquisition and integration of
ComStream into our operations in addition to new product development and
enhancement.
Our "Backlog" of orders to be shipped (unshipped orders from the prior
period plus new orders booked less orders shipped during the period) was
$14,522,000 as of December 31,1999, an increase of 69% over the $8,606,000 in
Backlog as of December 31, 1998. Our Backlog consists of firm orders as
evidenced by written contracts and/or purchase orders from customers.
In connection with the acquisition of ComStream, we allocated $3,909,000 of
the purchase price to seven in-process research and development projects. This
allocation represents the estimated fair value based on risk-adjusted future
cash flows related to the incomplete projects. At the date of the acquisition,
the development of these projects had not yet reached technological feasibility
and the research and development in process had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date.
16
This allocation was based on a number of assumptions, including those
regarding estimated project completion dates and costs. As of the year ended
December 31, 1999, all of the seven projects have been completed. The original
cost estimates remain essentially accurate and no other material variations in
the assumptions have appeared. Therefore, we continue to regard the $3,909,000
valuation as correct.
The nature, amount, and timing of the costs required to complete the
in-process technology are presented in the following chart:
Total
Product Cost at
Base Line Started Completion Completion
Description Technology Applicability (Month - Year) Date $000'S
- ----------- ---------- ------------- -------------- ---- ------
2 MB Card QPSK, FEC Coding Modems 01 - 98 11 - 99 $1,820*
"CM 601" Low Coding Modulation Modems 05 - 97 03 - 99 1,400**
Cost Modem
"DT8000" Modulation Coding Earth Stations 03 - 97 12 - 98 2,850***
Ku-band 2 Watt Transmission
Earth Station
"DBR 2000" Data L-Band Receivers Broadcast Data 06 - 98 06 - 99 400
Broadcast Packet Protocol
Receiver
"ABR 202" Audio L-Band Receivers Broadcast Audio 03 - 98 12 - 98 750
Receiver Multiplexing
Set Top Box DTH Television Satellite 03 - 97 07 - 99 1,600
Receiver Cable Television Television Cable
Proprietary Television
IC's -- MPEG
Decoders
MediaCast Card Proprietary Internet Receiver 03 - 97 03 - 99 1,900
Receiver IC's -- Internet Video Receiver
Protocol DVB MPEG
Decoders
---------
$ 10,720
=========
- ---------
* Estimated at $1,800 in our Form 10-K/A for the year ended 12/31/98.
** Estimated at $1,500 in our Form 10-K/A for the year ended 12/31/98.
*** Estimated at $2,750 in our Form 10-K/A for the year ended 12/31/98.
17
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
We increased our net sales by 57% to $21,112,000 during the year ended
December 31, 1998 from $13,447,000 during the year ended December 31, 1997. This
increase was primarily attributable to the increased product sales resulting
from our purchase of ComStream.
Our cost of sales as a percentage of net sales increased to 75% during the
year ended December 31, 1998 from 60% for the year ended December 31, 1997.
During the year ended December 31, 1998, we recorded adjustments to inventory of
approximately $911,000 (4.3% of sales) to write off excess and obsolete
inventory as well as costs associated with the introduction of new products.
This included approximately $280,000 of inventory associated with the DMD-5000
and DMD-4500 modem product lines and approximately $30,000 of inventory
associated with the initial DVB-3000 video broadcast products, all of which were
essentially rendered obsolete by the introduction of newer products. The costs
associated with the introduction of new products (approximately $601,000)
related principally to the following product lines in the following approximate
amounts: the DD-45 and DM-45 high-speed modem products ($75,000), the DD-160 and
DM-160 high speed modem products ($80,000), Ku band converters ($110,000),
C-band converters ($40,000), L-band modem line ($100,000), the DMD-15G
government FM order wire products ($90,000), upgrade and enhancements on digital
video broadcast lines ($20,000) and upgrade and enhancements on the DMD-2401
modem line ($10,000). These costs included production line personnel training
costs, short-lived diagnostic and measurement equipment, set-up costs, expedited
product delivery costs, low volume pricing for purchased parts on initial
production runs and the costs of reworking early circuit board designs. In
addition, we increased our inventory obsolescence reserve by $1,261,000 during
the year ended December 31, 1998. The principal components of this reserve were
approximately $700,000 in parts for our DT-7000 earth station product and
$500,000 in parts for the DT-8000 Au band product, both of which were rendered
slow moving or obsolete by the introduction of the superior and more popular
DT-8000 Ku band product around December 1, 1998.
Selling, general and administrative costs increased to $5,531,000, or 26%
of sales, during the year ended December 31, 1998 from $4,242,000, or 32% of
sales, for the year ended December 31, 1997. The decrease in expenses as a
percentage of sales was primarily attributable to the sales growth as explained
above. The increase in pure dollars is mainly attributable to the purchase of
ComStream in October 1998.
We recorded an asset impairment charge of $263,000 during the year ended
December 31, 1998, to reflect a valuation adjustment to certain designs and
drawings that were fully impaired by the introduction of competing product lines
which we obtained in our purchase of ComStream. Impairment was determined by
comparing the amount of undiscounted projected cash flows attributable to each
product using the related technology to the carrying value of the asset.
Research and development expenditures increased to $4,296,000 (20% of
sales) from $2,262,000 (17% of sales) during the year ended December 31, 1997.
The increase in expenses was primarily attributable to major development
programs instituted during 1997 and to the inclusion of the research and
development expenses from our San Diego facility acquired in the purchase of
ComStream in October 1998.
We recorded stock option compensation expense of $1,566,000 in 1998 to
reflect the bonus and related expenses to be incurred as a result of the vesting
of 657,000 incentive stock options under the 1996 Incentive Stock Option Plan.
These options carry the right to a cash bonus of $1.72 per purchased share,
payable upon exercise. These options were fully vested by action of the Board of
Directors effective October 15, 1998.
We recorded restructuring costs of $3,100,000 in 1998 in connection with a
corporate restructuring cost-cutting initiative. This amount included (a)
$1,100,000 reserved for additional costs expected in connection with the
termination of approximately 25% of the ComStream work force and (b) $2,000,000
reserved for costs related to the termination of a lease for a 125,000 square
foot facility in San Diego, including $700,000 in leasehold improvements which
were abandoned.
In connection with the acquisition of ComStream, we allocated $3,909,000 of
the purchase price to in-process research and development projects. This
allocation represents the estimated fair value based on risk-adjusted future
cash flows related to the incomplete projects. At the date of the acquisition,
the development of these projects had not yet reached technological feasibility
and the research and development in process had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date.
Interest expense net of interest income increased to $1,199,000 (6% of
sales) during the year ended December 31, 1998 from $677,000 (5% of sales) for
the year ended December 31, 1997. The large increase in expense was primarily
attributable to our
18
increased debt that, in turn, was primarily attributable to the acquisition of
ComStream.
For the year ended December 31, 1998, we did not provide for income taxes,
due to the current period net loss and our net operating loss carryforwards. We
also did not provide for income taxes for the prior period due to net operating
losses. The tax examinations disclosed in Note 18 to the consolidated financial
statements have been concluded without change to our tax liability.
For the year ended December 31, 1998, we had a net loss of $14,538,000 as
compared with a net loss of $1,757,000 for the year ended December 31, 1997. The
increase in net loss was primarily attributable to the restructuring costs,
acquired in-process research and development, increased research and development
expense, the stock option compensation expense and the asset impairment charge.
Bookings for the year ended December 31, 1998 were $24,904,000 as compared
to $15,788,000 for the year ended December 31, 1997. The increase is primarily
attributable to the bookings included in the fourth quarter for the acquired
ComStream products.
Our Backlog of orders to be shipped was $8,606,000 as of December 31, 1998,
an increase of 79% over the $4,814,000 in Backlog as of December 31, 1997. Our
Backlog consists of firm orders as evidenced by written contracts and/or
purchase orders from customers.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $2,255,000 at December 31,
1999, which represents an increase in our working capital of $6,549,000 from our
working capital deficit of ($8,804,000) at December 31, 1998. Our working
capital increased primarily as a result of a reduction in current liabilities of
$4,416,000 primarily made up of a reduction in short-term notes payable of
($2,080,000), a reduction in accrued expenses of ($2,853,000), offset by an
increase in accounts payable of $612,000. In addition, current assets increased
by $2,133,000 primarily as a result of an increase in accounts receivable of
$1,407,000, and an increase in cash of $2,693,000, offset by a decrease in
inventories of ($1,041,000), and a decrease in other receivables of
($1,265,000).
Net cash provided by operating activities was $2,564,000 for the year ended
December 31, 1999 compared to cash used in operating activities of $3,850,000
for the year ended December 31, 1998. The change is primarily due to an increase
in earnings from operations of $17,400,000 to $4,037,000 for the year ended
December 31, 1999 compared to a loss from operations of $13,362,000 for the year
ended December 31, 1998. Net cash used by operating activities was $3,850,000
for the year ended December 31, 1998 compared to $4,945,000 for the year ended
December 31, 1997.
Cash used in investing activities was $279,000 for the year ended December
31, 1999 compared to cash used in investing activities of $10,551,000 for the
year ended December 31, 1998 and $593,000 for the year ended December 31, 1997.
The decrease of $10,272,000 from $10,551,000 in 1998 to $279,000 in 1999 is due
to the purchase of ComStream in October 1998. The increase of almost $10,000,000
in 1998 compared to 1997 was also related to the purchase of Comstream. The
Company has no material commitments to make capital expenditures in 2000 or
thereafter.
The Company derived net cash from financing activities of $408,000,
$14,086,000 and $5,922,000 during the years ended December 31, 1999, 1998 and
1997, respectively. During the current period, net cash from financing
activities was composed primarily of $17,173,000 from proceeds obtained through
the sale of common stock, $4,920,000 from line of credit borrowings and offset
by ($15,618,000) in repayments of loans from affiliates, ($5,963,000) in
repayments of notes payable and ($105,000) in principal payments on capital
leases. During 1998, net cash from financing activities was composed of
$3,000,000 obtained through line of credit borrowings, $15,618,000 obtained from
loans due to affiliates and $40,000 received on notes issued in connection with
common stock and was offset by ($4,500,000) in repayments on loans under the
line of credit and ($72,000) in principal payments on capital lease obligations.
During 1997, net cash from financing activities was composed of $7,506,000
obtained through line of credit borrowings and $4,600,000 obtained from loans
due to affiliates and $5,053,000 obtained from the sale of common stock and was
offset by ($11,200,000) in payments on loans due to affiliates and ($38,000) in
principal payments on capital lease obligations.
19
As a result of the foregoing, the Company increased its cash balance by
$2,693,000 for the year ended December 31, 1999, decreased its cash balance by
($315,000) for the year ended December 31, 1998, and increased its cash balance
by $383,000 for the year ended December 31, 1997.
The Company has a $20,500,000 credit agreement with Citibank, N.A. that
includes $20,000,000 available under an uncommitted line of credit facility and
facilities for bank guarantees and/or standby letters of credit up to $500,000.
All loans pursuant to the bank line of credit are short term loans with
maturities no later than September 29, 2000. The bank could demand repayment at
any time after the maturity date of the loans in which case we might have to
seek additional financing to repay our line of credit. If we are required to
seek additional sources of financing to repay our line of credit, such financing
may not be available on terms that we consider acceptable or may not be
available in sufficient amounts to enable us to repay our obligations to the
bank. Any of these circumstances would have a material and adverse impact on our
business, financial condition, and results of operations. We believe the bank's
willingness to provide us with the line of credit is based in part on the bank's
relationship with ST. ST has provided the bank with a letter of awareness in
which ST states it (1) will endeavor to ensure that we utilize sound financial
and business practices in our operations and (2) ST will give that bank at least
60 days' prior written notice of any divestment of our shares held by ST or its
affiliates. ST has not, however, guaranteed our indebtedness to the bank and is
under no obligation to do so or to otherwise satisfy our debts if we fail to pay
them when due. Borrowings under the line of credit bear interest at a
fluctuating rate equal to LIBOR plus 1% per annum or an alternative Citibank
Quoted Rate plus 1% per annum.
The availability of additional borrowings under the credit agreement
expires September 29, 2000 and is renewable annually at the option of the Bank.
The Company owed principal of $12,920,000 under the line of credit at interest
rates from 6.59% percent to 6.94% as of December 31, 1999. Subsequent to the end
of the period reported on herein, the Company repaid $4,920,000 of outstanding
borrowings using cash from operations.
During 1999, we also had a note payable to Spar in the amount of
$7,000,000. This note was issued on October 15, 1998 as partial consideration
for the acquisition of ComStream Holdings, Inc. The note matured on July 15,
1999 with interest at 8% per annum. We negotiated a reduction in the note
balance due to Spar for the following reasons: (i) a $521,000 reduction for our
assumption of $115,000 of liabilities from Spar and the waiver of Spar's
obligation to indemnify us against a $406,000 claim by a product assembly
contractor for costs incurred on ComStream's behalf prior to the acquisition,
and (ii) a $516,000 reduction in the note for certain inventory, furniture, and
equipment erroneously carried on ComStream's pre-closing balance sheet. Because
these discrepancies were identified prior to the purchase price allocation, no
portion of our purchase price for ComStream was allocated to such inventory,
furniture, and equipment. Therefore, this $516,000 reduction has resulted in a
reduction of goodwill. We paid the note during the quarter ended September 30,
1999. In addition, we negotiated a $278,000 reduction in interest on the note
($188,000 of which had been accrued in prior periods and has been reported as
extraordinary income). We have financed the repayment of debt incurred for the
ComStream acquisition, certain planned restructuring costs and our ongoing
working capital needs through (i) a rights offering pursuant to which we sold
$16,860,584 of Common Stock to our existing stockholders and (ii) the existing
bank line of credit. In the rights offering, we issued rights to our
shareholders entitling them to purchase an aggregate of up to 4,745,076 shares
of our common stock at a purchase price of $3.73 per share. On September 30,
1999, ST instructed us to capitalize the entire $15,618,272 principal amount of
the debt we owed to ST in partial exercise of its rights in the rights offering.
In October 1999, ST exercised the balance of its rights by paying cash to us in
the amount of $423,700. We used the funds, along with $932,200 of cash on hand,
to pay the accrued interest due to ST.
The rights offering was concluded on December 1, 1999. Our shareholders
purchased 4,520,264 shares at an aggregate purchase price of $16,860,585 in our
rights offering, including ST's purchase of 4,300,800 shares at an aggregate
purchase price of $16,041,984.
Subsequent to December 31, 1999, we completed a public offering of
2,400,000 units, each consisted of one share of common stock and one warrant to
purchase one share of common stock, plus a 360,000 unit underwriter's
over-allotment that was exercised at closing, providing us with approximately
$16,759,000 in net proceeds, a significant portion of which we plan to use for
our research and development programs and to hire additional technical personnel
to carry out those programs. The offering closed on February 11, 2000.
We believe that the proceeds from the offerings, our bank credit lines
and cash from operations are likely to be sufficient to fund our planned future
operations and capital requirements for continued growth through the end of
2000.
20
SUPPLEMENTARY INFORMATION
YEAR 2000 COMPLIANCE
In preparation for the Year 2000, we engaged in efforts to ensure that our
products and business systems properly recognized date-sensitive information in
the Year 2000 and beyond. These efforts and their costs are described below. We
have not experienced any significant "Year 2000 problems" with our products and
business systems and do not expect that we will do so in the future.
State of Readiness. In 1999 we hired outside consultants to audit and
assess the ability of our hardware and software systems to operate properly in
the Year 2000 and beyond. We investigated the Year 2000 readiness of our
software, hardware and other significant vendors by requiring them to complete
questionnaires and submit internal Year 2000 plans to insure no disruption would
occur in our supply chain. To date we have not encountered any material Year
2000 issues or significant disruptions to our operations.
Cost of Assessment and Remediation. We have incurred direct costs of less
than $120,000 in assessing and remediating Year 2000 problems, and we do not
expect to spend more than $120,000 in the aggregate to complete the process.
Risks. We could be exposed to a loss of revenues and our operating expenses
could increase if our products or business systems have Year 2000 problems. Our
potential areas of exposure include products purchased from third parties,
information technology, including computers and software, and non-information
technology, including telephone systems and other equipment used internally. The
reasonable likely worst case scenario for Year 2000 problems would be if a
significant defect exists in key hardware or software and if a solution to such
a problem were not immediately available.
Contingency Plan. Although we have not experienced any Year 2000 related
problems affecting our internal systems, we have developed contingency plans to
be implemented if our efforts to identify and correct Year 2000 problems are not
effective. Depending on the systems affected, these plans include:
o accelerated replacement of affected equipment or software;
o short to medium-term use of back-up equipment and software or other
redundant systems; and
o increased work hours for our personnel or the hiring of additional
information technology staff.
The discussion of our efforts and expectations relating to Year 2000
compliance are forward-looking statements. Our ability to achieve Year 2000
compliance, and the level of incremental costs associated with compliance, could
be adversely affected by, among other things, the availability and costs of
external resources, third party suppliers' ability to modify proprietary
software and unanticipated problems not identified in our ongoing review.
IMPACT OF INFLATION
We do not believe that inflation has had a material impact on revenues or
expenses during the last four fiscal periods reported on herein.
ACCOUNTING MATTERS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). This statement requires recognition of
all derivatives as either assets or liabilities on the balance sheet and
measurement of those instruments at fair value. Changes in fair value of
derivatives are recorded each period in current earnings or other comprehensive
income (loss). Proper accounting for changes in fair value of derivatives held
is dependent on whether the derivative transaction qualifies as an accounting
hedge and on the classification of the hedge transaction.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133." This statement amended the effective date of SFAS No. 133 to all fiscal
quarters of all fiscal years beginning after June 15, 2000.
21
Management does not expect the adoption of SFAS No. 133 to have a material
impact on the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk on our financial instruments from changes in
interest rates. We do not use financial instruments for trading purposes or to
manage interest rate risk. Increases in market interest rates would not have a
substantial adverse effect on profitability.
Our financial instruments consist primarily of short-term variable rate
revolving credit lines, and fixed rate debt. Our debt at December 31, 1999
consists of notes payable under a line of credit agreement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Reports...........................................................................23
Consolidated Balance Sheets as of December 31, 1999 and 1998............................................25
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997..............26
Consolidated Statements of Stockholders' Equity (Deficiency) for the Years Ended
December 31, 1999, 1998 and 1997......................................................................27
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997..............28
Notes to Consolidated Financial Statements..............................................................29
22
Independent Auditors' Report
The Board of Directors and Stockholders
Radyne ComStream Inc.:
We have audited the accompanying consolidated balance sheets of Radyne ComStream
Inc. and subsidiaries (the Company) (a majority-owned subsidiary of Singapore
Technologies Pte Ltd) as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficiency), and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements 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, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1999
and 1998, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Phoenix, Arizona
February 4, 2000
23
Independent Auditors' Report
The Board of Directors and Stockholders
Radyne ComStream Inc.:
We have audited the accompanying statements of operations, stockholders'
deficiency and cash flows of Radyne ComStream Inc. (formerly Radyne Corp.) (the
Company) for the year ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We 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 statements of operations, stockholders' deficiency,
and cash flows are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
statements of operations, stockholders' deficiency, and cash flows. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
statements of operations, stockholders' deficiency, and cash flows. We believe
that our audit of the statements of operations, stockholders' deficiency, and
cash flows provides a reasonable basis for our opinion.
In our opinion, the statements of operations, stockholders' deficiency, and cash
flows present fairly, in all material respects, the results of operations and
cash flows of the Company for the year ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Phoenix, Arizona
February 4, 1998
24
Consolidated Balance Sheets
December 31
---------------------------------
Assets 1999 1998
------------ ------------
Current assets:
Cash and cash equivalents $ 2,947,660 254,956
Accounts receivable - trade, net of allowance for doubtful
accounts of $791,746 and $632,815, respectively 8,678,153 7,270,732
Other receivable -- 1,265,000
Inventories, net 8,339,112 9,380,478
Prepaid expenses 929,076 590,161
------------ ------------
Total current assets 20,894,001 18,761,327
------------ ------------
Property and equipment, net 3,595,168 5,533,645
Other assets:
Purchased technology, net of accumulated amortization of $505,000
and $105,000 at December 31, 1999 and 1998, respectively 1,995,000 2,395,000
Goodwill, net of accumulated amortization of $253,530 and
$35,960 at December 31, 1999 and 1998, respectively 1,544,861 2,278,300
Deposits and other 207,032 222,442
------------ ------------
Total other assets 3,746,893 4,895,742
------------ ------------
$ 28,236,062 29,190,714
============ ============
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Note payable under line of credit agreement $ 12,920,000 8,000,000
Note payable -- 7,000,000
Current installments of obligations under capital leases 44,332 124,891
Accounts payable, trade 3,911,742 3,291,915
Accounts payable, affiliate -- 8,150
Accrued expenses 5,588,609 8,441,874
Taxes payable 684,382 698,467
------------ ------------
Total current liabilities 23,149,065 27,565,297
Notes payable to affiliates -- 15,618,272
Obligations under capital leases, excluding current installments 64,652 88,588
Accrued stock option compensation 695,433 1,155,477
------------ ------------
Total liabilities 23,909,150 44,427,634
------------ ------------
Stockholders' equity (deficiency):
Common stock; $.002 par value - authorized, 20,000,000 shares; issued and
outstanding, 10,739,382 and 5,931,346 shares
at December 31, 1999 and 1998, respectively 21,476 11,862
Additional paid-in capital 23,353,318 6,105,404
Accumulated deficit (19,047,882) (21,354,186)
------------ ------------
Total stockholders' equity (deficiency) 4,326,912 (15,236,920)
Commitments, contingent liabilities and subsequent events (note 7, 8, 9, 11, 13,
15, 17 and 18)
------------ ------------
$ 28,236,062 29,190,714
============ ============
See accompanying notes to consolidated financial statements.
25
RADYNE COMSTREAM INC.
Consolidated Statements of Operations
Years ended December 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
Net sales $ 55,839,792 21,111,704 13,446,852
Cost of sales 29,970,560 15,808,459 8,022,262
------------ ------------ ------------
Gross profit 25,869,232 5,303,245 5,424,590
------------ ------------ ------------
Operating expenses:
Selling, general and administrative 12,355,188 5,531,213 4,242,138
Research and development 9,126,545 4,296,268 2,262,066
Stock option compensation expense 350,000 1,566,075 --
In-process research and development -- 3,909,000 --
Restructuring costs -- 3,100,000 --
Asset impairment charge -- 262,935 --
------------ ------------ ------------
Total operating expenses 21,831,733 18,665,491 6,504,204
------------ ------------ ------------
Earnings (loss) from operations 4,037,499 (13,362,246) (1,079,614)
Other (income) expense:
Interest expense 1,910,422 1,198,777 677,102
Other (76,045) (23,480) --
------------ ------------ ------------
Earnings (loss) before income taxes and
extraordinary item 2,203,122 (14,537,543) (1,756,716)
Income taxes 85,000 -- --
------------ ------------ ------------
Earnings (loss) before extraordinary item 2,118,122 (14,537,543) (1,756,716)
Extraordinary item 188,182 -- --
------------ ------------ ------------
Net earnings (loss) $ 2,306,304 (14,537,543) (1,756,716)
============ ============ ============
Basic net earnings (loss) per share:
Earnings (loss) before extraordinary item $ 0.30 (2.45) (0.35)
Extraordinary item 0.02 -- --
------------ ------------ ------------
Net earnings (loss) $ 0.32 (2.45) (0.35)
============ ============ ============
Diluted net earnings (loss) per share:
Earnings (loss) before extraordinary item $ 0.28 (2.45) (0.35)
Extraordinary item 0.02 -- --
------------ ------------ ------------
Net earnings (loss) $ 0.30 (2.45) (0.35)
============ ============ ============
Weighted average number of common shares
outstanding - basic 7,111,777 5,931,346 5,012,664
============ ============ ============
Weighted average number of common shares
outstanding - diluted 7,571,425 5,931,346 5,012,664
============ ============ ============
See accompanying notes to consolidated financial statements.
26
RADYNE COMSTREAM INC.
Consolidated Statements of Stockholders' Equity (Deficiency)
Years ended December 31, 1999, 1998 and 1997
Notes
Additional receivable
Common stock paid-in Accumulated from
Shares Amount capital Deficit stockholders Total
---------- ------- ----------- ----------- ------- -----------
Balances, December 31, 1996 3,759,721 $ 7,519 605,782 (5,059,927) -- (4,446,626)
Issuance of common stock, net of issuance
cost of $335,696 2,171,625 4,343 5,089,024 -- -- 5,093,367
Promissory notes received in connection
with issuance of stock -- -- -- -- (40,086) (40,086)
Net loss -- -- -- (1,756,716) -- (1,756,716)
---------- ------- ----------- ----------- ------- -----------
Balances, January 1, 1997 5,931,346 11,862 5,694,806 (6,816,643) (40,086) (1,150,061)
Payments received on promissory notes -- -- -- -- 40,086 40,086
Stock option plan -- -- 410,598 -- -- 410,598
Net loss -- -- -- (14,537,543) -- (14,537,543)
---------- ------- ----------- ----------- ------- -----------
Balances, December 31, 1998 5,931,346 11,862 6,105,404 (21,354,186) -- (15,236,920)
Issuance of common stock for cash 4,520,264 9,040 16,420,239 -- -- 16,429,279
Exercise of stock options 287,772 574 743,580 -- -- 744,154
Tax benefit of stock option exercises -- -- 84,095 -- -- 84,095
Net earnings -- -- -- 2,306,304 -- 2,306,304
---------- ------- ----------- ----------- ------- -----------
Balances, December 31, 1999 10,739,382 $21,476 23,353,318 (19,047,882) -- 4,326,912
========== ======= =========== =========== ======= ===========
See accompanying notes to consolidated financial statements.
27
RADYNE COMSTREAM INC.
Consolidated Statements of Cash Flows
Years ended December 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
Net earnings (loss) $ 2,306,304 (14,537,543) (1,756,716)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Forgiveness of interest (188,182) -- --
Loss on disposal of assets -- 961,069 2,122
Depreciation and amortization 2,835,024 1,041,088 454,183
Asset impairment charge -- 262,935 --
Stock option compensation -- 1,566,075 --
Write-off of in-process research and development -- 3,909,000 --
Increase (decrease) in cash resulting from changes in:
Accounts receivable (142,421) (915,154) 374,459
Prepaid expenses and other current assets (338,915) 20,069 26,222
Inventories 1,041,366 2,833,811 (3,398,560)
Deposits and other 15,410 242,787 (34,338)
Accounts payable, trade 286,550 (985,095) (138,077)
Accounts payable, affiliate (8,150) 113,682 (420,300)
Accrued expenses (2,853,265) 1,932,071 (25,924)
Taxes payable 70,010 (94,581) (28,487)
Accrued stock option compensation (460,044) -- --
------------ ------------ ------------
Net cash provided by (used in) operating activities 2,563,687 (3,649,786) (4,945,416)
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (279,048) (543,630) (593,072)
Purchase of ComStream, net of cash acquired -- (10,007,369) --
------------ ------------ ------------
Net cash used in investing activities (279,048) (10,550,999) (593,072)
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings from notes payable under line of credit 4,920,000 3,000,000 7,506,180
Payment on note payable under line of credit -- (4,500,000) --
Payment on note payable (5,962,561) -- --
Proceeds from notes payable to affiliates -- 15,618,272 4,600,000
Payments on note payable to affiliate (15,618,272) -- (11,200,000)
Payment of debt issuance costs on line of credit -- (200,000) --
Net proceeds from sale of common stock 17,173,433 -- 5,053,281
Payments received on promissory notes issued in connection
with common stock -- 40,086 --
Principal payments on capital lease obligations (104,535) (72,309) (37,769)
------------ ------------ ------------
Net cash provided by financing activities 408,065 13,886,049 5,921,692
------------ ------------ ------------
Net increase (decrease) in cash 2,692,704 (314,736) 383,204
Cash and cash equivalents, beginning of year 254,956 569,692 186,488