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1
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 Number
September 30, 1998 0 - 10125
Radiant Technology Corporation
------------------------------
(Exact name of the registrant as specified in its charter)
California 95-2800355
- --------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification number)
1335 South Acacia Avenue, Fullerton, California 92831
-----------------------------------------------------
(Address of principal executive offices)(zip code)
Registrant Telephone Number, including area code: (714) 991-0200
Securities registered pursuant to section 12 (b) of the act: None
Securities registered pursuant to section 12 (g) of the Act: Common
stock, without par value
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 _____
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $6,160,824 as of December 18, 1998.
Applicable only to registrants involved in bankruptcy proceedings during
the preceding five years: Indicate by check mark whether the registrant has
filed all documents and reports required to be filed by section 12, 13, or 15
(d) of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes__X__ No_____
2
The number of shares of the registrant's common stock, no par value,
outstanding as of November 30, 1998 was 1,895,638.
Documents incorporated by reference. Part III Items 10 through 13 of this
Form 10-K are incorporated by reference to the registrant's definitive proxy
statement for the Annual Meeting of Shareholders to be held on April 16, 1999.
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. [ ]
PART 1
------
ITEM 1. BUSINESS
--------
PREFACE
Radiant Technology Corporation completed the most profitable year in its
history. This follows three years of analogous high earnings before any
extraordinary items. Management believes growth would have been stronger had the
Semiconductor portion of RTC's customer base had not reduced expenditures
significantly in FY 1998.
GENERAL:
Radiant Technology Corporation (RTC) was incorporated in California in
1972. Its initial public offering (IPO) was in 1979. The Company is engaged in
the marketing, design, manufacture and service of highly precision thermal
processing systems that are primarily used by manufacturers of electronic
componentry. The Company's conveyorized (belt) ovens and furnaces are in
worldwide demand to meet ever-changing process requirements in the semiconductor
packaging, flat panel display, hybrid thick film firing, multichip module,
photovoltaic (solar cell) and printed circuit board assembly industries.
To obtain financial growth and stability the Company concentrates on
managing the following key elements of its business:
Technological Leadership: The Company is constantly in contact with its
customers soliciting their input for both continued product improvement and new
product development. The Company encourages customers anticipating new thermal
processing requirements to contact it regarding their new opportunities and
needs.
Customer Diversity: Customers from different facets of the electronics industry
are sought and maintained. As demand for the various manufacturing elements in
the electronics high technology industry shifts, RTC works to position itself to
be ready to be immediately responsive to changing market emphasis.
3
Service: The Company concentrates on providing timely, high quality,
responsiveness to its customer base. Most service concerns are handled by Phone,
FAX or E-mail immediately. Customer Service Engineers, when needed, are
dispatched within the day. Internationally, the Company retains Sales/Service
representatives, factory trained, to provide the same level of dedication in
placing the concerns and needs of the customer first. Modems are installed in
customers equipment, making it possible to analyze and implement customer
requests online from Company headquarters.
MARKETS AND PRODUCTS:
The Company's near infrared processing systems are principally in demand
for the following applications:
SemiConductor Packaging: In recent years, flip chip packaging technology has
gained widespread acceptance. RTC provides products for key process steps in
this packaging technology. The first process, called wafer bumping, involves a
reflow solder process to form the solder balls on all of the input/output (I/O)
pads on the wafer. Because of the extremely small geometries involved, this
process is best accomplished in a hydrogen atmosphere. RTC offers the S-series
high temperature furnace for this application which, when equipped with the
hydrogen safety package, provides the high temperature (350(Degree)C) reflow
process in a 100% hydrogen atmosphere. The second process, called "chip
joining", is a reflow solder process for attaching the flip chip die to the
semiconductor package or alternatively to a printed circuit assembly (direct
chip attach). RTC offers both a near infrared or forced convection oven for the
chip joining or direct chip attach processes. RTC's D-series ovens are suitable
for low temperature curing applications such as required for the "under-fill"
epoxy dispensed under the die in a flip chip package or curing epoxy glob tops
for chip on board requirements.
For more traditional chip packaging technologies, RTC offers an AG-series
furnace designed specifically for the silver-glass die attach process.
Silver-glass die attach is an adhesive curing step prior to the wire bonding of
the die to the package. A critical thermal profile is required to achieve the
proper mechanical and thermal properties of the silver-glass material. Other
packaging thermal processes such as final lid sealing (metal or glass) and lead
frame embed or pin brazing are easily accomplished in RTC's S- or AG-series
furnaces.
Photovoltaics: For well over a decade, RTC has been the major supplier of
sintering furnaces used by photocell manufacturers for firing metallized inks to
form the front-side contacts and the back-side fields on the individual solar
cells. The product ideally suited for sintering of the metallized inks is our
C-series furnace. In recent years, existing RTC customers have been
experimenting with using a modified version of our S-series furnace for
phosphorus diffusion which is the first thermal process in the manufacture of
solar cells. This process had previously been accomplished in batch mode in a
tube furnace. An extremely precise thermal process is required for phosphorus
diffusion because this step ultimately determines the cell's efficiency in
generating power when exposed to sunlight. Flat Panel Display: While the flat
panel display market has been around for several years primarily in Japan, it is
a relatively new market for US equipment manufacturers. RTC has developed, in
close cooperation with a flat panel manufacturer, one of the first US built
system for processing large glass panels. The RTC furnace can handle glass
panels up to 58 inches wide. In addition to the challenges of achieving uniform
heating over the entire panel, there were unique mechanical challenges for
handling the large glass panels while loading and unloading the furnace.
4
Printed Circuit Board: RTC offers both infrared and forced convection heating
technology for printed circuit board assembly. These low temperature ovens are
used for mass reflow soldering of surface mount components to a printed circuit
assembly after the solder paste has been screened onto the assembly and the
various components have been placed into proper position.
Hybrid Thick Film: Hybrid thick film technology involves the firing of various
types of inks screen printed on ceramic substrates to form conductors and
resistors. The thick film materials commonly referred to as inks consist of
mixtures of metal, glass and/or ceramic powders dispersed in organic vehicles or
solutions of polymers in solvents. Precise thermal profiles are required to
achieve the desired resistor value, or electrical properties of the conductors.
RTC offers the TF-series furnace for firing thick film inks in air, and the
TFA-series for firing thick film materials in a controlled, inert atmosphere
having a low oxygen content.
Multichip Modules: Multichip module technology is an emerging packaging
technology. All RTC products can be used in some combination to manufacture a
multichip module (or package). A unique requirement exists in the manufacture of
a MCM-D structure which is a thin film laminate structure whose inter-layer
adhesion is critically dependent on multiple pass curing steps. RTC has
developed an intelligent curing oven for just this purpose where integrated
sensors, through feed back mechanisms, control the curing process in real-time.
All systems use PCs to provide appropriate man/machine interface with
embedded microprocessors achieving precise control of thermal operations. Such
functions as power, temperature, belt speed, process gas measurement, profiling,
maintenance requirements, data logging, local and remote communications
diagnostics and operation, and computer integrated manufacturing with SECS/GEM
interface are available.
The nature and high intensity of the infrared heat produced in the
Company's furnaces permits a high rate of heat absorption by the electronic
parts processed through them, making them more adaptable to the exacting
tolerances and high-speed heating requirements of certain industrial users.
Since these ovens and furnaces can be brought up to operating temperatures in a
shorter time span, operating at a faster conveyor belt speed, require less floor
space and use less electric energy, operating costs are significantly lower than
for conventional ovens and furnaces.
5
MARKETING, SALES AND CUSTOMERS
The Company sells its products throughout the world, primarily to
organizations engaged in the manufacture of electronic components and
assemblies. RTC maintains direct sales offices in the United States.
Internationally the Company is represented through independent sales/service
organizations. Note 1 to the Financial Statements depicts a breakdown of
international sales.
Customers evaluate furnace vendors on their technological leadership
resulting in high process yield of material produced. This primary benefit
combined with high up time, low meantime between failure, MTBF, quick reliable
service and spare parts response time combine to produce low cost of equipment
ownership.
Three customers accounted for over 10% of RTC's revenue in 1998. They are:
AMD 18%, AstroPower 11% and Plasmaco 11%. Each company represents a major market
application for RTC's product, i.e., Semiconductor Packaging, Photovoltaics and
Flat Panel Display. AMD accounted for 35% of the Company's business in 1997. Dow
Chemical contributed to 19% of its business in 1996. It is rare to report a
consistent repeatability of the same customer from year to year. This is due to
the cyclical nature of customers' need for new capital equipment.
The Company does not experience a seasonal demand for its product. Rather
the demand for product, as above, is dependent on the demand for new
manufacturing equipment.
BACKLOG
The Company regards as backlog all signed purchase orders received from
customers for delivery at specified dates. At September 30, 1998, the backlog
was $796,430 vs. $1,830,640 in 1997, and $1,394,000 in 1996. This backlog of
orders will be completed over a two to five month period.
The Company's contracts include cancellation clauses, however, the Company
does not generally dispute a timely cancellation provided no significant costs
have been incurred at the time of cancellation. The Company has not experienced
any material level of cancellations during the past two fiscal years.
RESEARCH AND DEVELOPMENT
Research and Development expenses are charged to specific product
enhancement activities and new product development. RTC's expense of $250,964,
in 1998, 5.4% of revenue, is approximately proportional to amounts invested in
prior years. In 1997, $254,561 was expended vs. $264,954 in 1996. Sustaining
engineering expenses, associated with standard product offerings, are chargeable
against present contractual activities.
6
COMPETITION
The Company confronts competition from three primary domestic companies:
BTU International, Lindberg (Division of General Signal), and Sierra-Therm.
There are numerous other competitors both domestically and internationally.
The Company believes that it presently is one of the principal
manufacturers of conveyorized, controlled atmosphere, variable speed, high
temperature infrared furnaces used in the manufacture of precision,
microelectronic circuitry for the semiconductor, solar cell, hybrid micro
circuits and general electronic industries; and that the competitive environment
in the market for ovens and furnaces is based on superior technology, design and
delivery and cost of ownership over initial purchase price. The Company believes
that its higher temperature near infrared products are more technologically
advanced than that of the conventional products of its competitors. The Company
has patents issued and pending covering the basic technology involved in the
principal markets. See "Patents" below.
MATERIAL
The Company purchases raw materials, mechanical parts and electronic
components. It manufactures most of its sheet metal and some mechanical and
electronic components. Alternative sources of material exist for nearly all
parts, components and materials. The Company has selected a single source
supplier for much of its electronic componentry, due to high levels of quality
and services. Should this favorable condition degenerate, an alternative
supplier can be found but not without initial extra cost expenditures.
PATENTS
The Company owns a number of current patents on its products issued from
1983 to 1997. Its patents are the result of its creative energies and innovative
technology. RTC believes that it must continually work to maintain technological
leadership for its customer base. The Company further believes that patents may
prove creativity and provide competitive hurdles. However, it is primarily
attention to customer service with high quality products, produced in a timely
manner, ultimately providing the customer with low cost of ownership that
provides the Company its most competitive strength.
Three important patents related to its infrared furnace and oven products.
Patent No. 4,477,718 for Infrared Furnaces with Controlled Environment is
effective for seventeen years beginning October 16, 1984. Patent No. 4,517,448
for infrared Furnaces with Atmosphere Control Capability is effective for
seventeen years beginning May 14, 1985. Patent No. 4,987,364 - A Furnace
Assembly for Reflowing Solder is effective for seventeen year beginning March 5,
1991.
TRADEMARKS
The Company registered trademark No. 1425668, "RTC radiant technology
corporation", with the United Stated patent and Trademark Office on January 20,
1987. The trademark is in force for twenty years. The Company registered
trademark No. 1556707, "MEZZANINE", with the United States Patent and Trademark
Office on September 19, 1989. The trademark is in force for twenty years.
7
EMPLOYEES
The Company employed 30 full-time individuals as of November 30, 1998.
WARRANTY
The Company warrants its ovens and furnaces against defects existing at the
time of shipment for material and workmanship under normal use and service for a
period of one year on parts, and for ninety days on labor after shipment to an
original user. Under this warranty, the Company will provide, F.O.B. Anaheim,
repair or replacement, at its own cost, any heating elements, SCR control
packages, printed circuit boards, components, and conveyor speed controls
(including digital readouts) which, within the warranty period, are proved to
the satisfaction of the Company to have been defective.
GOVERNMENTAL REGULATIONS
The operations of the Company are subject to various federal and state laws
and regulations. Management believes the Company is in substantial compliance
with all applicable laws and regulations. The cost of compliance has not been a
significant burden to the Company.
ITEM 2. PROPERTIES
----------
The Company executive offices and manufacturing facility are located in a
quality industrial park where expansion may be possible.
The 25,000 square foot building is leased for 5 years with an option to
renew for an additional 5 years. See Item #10, Notes to financial Statements,
for more detail.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no legal proceedings pending at the time of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of FY 1998.
8
PART II
-------
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
--------------------------------------------------
SECURITY HOLDER MATTER
----------------------
The Company's common stock is quoted on the OTC Bulletin Board. The table
below sets forth the representative high and low bid prices for the common stock
during each calendar period indicated. The Quotations represent interdealer
prices without adjustments for retail mark-ups, mark-downs or commissions and
consequently do not necessarily reflect actual transactions.
Year Ended
September 30
------------
1998 1997
HIGH LOW HIGH LOW
------------------ ------------------
1st Quarter................. .25 .25 $.50 $.125
2nd Quarter................. 1.00 .25 .25 .125
3rd Quarter................. 1.875 .375 .25 .125
4th Quarter................. 2.00 1.375 .25 .125
Holders of shares of Common Stock are entitled to receive such dividends,
if any, as may be declared by the Board of Directors of the Company out of funds
legally available therefore and, upon the liquidation, dissolution or winding up
of the Company are entitled to share ratably in all net assets available for
distribution to such shareholders. The Company has never paid any dividends. It
is anticipated that all earnings, will be retained for development of working
capital to grow the business of the Company and there is no present intention to
declare dividends in the foreseeable future. See ITEM 7 "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
SHAREHOLDERS OF RECORD: As of September 30, 1998, the number of record
holders of the Company's Common Stock was 410.
9
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following table summarizes certain selected financial data of the
Company:
Operating Data
- --------------
(in thousands) except per share Year Ended September 30
information ------------------------------------
1998 1997 1996
---- ---- ----
Net Sales $4,686 $4,412 $4,173
Income From Continuing Operations 416 592 222
Income Before Amortization,
Depreciation, Income Taxes and
Reorganization Expenses 602 553 364
Total Assets 4,063 4,102 2,524
Long-term debt 0 0 0
Per Share Information:
Income From Continuing Operations .22 .32 .18
Income Before Amortization,
Depreciation, Income Taxes and
Reorganization Expenses .32 .30 .30
Net Income .22 .32 .37
See Notes to Financial Statements
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITIONS AND RESULTS OF OPERATIONS
------------------------------------
Cautionary Statement
This Annual Report contains statements relating to future results of the Company
(including certain projections and business trends) that are "forward-looking
statements" as defined in Section 27A of the Securities Act of 1933. Actual
results may differ materially from those projected as a result of certain risks
and uncertainties, including but not limited to economic and political changes
in markets where the Company competes such as inflation rates, recession, and
other external factors over which the Company has no control; domestic and
foreign government spending, budgetary and trade policies; demand for and market
acceptance of new and existing products; successful development of advanced
technologies; timely completion of Year 2000 modifications by the Company,
governments and our key suppliers and customers; and competitive product and
pricing pressures as well as other risks and uncertainties, including but not
limited to those detailed from time to time in the Company's Securities and
Exchange Commission filings.
10
GENERAL
The Company pioneered the design and application of near infrared high
temperature furnaces with the semiconductor manufacturing and electronics
assembly markets. RTC products are now principally used by manufacturers of
semiconductor packaging, solar cells, flat panel displays, printed circuit
boards, hybrid thick film and multichip modules. New and inventive uses of the
product line for other applications continue to be discovered.
RESULTS OF OPERATIONS
Net sales of $4,686,382 increased $274,348 or 6% for the fiscal year ended
September 30, 1998 as compared to net sales of $4,412,024 for fiscal 1997. Net
sales of $4,412,024 fiscal 1997 increased $239,425 or 6% from the fiscal 1996
level of $4,172,575.
Fiscal 1998 was the most profitable in the history of the Company. Income
before provision for taxes was $466,587. With the after tax amounting to
$415,587, or $.22 per share. This represents a before tax Return on Equity, from
the beginning of the year, of 21.4%. It compares most favorably with prior two
years earnings, especially when the adjustment for taxes and extraordinary items
are eliminated as depicted in the statements of income.
Cost of Sales remained the same. Selling and G & A costs increased 7.7% due
primarily to increased marketing efforts.
Research and Development costs were maintained at the same relevant rate as
prior years. These costs are essential to the Company's long term future. Future
that can move very quickly in the high technology field.
Interest was booked as income rather than expense. Borrowing is reserved
only for short-term requirements.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, cash provided by operations was $600,186, a 35% increase over
1997 cash generation of $446,476. The Company anticipates that it has sufficient
cash to fund planned sales growth in 1999 without any long term borrowing. There
may be occasional periods when short-term borrowing will be utilized, although
little of this type of activity is foreseen. Furthermore, the Company
anticipates having sufficient cash to purchase planned capital equipment,
including Y2K, requirements.
Year 2000, Y2K, Readiness Disclosure
The Year 2000 issue, Y2K, is the result of older computer programs being written
using two digits rather than four digits to define the applicable year. Computer
equipment, software and other devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in the inability of business processes to function
correctly in the year 2000 and could have serious adverse effects on companies
and entities throughout the world.
11
RTC is addressing issues related to the impact of the Year 2000 in its products,
internal computer systems that handle business and engineering processes, and
suppliers. A strategy was created to ensure substantial completion of upgrades
for critical systems by the middle of calendar 1999. The current project cost
estimate is $50,000. Purchased hardware and software will be capitalized.
Notwithstanding this plan program to make a smooth transition, there can be no
assurance that these estimates will prove to be accurate and actual results
could differ materially from those currently anticipated. Moreover, the Company
could be adversely impacted by the Year 2000 issues faced by customers, vendors,
governments and financial service organization with which the company interacts.
The varying definitions of "compliance with Year 2000" and the products by the
company in the past may lead to claims whose impact on the company is not
currently estimable. The company has product and general liability insurance
policies, which provide coverage in the event of certain product failures. We
have not purchased Year 2000 specific insurance because the cost is prohibitive
and likely of little value. No assurance can be given that the aggregate cost of
defending and resolving such claims will not financially adversely affect the
company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The following are included in this 10-K as exhibits:
1. Report of Independent Certified Public Accountants
2. Balance sheets as of September 30, 1998 and 1997.
3. Statement of Operation for the years ended September 30, 1998,
1997, 1996.
4. Statement of Stockholders Equity for the years ended September 30,
1998, 1997, 1996.
5. Statement of Cash Flows for the years ended September 30, 1998,
1997, 1996.
6. Notes to Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
12
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The response to this item is incorporated herein by reference to the
Company's definitive proxy statement for the Annual Meeting of Stockholders to
be held on April 16, 1999.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The response to this item is incorporated herein by reference to the
Company's definitive proxy statement for the Annual Meeting of Stockholders to
be held on April 16, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The response to this item is incorporated herein by reference to the
Company's definitive proxy statement for the Annual Meeting of Stockholders to
be held on April 16, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The response to this item is incorporated herein by reference to the
Company's definitive proxy statement for the Annual Meeting of Stockholders to
be held on April 16, 1999.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) (1) Financial Statements
The following financial statements are included in this Form 10-K:
Page No.
--------
1. Report of Independent Certified Public Accountants
2. Balance Sheets as of September 30, 1998 and 1997
3. Statements of Income for the years ended September
30, 1998, 1997 and 1996
4. Statements of Stockholders Equity (Deficit) for
the years ended September 30, 1998, 1997 and 1996
13
5. Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996
6. Notes to Financial Statements
(2) Financial Statements Schedules
None.
(3) Exhibits
Exhibit No. Description Page No.
----------- ------------ --------
3.1 Certificate of Restated Articles of
Incorporation incorporated by reference
to the Registration Statement of Form
S-18 (Registration No. 2-72528-LA) filed
on July 14, 1981.
3.1(a) Certificate of Amendment of Articles of
Incorporation incorporated by reference
to the Proxy Statement dated January 14,
1986.
3.1(b) Certificate of Amendment of Articles of
Incorporation incorporated by reference
to Annual Report on Form 10-K filed
January 15, 1990.
3.2 Restated By-Laws incorporated by
reference to the Registration Statement
on Form s-18 (Registration No. 2-72528-LA)
filed on July 14, 1981.
3.2(a) Amendment to Bylaws incorporated by
reference to Annual Report on Form 10-K
filed January 15, 1990.
4.1 Specimen Certificate of Common Stock
incorporated by reference to the
Registration Statement on Form S-18
(Registration No. 2-72528-LA) filed
on July 14, 1981.
10.22(a) Amendment No. 1 to Employment Agreement
effective as of November 7, 1991 by and
between the Company and Lawrence R.
McNamee incorporated by reference to
Annual Report on Form 10-K filed January
15, 1990.
10.24 Form of Indemnity Agreement incorporated
by reference to Annual Report of Form 10-K
filed January 15, 1990.
(b) Reports on Form 8-K.
None.
14
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
this behalf by the undersigned, thereunto duly authorized.
Dated: December 24, 1998
RADIANT TECHNOLOGY CORPORATION
By: /s/ L. R. McNamee
-------------------------
L.R, McNamee
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the persons on behalf of the registrant in the
capacities and on the dates indicated.
/s/ L. R. McNamee December 24, 1998
- ------------------------------------
Lawrence R. McNamee
Chairman of the Board and a Director
(Principal Financial Officer and
Principal Executive Officer)
/s/ C. T. Richert December 24, 1998
- ------------------------------------
Carson T. Richert
President and a Director
/s/ R. B. Thompson December 24, 1998
- ------------------------------------
Robert B. Thompson
Director
15
RADIANT TECHNOLOGY CORPORATION
Financial Statements
September 30, 1998
16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors and Stockholders
Radiant Technology Corporation
We have audited the accompanying balance sheets of Radiant Technology
Corporation as of September 30, 1998 and 1997, and the related statements of
income, stockholders' equity and cash flows for each of the years in the three
year period ended September 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Radiant Technology Corporation
as of September 30, 1998 and 1997 and the results of its income and its cash
flows for each of the three years in the period ended September 30, 1998 in
conformity with generally accepted accounting principles.
CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
November 20, 1998
17
RADIANT TECHNOLOGY CORPORATION
Balance Sheets
September 30,
----------------------------------
1998 1997
--------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 2,327,925 $ 1,817,316
Accounts receivable 565,777 756,505
Inventories 443,607 714,458
Deferred taxes 170,000 170,000
--------------- ---------------
Total current assets 3,507,309 3,458,279
PROPERTY AND EQUIPMENT 502,378 573,504
OTHER 53,331 70,222
--------------- ---------------
$ 4,063,018 $ 4,102,005
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 1,000,000 $ 1,000,000
Accounts payable 61,040 168,598
Accrued expenses 197,884 384,722
Income taxes payable 38,640 -
Customer deposits 159,466 368,384
--------------- ---------------
Total current liabilities 1,457,030 1,921,704
--------------- ---------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Preferred stock - -
Capital stock 1,153,108 1,143,008
Retained earnings 1,452,880 1,037,293
--------------- ---------------
Total stockholders' equity 2,605,988 2,180,301
--------------- ---------------
$ 4,063,018 $ 4,102,005
=============== ===============
The accompanying notes are an integral part of these financial statements.
18
RADIANT TECHNOLOGY CORPORATION
Statements of Income
Year Ended September 30,
----------------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
NET SALES $ 4,686,382 $ 4,412,024 $ 4,172,575
COST OF SALES 3,038,095 2,859,096 2,545,246
----------------- ----------------- -----------------
Gross profit 1,648,287 1,552,928 1,627,329
----------------- ----------------- -----------------
OPERATING EXPENSES:
Selling, general and administrative 976,756 906,379 1,089,438
Research and development 250,964 254,561 264,954
----------------- ----------------- -----------------
Total operating expenses 1,227,720 1,160,940 1,354,392
----------------- ----------------- -----------------
Income from operations 420,567 391,988 272,937
INTEREST INCOME (EXPENSE) 46,020 41,824 (10,020)
----------------- ----------------- -----------------
Income before reorganization expenses, provision
for income taxes and extraordinary item 466,587 433,812 262,917
REORGANIZATION EXPENSES - PROFESSIONAL FEES - - 40,327
----------------- ----------------- -----------------
Income before provision for income taxes
and extraordinary item 466,587 433,812 222,590
PROVISION (BENEFIT) FOR INCOME TAXES 51,000 (158,000) 800
----------------- ----------------- -----------------
Income before extraordinary item 415,587 591,812 221,790
EXTRAORDINARY ITEM:
Gain on extinguishment of debt - - 223,691
----------------- ----------------- -----------------
NET INCOME $ 415,587 $ 591,812 $ 445,481
================= ================= =================
BASIC EARNINGS PER SHARE:
Before extraordinary item $ 0.22 $ 0.32 $ 0.18
Extraordinary item - - 0.19
----------------- ----------------- -----------------
Net income $ 0.22 $ 0.32 $ 0.37
================= ================= =================
DILUTED EARNINGS PER SHARE:
Before extraordinary item $ 0.18 $ 0.32 $ 0.18
Extraordinary item - - 0.19
----------------- ----------------- -----------------
Net income $ 0.18 $ 0.32 $ 0.37
================= ================= =================
BASIC NUMBER OF COMMON SHARES OUTSTANDING: 1,875,474 1,867,638 1,209,405
================= ================= =================
DILUTED NUMBER OF COMMON SHARES OUTSTANDING: 2,277,096 1,867,638 1,209,405
================= ================= =================
The accompanying notes are an integral part of these financial statements.
19
RADIANT TECHNOLOGY CORPORATION
Statements of Stockholders' Equity
Years Ended September 30, 1998, 1997 and 1996
(Accumulated
Capital Stock Deficit)
------------------------------- Retained Stockholders'
Shares Amount Earnings Equity
-------------- ---------------- ------------------ ------------------
BALANCE, SEPTEMBER 30, 1995 190,409 2,981,195 (2,484,324) 496,871
Issuance of shares -
Bankruptcy reorganization
McNamee loan 380,818 175,051 - 175,051
Operation Phoenix loan 571,227 229,172 - 229,172
Creditors and original shareholders 380,818 3,900 - 3,900
Employees 380,818 13,709 - 13,709
Other 90,750 36,300 - 36,300
Repurchase of shares (127,202) (38,989) - (38,989)
Application of fresh start accounting - (2,257,330) 2,484,324 226,994
Net income - - 445,481 445,481
-------------- ---------------- ------------------ ------------------
BALANCE, SEPTEMBER 30, 1996 1,867,638 1,143,008 445,481 1,588,489
Net income - - 591,812 591,812
-------------- ---------------- ------------------ ------------------
BALANCE, SEPTEMBER 30, 1997 1,867,638 1,143,008 1,037,293 2,180,301
Exercise of options 28,000 10,100 - 10,100
Net income - - 415,587 415,587
-------------- ---------------- ------------------ ------------------
BALANCE, SEPTEMBER 30, 1998 1,895,638 $ 1,153,108 $ 1,452,880 $ 2,605,988
============== ================ ================== ==================
The accompanying notes are an integral part of these financial statements.
20
RADIANT TECHNOLOGY CORPORATION
Statements of Cash Flows
Year Ended September 30,
------------------------------------------------------
1998 1997 1996
------------------ ----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 415,587 $ 591,812 $ 445,481
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on forgiveness of debt - - (223,691)
Issuance of stock for compensation - - 13,709
Bad debt expense 3,500 17,800 71,300
Depreciation and amortization 179,539 118,924 100,236
Inventory obsolescence 39,000 15,000 80,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 187,228 (15,182) (217,839)
Inventory 231,851 (88,612) (138,749)
Deferred taxes - (170,000) -
Prepaid and other assets 8,155 (9,087) 9,398
Increase (decrease) in:
Accounts payable (107,558) (6,162) 128,126
Accrued expenses (148,198) 70,084 (28,223)
Customer deposits (208,918) (78,101) 235,400
------------------ ----------------- -----------------
Net cash provided by operating
activities before reorganization items 600,186 446,476 475,148
------------------ ----------------- -----------------
Changes in reorganization items:
Increase (decrease) in liabilities:
Subject to compromise - - (45,809)
------------------ ----------------- -----------------
Net change in reorganization items - - (45,809)
------------------ ----------------- -----------------
Net cash provided by
operating activities 600,186 446,476 429,339
------------------ ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (99,677) (239,288) (160,158)
------------------ ----------------- -----------------
(continued)
The accompanying notes are an integral part of these financial statements.
21
RADIANT TECHNOLOGY CORPORATION
Statements of Cash Flows (continued)
Year Ended September 30,
------------------------------------------------------
1998 1997 1996
------------------ ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock $ - $ - $ (38,989)
Issuance of common stock 10,100
Repayment of line of credit (1,000,000) - -
Borrowing on line of credit 1,000,000 1,000,000 -
------------------ ----------------- -----------------
Net cash provided (used) by
financing activities 10,100 1,000,000 (38,989)
------------------ ----------------- -----------------
Net increase in cash 510,609 1,207,188 230,192
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,817,316 610,128 379,936
------------------ ----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,327,925 $ 1,817,316 $ 610,128
================== ================= =================
Supplemental disclosures of cash flow information and non-cash investing and financing activities:
1998 1997 1996
------------------ ----------------- -----------------
Cash paid during the year for:
Interest $ 7,317 $ - $ -
Income taxes $ 9,270 $ 800 $ 800
In 1996, as part of the bankruptcy plan, debt and accrued interest of $406,223
and payables of $3,900 were satisfied through the issuance of common stock.
In 1996, the Company issued common shares with a value of $36,309 to purchase
accounts receivable originally seized by Bank of America during the bankruptcy
proceedings.
Upon emergence from bankruptcy the Company applied fresh-start accounting,
resulting in an increase in fixed assets and patents, the elimination of
accumulated deficit and a reduction in the capital stock as follows:
Fixed assets $ 176,994
Patents 50,000
Capital stock 2,257,330
Retained Earnings (2,484,324)
-----------------
$ -
=================
The accompanying notes are an integral part of these financial statements.
22
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------
Nature of Operations
--------------------
Radiant Technology Corporation (the "Company") is engaged in the
manufacturing and marketing of infrared conveyorized ovens and furnaces
used by the microcircuit manufacturing industry.
All of the Company's operations are located in California. Sales to
entities located outside the United States are as follows:
1998 1997 1996
------------ ------------- -------------
Pacific Rim countries $ 847,700 $ 616,900 $ 538,100
European countries 605,800 819,600 311,600
NAFTA countries 116,200 52,500 215,900
------------ ------------- -------------
$ 1,569,700 $ 1,489,000 $ 1,065,600
============ ============= =============
Revenue recognition
-------------------
The Company recognizes revenue from product sales upon shipment.
Cash and cash equivalents
-------------------------
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit and all highly liquid debt instruments
with original maturities of three months or less.
Accounts receivable and sales returns
-------------------------------------
The allowance for doubtful accounts and sales returns includes
management's estimate of the amount expected to be lost on specific
accounts and for losses on other as yet unidentified accounts included in
accounts receivable. In estimating the allowance component for
unidentified losses and returns, management relies on historical
experience. The amounts the Company will ultimately realize could differ
materially in the near term from the amounts assumed in arriving at the
allowance for doubtful accounts and sales returns in the accompanying
financial statements.
Inventories
-----------
Inventories include material, direct labor and manufacturing overhead and
are reported at the lower of cost (determined on the first-in-first-out
method) or market. Allowances for slow moving and obsolete inventory are
based on management's estimate of the amount considered obsolete based on
specific review of inventory items. In estimating the allowance,
management relies on its knowledge of the industry as well as its current
inventory levels.
23
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ------------------------------------------------------------
Equipment
---------
Equipment is stated at cost, less accumulated depreciation. Depreciation
is calculated using the straight-line method over the estimated useful
lives of the related assets or over the lesser of the term of the lease or
the estimated useful life for leasehold improvements.
Intangibles
-----------
The cost of patents are being amortized using the straight line method
over their estimated lives of five years. Amortization expense charged to
operations in 1998, 1997 and 1996 was $8,737, $8,695 and $4,358,
respectively.
Software development costs
--------------------------
The Company capitalizes internal software development costs in accordance
with Statement of Financial Accounting Standards No. 86. The
capitalization of these costs begins when a product's technological
feasibility has been established and ends when the product is available
for general release to customers. The Company uses the working model
approach to establish technological feasibility. Amortization is computed
on an individual product group on the straight-line method over the
estimated economic life of the product. Currently, the Company is using an
estimated economic life of three years for all capitalized software costs.
Amortization expense was $63,330, $45,363 and $52,794 for 1998, 1997 and
1996, respectively.
Customer deposits
-----------------
The Company often requires a deposit from customers before commencing work
on a furnace. It is the Company's policy to record the deposit as a
receivable with a corresponding deferred liability at the time the sales
order is written. When the deposit is received, the receivable is
relieved.
Income taxes
------------
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax
laws and statutory rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes represents
the tax payable for the period and the change during the period in
deferred tax assets and liabilities.
24
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ------------------------------------------------------------
Earnings per common share
-------------------------
Earnings per common share is computed by dividing reported earnings by the
weighted average number of common shares outstanding during the respective
periods. Common stock equivalents were excluded from the computations of
earnings per share in 1997 and 1996 because the effect of including such
equivalents in the computation would have been anti-dilutive.
Fair value of financial instruments
-----------------------------------
The fair value of financial instruments, consisting principally of notes
payable is based on interest rates available to the Company and comparison
to quoted prices. The fair value of these financial instruments
approximates carrying value.
Stock based compensation
------------------------
The Company accounts for compensation costs related to employee stock
options and other forms of employee stock-based compensation plans in
accordance with the requirements of Accounting Principles Board Opinion 25
("APB 25"). APB 25 requires compensation costs for stock based
compensation plans to be recognized based on the difference, if any,
between the fair market value of the stock on the date of the grant and
the option exercise price. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards 123,
Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123 established
a fair value-based method of accounting for compensation costs related to
stock options and other forms of stock-based compensation plans. However,
SFAS 123 allows an entity to continue to measure compensation costs using
the principles of APB 25 if certain pro forma disclosures are made. The
Company adopted the provisions of pro forma disclosure requirements of
SFAS 123 in fiscal 1997. Options granted to non-employees are recognized
at their estimated fair value at the date of grant.
Use of estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Reclassifications
-----------------
Certain items in the 1996 and 1997 financial statements have been
reclassified to conform with the 1998 presentation.
25
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
2. BANKRUPTCY PROCEEDINGS
- ----------------------------
On November 12, 1993 the Company filed petition for relief under Chapter
11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for
the Central District of California. The Bankruptcy Court confirmed the
Plan of Reorganization on August 3, 1995 and the bankruptcy was dismissed
on February 20, 1996. The plan called for the following:
- - Existing outstanding common shares at the time of bankruptcy were
diluted 30:1. Upon this reverse stock split, the shareholders in this
class were given the option to redeem all their new shares for $.20
per share. Shareholders left with five or fewer shares after the
reverse split were subject to automatic repurchase.
- - Unsecured general creditors with claims in excess of $300 were given
the option to either a) convert to equity by accepting a pro-rata
portion of 380,818 shares of common stock or b) accept cash equivalent
to 15 percent of their allowed claims. If option a) was selected, the
pro-rata share was determined by claims allowed, not by the number of
creditors selecting this option. Any of the 380,818 shares not
distributed because the creditors elected option b) were distributed
to existing shareholders who did not elect to receive cash for their
shares. As a result 370,647 shares were distributed to existing
shareholders.
- - Unsecured general creditors with claims of $300 or less were paid in
full.
- - Lawrence McNamee received 380,818 shares of common stock as payment
for his post-petition loan and related accrued interest totaling
$177,051.
- - Operation Phoenix, a general partnership consisting of Company
employees, received 571,227 shares of common stock as payment for a
post-petition loan and related accrued interest totaling $229,172.
- - Employees who agreed to take no wages during the shutdown period and
agreed to reduce wages for a period of two years were awarded 380,818
shares of common stock.
Total debt forgiven was $920,740. The Company accounted for the
reorganization using fresh-start reporting. Accordingly all assets and
liabilities were restated at the date of dismissal to reflect their
reorganization value, which approximates fair value at the date of
reorganization. Independent appraisers were used to determine the fair
value of assets. The book value of fixed assets were increased by $177,000
and patents by $50,000. Accumulated deficit of $2,484,324 was eliminated
with a corresponding net reduction in capital stock.
26
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
3. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
- ------------------------------------------------------------
The Company, from time to time, has cash deposits at financial
institutions in amounts in excess of federally-insured limits. The Company
believes that credit risk related to its cash deposits is limited due to
the quality of the financial institutions.
The Company's customers are located in several geographic markets,
primarily in the United States, Europe and Pacific Rim countries and are
concentrated within three industries. To minimize the risk of loss, the
Company routinely assesses the financial strength of its customers, and
may require a substantial downpayment prior to commencing machine
production.
Net accounts receivable by geographic markets are as follows:
1998 1997
---------- ----------
United States 52% 94%
European countries 16% 5%
Pacific Rim countries 16% 1%
NAFTA countries 16% -
---------- ----------
100% 100%
========== ==========
During 1998, 1997 and 1996, the five largest customers represented 53, 63
and 38 percent of revenues, respectively. At September 30, 1998 and 1997
the five largest account receivable balances represented 66 and 74
percent, respectively, of total accounts receivable.
4. ACCOUNTS RECEIVABLE
- -------------------------
1998 1997
---------- ----------
Trade receivables $ 603,277 $ 794,005
Allowance for doubtful accounts (37,500) (37,500)
---------- ----------
$ 565,777 $ 756,505
========== ==========
27
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
4. ACCOUNTS RECEIVABLE (CONTINUED)
- -------------------------------------
Activity relating to the allowance for doubtful accounts and sales returns
is as follows:
1998 1997 1996
--------- ---------- ----------
Balance at beginning of year $ 37,500 $ 86,000 $ 31,000
Provision 3,500 17,800 71,300
Write offs (3,500) (66,300) (16,300)
--------- --------- ----------
Balance at end of year $ 37,500 $ 37,500 $ 86,000
========= ========= ===========
5. INVENTORIES
- -----------------
1998 1997
------------ ------------
Raw materials $ 461,931 $ 455,848
Work in process 81,676 358,610
------------ ------------
543,607 814,458
Allowance for obsolete inventories (100,000) (100,000)
------------ ------------
$ 443,607 $ 714,458
============ ============
Activity relating to the allowance for obsolete inventories is as follows:
1998 1997 1996
---------- ---------- ----------
Balance at beginning of year $ 100,000 $ 179,000 $ 126,000
Provision 39,000 15,000 80,000
Write offs (39,000) (94,000) (27,000)
---------- ---------- ----------
Balance at end of year $ 100,000 $ 100,000 $ 179,000
========== ========== ==========
28
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
6. EQUIPMENT
- ---------------
Life in years 1998 1997
------------------ ---------- ----------
Machinery and equipment 7 $ 372,262 $ 318,649
Office furniture and equipment 7 51,116 43,200
Leasehold improvements 5 53,226 60,867
Vehicles 5 15,050 15,050
Capitalized computer software 3 319,259 273,470
---------- ----------
810,913 711,236
Less: accumulated depreciation and amortization (308,535) (137,732)
---------- ----------
$ 502,378 $ 573,504
========== ==========
Depreciation and amortization for 1998 and 1997 was $179,540 and $110,229,
respectively.
7. OTHER ASSETS
- -------------------
1998 1997
---------- ----------
Deposits $ 19,630 $ 24,430
Patents, net of amortization of $21,790
and $13,053 at September 30, 1998
and 1997, respectively 28,210 36,947
Other 5,491 8,845
---------- ----------
$ 53,331 $ 70,222
========== ==========
8. NOTES PAYABLE
- -------------------
The Company has a $1,000,000 revolving line of credit, bearing interest at
the LIBOR rate plus 2 percent. The line expired in September 1998, and was
renewed for another year.
29
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
9. ACCRUED EXPENSES
- ----------------------
1998 1997
----------- -----------
Payroll and related items $ 78,916 $ 143,388
Commissions 37,185 52,792
Warranties 40,000 120,000
California franchise tax 38,640 -
Other 41,783 68,542
----------- -----------
$ 236,524 $ 384,722
=========== ===========
10. COMMITMENTS AND CONTINGENCIES
- -----------------------------------
Operating leases
----------------
In November 1996 the Company signed a five year lease on a building in
Fullerton, California. Base monthly rent is $10,600 plus common area
charges of approximately $2,300 per month. Minimum future lease payments
under non-cancelable operating leases for each of the next five years and
in the aggregate are:
Year ending September 30,
1999 $ 155,595
2000 164,340
2001 164,340
2002 68,475
-----------
$ 552,750
===========
Rent expense for 1998, 1997 and 1996 was $150,090, $147,200 and $121,000
respectively.
Environmental matters
---------------------
The Company, like others in similar businesses, is subject to federal,
state and local environmental laws and regulations. Although Company
environmental policies and practices are designed to ensure compliance
with these laws and regulations, future developments and increasingly
stringent regulation could require the Company to make unforeseen
environmental expenditures.
30
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
11. STOCKHOLDERS' EQUITY
- --------------------------
Preferred stock
---------------
At September 30, 1998 and 1997 there were 5,000,000 authorized shares of
preferred stock, of which no shares were issued and outstanding.
Common stock
------------
The Company has authorized 24,000,000 shares of no par value common stock.
At September 30, 1998 and 1997, 1,895,638 and 1,867,638 shares,
respectively were issued and outstanding.
EMPLOYEE STOCK OPTIONS
----------------------
Incentive and non-statutory option plan
---------------------------------------
The Company adopted an incentive and non-statutory stock option plan which
provides for granting options to key employees and officers. Under the
plan, options up to 1,000,000 shares may be granted at a price not less
than the fair market value of such shares on the date of the grant, and
the maximum term of each option may not exceed ten years. With respect to
any participant who owns stock possessing more than 10% of the voting
rights of the Company's outstanding capital stock, the exercise price of
any stock option must not be less than 110% of the fair market value on
the date of the grant and the maximum term may not exceed five years. On
January 22, 1998 the Board authorized options to purchase 70,000 shares of
which 50,000 were granted at an exercise price of $.75, which was at or
above the market price on the date of the grant. These options vest on
January 5, 2000 and expire January 5, 2003.
Non-statutory director options
------------------------------
On September 30, 1996, the Company granted 20,000 non-statutory options to
each of three outside board members. The options vested 50% at September
30, 1996 and 50% at September 30, 1997, and expire three years after
vesting. The option price is $.48 per share, which was equal to the market
price at the date of the grant.
31
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
11. STOCKHOLDERS' EQUITY (CONTINUED)
- --------------------------------------
Lawrence McNamee
----------------
On January 1, 1991, the Company and its chairman, Lawrence McNamee,
executed a one year employment agreement wherein Mr. McNamee was granted
six blocks of options totaling 275,350 options which amounted to 10% of
the outstanding shares. The option price varied according to the date of
the grant. The employment agreement provided that in the event the Company
issued any additional (or repurchased existing) shares of common stock
(excluding shares issued or issuable pursuant to Mr. McNamee's employment
agreement), the number of options issued to Mr. McNamee should be
automatically and proportionately adjusted as to preserve the ratio of ten
percent of the outstanding common stock. Under certain conditions, Mr.
McNamee may be issued additional options in the amount equal to five
percent of the outstanding options and warrants excluding those belonging
to Mr. McNamee. The exercise price of any additional options issued would
be the fair market value of the stock on the date of grant. This
adjustment provision of Mr. McNamee's employment agreement is referred to
as the "Adjustment" clause. During the year ended September 30, 1996 Mr.
McNamee was granted 167,723 options under this adjustment clause, while
248,715 of the original options expired. Option prices range from $.075 to
$.375. In fiscal 1997, all of these options expired.
Mr. McNamee also holds options to acquire 346,666 shares at $.075 per
share issued to him in lieu of salary in 1992. These options have no
expiration date.
The following table summarizes shares under option, including options both
under the Plan and outside the Plan, for the years ended September 30,
1998 and 1997:
Weighted
Number of Price Average
Shares Per Share Exercise price Exercisable
---------------- ---------------- ----------------- -----------------
September 30, 1996 704,022 $.0625-.50 $0.25 644,014
---------------- ---------------- ----------------- =================
Granted 50,000 $0.48 $0.48
Exercised - - -
Canceled (234,356) $.075-.50 $0.44
---------------- ---------------- -----------------
September 30, 1997 519,666 $.0625-.48 $0.19 439,666
---------------- ---------------- ----------------- =================
Granted 50,000 $0.75 $0.75
Exercised (28,000) $.0625-.48 $0.33
Canceled (45,000) $.3125-.375 $0.36
---------------- ---------------- -----------------
September 30, 1998 496,666 $.0625-.48 $0.22 446,666
================ ================ ================= =================
32
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
11. STOCKHOLDERS' EQUITY (CONTINUED)
- --------------------------------------
Stock options (continued)
-------------------------
The following information applies to employee options outstanding at
September 30, 1998:
Outstanding
-----------------------------------------------------------------
Weighted Average Weighted
Remaining Average
Range of Number of Contractual Exercise
exercise prices Shares Life (Years) Price
--------------------- ------------------ ---------------------- ---------------
$0.0625 10,000 1 $0.06
$0.075 346,666 4 $0.08
$0.48 90,000 2 $0.48
$0.75 50,000 5 $0.75
------------------ ---------------
496,666 $0.22
================== ===============
Statement of Financial Accounting Standards 123, "Accounting for
Stock-Based Compensation", encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to Employees",
and related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of grant over the amount an employee must
pay to acquire the stock.
Had compensation cost for the plan been determined based on the fair value
of the options at the grant dates consistent with the method of SFAS 123,
the Company's net income and earnings per share would have been:
1998 1997
------------ ------------
Net income:
As reported $ 415,587 $ 591,812
Pro forma $ 377,821 $ 543,759
Basic earnings per share:
As reported $ 0.22 $ 0.32
Pro forma $ 0.20 $ 0.29
Diluted earnings per share:
As reported $ 0.18 $ 0.32
Pro forma $ 0.17 $ 0.29
33
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
11. STOCKHOLDERS' EQUITY (CONTINUED)
- --------------------------------------
Stock options (continued)
-------------------------
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to grants made before 1996. In addition, potential deferred tax
benefits of approximately $15,000, $19,200 and $15,700 in 1998, 1997 and
1996, respectively, have not been reflected in the pro forma amounts due
to the uncertainty of realizing any benefit. The fair value of these
options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions for
1998, 1997 and 1996:
Expected life (years) 4
Risk-free interest rate 6.00%
Volatility 100%
Expected dividends None
The weighted fair value of options granted during the years ended
September 30, 1998 and 1997 for which the exercise price approximated the
market price on the grant date was $.62.
12. INCOME TAXES
- ------------------
Income tax expense (benefit) consisted of the following:
1998 1997 1996
---------- ---------- ----------
Current tax expense $ 51,000 $ 12,000 $ 800
Deferred tax benefit - (170,000) -
---------- ---------- ----------
$ 51,000 $(158,000) $ 800
========== ========== ==========
34
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
12. INCOME TAXES (CONTINUED)
- ------------------------------
Income tax expense (benefit) differed from the amounts computed by
applying the U.S. federal income tax rate of 34% to pretax income from
continuing operations in 1998, 1997 and 1996 as a result of the following:
1998 1997 1996
---------- ---------- ----------
Continuing operations:
Federal expected tax expense $ 159,000 $ 147,000 $ 68,600
State expected tax expense 44,000 40,000 20,700
Inventory allowance (25,000) (32,000) -
Accounts receivable allowance - (19,000) -
Moving expense accrual - (36,000) -
Depreciation timing differences 32,000 14,000 -
Deferred tax valuation allowance - (170,000) -
Use of NOL carryforwards - federal (159,000) (88,000) (68,600)
Use of NOL carryforwards - state - (14,000) (19,900)
---------- ---------- ----------
51,000 (158,000) 800
---------- ---------- ----------
Extraordinary item:
Federal - - 69,000
California - - 20,800
Benefit of NOL carryforward - - (89,800)
---------- ---------- ----------
Income tax expense (benefit) $ 51,000 $(158,000) $ 800
========== ========== ==========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at September 30, 1998 and
1997 are as follows:
1998 1997
---------- ----------
Net operating loss carryforwards $ 360,000 $ 520,000
Allowance for slow moving inventories 34,000 34,000
Allowance for doubtful accounts 15,000 15,000
Other (144,000) (106,000)
---------- ----------
Deferred tax assets 265,000 463,000
Less valuation allowance (95,000) (293,000)
---------- ----------
Net deferred tax asset $ 170,000 $ 170,000
========== ==========
35
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
12. INCOME TAXES (CONTINUED)
- ------------------------------
During 1998 the Company reduced the valuation allowance to reflect the
deferred tax assets utilized in fiscal 1998. The recognized deferred tax
asset is based upon expected utilization of the net operating loss
carryforwards and reversal of certain temporary differences. The ultimate
realization of the deferred tax asset will require aggregate taxable
income of approximately $1,055,000 in future years.
At September 30, 1998, the Company had net operating loss carryforwards
for federal income tax purposes expiring as follows:
2007 $ 433,811
2009 620,976
-------------
$ 1,054,787
=============
Federal investment credit and other general business credit carryforwards
total $35,600 and $105,500, respectively, and expire at various dates
through 2003.
13. BASIC AND DILUTED EARNINGS PER SHARE
- ------------------------------------------
The following tables illustrate the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations.
1998 1997 1996
----------- ----------- -----------
BASIC EARNINGS PER SHARE:
-------------------------
Numerator
Income before extraordinary item $ 415,587 $ 591,812 $ 221,790
Extraordinary item - - 223,691
----------- ----------- -----------
Net income $ 415,587 $ 591,812 $ 445,481
=========== =========== ===========
Denominator
Basic weighted average number of common
shares outstanding during the period 1,875,474 1,867,638 1,209,405
=========== =========== ===========
Basic earnings per share before extraordinary item $ 0.22 $ 0.32 $ 0.18
Basic earnings per share - extraordinary item $ - $ - $ 0.19
----------- ----------- -----------
Basic net income per share $ 0.22 $ 0.32 $ 0.37
=========== =========== ===========
36
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
13. BASIC AND DILUTED EARNINGS PER SHARE (CONTINUED)
- ------------------------------------------------------
1998 1997 1996
----------- ----------- -----------
DILUTED EARNINGS PER SHARE:
---------------------------
Numerator
Income before extraordinary item $ 415,587 $ 591,812 $ 221,790
Extraordinary item - - 223,691
----------- ----------- -----------
Net income $ 415,587 $ 591,812 $ 445,481
=========== =========== ===========
Denominator
Weighted average number of common
shares used in basic earnings per share 1,875,474 1,867,638 1,209,405
Effect of dilutive securities:
Stock options (1) 401,622 - -
----------- ----------- -----------
Weighted number of common shares
and dilutive potential common stock
used in diluted earnings per share 2,277,096 1,867,638 1,209,405
=========== =========== ===========
Diluted earnings per share before extraordinary item $ 0.18 $ 0.32 $ 0.18
Diluted earnings per share - extraordinary item $ - $ - $ 0.19
----------- ----------- -----------
Diluted net income per share $ 0.18 $ 0.32 $ 0.37
=========== =========== ===========
(1) Stock options were anti-dilutive for the years ended September 30,
1997 and 1997. See Note 11 for stock option activity.
14. EMPLOYEE BENEFIT PLAN
- ---------------------------
The Company's 401(k) plan was re-activated during fiscal 1996. All
employees are eligible as long as they are 21 years of age and have
completed one year of employment. The plan provides for Contributions by
the Company in such amounts as management may determine. No expense was
charged to operations in 1998 or 1997.
37
RADIANT TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
15. RECENT PRONOUNCEMENTS
- ---------------------------
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income",
which established standards for the reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses). SFAS 130
requires all items that are required to be recognized under accounting
standards as components of comprehensive income to be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 requires an enterprise to (a) classify
items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in
the equity section of a statement of financial position. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. Management
has determined that the adoption of SFAS 130 will not have a material
impact on the Company's financial position or results of operations.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information", which established standards for
public business enterprises to report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. SFAS 131 requires, among other items, that a public business
enterprise report a measure of segment profit or loss, certain specific
revenue and expense items, segment assets, information about the revenues
derived from the enterprise's products or services and major customers.
SFAS 131 also requires that the enterprise report descriptive information
about the way that the operating segments were determined and the products
and services provided by the operating segments. SFAS 131 is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is
required to be restated. SFAS 131 need not be applied to interim financial
statements in the initial year of application, but comparative information
for interim periods in the initial year of application is to be reported
in financial statements for interim periods in the second year of
application. Management has determined that the adoption of SFAS 131 will
not have a material impact on the Company's financial reporting.