SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Twelve Month Period Ended June 30, 1996 Commission File Number 0-11685
RADYNE CORP.
(Exact name of small business issuer as specified in its charter)
New York 11-2569467
-------- ----------
(State or Other Jurisdiction of IRS Employer
Incorporation or Organization) Identification No.
5225 S. 37th Street, Phoenix, Arizona 85040
-------------------------------------------
(Address and Zip Code of Principal Executive Offices)
Issuer's Telephone Number: (602) 437-9620
Securities Registered Under Section 12 (b) of the Exchange Act: None
----
Securities Registered Under Section 12(g) of the Exchange Act:
Common Stock, $.002 Par Value
- -----------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ===
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]
The registrant's revenues for the period being reported herein were
$3,829,523.
The aggregate market value of the registrant's common 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 August 29, 1996 based on the single trade
in the over-the-counter market on this date, was approximately $1,850,000.
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15 (d) of the Exchange Act
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after the distribution of securities under a plan confirmed by a Court.
Yes X No
--- ===
As of August 29, 1996, there were 18,748,605 shares of
the registrant's common stock outstanding.
Documents incorporated by reference: None.
Transitional small business disclosure format Yes No X
---- ----
PART I
Item 1. Description of Business.
On April 28, 1994, the Company filed a voluntary petition for relief
under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy
Court for the Eastern District of New York.
On December 16, 1994, the Bankruptcy Court issued an order confirming
the Company's Second Amended Plan of Reorganization (the "Plan"). The Plan
became not subject to appeal on December 27, 1994 by virtue of the appeal period
having run with no appeals having been filed.
Pursuant to the Plan, Radyne Corp., a Florida corporation formerly
known as Radyne, Inc. ("Radyne Florida"), a wholly owned subsidiary of
Engineering and Technical Services, Inc. ("ETS") funded the Company's
reorganization in the manner set forth in the Plan.
General
Radyne Corp. (the "Company") is engaged in the business of designing,
manufacturing and selling products and systems used for the transmission and
reception of data over satellite communication networks. Specifically, the
Company designs, develops, assembles and sells a proprietary line of satellite
modems, frequency converters and ancillary products.
The Company has developed proprietary technology which is employed in
the design and manufacture of its products.
The Company was organized as a New York corporation on November 25, 1980. The
Company's principal executive offices are located at 5225 South 37th Street,
Phoenix, Arizona 85040 and its telephone number is (602) 437-9620.
2
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Industry Background
Over the last decade, data communications have become increasingly
important to the design and operation of data processing systems. This trend is
a result, in part, of the desire by users to move away from centralized
computing to a distributed processing capability in which data terminals and
other data processing equipment are located at operating sites where data
originates and where processed information is applied. As advances in
semiconductor technology, specifically the microcomputer and related components,
have reduced the cost and increased the capabilities of both computers and data
terminals, the number of both computers and data terminals has increased
significantly. In addition, analog forms of information such as voice and video
are being transformed into digital signals, or "digitized", for transmission via
satellite and other communications links. The effective use of these remote
computers and data terminals, and the efficient handling of voice and video
traffic, is dependent upon the availability of reliable, cost-effective,
high-speed data communication equipment and communication links.
The satellite transponder capacity available today has made relatively
low-cost transmission of high-speed digital data by satellite practical for a
greater number of users. The significant growth in the volume of digital data
required to be transferred from one place to another has increased the need for
satellite modems and accompanying hardware to transmit and receive this data.
In 1995, the satellite ground equipment market, within which the
Company operates, was approximately a $350 million market, up from $250 million
in 1994. Recent developments in the telecommunications industry are fostering
continued growth in the international satellite market. The trend toward
deregulation, customer demand in the business community, technology
breakthroughs in the areas of compression techniques, emergence of a "world
economy", and the ever increasing number of multinational companies have all
combined to generate growth in the international satellite arena.
Products
The Company has developed and markets satellite modems, frequency
converters, and ancillary products for both general sale and special order,
including various types of satellite digital modem sub-systems, frequency up and
down converters, and equipment racks containing integrated modems and supporting
equipment. These modems cover data rates from 2.4 Kilobytes per second to 50
Megabytes per second. The frequency converters cover frequency ranges of C-Band,
Ku-Band, and X-Band, the frequencies used for satellite communications. Most
Radyne modems and converters are smaller and lower priced than the previous
generation of products, enabling large system installation in significantly less
rack space than the products of the Company's competitors. The Company also
markets redundancy switches which operate in conjunction with satellite modems
and converters and provide automatic fault monitoring and
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switch over to standby equipment in the event of modem or converter failure.
Research and Development
During the periods ended June 30, 1996 and June 30, 1995 the Company
expended $1,794,823 and $-O-, respectively, for new product development.
Competition
The data communications equipment market is highly competitive and is
characterized by advances in technology which frequently result in the
introduction of new products with improved performance characteristics. The
Company's ability to compete is dependent upon a number of factors, including
product price, performance, quality, reliability, service, development
capabilities, and the Company's ability to satisfy delivery schedules.
Patents
Patents do not play a material role in the Company's business.
Marketing
Domestically, the Company's products are marketed by a combination of
the Company's sales personnel and through manufacturer representatives to system
integrators and the end-users of the products. The Company makes available
on-site technical support to ensure the timely establishment and continued
servicing of earth stations or data networks.
The Company markets its products internationally through a network of
distributors and sales representatives in many countries. These representatives
are independent contractors who are paid on a commission basis. Foreign sales
were 50% and 46% of net sales during the periods ended June 30, 1996 and June
30, 1995 respectively.
Manufacturing
The Company's products are assembled from standard components and
subassemblies, as well as from custom fabricated parts and assemblies. The
manufacture of custom fabricated parts and assemblies is subcontracted to
others. Upon assembling its products, the Company performs extensive test and
quality control procedures before products or systems are actually shipped.
Significant Customers
During the period ended June 30, 1996, no customer of the Company
accounted for more than 10% of the Company's total sales except for one which
accounted for 12.7% of total sales. The loss of this customer by the Company
could have an adverse effect on the Company's business.
4
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Suppliers
During the fiscal year being reported on herein, the Company's supply
of component parts, subassemblies and fabricated products was obtained from
various non-affiliated suppliers. The Company's supplies are available from a
number of domestic and foreign suppliers, and in the event that any one supplier
terminates its relationship with the Company, alternative sources of supplies
are readily available.
Employees
At June 30, 1996, the Company had 48 full time employees. In addition
to the Company's 2 executive officers, the Company employed 43 people in
engineering, manufacturing, marketing and operations, and 3 in administration.
None of the Company's employees are represented by a labor union and no work
stoppages have been experienced. The Company believes its employee relations are
satisfactory.
Compliance with Environmental Regulations.
The Company must comply with various federal, state, and local
regulations relating to protection of the environment. Federal, state and local
provisions which have been enacted or adopted regulating the discharge of
materials into the environment or otherwise relating to protection of the
environment will not, in the opinion of the Company, have a material effect on
the capital expenditures, earnings, or the competitive position of the Company.
Item 2. Description of Property.
The Company leases approximately 17,000 square feet of industrial and
office space at 5225 S. 37th Street, Phoenix, Arizona. The Company occupies
these premises pursuant to a three year lease which terminates March 31, 1998,
at a monthly rental of $7,352 per month with a two year renewal option.
Item 3. Legal Proceedings.
None reportable.
Item 4. Submission of Matters to a Vote of Security Holders
None reportable.
PART II
Item 5. Market for Common Equity and Related Stockholder matters.
The Company's Common Stock is traded in the over-the-counter market
under the OTC Bulletin Board symbol "RDYN". However, there is no established
trading market as actual transactions are infrequent. The following table sets
forth the range of high and low closing bid quotations as reported by the
National Quotation Bureau, Inc. for the period ended June 30, 1995 and for the
period ended June 30, 1996. The quotations reflect interdealer prices, without
retail mark-ups, markdowns or commissions and may not represent actual
transactions.
5
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<TABLE>
<CAPTION>
Period Ended June 30, 1995:
High Low
<S> <C> <C>
First Quarter
December 16, 1994 - March 31, 1995 1 5/8 1/8
Second Quarter
April 1, 1995 - June 30, 1995 1 3/8 5/8
Period Ended June 30, 1996:
High Low
First Quarter
July 1, 1995 - September 30, 1995 1 5/8 5/8
Second Quarter
October 1, 1995 - December 31, 1995 1 1/2 3/4
Third Quarter
January 1, 1996 - March 31, 1996 1 1/8 1/2
Fourth Quarter
April 1, 1996 - June 30, 1996 1 3/8 3/4
</TABLE>
As of June 30, 1996, the Company estimates that there were
approximately 550 holders of record of the Company's Common Stock. The Company
believes that the number of beneficial owners is greater due to the fact that a
large number of shares are held in street name.
The Company has never paid a dividend on its Common Stock and it
presently intends to retain any earnings for use in its business. Accordingly,
it is anticipated that dividends will not be paid to the holders of Common Stock
in the foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Liquidity and Capital Resources
The Company's working capital deficit was ($4,083,000) at June 30,
1996, an increase of $2,740,000 from June 30, 1995. The increase was primarily
attributable to the Company investing in inventory and capital assets and hiring
personnel to increase production levels.
In order to meet its capital needs in the period reported on herein,
the Company obtained additional financing from Engineering and Technical
Services, Inc. ("ETS"), which owns 100% of Radyne Florida. At June 30, 1996, the
Company had borrowed $4,595,000 from ETS.
Reorganization
On April 28, 1994, Radyne Corp. (the Predecessor Company) filed a
petition for relief under Chapter 11 of the federal bankruptcy laws in the
United States Bankruptcy Court for the Eastern District of New York. Under
Chapter 11, certain claims against the Predecessor Company in existence prior to
the filing were stayed while the Predecessor Company continued business
operations as debtor-in-possession. Claims secured against the Predecessor
Company's assets were also stayed, although the holders of such claims had the
right to move the court for relief from the stay prior to the plan being
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confirmed. Secured claims were secured primarily by liens on all of the
Predecessor Company's assets.
The Predecessor Company received approval from the Bankruptcy Court to
pay certain of its pre-petition obligations, employee wages and benefits. Tax
claims were rescheduled for payment in equal quarterly installments of $8,720,
with interest at 7%, over six years.
On December 16, 1994, the Bankruptcy Court confirmed the Predecessor
Company's Plan of Reorganization effective at the close of business on December
16, 1994. The Plan called for the establishment of an escrow account from which
to pay claims and provided for the following:
(1) Exchange of Debt for Common Stock - The Company issued
17,000,000 shares of previously authorized but unissued common
stock to Radyne Florida which had previously purchased the
Company's secured bank debt and the position of certain
holders of secured promissory notes. The issuance of stock
gave Radyne Florida approximately 91% of the Company's
outstanding stock. In exchange for the stock, the Company was
discharged of $2,350,000 of debt owed to Radyne Florida. In
addition, the 1,750,000 warrants held by Radyne Florida
(purchased with the secured promissory notes) were cancelled.
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(2) Cancellation of Debt - Unsecured claims and capitalized
lease obligations were settled as follows:
<TABLE>
<CAPTION>
ORIGINAL COMPRO-
TYPE OF CLAIM AMOUNT REDUCTIONS MISED
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts Payable,
accrued expenses,
and capitalized
lease obligations $1,483,343 $1,111,872 $371,471
Convertible Deben-
tures and bridge
notes 487,885 439,225 48,660
Taxes 309,143 99,866 209,277
----------------------------------------------------
$2,280,371 $1,650,963 $629,408
=========================================================================================================
</TABLE>
(3) Other Claims - Priority Claims for wages of $53,786 were
paid in full.
Holders of the Company's common stock and options to purchase the
Company's common stock had their interests significantly diluted by the
distribution of common stock to Radyne Florida.
Holders of warrants to purchase the Company's common stock exchanged
the warrants for an aggregate of 53,437 shares of common stock.
Fresh Start Reporting
Under the provisions of SOP 90-7, the Successor Company was required to
adopt fresh start reporting as of the close of business on December 16, 1994,
because the reorganization value of the Predecessor Company was less than the
total of all post-petition liabilities and pre-petition allowed claims, and the
pre-confirmation stockholders retained less than 50% of the Successor Company's
common stock. Accordingly, the financial statements for the six and one-half
month period ended June 30, 1995 are the initial financial statements of Radyne
Corp. - the Successor Company.
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Results of operations
Fiscal Year Ended June 30, 1996
Compared to Fiscal Year Ended June 30, 1995
The Company's net sales increased 206% to $3,830,000 during the period
ended June 30, 1996 from $1,861,000 during the six and one-half months ended
June 30, 1995.
The Company's cost of sales as a percentage of net sales increased to
67% during the fiscal year ended June 30, 1996 from 66% for the six and one-half
months ended June 30, 1995.
Selling, general and administrative costs increased to $1,844,000 or
48% of sales during the fiscal year ended June 30, 1996 from $961,000 or 52% of
sales for the six and one-half months ended June 30, 1995. The increase in
expenses was primarily attributable to the increased time frame of the current
period over the prior period.
Research and development expenditures increased to $1,795,000 during
the fiscal year ended June 30, 1996 from $-0- for the six and one-half months
ended June 30, 1995.
Interest expense net of interest income increased to $257,000 (7% of
sales) during the fiscal year ended June 30, 1996 from $36,000 (2% of sales) for
the six and one-half months ended June 30, 1995.
For the period ended June 30, 1996, the Company did not provide for
income taxes due to the net loss. The Company also did not provide for income
taxes for the six and one-half month period ended June 30, 1995 due to net
operating losses.
For the twelve month period ended June 30, 1996, the Company had a net
loss of ($2,625,000) as compared with a net loss of ($365,000) in the period
ended June 30, 1995.
Item 7. Financial Statements.
See Part III, Item 13 for the Financial Statements.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None reportable.
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PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16 (a) of the Exchange Act.
Directors and Executive Officers
At a special meeting of the Board, held on August 13, 1996, it was
determined that the size of the Board would be increased from four to five
members. In order to fill the newly created directorship and vacancies which
were occasioned by the resignations of Messrs. Denis Brown and Augustin Cueto.
Messrs. Lim Ming Seong, Lee Yip Loi and Chan Wee Piak were named directors of
the Company. They will hold such positions until their respective successors are
duly elected and qualified. Lim Ming Seong was also elected Chairman of the
Board.
Certain information with respect to the current directors and executive
officers and certain other significant employees of the Company is set forth
below:
Name Positions with Company Age
Lim Ming Seong Director, Chairman of the Board 49
Robert A. Grimes Director 44
Lee Yip Loi Director 52
Robert C. Fitting Director and President 61
Steven W. Eymann Vice President 44
Garry D. Kline Secretary, Controller 47
Peter A. Weisskopf President, Microwave Products Div. 44
Due to financial and other constraints in recent years, the Company has
not held an annual meeting of shareholders since February 20, 1990. All of the
current Directors were elected by the then sitting, or later elected, Directors
to fill vacancies on the Board. Officers are appointed by, and serve at the
discretion of, the Board of Directors. There are no family relationships among
the Directors and executive officers.
Lim Ming Seong has been Group Director of Singapore Technologies Pte
Ltd., an indirect parent of Stetsys US, Inc. (see Item 11 below), since February
of 1995. From March 1992 until February 1995, he was Executive Director of
Singapore Technologies Ventures Pte Ltd and from February 1990 to March 1992, he
was Group President of Singapore Technologies Holdings Pte Ltd. Prior to that
time he held various corporate and government positions, including Deputy
Secretary in the Singapore Ministry of Defense from 1979 to 1986.
Lee Yip Loi, who is chairman of the audit committee of the Board, has
been Regional Director (America) of Singapore Technologies Pte Ltd since March
1994 and has been President of Metheus Corporation, another member of the same
group of companies, since May 1990. Prior to that time he held a number of
managerial positions with such corporations as Morgan Guaranty Trust and
Singapore
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Technologies and government positions with the Singapore Ministries of
Education, Defense, Culture and Home Affairs.
Chan Wee Piak has been General Manager of Agilis Communication
Technologies Pte Ltd., also a member of the Singapore Technologies group, since
January 1992. From November 1989 to February 1992, he was General Manager of
Chartered Microwave. Prior to that time, he held various managerial positions in
the Singapore Ministry of Defense and Singapore Electronic and Engineering.
Robert A. Grimes, who is a member of the audit committee of the Board,
has served as a member of the Board of Directors since December, 1994. For the
past seven years Mr. Grimes has also served as the President and a member of the
Board of Engineering Technical Services, Inc.
Robert C. Fitting, who is a member of the audit committee of the Board,
has been President of the Company since February, 1995, and became a Director of
the Company in March, 1995. For the 11 years prior to March 1995, Mr. Fitting
served as Chief Executive Officer and Chairman of the Board of Directors of EF
Data Corporation, which he co-founded. Mr. Fitting has also served as a Director
of California Microwave, Inc. and a Director of Satellite Technology Management,
Inc.
Steven W. Eymann has been Vice President of the Company since February,
1995. For the 11 years prior to March 1995, Mr. Eymann served as President of EF
Data Corporation, which he co-founded.
Garry D. Kline was appointed Secretary of the Company in August, 1996.
Mr. Kline has been Controller of the Company since September, 1995. For the
prior 8 years, Mr. Kline was the Controller and CFO of EF Data Corporation.
Peter A. Weisskopf has been President of the Microwave Products
Division since June 7, 1995. Prior to his employment with the Company, Mr.
Weisskopf was President of Merit Microwave, Inc., a company which Mr. Weisskopf
founded, for 3 years and a senior engineer at EF Data Corp. for 2 years.
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Item 10. Executive Compensation.
Summary Compensation Table
The following table sets forth compensation awarded to, earned by or
paid to Robert C. Fitting, the Company's President and Steven W. Eymann, the
Company's Vice President and Peter A. Weisskopf, the Company's Microwave
Division President, during the Company's period ended June 30, 1996. Information
with respect to salary for Messrs. Fitting and Eymann for the fiscal year ended
June 30, 1995 is from the commencement of their employment by the Company on
March 1, 1995. Information with respect to salary for Mr. Weisskopf for the
Fiscal period ended June 30, 1995 is from the commencement of his employment by
the Company on June 7, 1995.
Name and Principal Fiscal
Position Year Salary(s)
- ------------------ ------ ---------
Robert C. Fitting 6/30/96 $80,000
President 6/30/95 29,231
Steven W. Eymann 6/30/96 $80,000
Vice President 6/30/95 29,231
Peter A. Weisskopf 6/30/96 $75,000
President/Microwave Div. 6/30/95 2,885
Option/SAR Grants in Last Fiscal Period
The Company made no grants of stock options during the period being
reported on herein. The Company does not have an SAR plan.
Stock Bonuses
The Company made no stock bonuses during the period being
reported on herein.
Director Compensation
The Company's policy during the period ended June 30, 1996, was to pay outside
directors $500 for each meeting of the Board attended by such directors. No
payments were made during such period to outside directors pursuant to this
arrangement.
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Item 11. Security Ownership of Certain
Beneficial owners and Management.
Beneficial Owners
The following table sets forth information as of August 29, 1996,
regarding any person who is known to the Company to be the beneficial owner of
more than five percent of the Company's Common Stock:
Amount and
Name and Nature of
Title Address of Beneficial Percentage
of Class Beneficial Owner Ownership of Class
- -------- ---------------- --------- --------
Common Stock Stetsys US, Inc. 17,000,000 91%
c/o Singapore shares-owned
Technologies Pte Ltd directly
83 Science Park Drive
#01-01/02 The Curie
Singapore Science Park
Singapore 118258
Management
The following table sets forth information as of August 29, 1996 regarding the
beneficial ownership of the Company's Common Stock (i) by each director; (ii) by
each of the executive officers of the Company; and (iii) by all executive
officers and directors as a group:
Amount and
Name and Nature of
Address of Beneficial Percentage
Beneficial Owner Ownership of Class
- ---------------- --------- --------
Steven Eymann -0- -0-
5225 S. 37th Street
Phoenix, Arizona 85040
Robert C. Fitting -0- -0-
5225 S. 37th Street
Phoenix, Arizona 85040
Robert A. Grimes -0- -0-
5225 S. 37th Street
Phoenix, Arizona 85040
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(Continued from previous page) Amount and
Name and Nature of
Address of Beneficial Percentage
Beneficial Owner Ownership of Class
- ---------------- --------- --------
Garry D. Kline -0- -0-
5225 S. 37th Street
Phoenix, Arizona 85040
Lee Yip Loi -0- -0-
5225 S. 37th Street
Phoenix, Arizona 85040
Chan Wee Piak -0- -0-
5225 S. 37th Street
Phoenix, Arizona 85040
Lim Ming Seong -0- -0-
5225 S. 37th Street
Phoenix, Arizona 85040
Peter A. Weisskopf 100,000 shares .5%
5225 S. 37th Street owned directly
Phoenix, Arizona 85040
All Directors and 100,000 .5%
Executive Officers
as a Group
Item 12. Transfers of Assets
In 1996, the Company acquired from Radyne Florida, the assets of Merit
Microwave, Inc., as well as the manufacturing rights to the Merit line of
microwave products, which include translator and frequency converters. The
purchase price of approximately $120,000 was allocated to inventory, machinery
and equipment, and designs and drawings, and was paid by the issuance of 100,000
shares of the Company's stock ($40,000), cash of $60,000, and the assumption of
a trade payable of $20,000. Under the terms of the agreement, the principal
shareholder and chief operating officer of Merit entered into a one-year
agreement with the Company to serve as president of the newly created Radyne
Microwave Products Division for annual compensation of $75,000. As long as he
remains in this position, the Company is committed to pay royalties to Merit of
5-10% of sales of Merit products.
During 1996, the Company sold $163,770 of inventory and $119,367 of machinery
and equipment to ETS in exchange for a reduction in the loan payable to ETS.
On August 12, 1996, Stetsys US, Inc. ("Stetsys"), a member of the Singapore
Technologies Pte Ltd ("ST") group, acquired 100% of the outstanding common stock
of ETS. (Stetsys is a wholly owned Delaware subsidiary of ST Electronics Pte Ltd
("STE"), which is a wholly owned subsidiary of ST. ST is an indirect wholly
owned subsidiary of
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Temasek Holdings (Private) Limited, which is in turn wholly owned by Minister
for Finance Incorporated c/o Ministry of Finance, Republic of Singapore.) On
October 22, 1996, Radyne Florida was merged into ETS and the shares of the
Company that had been owned by Radyne Florida were received by ETS and
subsequently distributed by ETS to Stetsys. In addition, STE made an unsecured
loan of $4,500,000 to the Company, the proceeds from which were used to pay down
the loan payable to ETS.
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as a part of this report:
Financial Statements.
(b) Reference is made to the Exhibit Index at the end of
this Report.
(c) The registrant did not file any Current Reports on Form 8-K during the
three months ended June 30, 1996.
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RADYNE CORP.
(A Subsidiary of Engineering
and Technical Services, Inc.)
Balance Sheet as of June 30, 1996 and Statements
of Operations, Stockholders' Equity (Deficit), and
Cash Flows for the Year Ended June 30, 1996 and
the Six and One-Half Month Period Ended June 30,
1995, and Independent Auditors' Report
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INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Radyne Corp.:
We have audited the accompanying balance sheet of Radyne Corp. (a subsidiary of
Engineering and Technical Services, Inc.) (the Company or Radyne) as of June 30,
1996, and the related statements of operations, stockholders' equity (deficit)
and cash flows for the year ended June 30, 1996 and six and one-half month
period ended June 30, 1995. 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 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.
As discussed in Notes 1, 2, and 3 to the accompanying financial statements, on
December 16, 1994, the United States Bankruptcy Court for the Eastern District
of New York entered an order confirming the plan of reorganization which became
effective at the close of business on December 16, 1994. In addition, the
Company changed its fiscal year end to June 30. Accordingly, the accompanying
statements of operations, stockholders' equity (deficit) and cash flows for the
six and one-half month period ended June 30, 1995, are the initial financial
statements of the Successor Company.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 1996, and the
results of its operations and its cash flows for the year ended June 30, 1996
and six and one-half month period ended June 30, 1995, in conformity with
generally accepted accounting principles.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Orlando, Florida
August 23, 1996
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RADYNE CORP.
(A Subsidiary of Engineering and Technical Services, Inc.)
BALANCE SHEET
JUNE 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 971
Accounts receivable - trade (net of allowance for
doubtful accounts of $13,000) 283,871
Inventories - net (Notes 1 and 4) 1,150,669
Prepaid expenses 20,426
-----------
Total current assets 1,455,937
-----------
MACHINERY AND EQUIPMENT - Net of accumulated
depreciation of $62,405 (Notes 1 and 6) 571,927
-----------
OTHER ASSETS:
Designs and drawings - Net of accumulated amortization
of $361,529 (Note 1) 1,236,810
Deposits 8,012
-----------
Total other assets 1,244,822
-----------
TOTAL $ 3,272,686
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Temporary bank overdraft $ 12,898
Capitalized lease obligations (Note 6) 26,820
Accounts payable 452,533
Accrued expenses (Note 5) 400,966
Loan payable to affiliate (Note 1) 4,594,696
Taxes payable (Note 2) 51,011
-----------
Total current liabilities 5,538,924
-----------
CAPITALIZED LEASE OBLIGATIONS (Note 6) 34,304
-----------
TAXES PAYABLE (Note 2) 96,110
-----------
STOCKHOLDERS' DEFICIT (Notes 2 and 3):
Common stock - $.002 par value, 20,000,000 shares authorized,
18,750,084 shares issued and outstanding 37,501
Additional paid-in capital 555,800
Accumulated deficit (2,989,953)
-----------
Total stockholders' deficit (2,396,652)
-----------
TOTAL $ 3,272,686
===========
</TABLE>
See notes to financial statements.
18
<PAGE>
RADYNE CORP.
(A Subsidiary of Engineering and Technical Services, Inc.)
STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1996 AND THE SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
NET SALES (including sales of $311,600 and $159,731
to ETS for 1996 and 1995, respectively) (Notes 1 and 9) $ 3,829,523 $ 1,861,262
------------ ------------
OPERATING COSTS AND EXPENSES:
Cost of sales (including purchases of $2,461,529 and $-0-
from ETS for 1996 and 1995, respectively) 2,559,350 1,228,747
Selling, general and administrative expenses 1,843,576 961,162
Research and development 1,794,823
Interest expense (Notes 1 and 6) 256,871 36,209
------------ ------------
Total operating costs and expenses 6,454,620 2,226,118
------------ ------------
NET LOSS $ (2,625,097) $ (364,856)
============ ============
LOSS PER COMMON SHARE (Note 1) $ (.14) $ (.02)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING 18,711,139 18,648,605
============ ============
</TABLE>
See notes to financial statements.
19
<PAGE>
RADYNE CORP.
(A Subsidiary of Engineering and Technical Services, Inc.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED JUNE 30, 1996 AND SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Paid-in
---------------------
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 16, 1994 18,648,605 $37,301 $516,000 $ $553,301
Net loss (364,856) (364,856)
---------- ------- -------- ----------- -----------
BALANCE, JUNE 30, 1995 18,648,605 37,301 516,000 (364,856) 188,445
Shares issued in acquisition of Merit 100,000 200 39,800 40,000
Microwave (Note 10)
Net loss (2,625,097) (2,625,097)
---------- ------- -------- ----------- -----------
BALANCE, JUNE 30, 1996 18,748,605 $37,501 $555,800 $(2,989,953) $(2,396,652)
========== ======= ======== =========== ===========
</TABLE>
See notes to financial statements.
20
<PAGE>
RADYNE CORP.
(A Subsidiary of Engineering and Technical Services, Inc.)
STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, 1996 AND SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,625,097) $ (364,856)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 276,913 147,523
Provision for losses on accounts receivable 1,000 14,000
Provision for losses on inventory 184,672 102,475
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 250,806 (216,687)
Increase in bankruptcy claims escrow 106,613
Decrease in prepaids and other assets 73,581 99,534
(Increase) decrease in employee relocation incentives and advances 112,353 (109,353)
Increase in inventory (432,515) (456,161)
Increase in deposits (191,796)
Increase (decrease) in accounts payable (46,029) 204,383
Decrease in accrued liabilities (253,337) (348,004)
Decrease in taxes payable (56,063) (6,093)
----------- -----------
Total adjustments 111,381 (653,566)
----------- -----------
Net cash used in operating activities (2,513,716) (1,018,422)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of machinery and equipment (388,770) (119,042)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in temporary bank overdraft (67,214) 80,112
Proceeds from loan payable to affiliate 3,052,912 853,206
Principal payments on capitalized lease obligations (84,350) (50,143)
----------- -----------
Net cash provided by financing activities 2,901,348 883,175
----------- -----------
NET DECREASE IN CASH (1,138) (254,289)
CASH, BEGINNING OF PERIOD 2,109 256,398
----------- -----------
CASH, END OF PERIOD $ 971 $ 2,109
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 3,996 $ 7,059
=========== ===========
</TABLE>
See notes to financial statements.
21
<PAGE>
RADYNE CORP.
(A Subsidiary of Engineering and Technical Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1996 AND SIX AND ONE-HALF MONTH
PERIOD ENDED JUNE 30, 1995
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Radyne Corp. (the Company or Radyne), designs,
manufactures, and sells products, systems, and software used for the
transmission and reception of data over satellite and cable communication
networks. A wholly owned subsidiary, Satellite Digital Systems Corp. (SDSC),
which was inactive and had no material assets and liabilities, filed a petition
for liquidation under Chapter 7 of the United States Bankruptcy Code with the
United States Bankruptcy Court for the Eastern District of New York on May 17,
1995. This did not have any significant impact on the financial position or
results of operations of the Company since SDSC had terminated all operations.
SDSC received its Final Decree of Bankruptcy on August 5, 1995, which
effectively dissolved SDSC.
Upon emergence from bankruptcy proceedings on December 16, 1994, (see Note 2)
the Company became a majority-owned subsidiary of Radyne, Inc., which is a
wholly owned subsidiary of Engineering and Technical Services, Inc. (ETS). ETS
provides management services to Radyne, for which ETS charged Radyne $120,000
for the year ended June 30, 1996 and $65,000 for the six and one-half month
period ended June 30, 1995. During the bankruptcy proceedings, ETS provided
$770,175 of debtor-in-possession financing. Since emergence, the Company has
continued to borrow additional amounts. The sum of these advances are shown on
the balance sheet as loan payable to affiliate. The advances accrued interest at
7.5% through May 16, 1996 and at prime plus 2%, thereafter, until they were
repaid on August 12, 1996 (see Note 11).
Revenue Recognition - The Company recognizes revenue upon shipment of product.
Inventories - Inventories, consisting of satellite modems and related products,
are stated at the lower of cost (first-in, first-out) or market, including
material, direct labor, and overhead costs.
Machinery and Equipment - Machinery and equipment are stated at cost.
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 seven years (see Note 6).
22
<PAGE>
Designs and Drawings - Amortization of designs and drawings is computed on the
straight-line basis over the estimated useful life of seven years.
Income Taxes - Radyne files a consolidated federal income tax return with ETS.
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.
Loss per Common Share - Loss per share of common stock was computed by dividing
net loss by the weighted average number of shares of common stock outstanding
during each of the periods presented.
Fair Value of Financial Instruments - The Company's financial instruments are
carried in the balance sheet at amounts that approximate their fair value.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
2. REORGANIZATION
On April 28, 1994, Radyne Corp. (the Predecessor Company) filed a petition for
relief under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the Eastern District of New York. Under Chapter 11, certain
claims against the Predecessor Company in existence prior to the filing were
stayed while the Predecessor Company continued business operations as
debtor-in-possession. Claims secured against the Predecessor Company's assets
were also stayed, although the holders of such claims had the right to move the
court for relief from the stay prior to the plan being confirmed. Secured claims
were secured primarily by liens on all of the Predecessor Company's assets.
23
<PAGE>
The Predecessor Company received approval from the Bankruptcy Court to pay
certain of its prepetition obligations, employee wages and benefits. Tax claims
were rescheduled for payment in equal quarterly installments of $8,720, with
interest at 7%, over six years.
On December 16, 1994, the Bankruptcy Court confirmed the Predecessor Company's
Plan of Reorganization effective at the close of business on December 16, 1994
(see Note 3).
3. FRESH START REPORTING
Under the provisions of SOP 90-7, the Successor Company was required to adopt
fresh start reporting as of the close of business on December 16, 1994, because
the reorganization value of the Predecessor Company was less than the total of
all post-petition liabilities and prepetition allowed claims, and the
preconfirmation stockholders retained less than 50% of the Successor Company's
common stock (see Note 2). Accordingly, the financial statements for the six and
one-half month period ended June 30, 1995 are the initial financial statements
of Radyne Corp. - the Successor Company.
4. INVENTORIES
Inventories at June 30, 1996 consist of:
Raw materials and components $ 626,525
Work-in-process 307,391
Finished goods 293,660
Valuation allowance (76,907)
-----------
Total $ 1,150,669
===========
5. ACCRUED EXPENSES
Accrued expenses at June 30, 1996 consist of:
Professional fees $ 77,125
Warranty reserve 109,775
Payroll and vacation 153,894
Other 60,172
--------
Total $400,966
========
6. CAPITALIZED LEASE OBLIGATIONS
During 1996, the Company entered into three capital leases for $80,462 of
machinery and equipment with monthly payments aggregating $2,699. One of the
leases expires in August 1998 with the other two expiring in October 1998. These
leases are secured by the equipment under lease. The assets under capital lease
had a net book value of approximately $75,000 at June 30, 1996.
24
<PAGE>
7. COMMITMENTS
In April and June 1995, operations were relocated to Phoenix, Arizona, and
Melbourne, Florida from Ronkonkoma, New York where facilities were being leased
on a monthly basis. Through the time of the relocation, the Company incurred
rent expense of approximately $18,000. With the relocation to Arizona, the
Company entered into a three-year lease, with a two-year renewal option, with
monthly lease payments of $7,352. Rent expense under the new lease for the year
ended June 30, 1996 and for the six and one-half month period ended June 30,
1995, was approximately $95,000 and $57,000, respectively.
Future minimum rentals under the lease are as follows:
1997 $ 88,224
1998 66,168
-----------
$ 154,392
===========
In February 1995, the Company entered into term agreements for five years with
two executives to manage the Company's operations. The agreements call for the
establishment of an incentive stock option plan whereby 10% of the Company's
outstanding common stock is to be made available to the executives and key
employees. The options would vest upon attainment of specified financial
results.
8. INCOME TAXES
The following summary reconciles taxes (recovery) from operations at the federal
statutory rate with the actual provision (recovery) at June 30:
1996 1995
Income taxes (recovery) at statutory rate $(893,000) $(124,000)
--------- ---------
Increase (decrease) in taxes (recovery) resulting from:
State income tax benefit (95,000)
Change in valuation allowance 988,000 117,600
Other adjustments -- 6,400
--------- ---------
Total provision $ -- $ --
========= =========
25
<PAGE>
Deferred tax assets consist of the following at June 30, 1996:
Gross deferred tax assets:
Cumulative tax effect of net operating loss carryforwards $ 3,517,000
Tax credits 210,000
Temporary differences (365,000)
Valuation allowance (3,362,000)
-----------
Total $ --
===========
At June 30, 1996, the Company has net operating loss carryforwards of
approximately $9,347,000 expiring in various years through 2011 and general
business credit carryforwards of $210,000 expiring in various years through 2004
for utilization against taxable income/taxes payable of future periods.
Approximately $6,000,000 of the Company's net operating loss and tax credit
carryforwards are subject to an annual limitation under Internal Revenue Code
Section 382, in future years, as a result of changes in ownership of the
Company's stock. The annual limitation is generally equal to the value of the
corporation's equity immediately prior to the change in ownership, times the
federal long-term tax exempt rate published by the federal government.
Management believes that the inability to utilize 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.
Accordingly, a 100% valuation allowance has been recorded against the net
deferred tax asset as of June 30, 1996. In addition, any future benefits which
are recognized for the acquired net operating loss and tax credit carryforwards
will be applied to reduce the intangible assets.
9. SIGNIFICANT CUSTOMERS AND EXPORT SALES
Significant customers for the year ended June 30, 1996 and for the six and
one-half month period ended June 30, 1995, were as follows:
June 30, June 30,
1996 1995
Customer A 6.4% 22.0%
Customer B - 15.3%
Customer C 8.1% 14.2%
Customer D 12.7% 11.7%
No other customers represented greater than 10% of net sales during the year
ended June 30, 1996 and the six and one-half month period ended June 30, 1995.
The Company has not entered into any long-term contracts with its customers to
ship products.
Export sales were 50% and 46% of net sales in the year ended June 30, 1996 and
the six and one-half month period ended June 30, 1995, respectively.
26
<PAGE>
10. TRANSFERS OF ASSETS
In 1996, the Company acquired from Radyne, Inc. the assets of Merit Microwave,
Inc., as well as the manufacturing rights to the Merit line of microwave
products, which include translator and frequency converters. The purchase price
of approximately $120,000 was allocated to inventory, machinery and equipment,
and designs and drawings, and was paid by the issuance of 100,000 shares of the
Company's stock ($40,000), cash of $60,000, and the assumption of a payable of
$20,000. Under the terms of the agreement, the principal shareholder and chief
operating officer of Merit entered into a one-year agreement with the Company to
serve as president of the newly created Radyne Microwave Products Division for
annual compensation of $75,000. As long as he remains in this position, the
Company is committed to pay royalties to Merit of 5-10% of sales of Merit
products.
During 1996, the Company sold $163,770 of inventory and $119,367 of machinery
and equipment to ETS in exchange for a reduction in the loan payable to ETS.
11. SUBSEQUENT EVENT
On August 12, 1996, Singapore Technologies, Inc. (ST) acquired 100% of the
outstanding common stock of ETS through their wholly owned subsidiary STETSYS
USA, Inc. (STETSYS). The purchase price for the stock was $5,756,425. In
addition, ST made an unsecured loan of $4,500,000 to the Company, the proceeds
from which were used to pay down the loan payable to ETS.
******
27
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RADYNE CORP.
Robert C. Fitting
----------------------------
Robert C. Fitting, President
Dated: November 14, 1996
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Principal Executive Officer
Date: November 14, 1996 Robert C. Fitting
---------------------------------
Robert C. Fitting, President
Date: November 14, 1996 Robert A. Grimes
---------------------------------
Robert A. Grimes, Director &
Former Chairman of the Board
Date: November 14, 1996 Garry D. Kline
---------------------------------
Garry D. Kline, Secretary &
controller
Date: November 14, 1996 Steven W.Eymann
---------------------------------
Steven W.Eymann, Vice President
Date: November 14, 1996 Lim Ming Seong
---------------------------------
Lim Ming Seong, Chairman
28
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description of Exhibit No.
- ------ ---------------------- ---
27 Financial Data Schedule
29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information Extracted forom the
financial statements contained in the Form 10-ksb for the year ended 6-30-96 and
is qualified in its entirety by reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 971
<SECURITIES> 0
<RECEIVABLES> 296,871
<ALLOWANCES> (13,000)
<INVENTORY> 1,150,669
<CURRENT-ASSETS> 1,455,937
<PP&E> 634,332
<DEPRECIATION> 62,405
<TOTAL-ASSETS> 3,272,686
<CURRENT-LIABILITIES> 5,538,924
<BONDS> 0
0
0
<COMMON> 37,501
<OTHER-SE> 555,800
<TOTAL-LIABILITY-AND-EQUITY> 3,272,686
<SALES> 3,829,523
<TOTAL-REVENUES> 3,829,523
<CGS> 2,559,350
<TOTAL-COSTS> 2,559,350
<OTHER-EXPENSES> 3,895,270
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 256,871
<INCOME-PRETAX> (2,625,097)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,625,097)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,625,097)
<EPS-PRIMARY> (0.140)
<EPS-DILUTED> (0.140)
</TABLE>
