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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE
DECEMBER 31, 2000 NUMBER 0-11685
RADYNE COMSTREAM INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 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, $.001 PAR VALUE
COMMON STOCK PURCHASE WARRANTS
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 $36,500,000
As of December 31, 2000, there were 14,822,820 shares of the
registrant's common stock outstanding.
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PART I
DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, includes statements that constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act") and Radyne ComStream claims the
protection of the safe-harbor for forward-looking statements contained in the
Reform Act. These forward-looking statements are often characterized by the
terms "may," "believes," "projects," "expects," or "anticipates," and do not
reflect historical facts. Specific forward-looking statements contained in this
Annual Report on Form 10-K in the Notes to Consolidated Financial Statements and
under the captions "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" include, but are not limited to:
(i) continued growth in demand for satellite system ground-based equipment and
satellite-delivered communications services, (ii) continued global deregulation
and privatization of telecommunications carriers, (iii) continued growth in
worldwide demand for Internet over Satellite connectivity and communications
serves in general, (iv) an increase in total foreign sales, (v) an increase in
market share and (vi) sufficient cash reserves and cash from operations to fund
planned future operations and capital requirements through the end of 2001.
Forward-looking statements involve risks, uncertainties and other
factors which may cause actual results, performance or achievements of Radyne
ComStream to be materially different from those expressed or implied by such
forward-looking statements. Factors that could affect Radyne ComStream's results
and cause them to materially differ from those contained in the forward-looking
statements include:
- loss of, and failure to replace, any significant customers;
- timing and success of new product introductions;
- product developments, introductions and pricing of competitors;
- timing of substantial customer orders;
- availability of qualified personnel;
- the impact of local political and economic conditions and foreign
exchange fluctuations on international sales;
- performance of suppliers and subcontractors;
- market demand and industry and general economic or business
conditions;
- availability, cost and terms of capital;
- the "Risk Factors" set forth in Exhibit 99.1, which is attached
hereto and incorporated by reference into this Annual Report on
Form 10-K; and
- Other factors that Radyne ComStream is currently unable to identify
or quantify, but may exist in the future.
In addition, the foregoing factors may affect generally Radyne
ComStream's business, results of operations and financial position.
Forward-looking statements speak only as of the date the statement was
made. Radyne ComStream does not undertake and specifically declines any
obligation to update any forward-looking statements.
ITEM 1. BUSINESS
OVERVIEW
We design, manufacture, install 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
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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 communication systems
worldwide, including the following:
- The world's highest capacity domestic, digital satellite telephone
network -- PT Telkom, Indonesia.
- Italy's first digital telephone/data network -- Telespacio, Italian
Railways.
- Colombia's first alternate telecommunications network --
Americatel.
- Earth stations for the first international satellite links in
China, India, Pakistan, Brazil, Haiti and Zambia.
- One of the world's largest private satellite broadcast network --
Reuters.
- International Cablecasting Technologies -- utilizing 40,000 digital
audio broadcast receivers.
- First major Internet over Satellite network with 300 terminals
deployed in the Dominican Republic for a distance learning
application.
- Major private audio network in Mexico and Central America for a
department store chain which transmits music, advertising and
product announcements to all its store locations.
- Supply of major control room equipment plus engineering,
installation and training at new customer service center for
PanAmSat Corporation.
- Broadband satellite modems and frequency converters to provide
telephone and Internet connectivity for VSNL, the largest
international telecommunications provider in India.
- High-Speed DVB Modulators for Hughes Direct to PC network.
- First Internet broadcast network in the Republic of Myanmar.
- Major expansion of US Government Satellite Communications Network.
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
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under-served 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. A Merrill Lynch Study "Global
Satellite Marketplace 2000" estimated the global market for satellite ground
equipment and integration services was $30 billion in 2000, of which our
management estimates $1 billion was for the type of equipment and systems 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 Merrill Lynch
report, total revenues for providers of satellite communications equipment and
services will grow at a compound rate of 20% to almost $115 Billion by 2007.
We believe that future growth in satellite communications services will
be driven principally by the following major factors:
- Continued global deregulation and privatization of
government-monopolized telecommunications carriers, which will
stimulate growth in the communications industry in general.
- Growing worldwide demand for Internet over Satellite connectivity.
Approximately 80% of the World Wide Web sites reside in North
America and high-speed access to the web will continue to be a
major issue over the next 3-5 years.
- Growing worldwide demand for communications services in general,
including data communications services, high-speed digital
television and corporate Intranets.
- The relative cost-effectiveness of satellite communications for
many applications, such as digital television delivery.
- Technological advancements that broaden applications for and
increase the capacity in satellite networks.
- Lack of global terrestrial infrastructure to support increased
demand for Broadband and Internet applications and services.
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
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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 stimulate 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 of 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:
- 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.
- All areas within a satellite beam receive the same level of
service, making it highly attractive in rough terrain or
underdeveloped regions.
- 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.
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
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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:
- Satellites provide television broadcasters with an efficient and
economical method to distribute their programming to cable service
providers and direct broadcast satellite operators.
- Compressed video encoding and decoding make satellites available
for less demanding video transmissions, including business
teleconferencing, private business networks, and telemedicine.
- The economics of compressed video allow the use of satellite
transmission for long-distance teaching applications.
- Digital cinema distribution is emerging as a viable alternative to
the physical distribution of feature length films.
- 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. 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 1,763 satellite ISP links in operation in December 2000, up
from 222 in January 1998. Satellite capacity is being used for ISP links
primarily where fiber cable is prohibitively expensive or non-existent, such is
the case in many underdeveloped or emerging countries. 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 more than
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 DECEMBER 2000
% ISPS
GEOGRAPHIC AREA NO. OF ISPS NO. SATELLITE LINKS CONNECTED VIA SATCOMS*
--------------- ----------- ------------------- ---------------------
Western Europe ........ 3,857 39 1.0%
CEE and CIS** ......... 1,404 265 19.0%
Africa ................ 308 145 47.0%
Latin America ......... 1,173 777 66.0%
Middle East ........... 223 97 43.0%
Asia .................. 1,766 126 7.0%
Australasia & Oceania . 969 253 26.0%
North America ......... 5,800 61 1.0%
------ ------ ----
Total ........ 15,500 1,763 11.3%
====== ====== ====
Source: DTT Consulting
- ----------
* 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 renewed our
strategic relationship with Harmonic Inc. (formerly DiviCom Inc.), a major
producer of compressed digital television systems. Under this arrangement, our
strategic partner will utilize our products in cable
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systems that it markets to cable television system operators.
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
and increase our profitability.
PRODUCTS AND SERVICES
We offer the following product families:
- Satellite modems and earth stations.
- Internet via Satellite terminal equipment
- Frequency converters.
- Data, audio, and video broadcast equipment.
- Digital video broadcast (DVB) and high-speed modems.
- Cable and microwave modems.
We offer the following services:
- Design of satellite ground based communication systems.
- Integration and installation of turnkey communication systems.
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.
We've recently introduced a major addition to our satellite modem line,
the Turbo forward error correction codec. The turbo product provides
customers with greatly improved satellite and bandwidth performance, which
directly translates to space segment cost savings. This product also affords
our installed base of customers (in excess of 10,000 modems) the opportunity
to improve their performance at a significant operational cost saving.
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.
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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 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. Recently the Ministry of Radio & Television
in the Republic of Myanmar has also adopted our IntelliCast Digital Data
Broadcast Receiver as the standard for their distance learning network.
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.
TWO-WAY INTERNET SATELLITE TERMINAL EQUIPMENT
Our IPSat Internet Satellite Terminal is designed as a fully integrated
modular system capable of receive only, transmit only or full duplex
satellite connectivity to the Internet anywhere in the world. Utilizing the
IPSat's modularity and integrated routing capabilities end users can take
advantage of hybrid configurations in situations where terrestrial return
resources such as telephone, cable or other "upstream" technologies are
available to be used in conjunction with satellite broadcasting. Where such
return resources are not available, or too expensive, the IPSat system can
support the return channel over satellite. The IPSat can offer the most
flexible, cost efficient performance for high-speed satellite downloads from
the World Wide Web for ISP's, Corporations, Educational Institutions and
Government Agencies.
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
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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 and microwave 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.
Research and development expenses amounted to $9.3 million for the year
ended December 31, 2000, $9.1 million for the year ended December 31, 1999, and
$4.3 million for the year ended December 31, 1998. A number of new products were
either launched or reached an advanced stage of development during these
periods.
We intend to use a significant portion of the proceeds obtained through
the February 2000 public offering of our common stock to fund our research into
Internet-related products for Internet over Satellite links, and other new
telecommunications products. 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 (www.RadyneComStream.com) (reference to our Web site is
intended to be an inactive textual reference).
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
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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 year ended December 31, 2000 one customer represented 12.4% of
our net sales. During the years ended December 31, 1999 and 1998, no single
customer represented more than 10% 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
------ 12-31-00 12-31-99 12-31-98
---------- ---------- ----------
Asia 25% 25% 7%
Africa/Middle East 2% 4% 8%
Latin America 3% 4% 9%
Europe 13% 21% 23%
Canada 1% 2% 3%
-- -- --
Total Foreign Sales 44% 56% 50%
The one customer who accounted for 12.4% of our total sales was
classified as a domestic customer. However, the products purchased by the
customer were used to complete Internet over satellite circuits from the U.S. to
foreign (principally Latin American) countries. Likewise, we believe that as
much as 60% of our domestic sales are ultimately destined for foreign use.
We believe that foreign sales will continue to make up the bulk of our
total sales 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.
COMPETITION
We have a number of major competitors in the satellite communications
field. These include large companies, such as Hughes Network Systems, NEC, and
Comtech EFData 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
- ---------- -------------- ----------------- --------------- ---------------
Comtech/EF Data 20% 30% 35% *
Hughes Network Systems 20 * * *
Paradise Datacom 10 * * *
NEC 25 * * *
Wegener * * * 25
IDC * * * 25
Radyne ComStream 10 35 20 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.
11
12
We compete by concentrating our sales efforts in the international
market and emphasizing our product features, quality and after-sales service. 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:
- 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.
- Our expansive line of well-known, well-respected, off-the-shelf,
state-of-the-art equipment that enables us to meet our customers'
requirements.
- Our ability to custom design products for our customers' special
applications and to provide a one-stop shopping option to our
customers.
- 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.
- 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.
MANUFACTURING
We assemble and test certain 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.
During 1999 and 2000, our Phoenix and San Diego facilities were 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.
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
12
13
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, 2000, we had 230 full-time employees, including four
executive officers, 136 in engineering and manufacturing, 35 in sales and
marketing, 28 in installation and customer service and 27 in administration.
These figures include 24 employees who are based outside the United States. A
union does not represent our employees in their collective bargaining with us.
We believe that our relationships with our employees are satisfactory.
ITEM 2. PROPERTIES
We currently have 76,000 square feet available in Phoenix, 16,000
square feet in Chandler and 66,000 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. The lease for our Chandler facility
expires in October 2008 and we have an option to renew for five years. 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
and provide adequate space for our operations in these locations.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are party to certain legal proceedings incidental
to the conduct of our business. We believe that the outcome of pending legal
proceedings will not, either individually or in the aggregate, have a material
adverse effect on our business, financial position, results of operations, cash
flows or liquidity.
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, 2000.
13
14
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 National 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 and Nasdaq National Market for the periods indicated.
At December 31, 2000, we had approximately 500 stockholders of record and
approximately 5000 beneficial owners of our common stock.
HIGH $ LOW $
------ -----
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
2000:
First Quarter.............. 35 6 1/2
Second Quarter............. 23 3/8 11 1/8
Third Quarter.............. 17 9/16 7 13/16
Fourth Quarter............. 10 1/8 3 31/32
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.
14
15
ITEM 6. SELECTED FINANCIAL DATA
The following selected statement of operations data for the years ended
December 31, 2000, 1999, 1998, 1997, the six months ended December 31, 1996, and
the year ended June 30, 1996, 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, 2000, 1999 and 1998) and Deloitte & Touche LLP (in the case of the
year ended December 31, 1997, the six months ended December 31, 1996, and the
year ended June 30, 1996). 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. Prior
to August 1996, our fiscal year ended on June 30th. We 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.
15
16
STATEMENT OF OPERATIONS DATA:
YEARS ENDED DECEMBER 31, 6 MONTHS YEAR
(in thousands except share data) ENDED ENDED
2000 1999 1998 1997 12/31/96 6/30/96
----------- ---------- ---------- ---------- ---------- ----------
Net sales ................................. $ 70,107 $ 55,840 $ 21,112 $ 13,447 $ 4,905 $ 3,830
Cost of sales ............................. 38,280 29,971 15,808 8,022 4,052 2,559
----------- ---------- ---------- ---------- ---------- ----------
Gross profit .............................. 31,827 25,869 5,304 5,425 853 1,271
----------- ---------- ---------- ---------- ---------- ----------
Selling, general and administrative expense 13,573 12,355 5,531 4,242 1,438 1,844
Research and development expense .......... 9,317 9,127 4,296 2,262 808 1,795
Stock option compensation expense ......... -- 350 1,566 -- -- --
In-process research and development expense -- -- 3,909 -- -- --
Restructuring costs ....................... -- -- 3,100 -- -- --
Asset impairment charges(1) ............... -- -- 263 -- 421 --
----------- ---------- ---------- ---------- ---------- ----------
Total operating expenses .................. 22,890 21,832 18,665 6,504 2,667 3,639
----------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) from operations ........... 8,937 4,037 (13,361) (1,079) (1,814) (2,368)
Interest expense .......................... 492 1,910 1,199 677 256 257
Interest income ........................... (1,076) (76) (23) -- -- --
----------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before income taxes
and extraordinary item .................... 9,522 2,203 (14,537) (1,756) (2,070) (2,625)
Income taxes .............................. (2,919) 85 -- -- -- --
----------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before extraordinary item . 12,441 2,118 (14,537) (1,756) (2,070) (2,625)
Extraordinary item ........................ -- 188 -- -- -- --
----------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) ....................... $ 12,441 $ 2,306 $ (14,537) $ (1,756) $ (2,070) $ (2,625)
=========== ========== ========== ========== ========== ==========
Basic earnings (loss) per share:
Earnings (loss) before extraordinary item $ 0.89 $ 0.30 $ (2.45) $ (0.35) $ (0.55) $ (0.70)
Extraordinary item ...................... 0.00 0.02 0.00 0.00 0.00 0.00
----------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) ..................... $ 0.89 $ 0.32 $ (2.45) $ (0.35) $ (0.55) $ (0.70)
=========== ========== ========== ========== ========== ==========
Diluted earnings (loss) per share:
Earnings (loss) before extraordinary item $ 0.81 $ 0.28 $ (2.45) $ (0.35) $ (0.55) $ (0.70)
Extraordinary item ...................... 0.00 0.02 0.00 0.00 0.00 0.00
----------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) ..................... $ 0.81 $ 0.30 $ (2.45) $ (0.35) $ (0.55) $ (0.70)
=========== ========== ========== ========== ========== ==========
Weighted average shares used in computation
Basic .................................... 13,972,078 7,111,777 5,931,346 5,012,664 3,750,699 3,742,227
=========== ========== ========== ========== ========== ==========
Diluted .................................. 15,426,297 7,571,425 5,931,346 5,012,664 3,750,699 3,742,227
=========== ========== ========== ========== ========== ==========
EBITDA(2) ................................. $ 11,164 $ 6,948 $ (12,297) $ (625) $ (1,637) $ (2,091)
BALANCE SHEET DATA:
Cash and cash equivalents ................. $ 16,245 $ 2,948 $ 255 $ 570 $ 186 $ 1
Working capital (deficit) ................. 33,858 (2,555) (8,804) 1,655 (5,852) (4,083)
Total assets .............................. 51,844 28,236 29,191 10,232 6,573 273
Long-term liabilities ..................... 769 760 16,862 4,649 162 130
Total liabilities ......................... 10,030 23,909 44,428 11,382 11,020 5,669
Stockholders' equity (deficiency) ......... 41,814 4,327 (15,237) (1,150) (4,447) (2,397)
(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
16
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
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 2000 and
1999 was approximately $70 million and $56 million, respectively,
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
was recorded as goodwill, which is being amortized over ten years. As a result
of the settlement 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. We have included ComStream's results in our
combined statements of operations from the acquisition date.
On December 8, 2000, the Company completed the acquisition of all of
the outstanding shares of common stock of Armer Communications Engineering
Services, Inc. ("Armer") for an aggregate purchase price of $1,926,940 million
consisting of $1,200,000 million in cash and 130,680 shares of common stock of
the Company. The fair value of the stock was determined based on the average
market price of the stock over a reasonable period of time before and after the
terms of the acquisition were agreed to and announced. Armer specializes in
innovative solutions for the integration and installation of turnkey satellite
communications systems. This acquisition has been recorded in accordance with
the "purchase method" of accounting and, accordingly, the purchase price has
been allocated 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
$1,943,892 and has been recorded as goodwill, which is being amortized on a
straight-line basis over twelve years. The results of operations of the acquired
operations have been included in the accompanying statement of operations from
the acquisition date.
17
18
RESULTS OF OPERATIONS
THE YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
The Company's net sales increased 26% to $70,107,000 during the year
ended December 31, 2000 from $55,840,000 during the year ended December 31,
1999. This increase is primarily attributable to our introduction of a number of
new products into our traditional markets, which resulted in an increase in
market share.
The Company's cost of sales as a percentage of net sales increased to
54.6% during the year ended December 31, 2000 from 53.7% for the year ended
December 31, 1999. The change in costs as a percent of sales is primarily due to
changes in the mix of products shipped.
Selling, general and administrative costs increased to $13,573,000 (19%
of sales) during the year ended December 31, 2000 from $12,355,000 (22% of
sales) for the year ended December 31, 1999. The increase in expenses during the
year is primarily attributed to an increase in commissions (and other selling
expenses) due to the increase in sales compared to the prior year and an
increased focus on our marketing strategies. The decrease of SG&A expenses in
terms of percentage of sales is primarily due to the Company being able to
increase sales at a faster rate than expenses.
Research and development expenditures increased to $9,317,000 or 13% of
sales during the year ended December 31, 2000 from $9,127,000 or 16% of sales
during the year ended December 31, 1999. The increase in expense reflects 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. Our research and development personnel concentrate on technology for the
satellite and microwave communications, telecommunications, and cable television
industries. 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.
As a result of the increase in our gross profit and our lower operating
costs as a percentage of sales (33% in 2000 compared to 39% in 1999) we recorded
earnings from operations of $8,937,000 during 2000 compared to $4,037,000 in
1999.
Interest expense decreased to $492,000 or 0.1% of sales in 2000 from
$1,910,000 or 3.4% of sales in 1999 due to the payoff of our credit line during
the current year.
Interest income increased to $1,076,000 or 1.5% of sales in 2000 from
$76,000 or 0.1% of sales in 1999. The increase is due to the increase in our
overall cash levels in 2000 compared to 1999. As discussed below, cash increased
primarily as a result of a public offering in February 2000.
We recorded a net income tax benefit in 2000 of $2,919,000 primarily
due to a one-time tax benefit of $4.3 million in the third quarter resulting
from the reduction of the valuation allowance pertaining to our net operating
loss carryforward.
Based on all of the above, we recorded net earnings of $12,441,000 or
$0.81 per diluted weighted average share outstanding during 2000 as compared to
$2,306,000 or $0.30 per diluted weighted average share outstanding during 1999.
Our new orders booked (bookings) increased 15% to $72,088,000 for the
year ended December 31, 2000 from $62,531,000 for the year ended December 31,
1999. This increase is primarily due to the introduction of new products into
the market place and an increased market share in the Internet over satellite
industry, in addition to increased demand for our core products. Our "backlog"
of orders to be shipped (unshipped orders from the prior period plus new orders
booked less orders shipped during the period) was $17,011,000 as of December 31,
2000, an increase of 17% over the $14,522,000 in backlog as of December 31,
1999. Our backlog consists of firm orders as evidenced by written contracts
and/or purchase orders from customers.
18
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RESULTS OF OPERATIONS
THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE 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.
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 a note payable related to the ComStream acquisition.
We recorded income tax expense in 1999 of $85,000, which related solely
to the alternative minimum tax. The effective tax rate is 3.6%, which is
significantly below statutory income tax rates because of the utilization of net
operating loss carryforward.
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.
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.
The nature, amount, and timing of the costs required to complete the
in-process technology are presented in the following chart:
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20
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $33,858,000 at December 31, 2000,
which represents an increase in our working capital of $36,113,000 from our
working capital deficit of $2,255,000 at December 31, 1999. Our working capital
increased primarily as a result of an increase in cash of $13,297,000 and a
payoff of short-term notes payable of $12,290,000.
Net cash provided by operating activities was $5,907,000 for the year
ended December 31, 2000 compared to cash provided by operating activities of
$2,564,000 for the year ended December 31, 1999. The change is primarily due to
an increase in net earnings of $10,135,000 to $12,441,000 partially offset by an
increase in accounts receivable of $2,097,000 as a result of our high volume of
sales during the fourth quarter of 2000. The Company's inventory balances also
increased by $2,874,000 as a result of our increased backlog compared to the
prior year. Accounts payable and accrued expenses decreased by $1,915,000 and
$410,000, respectively due to the timing of vendor payments. In addition, the
Company recorded a net tax benefit of $2,919,000 as a result of the reduction of
the valuation allowance pertaining to our net operating loss carryforward. 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.
Cash used in investing activities was $2,820,000 for the year ended
December 31, 2000 compared to cash used in investing activities of $279,000 for
the year ended December 31, 1999, and $10,551,000 for the year ended December
31, 1998. The increase of $2,541,000 from $279,000 in 1999 to $2,820,000 in 2000
is primarily due to assets, net of cash, acquired from Armer Communications in
the amount of $1,092,000. In addition, the Company had current year additions to
fixed assets of $1,228,000 as compared to $279,000 during 1999. 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 Company has no material commitments to make
capital expenditures in 2001 or thereafter.
20
21
The Company derived net cash from financing activities of $10,210,000,
$408,000 and $13,866,000 during the years ended December 31, 2000, 1999, and
1998, respectively. During the year ended December 31, 2000, net cash from
financing activities was generated primarily through a public offering which
generated cash of $16,340,453, net of offering costs. The exercise of warrants,
which were issued in connection with the public offering, provided additional
proceeds of $5,394,000. In addition, the exercise of stock options and stock
purchased through our Employee Stock Purchase Plan provided proceeds of
$1,464,000. These proceeds were partially offset by payments made on our line of
credit of $12,290,000. During 1999, net cash from financing activities was
composed primarily of $17,173,000 from proceeds obtained through the sale of
common stock and $4,920,000 from line of credit borrowings, offset by
$15,618,000 in repayments of loans from affiliates and $5,963,000 in repayments
of other notes.
We believe that current cash levels and cash from operations should be
sufficient to fund our planned future operations and capital requirements for
continued growth through the end of 2001. In addition, we have secured a
committed line of credit with a bank in the amount of $10,000,000. As of
December 31, 2000, there was no outstanding balance on the line of credit.
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. Management does not
expect the adoption of SFAS No. 133 to have a material impact on the Company.
The Financial Accounting Standards Board issued a Proposed Statement of
Accounting Standards, "Business Combinations and Intangible Assets - Accounting
for Goodwill." The proposed Statement would prohibit goodwill amortization and
establish a new method of testing goodwill for impairment. The proposed
statement would also prohibit the pooling of interest method of accounting for
business combinations and establish a new accounting standard for goodwill
acquired in a business combination. The provisions of the proposed Statement
would be effective for fiscal quarters beginning after the issuance of the final
Statement. The impact of the Statement may be significant if it is issued as
currently proposed, as we would be required to test our goodwill for impairment
under new standards and would no longer recognize goodwill amortization expense.
This would have the effect of reducing our operating expenses. In 2000, we
incurred $1.9 million in goodwill amortization expense.
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. As of December 31, 2000, a 1% change in interest
rates would, over a year's period, have a potential pretax impact of $162,000
which is immaterial to our consolidated financial statements.
21
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report.................................................................................... F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999.................................................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998...................... F-3
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999
and 1998.................................................................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and
and 1998.................................................................................................... F-5
Notes to Consolidated Financial Statements...................................................................... F-6
23
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, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000
and 1999, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
Phoenix, Arizona
March 9, 2001
F-1
24
RADYNE COMSTREAM INC.
Consolidated Balance Sheets
DECEMBER 31,
----------------------------------
ASSETS 2000 1999
------------ ------------
Current assets:
Cash and cash equivalents $ 16,244,591 2,947,660
Accounts receivable - trade, net of allowance for doubtful
accounts of $1,014,813 and $791,746, respectively 11,019,149 8,678,153
Inventories, net 11,330,565 8,339,112
Prepaid expenses 670,726 929,076
Deferred tax assets 3,854,418 --
------------ ------------
Total current assets 43,119,449 20,894,001
------------ ------------
Property and equipment, net 3,288,867 3,595,168
Other assets:
Purchased technology, net of accumulated amortization of $905,000
and $505,000 at December 31, 2000 and 1999, respectively 1,595,000 1,995,000
Goodwill, net of accumulated amortization of $442,748 and
$253,530 at December 31, 2000 and 1999, respectively 3,299,536 1,544,861
Deposits and other intangibles 540,693 207,032
------------ ------------
Total other assets 5,435,229 3,746,893
------------ ------------
$ 51,843,545 28,236,062
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable under line of credit agreement $ -- 12,920,000
Current installments of obligations under capital leases 78,056 44,332
Accounts payable, trade 2,225,363 3,911,742
Accrued expenses 5,485,061 5,043,391
Taxes payable 280,000 684,382
Customer advance payments 1,192,235 545,218
------------ ------------
Total current liabilities 9,260,715 23,149,065
Deferred rent 178,190 --
Obligations under capital leases, excluding current installments 85,712 64,652
Accrued stock option compensation 505,413 695,433
------------ ------------
Total liabilities 10,030,030 23,909,150
------------ ------------
Stockholders' equity:
Common stock; $.001 par value - authorized, 20,000,000 shares; issued and
outstanding, 14,822,820 and 10,739,382 shares
at December 31, 2000 and 1999, respectively 14,823 10,739
Additional paid-in capital 49,249,999 23,364,055
Deferred compensation (844,032) --
Accumulated deficit (6,607,275) (19,047,882)
------------ ------------
Total stockholders' equity 41,813,515 4,326,912
Commitments and contingent liabilities (note 7, 8, 9, 11, 13, 15, 17 and 18)
------------ ------------
$ 51,843,545 28,236,062
============ ============
See accompanying notes to consolidated financial statements.
F-2
25
RADYNE COMSTREAM INC.
Consolidated Statements of Operations
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
2000 1999 1998
------------ ------------ ------------
Net sales $ 70,107,080 55,839,792 21,111,704
Cost of sales 38,279,830 29,970,560 15,808,459
------------ ------------ ------------
Gross profit 31,827,250 25,869,232 5,303,245
------------ ------------ ------------
Operating expenses:
Selling, general and administrative 13,573,460 12,355,188 5,531,213
Research and development 9,316,633 9,126,545 4,296,268
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 22,890,093 21,831,733 18,665,491
------------ ------------ ------------
Earnings (loss) from operations 8,937,157 4,037,499 (13,362,246)
Other (income) expense:
Interest expense 491,717 1,910,422 1,198,777
Interest income (1,076,432) (76,045) (23,480)
------------ ------------ ------------
Earnings (loss) before income taxes (benefit) and
extraordinary item 9,521,872 2,203,122 (14,537,543)
Income taxes (benefit) (2,918,735) 85,000 --
------------ ------------ ------------
Earnings (loss) before extraordinary item 12,440,607 2,118,122 (14,537,543)
Extraordinary item -- 188,182 --
------------ ------------ ------------
Net earnings (loss) $ 12,440,607 2,306,304 (14,537,543)
============ ============ ============
Basic net earnings (loss) per share:
Earnings (loss) before extraordinary item $ 0.89 0.30 (2.45)
Extraordinary item -- 0.02 --
------------ ------------ ------------
Net earnings (loss) $ 0.89 0.32 (2.45)
============ ============ ============
Diluted net earnings (loss) per share:
Earnings (loss) before extraordinary item $ 0.81 0.28 (2.45)
Extraordinary item -- 0.02 --
------------ ------------ ------------
Net earnings (loss) $ 0.81 0.30 (2.45)
============ ============ ============
Weighted average number of common shares
outstanding - basic 13,972,078 7,111,777 5,931,346
============ ============ ============
Weighted average number of common shares
outstanding - diluted 15,426,297 7,571,425 5,931,346
============ ============ ============
See accompanying notes to consolidated financial statements.
F-3
26
RADYNE COMSTREAM INC.
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2000, 1999 and 1998
ADDITIONAL
COMMON STOCK PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
----------- ----------- ----------- ----------- -----------
Balances, January 1, 1998 5,931,346 $ 11,862 5,694,806 -- (6,816,643)
Adjustment of par value -- (5,931) 5,931 -- --
Payments received on promissory notes -- -- -- -- --
Stock option plan -- -- 410,598 -- --
Net loss -- -- -- -- (14,537,543)
----------- ----------- ----------- ----------- -----------
Balances, December 31, 1998 5,931,346 5,931 6,111,335 -- (21,354,186)
Issuance of common stock for cash 4,520,264 4,520 16,424,759 -- --
Exercise of stock options 287,772 288 743,866 -- --
Tax benefit of stock options exercised -- -- 84,095 -- --
Net earnings -- -- -- -- 2,306,304
----------- ----------- ----------- ----------- -----------
Balances, December 31, 1999 10,739,382 10,739 23,364,055 -- (19,047,882)
Issuance of common stock for cash 2,828,220 2,828 16,729,599 -- --
Exercise of stock options 338,755 339 1,071,509 -- --
Exercise of stock warrants 616,463 617 5,393,434 -- --
Tax benefit of stock options exercised -- -- 1,044,000 -- --
Common stock issued in acquisition 300,000 300 1,647,402 -- --
Deferred compensation -- -- -- (920,762) --
Amortization of deferred compensation -- -- -- 76,730 --
Net earnings -- -- -- -- 12,440,607
----------- ----------- ----------- ----------- -----------
Balances, December 31, 2000 14,822,820 $ 14,823 49,249,999 (844,032) (6,607,275)
=========== =========== =========== =========== ===========
NOTES
RECEIVABLE FROM TOTAL
STOCKHOLDERS (DEFICIENCY)
------------ -----------
Balances, January 1, 1998 (40,086) (1,150,061)
Adjustment of par value -- --
Payments received on promissory notes 40,086 40,086
Stock option plan -- 410,598
Net loss -- (14,537,543)
----------- -----------
Balances, December 31, 1998 -- (15,236,920)
Issuance of common stock for cash -- 16,429,279
Exercise of stock options -- 744,154
Tax benefit of stock options exercised -- 84,095
Net earnings -- 2,306,304
----------- -----------
Balances, December 31, 1999 -- 4,326,912
Issuance of common stock for cash -- 16,732,427
Exercise of stock options -- 1,071,848
Exercise of stock warrants -- 5,394,051
Tax benefit of stock options exercised -- 1,044,000
Common stock issued in acquisition -- 1,647,702
Deferred compensation -- (920,762)
Amortization of deferred compensation -- 76,730
Net earnings -- 12,440,607
----------- -----------
Balances, December 31, 2000 -- 41,813,515
=========== ===========
See accompanying notes to consolidated financial statements.
F-4
27
RADYNE COMSTREAM INC.
Consolidated Statements of Cash Flows
YEARS ENDED DECEMBER 31,
--------------------------------------------------
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
Net earnings (loss) $ 12,440,607 2,306,304 (14,537,543)
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 30,306 -- 961,069
Depreciation and amortization 2,330,894 2,835,024 1,041,088
Asset impairment charge -- -- 262,935
Deferred tax provision (2,810,418) -- --
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 (2,096,621) (142,421) (915,154)
Prepaid expenses and other current assets 258,350 (338,915) 20,069
Inventories (2,874,353) 1,041,366 2,833,811
Deposits and other 176,870 15,410 242,787
Accounts payable, trade (1,915,151) 286,550 (985,095)
Accounts payable, affiliate -- (8,150) 113,682
Accrued expenses 135,229 (2,853,265) 1,932,071
Customer advance payments 647,017 -- --
Taxes payable (404,382) 70,010 (94,581)
Deferred rent 178,190 -- --
Accrued stock option compensation (190,020) (460,044) --
------------ ------------ ------------
Net cash provided by (used in) operating activities 5,906,518 2,563,687 (3,649,786)
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (1,227,811) (279,048) (543,630)
Proceeds from disposal of assets 200 -- --
Investment in non-compete agreement (500,000) -- --
Acquisitions, net of cash acquired (1,092,453) -- (10,007,369)
------------ ------------ ------------
Net cash used in investing activities (2,820,064) (279,048) (10,550,999)
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings (payments) from notes payable under line of credit (12,920,000) 4,920,000 (1,500,000)
Payment on note payable -- (5,962,561) --
Proceeds from notes payable to affiliates -- -- 15,618,272
Payments on note payable to affiliate -- (15,618,272) --
Payment of debt issuance costs on line of credit -- -- (200,000)
Net proceeds from sale of common stock 16,340,453 16,429,279 --
Net proceeds from sale of common stock through employee stock purchase plan 391,974 -- --
Exercise of stock options 1,071,848 744,154 --
Exercise of stock warrants 5,394,051 -- --
Payments received on promissory notes issued in connection
with common stock -- -- 40,086
Principal payments on capital lease obligations (67,849) (104,535) (72,309)
------------ ------------ ------------
Net cash provided by financing activities 10,210,477 408,065 13,886,049
------------ ------------ ------------
Net increase (decrease) in cash 13,296,931 2,692,704 (314,736)
Cash and cash equivalents, beginning of year 2,947,660 254,956 569,692
------------ ------------ ------------
Cash and cash equivalents, end of year $ 16,244,591 2,947,660 254,956
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 810,847 2,090,298 568,812
============ ============ ============
Cash paid for taxes $ 475,036 22,000 --
============ ============ ============
Supplemental schedule of noncash investing and financing activities:
Negotiated write-down of note payable $ -- 515,940 --
============ ============ ============
Acquisitions through issuance of stock and assumption of liabilities $ 1,384,786 -- 7,000,000
============ ============ ============
Deferred compensation $ 920,762 -- --
============ ============ ============
Tax benefit of stock option exercise $ 1,044,000 84,095 --
============ ============ ============
See accompanying notes to consolidated financial statements.
F-5
28
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(1) ORGANIZATION AND ACQUISITION
Radyne ComStream Inc. (the Company) has locations in Phoenix, Arizona and
San Diego, California. The Company designs, manufactures, and sells
products, systems and software used for the transmission and reception of
data over satellite and cable communication networks.
ComStream operates primarily in North America in the satellite
communications industry. ComStream designs, markets and manufacturers
satellite interactive modems and earth stations. Additionally, ComStream
manufactures and markets full-transponder satellite digital audio receivers
for music providers and has designed and developed a PC broadband satellite
receiver card which is an Internet and high-speed data networking product.
Radyne Corp., a Delaware corporation, (Radyne) was incorporated on November
25, 1980. On August 12, 1996, Radyne became a subsidiary of Singapore
Technologies Pte Ltd (STPL), through its wholly-owned subsidiary, Stetsys
US, Inc. (ST). In 1996, Radyne changed its fiscal year-end to December 31.
In March 1999, Radyne changed its name to Radyne ComStream Inc. During
2000, the Company changed its state of incorporation from New York to
Delaware and changed the par value of its common stock from $.002 to $.001.
This change has been reflected in the consolidated statements of
stockholders' equity.
DESCRIPTION OF ACQUISITIONS
On December 8, 2000, the Company completed the acquisition of all of
the outstanding shares of common stock of Armer Communications Engineering
Services, Inc. ("Armer") for an aggregate purchase price of $1,926,940
million consisting of $1,200,000 million in cash and 130,680 shares of
common stock of the Company. The fair value of the stock was determined
based on the average market price of the stock over a reasonable period of
time before and after the terms of the acquisition were agreed to and
announced. Armer specializes in the integration and installation of ground
segment equipment and networks for a wide range of satellite-based
telecommunications systems and applications. This acquisition has been
recorded in accordance with the "purchase method" of accounting and,
accordingly, the purchase price has been allocated 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 $1,943,892 and has been
recorded as goodwill, which is being amortized on a straight-line basis
over twelve years. The results of operations of the acquired operations
have been included in the accompanying statement of operations from the
acquisition date.
Certain Armer stockholders were issued 169,320 shares of restricted common
stock. These shares are subject to immediate forfeiture in the event the
holder terminates employment with Armer or Radyne within one year from the
effective date of the merger. The Company recorded deferred compensation of
$920,762 based upon the fair value of the stock at the date of issuance,
which is being amortized on a straight-line basis over one year.
Concurrent with the close of this transaction, six key employees of Armer
entered into two-year non-disclosure and non-compete agreements with the
Company. The cost of these agreements was $500,000, and is being amortized
using the straight-line method over the term of the agreements.
F-6 (Continued)
29
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations (unaudited) as if the acquisition had
taken place on January 1, 1999. Such pro forma amounts are not necessarily
indicative of what the actual results of operations might have been if the
acquisition had been effective on January 1, 1999 (in thousands, except per
share amounts):
YEARS ENDED DECEMBER 31,
2000 1999
---- ----
Net sales $ 72,893 60,549
======== ======
Other income $ 1,076 76
======== ======
Total revenues $ 73,969 60,625
======== ======
Net earnings $ 10,841 1,023
======== ======
Basic earnings per share $ .78 .14
======== ======
Diluted earnings per share $ .70 .14
======== ======
On October 15, 1998, Radyne purchased all of the outstanding shares of
common stock of ComStream Holdings, Inc. (ComStream) for an aggregate
purchase price of $17 million, of which $10 million was paid in cash at the
closing, using funds borrowed from its controlling stockholder, and the
balance of which was in the form of a $7 million note (the Note), payable
nine months from the purchase date. In addition, the Company accrued $1.6
million of severance costs as a result of the acquisition. This acquisition
was recorded in accordance with the "purchase method" of accounting. The
excess of the purchase price over 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 was recorded as goodwill,
which is being amortized over ten years. The results of operations of
ComStream have been included in the accompanying consolidated statements of
operations from October 15, 1998.
The Company negotiated a reduction in the note balance due to the former
owner of ComStream for the following reasons: (i) a $521,000 reduction for
the Company's assumption of $115,000 of liabilities from Spar and the
waiver of Spar's obligation to indemnify the Company 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 and 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 the
Company's purchase price for ComStream was allocated to such inventory,
furniture and equipment. Therefore, this $516,000 reduction has resulted in
a reduction in goodwill. The note was paid during the quarter ended
September 30, 1999. In addition, the Company negotiated a $278,000
reduction in interest on the note ($188,000 of which had been accrued in
prior periods and so has been reported as extraordinary income in the
current period).
F-7 (Continued)
30
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
The allocation to in-process research and development, 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.
The assets appraised in the valuation analysis included in-process
technology, developed technology and assembled workforce. Based upon the
nature of the assets, the income approach was considered most appropriate
for analyzing both the developed and in-process technologies. This
valuation approach considers the commercial profits and growth prospects of
the products as well as the relative investment risk of the required
complementary assets.
Products-in-development at ComStream at the time of the acquisition were
classified as in-process technology. All of the products were completed by
December 31, 1999.
Revenue streams associated with these products-in-development were used to
estimate fair value using the discounted cash flow method. The products in
development at ComStream had not attained "technological feasibility", as
that term is defined in Financial Accounting Statement No. 86, as of the
acquisition date. In other words, either the research projects were
incomplete or major technical uncertainties remained. Technological
feasibility was achieved for all products during 1998 or 1999.
It was determined that there was no alternative future use for the
in-process technology as of the acquisition date. Consideration was given
to possible other projects in which the hardware and software products
could have been put to use, but none of these projects had yet attained
"technological feasibility", and so they themselves were considered to be
in-process technology.
The discounted cash flow method began with estimates of future cash flow
using ComStream management's forecasts. In deriving these cash flows,
estimates of ComStream's future revenues, cost of goods sold, sales and
marketing, general and administrative, and research and development
expenses on a stand-alone basis were used to estimate a baseline measure of
earnings attributable to the products. By adding back non-cash charges and
deducting projected capital expenditures, a measure of debt-free cash flow,
useful for valuing ComStream's in-process technology, was derived.
From the debt-free cash flow forecasts, which represent the cash flow
return on all of ComStream's assets, returns were deducted for the use of
certain other assets: developed technology, net fixed assets, working
capital, and assembled workforce and goodwill. For this purpose, the annual
charge for core technology included in the products under development was
calculated by multiplying the unamortized book value of the developed
technology for that year by the required rate of return on developed
technology. The opening value of core technology was calculated using a
residual income approach similar to the methodology employed to calculate
the value of in-process research and development. The remaining book value
of the developed technology was calculated by amortizing its opening fair
value over 6.25 years. The total charge was allocated to the in-process
technology based on the in-process technology projects' share of total
revenue.
F-8 (Continued)
31
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
The cash flow returns attributable to the products (debt-free cash flow)
were reduced by the return requirement for each of the other assets
employed. The resulting residual cash flows represent the expected cash
flows attributable to the in-process technologies. A factor, based on the
stage of completion of the in-process projects, was applied to these
expected cash flows to isolate the value relating to development efforts
completed at the acquisition date. These cash flows were then discounted at
a rate of 36 percent.
The Company believes that the assumptions used in the forecasts were
reasonable at the time of the acquisition. No assurance can be given,
however, that the underlying assumptions used to estimate expected product
sales, development costs or profitability, or the events associated with
such projects, will transpire as estimated. For these reasons, actual
results may vary from the projected results. Within the satellite
communications equipment industry, there are several specific technologies
incorporated within a single product. It is therefore difficult to relate
specific revenue streams to individual technologies or projects. As a
result, instead of attempting to model each individual project or
technology, the cash flow generated by ComStream's products in the
aggregate was examined. The Company allocated the aggregate revenues to
developed, in-process and future technology, in a manner which is believed
reasonable.
The Company has determined that no changes to the original assumptions were
deemed necessary as a result of completing the in-process technologies.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the financial statement date and the reported
amounts of revenue and expenses during the reporting period. The
industry in which the Company operates is characterized by rapid
technological change and short product life cycles. As a result,
estimates are required to provide for product obsolescence and sales
and warranty returns. Actual results could differ from those
estimates.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany accounts and
transactions have been eliminated in the consolidation.
(C) CASH EQUIVALENTS
The Company considers all money market accounts with a maturity of 90
days or less to be cash equivalents.
(D) REVENUE RECOGNITION
The Company recognizes revenue upon transfer of ownership and shipment
of product.
F-9 (Continued)
32
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(E) INVENTORIES
Inventories, consisting of satellite modems and related products, are
valued at the lower of cost (first-in, first-out) or market.
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment held under
capital leases is stated at the present value of future minimum lease
payments. Expenditures for repairs and maintenance are charged to
operations as incurred, and improvements which extend the useful lives
of the assets are capitalized. Depreciation and amortization of
machinery and equipment are computed using the straight-line method
over an estimated useful life of three to ten years. Equipment held
under capital leases and leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or estimated
useful lives of the assets.
(G) INTANGIBLE ASSETS
Intangible assets consist of goodwill, which represents the excess of
purchase price over fair value of net assets acquired, is amortized on
a straight-line basis over ten years. Goodwill acquired as a result of
the purchase of Armer is being amortized on a straight-line basis over
12 years. Intangible assets also consist of covenants not to compete
which are being amortized on a straight-line basis over the
contractual term of the covenants of three years.
(H) PURCHASED TECHNOLOGY
In connection with the acquisition of ComStream in 1998, value was
assigned to purchased technology. Purchased technology is being
amortized on a straight-line basis over the expected period to be
benefited of 6.25 years.
(I) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted
net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amounts of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell. During 1998, the Company recognized a design and drawing
impairment charge of $262,935, with no associated tax benefit as a
result of technology used in new products.
(J) WARRANTY COSTS
The Company provides limited warranties on certain of its products and
systems for periods generally not exceeding two years. The Company
accrues estimated warranty costs for potential product liability and
warranty claims based on the Company's claim experience. Such costs
are accrued as cost of sales at the time revenue is recognized.
F-10 (Continued)
33
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(K) RESEARCH AND DEVELOPMENT
The cost of research and development is charged to expense as
incurred.
(L) INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future consequences attributed to differences between the consolidated
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Differences between income
for financial and tax reporting purposes arise primarily from
amortization of certain designs and drawings and accruals for warranty
reserves and compensated absences. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(M) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally accounts receivable. The
Company maintains ongoing credit evaluations of its customers and
generally does not require collateral. The Company provides reserves
for potential credit losses and such losses have not exceeded
management's expectations.
Periodically during the year, the Company maintains cash in financial
institutions in excess of the amounts insured by the federal
government.
(N) NET EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing earnings
(loss) available to stockholders by the weighted-average number of
shares outstanding for the period. Diluted earnings (loss) per share
reflects the potential dilution that could occur if securities or
contracts to issue common stock were exercised or converted to stock
or resulted in the issuance of stock that then shared in the earnings
or loss of the Company.
(O) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of accounts receivable, accounts payable, and accrued
expenses approximates the carrying value due to the short-term nature
of these instruments. Management has estimated that the fair values of
the notes payable approximate the current balances outstanding, based
on currently available rates for debt with similar terms.
F-11 (Continued)
34
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(P) EMPLOYEE STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options and to
adopt the "disclosure only" alternative treatment under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123). SFAS 123 requires the use of fair value
option valuation models that were not developed for use in valuing
employee stock options. Under SFAS No. 123, deferred compensation is
recorded for the excess of the fair value of the stock on the date of
the option grant, over the exercise price of the option. The deferred
compensation is amortized over the vesting period of the option.
(Q) SEGMENT REPORTING
The Company has only one operating business segment, the sale of
equipment for satellite and cable communications networks.
(R) RECLASSIFICATIONS
Certain reclassifications have been made to the prior years'
consolidated financial statement amounts to conform to the current
year presentation.
(3) INVENTORIES
Inventories at December 31 consist of the following:
2000 1999
-------------- ---------
Raw materials and components $ 9,593,022 5,550,279
Work-in-process 3,959,419 3,724,908
Finished goods 1,371,973 863,154
-------------- ---------
14,924,414 10,138,341
Obsolescence reserve (3,593,849) (1,799,229)
-------------- ---------
$ 11,330,565 8,339,112
============== =========
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of the following:
2000 1999
------------ ---------
Machinery and equipment $ 3,265,723 3,674,803
Furniture and fixtures 2,587,068 2,048,976
Leasehold improvements 713,301 445,127
Computers and software 1,365,077 462,042
------------ ---------
7,931,169 6,630,948
Less accumulated depreciation and amortization (4,642,302) (3,035,780)
------------ ---------
Property and equipment, net $ 3,288,867 3,595,168
============ =========
F-12 (Continued)
35
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(5) ACCRUED EXPENSES
Accrued expenses at December 31 consist of the following:
2000 1999
------------- ---------
Wages, vacation and related payroll taxes $ 1,100,503 788,559
Interest -- 303,205
Professional fees 544,416 630,650
Warranty reserve 1,622,644 924,928
Lease buyout -- 172,511
Other 2,217,498 2,223,538
------------- ---------
Total accrued expenses $ 5,485,061 5,043,391
============= =========
(6) NOTES PAYABLE
The Company had a $20,500,000 credit agreement with a bank which expired
September 29, 2000. STPL had issued a nonbinding letter of awareness in
connection with this credit agreement. Borrowings under the line of credit
bear interest equal to LIBOR or the bank's Quoted Rate plus 1 percent per
annum at the time of draw. The interest rates on the borrowings ranged from
6.59% to 7.37% during 2000 and 6.59% to 6.94% on the December 31, 1999
borrowings. At December 31, 1999, outstanding borrowings against the line
were $12,920,000, plus accrued interest.
The Company has arranged for a new line of credit facility with a new bank
as of January 15, 2001. The new facility consists of a committed line of
$10 million and an uncommitted line of $10 million. This new line will save
the Company some interest expenses because the facility fee is based only
upon the committed portion of the facility. The replaced facility was all
uncommitted and the fee was based on the entire facility.
At December 31, 2000, there were no outstanding borrowings against the
lines of credit.
In connection with the purchase of ComStream, the Company executed a
$7,000,000 note payable to the former owner of ComStream. 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. The Company negotiated a reduction in the note balance due to
Spar (note 1). The note was paid during the quarter ended September 30,
1999.
(7) OBLIGATIONS UNDER CAPITAL LEASES
The Company leases machinery and equipment under capital leases. The cost
and accumulated depreciation of the equipment was $294,382 and $155,020,
respectively, at December 31, 2000 and $289,558 and $132,531, respectively,
at December 31, 1999, and is included in property and equipment in the
accompanying consolidated balance sheets and is being depreciated over the
estimated useful lives of the machinery and equipment.
F-13 (Continued)
36
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
Payments on capital lease obligations due after December 31, 2000 are as
follows:
2001 $ 90,140
2002 78,990
2003 11,329
2004 6,941
2005 --
------------
Total minimum lease payments 187,400
Less amount representing interest at rates of 2.26% to 12.96% (23,632)
------------
Present value of minimum lease payments 163,768
Less current installments (78,056)
------------
Capital lease obligations due after one year $ 85,712
============
(8) COMMITMENTS
Rent expense was approximately $1,883,743, $1,790,248 and $517,853 for the
years ended December 31, 2000, 1999 and 1998, respectively. Future minimum
rentals under leases after December 31, 2000 are as follows:
2001 $ 1,957,829
2002 1,933,637
2003 1,906,021
2004 1,784,999
2005 945,425
Thereafter 2,200,983
------------
$ 10,728,894
============
Prior to October 15, 1998, ComStream leased two buildings (of different
size) from the same landlord under a single lease. The entire lease
remained in effect after Radyne's acquisition of the stock of ComStream
from Spar Aerospace Limited. However, Spar and Radyne agreed that ComStream
would occupy only the larger of the two buildings, while Spar would seek to
divide the lease into two separate building leases with Spar as lessor of
the smaller building. Spar agreed to indemnify Radyne ComStream from all
costs associated with the lease of the smaller building. However, after the
closing of the acquisition, a new tenant was found for the larger building.
This permitted both Spar and Radyne ComStream to realize substantial cost
savings. Accordingly on November 18, 1998, the landlord and ComStream
agreed that ComStream would (i) retain the smaller building, (ii) vacate
the larger building no later than December 15, 1998, (iii) pay $2,000,000
to the landlord, and (iv) commence paying rent on the smaller building
alone as of March 1, 1999. Additionally, the Company negotiated a cost
reimbursement of $1,265,000 from Spar, which was netted against the
restructuring cost discussed in note 16, resulting in a net restructuring
cost of $1.3 million for the lease buyout. The $2,000,000 cash buyout was
paid in two equal installments of $1,000,000 on March 1, 1999 and September
1, 1999.
F-14 (Continued)
37
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
The Company generally has commitments with certain suppliers and
subcontract manufacturers to purchase certain components and estimates its
non-cancelable obligations to be approximately $5,500,000 at December 31,
2000.
(9) INCOME TAXES
Income tax expense (benefit) amounted to ($2,918,735), $85,000 and $0 for
the years ended December 31, 2000, 1999 and 1998, respectively. The actual
tax expense (benefit) for these periods differs from the "expected" tax
expense for those periods as follows:
YEARS ENDED DECEMBER 31,
2000 1999 1998
Computed "expected" tax expense $ 3,237,436 749,061 (4,943,000)
State tax expense 476,094 190,158 (541,000)
Change in valuation allowance (7,790,223) (1,080,360) 5,190,000
Stock option exercises 1,044,000 -- --
Other adjustments 113,958 226,141 294,000
------------- ----------- ------------
Total $ (2,918,735) 85,000 --
============= ============= =============
Components of income tax expense (benefit) for 2000 follows:
CURRENT DEFERRED TOTAL
------------ ---------- ----------
2000:
Federal $ (273,278) (2,295,202) (2,568,480)
State 26,550 (376,805) (350,255)
------------ ---------- ----------
Total $ (246,728) (2,672,007) (2,918,735)
============ ========== ==========
Current federal income tax totaled $85,000 for the year ended December 31,
1999. There was no current or deferred income tax expense for the year
ended December 31, 1998.
Deferred tax assets at December 31 consisted of the following:
2000 1999
-------------- -------------
Deferred tax assets:
Cumulative tax effect of net operating loss carryforwards $ 6,634,448 9,316,187
Tax credits 165,444 552,846
Temporary differences 3,071,325 3,937,989
Valuation allowance (6,016,799) (13,807,022)
-------------- -------------
$ 3,854,418 --
============== =============
F-15 (Continued)
38
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
The net change in the total valuation allowance for the years ended
December 31, 2000 and 1999 was a decrease of $7,790,223 and an increase of
$1,459,022, respectively. At December 31, 2000, the Company has net
operating loss carryforwards of approximately $15,000,000 expiring in
various years through 2020, and federal AMT credit of $171,850 for
utilization against taxable income/taxes payable of future periods, if any.
Management believes that its ability to utilize certain of its net
operating loss and tax credit carryforwards to offset future taxable income
within the carryforward periods under existing tax laws and regulations is
more likely than not. During the quarter ended September 2000, the Company
evaluated the likelihood that it would utilize a portion of its net
operating loss carryforwards. The Company reduced the valuation allowance
relating to net operating loss carryforwards it expects to utilize creating
a tax benefit of $4.332 million for the quarter ended September 30, 2000. A
100 percent valuation allowance has been recorded against the net deferred
tax assets as of December 31, 1999.
(10) SIGNIFICANT CUSTOMERS AND FOREIGN AND DOMESTIC SALES
During 1999 and 1998, no customers represented greater than 10 percent of
net sales. During 2000, one customer represented 12.4% of net sales.
Our sales in principal foreign and domestic markets as a percentage of
total sales for the years ended December 31, 2000, 1999 and 1998 follow:
YEARS ENDED DECEMBER 31,
2000 1999 1998
----------- ----------- -----------
Asia 25% 25% 7%
Africa/Middle East 2 4 8
Latin America 3 4 9
Europe 13 21 23
Canada 1 2 3
----------- ----------- -----------
Total foreign 44 56 50
Domestic 56 44 50
----------- ----------- -----------
100% 100% 100%
=========== =========== ===========
Foreign assets $ 372,000 333,000 385,000
=========== =========== ===========
The Company does not track sales by customer by country. Therefore, this
information is not available.
The Company has two primary product lines: 1) satellite modems and
earthstations, and 2) broadcast products. The sales of satellite modems and
earthstations accounted for approximately 63.5% of 2000, 54% of 1999, and
75% of 1998 net sales, respectively.
(11) STOCKHOLDERS' EQUITY
In February 2000, the Company completed an offering of 2,400,000 units,
each consisting of one share of common stock and one five-year common stock
purchase warrant, plus an additional 360,000 units sold pursuant to the
underwriters' over-allotment option, for a total of approximately
$16,340,000 cash, net of issuance costs. Each warrant is exercisable to
purchase one share of common stock at a price of $8.75, subject to
adjustment in certain circumstances, at any time after the warrants are
issued until February 7, 2005. Commencing February 7, 2001, the Company may
redeem the warrants for $0.01 per warrant upon
F-16 (Continued)
39
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
no less than 30 days or more than 60 days notice mailed within five days
after the closing sales price of the common stock has equaled or exceeded
$10.9375 for each of 20 consecutive trading days.
In December 1999, the Company completed a rights offering of 4,520,264
shares of common stock to existing shareholders for a total of
approximately $16,429,000, net of issuance costs. The Company used
$15,618,272 of the proceeds from the partial exercise by ST to pay the
total amount of debt owed to ST.
The Compensation Committee and the Board of Directors resolved to permit
senior management to borrow funds from the Company for the purpose of
exercising stock options. In October and November 1999, the chief executive
officer, chief technology officer, and chief financial officer borrowed
$200,000, $100,000 and $50,000, respectively, for the purpose of exercising
stock options. The Company recorded the $350,000 in forgivable loans made
as compensation expense in 1999.
(12) EARNINGS (LOSS) PER SHARE
A summary of the reconciliation from basic earnings (loss) per share to
diluted earnings (loss) per share follows:
YEARS ENDED DECEMBER 31,
------------------------------------------------------
2000 1999 1998
------------- ------------- -------------
Earnings (loss) available to common stockholders $ 12,440,607 2,306,304 (14,537,543)
============= ============= =============
Basic EPS-weighted average shares outstanding 13,972,078 7,111,777 5,931,346
============= ============= =============
Basic earnings (loss) per share:
Earnings (loss) before extraordinary item $ 0.89 0.30 (2.45)
Extraordinary item -- 0.02 --
------------- ------------- -------------
Net earnings (loss) $ 0.89 0.32 (2.45)
============= ============= =============
Basic EPS-weighted average shares outstanding 13,972,078 7,111,777 5,931,346
Effect of dilutive securities 1,454,219 459,648 --
------------- ------------- -------------
Dilutive EPS-weighted average shares outstanding 15,426,297 7,571,425 5,931,346
============= ============= =============
Diluted earnings (loss) per share:
Earnings (loss) before extraordinary item $ 0.81 0.28 (2.45)
Extraordinary item -- 0.02 --
------------- ------------- -------------
Net earnings (loss) $ 0.81 0.30 (2.45)
============= ============= =============
Stock options not included in diluted EPS since
antidilutive 1,452,997 -- 691,559
============= ============= =============
Stock warrants not included in diluted EPS since
antidilutive 781,675 -- --
============= ============= =============
F-17 (Continued)
40
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(13) EMPLOYEE BENEFIT PLAN
We have a qualified contributory 401(k) plan that covers all employees in
our Phoenix facility who have attained the age of 18 and are employed at
the enrollment date. We provided contributions of $172,957, $85,301 and
$31,690, respectively, for the years ended December 31, 2000, 1999 and
1998. Each participant may elect to contribute up to 15% of his or her
gross compensation up to the maximum amount allowed by the Internal Revenue
Service. During the years ended December 31, 1999 and 1998, we matched up
to 1% of the employee's salary. During the year ended December 31, 2000, we
matched 50% of each employee contribution to the plan up to a maximum
annual match of $2,000.
We also have a qualified contributory 401(k) plan that covers all full-time
employees in our San Diego facility who have been employed continuously for
at least 30 days prior to the enrollment date. We provided contributions of
$137,702, $143,487 and $30,450 for the years ended December 31, 2000 and
1999, and the period October 15, 1998 through December 31, 1998,
respectively. Each participant may elect to contribute up to 15% of his or
her gross compensation up to the maximum amount allowed by the Internal
Revenue Service. We match $0.35 for every dollar up to 7% of the employee's
contribution.
We also have a qualified contributory 401(k) plan that covers all full-time
employees of our subsidiary, Armer Communications Engineering Services,
Inc. who have attained the age of 18 and have completed 1,000 hours of
service at the enrollment date. During the period beginning December 1,
2000 through December 31, 2000, the Company provided contributions to the
plan in the amount of $30,000. Each participant may elect to contribute up
to 15% of his or her gross compensation up to the maximum amount allowed by
the Internal Revenue Service. Company contributions are allocated to the
individual accounts of qualified participants in the ratio that each
qualifying participant's compensation for the plan year bears to the total
compensation of all qualifying participants for the plan year.
The Company is in the process of establishing a new 401(k) plan for all of
the operating facilities. It is anticipated that the new plan will be in
effect as of April 1, 2001 and the old plans will be rolled into the new
plan.
(14) STOCK OPTIONS
In June 2000, the Board of Directors adopted the 2000 Long-Term Incentive
Stock Options Plan (the 2000 Plan), which was approved by the stockholders
on June 29, 2000. The 2000 Plan provided for the grant of options to
employees of the Company to purchase 2,500,000 shares of common stock. The
option price per share under the 2000 Plan may not be less than the fair
market value of the stock (110 percent of the fair market value for an
optionee who is a 10 percent stockholder) on the day the option is granted.
At December 31, 2000, the Company had 1,316,825 options outstanding at
exercise prices ranging from $5.031 to $14.625 per share.
In November 1996, the Board of Directors adopted the 1996 Incentive Stock
Option Plan (the Plan), which was approved by the stockholders on January
8, 1997. The Plan provided for the grant of options to employees of the
Company to purchase up to 1,282,042 shares of common stock. The option
price per share under the Plan may not be less than the fair market value
of the stock (110 percent of the fair market value for an optionee who is a
10 percent stockholder) on the day the option is granted. In October 1998,
the Company amended the terms of certain stock options pursuant to the Plan
to accelerate vesting of the awards, thereby creating a new measurement
date and, accordingly, recognized compensation costs
F-18 (Continued)
41
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
amounting to $1,566,075. In November 1998, the Plan was amended to increase
the options available by 900,000, providing a total of 2,182,042 options
available to purchase shares of common stock.
At December 31, 2000, the Company had 2,678,266 options outstanding at
exercise prices ranging from $2.50 to $14.625 per share. Of the total
options, the Company had 288,689 options outstanding at an exercise price
of $2.50 per share that carry the right to a cash bonus of $1.72 per
purchased share, payable upon exercise. The stock option compensation
accrual related to the bonus is $505,413 and $695,433 at December 31, 2000
and 1999, respectively.
The Company applies APB Opinion 25 in accounting for its Plan. Had the
Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net earnings
(loss) and earnings (loss) per share would have been reduced (increased) to
the pro forma amounts indicated below:
YEARS ENDED DECEMBER 31,
------------------------------------------------------
2000 1999 1998
------------- ------------- -------------
Net earnings (loss) As reported $ 12,440,607 $ 2,306,304 (14,537,543)
Pro forma (unaudited) 5,679,549 1,482,399 (15,293,957)
Earnings (loss) per share - As reported .89 .32 (2.45)
basic Pro forma (unaudited) .41 .21 (2.58)
Earnings (loss) per share - As Reported .81 .30 (2.45)
diluted Pro forma (unaudited) .37 .20 (2.58)
The full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma net earnings (loss) amounts
presented above because compensation cost is reflected (increased) over the
options' vesting period of three years.
The fair value of options granted under the Plan 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 118 percent -
184 percent, risk free interest rate of 5.27 percent - 6 percent, and
expected lives of five years. The per share weighted average fair value of
stock options granted under the Plan for the periods ended December 31,
2000, 1999 and 1998 were $10.65, $3.02 and $3.36, respectively, using the
Black-Scholes option-pricing model and the assumptions listed above.
F-19 (Continued)
42
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
A summary of the aforementioned stock plan activity follows:
WEIGHTED AVERAGE
NUMBER PRICE PER SHARE
------ ---------------
Balance, December 31, 1997 690,665 $ 2.50
Granted 553,000 2.89
Forfeited (37,708) 2.50
--------- --------
Balance, December 31, 1998 1,205,957 2.68
Granted 857,000 3.60
Forfeited (239,979) 3.45
Exercised (287,772) 2.54
--------- --------
Balance, December 31, 1999 1,535,206 3.09
Granted 1,626,465 12.27
Forfeited (138,900) 6.58
Exercised (344,505) 3.16
--------- --------
Balance, December 31, 2000 2,678,266 $ 8.48
========= ========
A summary of stock options granted at December 31, 2000 follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- ---------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT EXERCISE
EXERCISE PRICES 12/31/00 CONTRACTUAL LIFE PRICE 12/31/00 PRICE
--------------- -------- ---------------- ----- -------- -----
$ 2.50 288,689 0 years $ 2.50 288,689 $ 2.50
$ 2.50 to 3.125 348,002 1 years 2.90 282,152 2.85
$ 3.00 to 4.1875 459,910 2 years 3.56 305,285 3.60
$ 5.031 to 14.625 1,581,665 3 years 12.23 644,475 12.94
--------- ------------- --------- ---------
2,678,266 $ 8.48 1,520,601 $ 7.21
========= ============= ========= ========
(15) EMPLOYEE STOCK PURCHASE PLAN
On June 15, 1999, our shareholders adopted the 1999 Employee Stock Purchase
Plan (the Purchase Plan), as a means of rewarding and retaining existing
employees. The purchase plan allows employees, including officers and
directors who are employees, to purchase shares of our common stock at
semi-annual intervals through periodic payroll deductions. The purchase
price per share, in general will be 85% of the lower of the fair market
value of the common stock on the participant's entry date into the offering
period or 85% of the fair market value on the semi-annual purchase date.
The Board of Directors or a committee of two or more directors, none of
whom will be officers or employees, have full authority to administer all
aspects of the Purchase Plan. As of December 31, 2000, 875,772 shares are
authorized for issuance under the plan. The Purchase Plan was activated in
the first quarter of 2000.
F-20 (Continued)
43
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(16) RESTRUCTURING COSTS
In November 1998, the Company announced a corporate restructuring
cost-cutting initiative, and provided a restructuring charge of
approximately $3,100,000. Included in this restructuring charge was
approximately $1,100,000 in termination benefits for 38 technical, sales
and administrative staff. The Company paid $412,000 of these termination
benefits prior to December 31, 1998 and $688,000 was included in accrued
expenses as of December 31, 1998 which was paid in 1999. The remaining
$2,000,000 was comprised of $1,300,000 for the net cost of a lease buyout
and $700,000 of leasehold improvements that were abandoned upon movement to
a new building in San Diego, California. At December 31, 1999, the
remaining balance in the accrued expenses related to the restructuring
costs is comprised of remaining costs associated with the lease buyout.
(17) RELATED PARTY TRANSACTIONS
Sales to a subsidiary of STPL for the year ended December 31, 1998 was
$50,000.
Sales to Agilis Communication Technologies Pte Ltd (Agilis), an affiliate
of ST, amounted to $352,048, $200,000 and $65,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
Interest expense on notes payable to affiliates was $0, $765,914 and
$581,000 for the years ended December 31, 2000, 1999 and 1998,
respectively, of which $0 and $0 were included in accrued expenses in the
accompanying consolidated balance sheets as of December 31, 2000 and 1999,
respectively.
During 1998, an ST affiliate made loans of $15,618,272 to the Company. The
Company used the proceeds from the 1999 rights offering to pay off the ST
loan (note 11).
(18) CONTINGENCIES
The Company is involved in litigation and claims arising in the normal
course of operations. In the opinion of management based on consultation
with legal counsel, losses, if any, from this litigation are covered by
insurance or are immaterial; therefore, no provision has been made in the
accompanying consolidated financial statements for losses, if any, that
might result from the ultimate outcome of these matters.
(19) SUPPLEMENTAL FINANCIAL INFORMATION
A summary of additions and deductions related to the allowance for doubtful
accounts and inventory obsolescence reserve for the years ended December
31, 2000, 1999 and 1998 follows:
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OTHER END OF YEAR
OF YEAR ADDITIONS ACCOUNTS DEDUCTIONS
----------- ----------- ----------- ----------- -----------
Allowances for doubtful receivables:
Years ended December 31:
2000 $ 791,746 293,033 -- 69,966 1,014,813
=========== =========== =========== =========== ===========
1999 $ 632,815 175,000 -- 16,069 791,746
=========== =========== =========== =========== ===========
1998 $ 15,000 155,000 462,815* -- 632,815
=========== =========== =========== =========== ===========
F-21 (Continued)
44
RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
BALANCE AT CHARGED TO
BEGINNING OTHER BALANCE AT
OF YEAR ADDITIONS ACCOUNTS DEDUCTIONS END OF YEAR
------- --------- -------- ---------- -----------
Reserve for inventory obsolescence:
Years ended December 31:
2000 $ 1,799,229 5,723,647 -- 3,929,027 3,593,849
============== ========== ======== ======== ==========
1999 $ 1,551,469 420,162 -- 172,402 1,799,229
============== ========== ======== ======== ==========
1998 $ 291,000 1,260,469 -- -- 1,551,469
============== ========== ======== ======== ==========
* Balance represents allowance acquired during purchase of ComStream
Holdings, Inc.
(20) QUARTERLY FINANCIAL DATA - UNAUDITED
A summary of the quarterly data for the years ended December 31, 2000 and
1999 follows (in thousands):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
2000:
Total revenues $ 16,752 17,921 17,334 18,100 70,107
========= ====== ====== ====== ======
Gross profit $ 7,381 8,388 7,832 8,226 31,827
========= ====== ====== ====== ======
Operating expenses $ 6,333 5,982 5,621 4,954 22,890
========= ====== ====== ====== ======
Earnings from operations $ 1,461 2,442 2,211 2,823 8,937
========= ====== ====== ====== ======
Net earnings $ 1,392 2,486 6,565 1,998 12,441
========= ====== ====== ====== ======
Basic earnings per share $ .11 .17 .45 .16 .89
========= ====== ====== ====== ======
Diluted earnings per share $ .10 .15 .41 .14 .81
========= ====== ====== ====== ======
1999:
Total revenues $ 12,319 12,944 13,999 16,578 55,840
========= ====== ====== ====== ======
Gross profit $ 5,546 5,921 6,704 7,698 25,869
========= ====== ====== ====== ======
Operating expenses $ 5,308 4,956 5,605 5,963 21,832
========= ====== ====== ====== ======
Earnings from operations $ 238 965 1,099 1,735 4,037
========= ====== ====== ====== ======
Net earnings (loss) $ (317) 422 809 1,392 2,306
========= ====== ====== ====== ======
Basic earnings (loss) per share $ (.05) .07 .13 .13 .32
========= ====== ====== ====== ======
Diluted earnings (loss) per share $ (.05) .06 .13 .13 .30
========= ====== ====== ====== ======
F-22
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
See our report on Form 8-K/A, filed on July 31, 1998.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Information regarding directors and executive officers of the Company
is set forth under the captions "Elections of Directors" and "Executive
Officers and Compensation" in the Company's Proxy Statement relating to its
2001 Annual Meeting of Stockholders (the "2001 Proxy Statement") incorporated
by reference into this Form 10-K, which has been filed with the Commission
within 120 days after the end of the Company's fiscal year ended December 31,
2000. The "Compensation Committee Report on Executive Compensation," the
"Report of the Audit Committee" and the "Stock Price Performance Graph"
contained in the 2001 Proxy Statement are not incorporated by reference in this
Form 10-K.
ITEM 11. DIRECTOR AND EXECUTIVE COMPENSATION
Information regarding director and executive compensation is set forth
under the captions "Election of Directors" and "Executive Officers and
Compensation" in the 2001 Proxy Statement, which information is incorporated by
reference in this Form 10-K, which has been filed with the Commission within
120 days after the end of the Company's fiscal year ended December 31, 2000.
The "Compensation Committee Report on Executive Compensation," the "Report of
the Audit Committee" and the "Stock Price Performance Graph" contained in the
2001 Proxy Statement are not incorporated by reference in this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management is set forth under the caption "Security Ownership of Principal
Stockholders and Management" in the 2001 Proxy Statement incorporated by
reference in this Form 10-K, which has been filed with the Commission within
120 days after the end of the Company's fiscal year ended December 31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions
of management is set forth under the caption "Certain Relationships and Related
Transactions" in the 2001 Proxy Statement incorporated by reference in this
Form 10-K, which has been filed with the Commission within 120 days after the
end of the Company's fiscal year ended December 31, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements of Radyne
ComStream Inc. and subsidiaries are included in Part II, Item 8:
Independent Auditors' Reports
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998
Notes to Consolidated Financial Statements
(a)(2) All financial statement schedules have been omitted because they
are not applicable, not required, or the information has been disclosed in the
consolidated financial statements or notes thereto or otherwise in this Form
10-K report.
(a)(3) The following exhibits are included in this Form 10-K report:
46
EXHIBIT
NO.
---
2.1(1) Stock Purchase Agreement dated August 28, 1998 between
Spar Aerospace Limited and Radyne Corp.
3.1(2) Restated Certificate of Incorporation
3.2(3) By-Laws, as amended and restated
10.1(4) 1996 Incentive Stock Option Plan
10.2(5) 1999 Employee Stock Purchase Plan
10.3(6) 2000 Long-Term Incentive Plan
10.4(7) Employment Agreement with Robert C. Fitting (Radyne
Termsheet)
10.5(8) Lease between ADI Communication Partners, L.P. and
ComStream dated April 23, 1997
10.6(8) First Amendment to lease between ADI Communication
Partners L.P. and ComStream dated July 16, 1997
10.7(8) Second Amendment to Lease between Kilroy Realty, L.P.
and ComStream dated November 18, 1998
10.8(8) Indemnity Agreement between Pacific Bell Corporation
and ComStream dated November 18, 1998
10.9(8) Letter Agreement between Spar and Radyne Corp. dated
November 18, 1998
10.10(9) Lease for facility in Phoenix, Arizona
10.11(10) Amendment to 1996 Incentive Stock Option Plan
10.12(11) Uncommitted Line of Credit Facility Letter Agreement,
dated as of May 18, 1998, and amended as of September
28, 1998 and September 30, 1999
10.13(11) Stock Purchase Loan Agreement executed by Robert
Fitting, dated October 8, 1999
10.14(11) Promissory Note executed by Robert Fitting, dated
October 8, 1999 in the amount of $200,000
10.15(11) Stock Purchase Loan Agreement executed by Garry Kline,
dated October 8, 1999
10.16(11) Promissory Note executed by Garry Kline, dated October
11, 1999 in the amount of $50,000
10.17(11) Stock Purchase Loan Agreement executed by Steven
Eymann, dated November 11, 1999
10.18(11) Promissory Note executed by Steven Eymann, dated
November 1, 1999 in the amount of $100,000
10.19(11) General Release and Settlement Agreement between Spar
Aerospace Limited and Radyne ComStream Inc. dated
September 29, 1999
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
99.1 Cautionary Statement Regarding Forward-Looking
Statements and Risk Factors
- ----------
(1) Incorporated by reference from Registrant's Form 8-K filed on
August 28, 1998.
(2) Incorporated by reference from exhibit 3.1 to Registrant's
description of capital stock on Form 8-A12G, filed on July 13,
2000.
(3) Incorporated by reference from exhibit 3.2 to Registrant's
description of capital stock on Form 8-A12G, filed on July 13,
2000.
(4) Incorporated by reference from Registrant's Registration
Statement on Form S-8, dated and declared effective on March
12, 1997 (File No. 333-23159).
(5) Incorporated by reference from Registrant's Registration
Statement on Form S-8, dated and declared effective on
November 5, 1999 (File No. 333-90383).
(6) Incorporated by reference from Registrant's Registration
Statement on Form S-8, dated and declared effective on July
19, 2000 (File No. 333-41704)
47
(7) Incorporated by reference from Registrant's amended Registrant
Statement on Form S-1, dated May 8, 1997 and declared
effective on May 12, 1997 (File No. 333-18811).
(8) Incorporated by reference from Registrant's Registration
Statement on Form S-2, filed January 11, 1999 (File No.
333-70403).
(9) Incorporated by reference from Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.
(10) Incorporated by reference from Registrant's Registration
Statement on Form S-8, dated and declared effective on
November 18, 1998 (File No. 333-67469).
(11) Incorporated by reference from Registrant's amended
Registration Statement on Form S-2, dated and declared
effective on February 7, 2000 (File No. 333-90731).
(b) Registrant filed the following reports on Form 8-K during the
period of October 1 through December 31, 2000:
Current Report on Form 8-K dated December 20, 2000, under Item 5 for a
press release concerning the Registrant's acquisition of Armer
Communications Engineering Services, Inc.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RADYNE COMSTREAM INC.
---------------------
(Registrant)
By: /s/ Robert C. Fitting
------------------------------------------
Robert C. Fitting, Chief Executive Officer
Dated: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Lim Ming Seong Chairman of the Board of Directors March 30, 2001
- ---------------------------
Lim Ming Seong
/s/ Robert C. Fitting Chief Executive Officer and Director March 30, 2001
- ---------------------------
Robert C. Fitting
/s/ Brian J. Duggan Chief Operations Officer and President March 30, 2001
- ---------------------------
Brian J. Duggan
/s/ Garry D. Kline Vice President, Finance March 30, 2001
- ---------------------------
Garry D. Kline (Principal Financial and
Accounting Officer)
/s/ C.J. Waylan Director March 30, 2001
- ---------------------------
C.J. Waylan
/s/ Lee Yip Loi Director March 30, 2001
- ---------------------------
Lee Yip Loi
/s/ Dennis Elliott Director March 30, 2001
- ---------------------------
Dennis Elliott
/s/ Tang Kum Chuen Director March 30, 2001
- ---------------------------
Tang Kum Chuen
49
INDEX TO EXHIBITS
NO.
---
2.1(1) Stock Purchase Agreement dated August 28, 1998 between
Spar Aerospace Limited and Radyne Corp.
3.1(2) Restated Certificate of Incorporation
3.2(3) By-Laws, as amended and restated
10.1(4) 1996 Incentive Stock Option Plan
10.2(5) 1999 Employee Stock Purchase Plan
10.3(6) 2000 Long-Term Incentive Plan
10.4(7) Employment Agreement with Robert C. Fitting (Radyne
Termsheet)
10.5(8) Lease between ADI Communication Partners, L.P. and
ComStream dated April 23, 1997
10.6(8) First Amendment to lease between ADI Communication
Partners L.P. and ComStream dated July 16, 1997
10.7(8) Second Amendment to Lease between Kilroy Realty, L.P.
and ComStream dated November 18, 1998
10.8(8) Indemnity Agreement between Pacific Bell Corporation
and ComStream dated November 18, 1998
10.9(8) Letter Agreement between Spar and Radyne Corp. dated
November 18, 1998
10.10(9) Lease for facility in Phoenix, Arizona
10.11(10) Amendment to 1996 Incentive Stock Option Plan
10.12(11) Uncommitted Line of Credit Facility Letter Agreement,
dated as of May 18, 1998, and amended as of September
28, 1998 and September 30, 1999
10.13(11) Stock Purchase Loan Agreement executed by Robert
Fitting, dated October 8, 1999
10.14(11) Promissory Note executed by Robert Fitting, dated
October 8, 1999 in the amount of $200,000
10.15(11) Stock Purchase Loan Agreement executed by Garry Kline,
dated October 8, 1999
10.16(11) Promissory Note executed by Garry Kline, dated October
11, 1999 in the amount of $50,000
10.17(11) Stock Purchase Loan Agreement executed by Steven
Eymann, dated November 11, 1999
10.18(11) Promissory Note executed by Steven Eymann, dated
November 1, 1999 in the amount of $100,000
10.19(11) General Release and Settlement Agreement between Spar
Aerospace Limited and Radyne ComStream Inc. dated
September 29, 1999
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
99.1 Cautionary Statement Regarding Forward-Looking
Statements and Risk Factors
- ----------
(1) Incorporated by reference from Registrant's Form 8-K filed on
August 28, 1998.
(2) Incorporated by reference from exhibit 3.1 to Registrant's
description of capital stock on Form 8-A12G, filed on July 13,
2000.
(3) Incorporated by reference from exhibit 3.2 to Registrant's
description of capital stock on Form 8-A12G, filed on July 13,
2000.
(4) Incorporated by reference from Registrant's Registration
Statement on Form S-8, dated and declared effective on March
12, 1997 (File No. 333-23159).
(5) Incorporated by reference from Registrant's Registration
Statement on Form S-8, dated and declared effective on
November 5, 1999 (File No. 333-90383).
(6) Incorporated by reference from Registrant's Registration
Statement on Form S-8, dated and declared effective on July
19, 2000 (File No. 333-41704)
(7) Incorporated by reference from Registrant's amended Registrant
Statement on Form S-1, dated May 8, 1997 and declared
effective on May 12, 1997 (File No. 333-18811).
(8) Incorporated by reference from Registrant's Registration
Statement on Form S-2, filed January 11, 1999 (File No.
333-70403).
(9) Incorporated by reference from Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.
(10) Incorporated by reference from Registrant's Registration
Statement on Form S-8, dated and declared effective on
November 18, 1998 (File No. 333-67469).
(11) Incorporated by reference from Registrant's amended
Registration Statement on Form S-2, dated and declared
effective on February 7, 2000 (File No. 333-90731).
(b) Registrant filed the following reports on Form 8-K during the
period of October 1 through December 31, 2000:
Current Report on Form 8-K dated December 20, 2000, under Item 5 for a
press release concerning the Registrant's acquisition of Armer
Communications Engineering Services, Inc.