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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended September 30, 2003
Or

For the transition period from                 to

Radyne ComStream Inc.

Registrant’s telephone number including area code: (602) 437-9620

     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 þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes o No þ

     The number of shares of the registrant’s common stock, which were outstanding as of the close of business on November 1, 2003, was 15,868,432.

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Part I
FINANCIAL INFORMATION

Item 1. Financial Statements.

Radyne ComStream Inc.
Condensed Consolidated Balance Sheets

See Notes to Unaudited Condensed Consolidated Financial Statements

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Radyne ComStream Inc.
Condensed Consolidated Statements of Operations
Unaudited

See Notes to Unaudited Condensed Consolidated Financial Statements

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Radyne ComStream Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited

See Notes to Unaudited Condensed Consolidated Financial Statements

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Radyne ComStream Inc.
Notes to Condensed Consolidated Financial Statements
(Information for September 30, 2003 and 2002 is Unaudited)

(1)		Unaudited Interim Condensed Consolidated Financial Statements
		In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal recurring nature, to present fairly the Company’s financial position, results of operations and cash flows. For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002. The results of operations for the nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the full year.
(2)		Goodwill and Other Intangible Assets
		The Company adopted Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets” on January 1, 2002, the first day of fiscal 2002. Therefore, the amortization of goodwill was suspended effective on that date. The Company also performed its transitional impairment analysis of goodwill as of January 1, 2002, as required by SFAS 142. This analysis yielded an impairment charge of $4.3 million, recorded in fourth quarter 2002 to be effective January 1, 2002 as a cumulative effect of change in accounting principle. The Company had no remaining goodwill on its balance sheet as of December 31, 2002.
(3)		Stock-Based Compensation
		The Company follows the intrinsic value-based method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations to account for its stock-based compensation plans. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, “Accounting for Stock-Based Compensation,” established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123. Accordingly, the Company does not recognize compensation expense for any of its stock-based plans because it does not issue options at exercise prices below the market value at date of grant. Had compensation cost for the Company’s stock-based plans been determined consistent with SFAS No. 123, its net earnings (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:

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		The fair value of options granted was estimated on the date of grant with vesting periods ranging from one to three years using the Black-Scholes option-pricing model with the following weighted average assumptions used: no dividend yield, expected volatility of 48 percent - 129 percent, risk free interest rate of 1.5 percent - 6 percent and expected lives of five - nine years. The per share weighted average fair value of stock options granted for the three months ended September 30, 2003 and September 30, 2002 was $1.47 and $1.99 respectively using the Black-Scholes option-pricing model and the assumptions listed above.
		The pro forma data listed above was calculated by retroactively considering the impact of cancellations of stock options by employees effective January 22, 2003. For a full explanation of the cancelled options, please refer to the section below titled “Non-Executive Employee Stock Option Exchange Offer”.
		Non-Executive Employee Stock Option Exchange Offer
		On December 23, 2002, the Company offered to exchange certain “out of the money” non-executive employee stock options. As a result of the volatility in the stock market reflecting the current economic climate, many employees held stock options with an exercise price that significantly exceeded the market price of the Company’s common stock. Because the Company believed that these options were not providing the appropriate level of performance incentives, it offered a voluntary option exchange program allowing eligible employees to cancel their current stock options with exercise prices ranging between $6.00 and $8.25 and between $14.00 and $14.63 per share in exchange for a lesser amount of new options that will be granted no earlier than six months and one day after the options are accepted for exchange and canceled by the Company. The participating employees were to receive an amount of new options in accordance with the following exchange ratio schedule, subject to adjustments for any future stock splits, dividends and similar events:

		Executive officers, directors, and non-employees were not eligible for this offer. Additionally, employees who received options within six months and a day of the commencement of the exchange offer were not permitted to participate. The offer expired on January 22, 2003. The Company accepted for exchange, options to purchase an aggregate of approximately 999,615 shares of the Company’s common stock, representing approximately 89% of the shares subject to options that were eligible to be exchanged under the offer. On July 23, 2003, the Company granted, in accordance with the Non-Executive Employee Stock Option Exchange Offer, new options to purchase 496,429 shares of common stock.
(4)		Inventories

Inventories consist of the following at:

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(5)

Property and Equipment

Property and equipment consist of the following at: