SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the three month period ended March 31, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-11685-NY
RADYNE CORP.
------------
(Exact name of registrant as specified in its charter)
NEW YORK
--------
(State or other jurisdiction of incorporation or organization)
11-2569467
----------
(IRS EMPLOYER IDENTIFICATION NO.)
5225 South 37th Street, Phoenix, AZ 85040
-----------------------------------------
(Address of principal executive offices)
602-437-9620
------------
(Registrant's Telephone number)
Indicate by check mark whether the registrant (1) 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 period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES |X| NO |_|
Indicate by check mark whether the registrant 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 |_|
The registrant had 3,759,721 shares of its common stock, par value $.002,
outstanding as of March 31, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
RADYNE CORP.
BALANCE SHEETS
MARCH 31, DECEMBER 31,
Item 1 - ASSETS 1997 1996
---------- ----------
(Unaudited) (Audited)
CURRENT ASSETS:
Cash and Cash Equivalents $ 373,387 $ 186,488
Accounts Receivable, less allowance
for doubtful accounts of $13,000 2,440,721 2,733,902
Inventories 2,907,101 1,991,360
Prepaid and Other Current Assets 221,249 94,298
---------- ----------
Total Current Assets 5,942,458 5,006,048
PROPERTY AND EQUIPMENT - NET 874,282 849,564
OTHER ASSETS:
Designs and Drawings - Net of accumulated
amortization of $536,791 and $475,696 respectively 640,548 701,643
Deposits 15,662 15,662
---------- ----------
Total $7,472,950 6,572,917
========== ==========
The accompanying notes are an integral part of these financial statements
2
<PAGE>
PART I - FINANCIAL INFORMATION
RADYNE CORP.
BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY MARCH 31, DECEMBER 31,
1997 1996
----- ----
CURRENT LIABILITIES:
Notes payable under lines of credit $ 6,393,820 $ 1,993,820
Notes payable to affiliates 4,100,000 6,600,000
Obligations under capital leases 49,568 53,042
Accounts Payable - trade 1,044,519 805,279
Accounts Payable - affiliate 20,170 436,362
Accrued Liabilities 594,034 926,956
Taxes payable 47,420 42,116
------------ ------------
Total Current Liabilities 12,249,531 10,857,575
OBLIGATIONS UNDER CAPITAL LEASES 79,820 81,016
TAXES PAYABLE 64,380 80,952
------------ ------------
Total Liabilities $ 12,393,731 11,019,543
------------ ------------
STOCKHOLDERS' CAPITAL DEFICIENCY
Common Stock, $.002 par value, 20,000,000 shares
authorized, shares issued and outstanding,
3,759,721 at March 31, 1997 and December 31, 1996 7,519 7,519
Additional Paid-In Capital 605,782 605,782
Accumulated Deficit (5,534,082) (5,059,927)
------------ ------------
Total Stockholders' Capital Deficiency (4,920,781) (4,446,626)
------------ ------------
Total $ 7,472,950 $ 6,572,917
============ ============
The accompanying notes are an integral part of these financial statements
3
<PAGE>
RADYNE CORP.
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996
----------- -----------
NET SALES $ 2,740,668 $ 886,763
COST OF SALES 1,679,812 488,432
----------- -----------
Gross Profit 1,060,856 398,331
----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 811,281 502,652
Research and development 551,643 541,490
----------- -----------
Total Operating Expenses 1,362,924 1,044,142
LOSS FROM OPERATIONS BEFORE INTEREST EXPENSE (302,068) (645,811)
INTEREST EXPENSE - NET 172,087 92,700
NET LOSS BEFORE PROVISION FOR
INCOME TAXES (474,155) (738,511)
PROVISION FOR INCOME TAXES -0- -0-
----------- -----------
NET LOSS (474,155) (738,511)
=========== ===========
NET LOSS PER COMMON SHARE (.13) (.20)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,759,721 3,730,016
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
RADYNE CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (474,155) $ (738,511)
Adjustment to reconcile net loss to net cash
flows used in operating activities:
Depreciation and Amortization 118,565 103,800
Changes in operating assets and liabilities:
Accounts Receivable 293,181 152,953
Inventories (915,741) (92,888)
Prepaid and Other Current Assets (126,951) 33,565
Deposits -0- 20,134
Accounts Payable - Trade 239,240 80,714
Accounts Payable - Affiliates (416,192) -0-
Accrued Liabilities (332,922) (75,830)
Taxes Payable (11,268) (34,308)
----------- -----------
NET CASH USED IN
OPERATING ACTIVITIES (1,626,243) (550,371)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (82,188) (205,883)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (82,188) (205,883)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings From Notes Payable Under Line
of Credit Agreements 4,400,000 -0-
Payments on Notes Payable to Affiliates (2,500,000) -0-
Payments on Long Term Debt (4,670) (10,024)
Proceeds from Notes Payable to Affiliates -0- 755,781
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,895,330 745,757
----------- -----------
NET INCREASE (DECREASE) IN CASH 186,899 (10,497)
CASH, BEGINNING OF YEAR 186,488 46,130
----------- -----------
CASH, END OF PERIOD $ 373,387 $ 35,633
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 289,959 $ -0-
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
RADYNE CORP.
Notes to Financial Statements
(Information for MARCH 31, 1997 and MARCH 31, 1996 is Unaudited)
1. Business
Radyne Corp. (the "Company") was incorporated on November 25, 1980 and
commenced operations on May 22, 1981. The Company designs, manufactures and
sells products, systems and software used for the transmission and reception of
data over satellite and cable communications networks.
2. Summary of Significant Accounting Policies
(a) Basis of presentation
The interim financial statements furnished reflect all adjustments which
are, in the opinion of management, necessary for a fair statement of financial
position as of March 31, 1997 and December 31, 1996 and the results of
operations and cash flows for the three months ended March 31, 1997 and March
31, 1996. Such adjustments are of a normal recurring nature. The financial
statements should be read in conjunction with the summary of significant
accounting policies and notes to financial statements included in the Company's
Form 10-K for the year ended December 31, 1996.
The results of operations for the interim period are not necessarily
indicative of the results to be expected for the full year.
(b) Revenue Recognition
The Company recognizes revenue upon shipment of products.
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market value including material, direct labor and overhead costs.
(d) Property and Equipment
Property 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 based on the
following useful lives:
Machinery and Equipment 7 years
Furniture and fixtures 7 years
Leasehold improvements 5 years
6
<PAGE>
RADYNE CORP.
Notes to Financial Statements
(Information for MARCH 31, 1997 and MARCH 31, 1996 is Unaudited)
(e) Designs and Drawings
The evaluation of designs and drawings is the result of adjustments made
by the Company to adopt Fresh Start reporting in accordance with AICPA Statement
of Position 90-7, `Financial Reporting By Entities in Reorganization Under the
Bankruptcy Code,' and represents the excess reorganization value that has been
applied to the acquired technology supporting the Company's products (Note 3).
Amortization of designs and drawings is computed using the straight-line method
over an estimated useful life of four to seven years.
(f) Research and Development
Expenditures for research and development are charged to operations in the
period incurred.
(g) Taxes on Income
The Company follows the liability method of accounting for income taxes,
as prescribed by Statement No. 109 of the Financial Accounting Standards Board.
(h) Per Share Data
Earnings (loss) per share of common stock were computed by dividing Net
Loss by the weighted average number of shares of common stock outstanding during
each of the periods presented.
(i) Rights Offering
In November 1996, the Board of Directors approved the distribution to
stockholders, other than its principal stockholder, Stetsys US, Inc. ("ST"), of
subscription rights to purchase up to 215,833 shares of the Company's common
stock at a price of $2.50 per share. The Board of Directors further approved the
distribution of subscription rights to an affiliate of ST to purchase up to
2,040,000 shares of the Company's common stock at a price of $2.50 per share.
This Rights Offering became effective on May 12, 1997. The subscription rights
will generally expire June 16, 1997. ST's affiliate has indicated its intention
to exercise 1,696,000 of its rights for $4,240,000 on June 2, 1997 and the
balance of its rights no later than June 23, 1997. The proceeds from the
exercise of those rights will be used, in part, to pay off the note payable to
affiliate shown on the accompanying balance sheet as at March 31, 1997. At March
31, 1997, the Company has recorded $178,033 of deferred offering costs relating
to the registration of these rights.
(j) Reverse Split
All per share information in these financial statements has been adjusted
to give effect to the 1-for-5 reverse split of common shares which was effective
January 9, 1997.
3. 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. 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.
7
<PAGE>
RADYNE CORP.
Notes to Financial Statements
(Information for MARCH 31, 1997 and MARCH 31, 1996 is Unaudited)
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Raw Materials and components $ 1,105,581 $ 1,108,109
Work in process 1,566,199 792,119
Finished Goods 710,321 577,222
----------- -----------
Sub Total 3,382,101 2,477,360
Less Valuation Allowance (475,000) (486,000)
----------- -----------
Total $ 2,907,101 $ 1,991,360
=========== ===========
5. Property and Equipment
Property and Equipment consist of the following:
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
Machinery and Equipment $ 760,201 $ 731,778
Furniture and Fixtures 297,324 243,559
----------- -----------
1,057,525 975,337
Less: accumulated depreciation
and amortization (183,243) (125,773)
----------- -----------
$ 874,282 $ 849,564
=========== ===========
6. Accrued Liabilities
Accrued liabilities consist of the following:
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
Wages and related payroll taxes $ 116,440 $ 356,624
Interest Expense 76,620 194,492
Warranty Reserve 125,775 139,775
Professional fees 112,612 171,000
Other 162,587 65,065
----------- -----------
$ 594,034 $ 926,956
=========== ===========
</TABLE>
8
<PAGE>
7. Related Party Transactions
In June 1995, the Company acquired certain assets of Merit Microwave,
Inc., as well as the manufacturing rights to the Merit line of microwave
products, which include translators and frequency converters. The purchase price
of approximately $120,000 was allocated to inventory and machinery and
equipment, and was paid by the issuance of 30,000 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 stockholder 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. In addition, the Company is required to pay royalties
to Merit of 5-10% on certain sales of microwave products. From December 31, 1996
to March 31, 1997, the Company paid no royalties under the agreement.
At March 31, 1997, notes payable to ST and affiliates were as follows:
Note payable plus interest at 6.625% per annum, principal due
July 31, 1997............................................. $4,100,000
Interest expense on notes payable to affiliates was $111,950 and $91,552
for the three month period ended March 31, 1997 and the three month period ended
March 31, 1996, respectively, of which $20,170 was included in accounts payable
to affiliates in the accompanying balance sheet as of March 31, 1997.
8. Notes Payable
The Company has a note payable under a line of credit agreement with Bank
of America, that permits outstanding borrowings of $5,000,000 with interest
payable at IBOR plus 1.25% per annum (rates varied from 6.625%--7.40% on
balances owed at March 31, 1997). The outstanding balance under this agreement
as of March 31, 1997 was $2,993,820. Subsequent to March 31, 1997, the Company
has borrowed an additional 196,180 under the agreement. The line of credit
agreement expires in March 1998 and is renewable annually at the option of the
Bank.
Subsequent to December 31, 1996, the Company entered into a new $5,500,000
credit agreement with Citibank, N.A. that includes $5,000,000 available under an
uncommitted line of credit facility and facilities for bank guarantees and/or
standby letters of credit up to $500,000. ST's grandparent company has issued a
nonbinding letter of awareness in connection with this credit agreement.
Borrowings under the line of credit bear interest at a fluctuating rate equal to
IBOR plus 1% per annum or alternative Citibanks Quoted Rate plus 1% per annum
annum (rates varied from 6.625%-7.0% on balances owed at March 31, 1997). The
credit agreement requires the Company to capitalize at least $4,100,000 of its
notes payable to affiliates and also requires that the Company maintain certain
financial leverage ratios. The availability of additional borrowings under the
credit agreement expires December 31, 1997 and is renewable annually at the
option of the Bank. The Company owed $3,400,000 under the agreement as of March
31, 1997 and has borrowed an additional $400,000 subsequent to March 31, 1997.
9
<PAGE>
RADYNE CORP
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
The Company's assets have increased from $6,572,917 at December 31, 1996
to $7,472,950 at March 31, 1997, while the company's liabilities have increased
from $11,019,543 at December 31, 1996 to $12,393,731 at March 31, 1997. The
decrease in net assets (assets minus liabilities) of $474,155 relates to the
Company's net loss for the three month period ending March 31, 1997.
Results of operations for the three month period ended March 31, 1997
compared to the fiscal quarter ended March 31, 1996, are as follows:
The Company's net sales increased 209% to $2,740,668 during the period
ended March 31, 1997 from $886,763 during the quarter ended March 31, 1996 as a
result of the Company's introduction of new products.
The Company's cost of sales as a percentage of sales increased to 61%
during the period ended March 31, 1997 from 55% during the fiscal quarter ended
March 31, 1996. Start-up costs associated with the delivery of new products to
the market place accounted for the major portion of the increase in costs.
Selling, general and administrative costs increased to $811,281 (30% of
sales) during the current period from $502,652 (57% of sales) during the fiscal
quarter ended March 31, 1996. The increased level of expenses for the period
(and the related reduction in costs in terms of percentage of sales) was as a
result of the increase in the Company's base business level during the period.
Research and development expenditures increased to $551,643 (20% of sales)
during the period ended March 31, 1997 from $541,490 (61% of sales) during the
period ended March 31, 1996. The increased level of expenses for the period (and
the related reduction in costs in terms of percentage of sales) was as a result
of the increase in the Company's base business level during the period.
Net interest expense increased from $92,700 in the quarter ended March 31,
1996 to $172,087 in the current period due to an increase in the Company's debt
level.
Based on the increases in costs and expenses outlined above, the Company
experienced a net loss of ($474,155) during the period ended March 31, 1997 as
compared with a net loss of ($738,511) during the quarter ended March 31, 1996.
The Company's new-orders-booked (Bookings) increased 110% to $2,132,948
for the period ended March 31, 1997 from $1,017,211 for the quarter ended March
31, 1996. This increase was primarily due to the introduction of certain new
product lines to the market after the period ended March 31, 1996.
The Company's level of unfilled-orders-to-ship (Backlog) increased 443% to
$1,865,545 at March 31, 1997 from $343,463 at March 31, 1996 primarily due to
the increased Bookings referred to above and like increases in the previous
quarter.
10
<PAGE>
Liquidity and Capital Resources
The Company's working capital deficit was ($6,307,000) at March 31, 1997,
an increase of $455,000 from ($5,852,000) at December 31, 1996. The increase in
the deficit was due primarily to $1,900,000 of new net borrowings, and an
approximately $293,000 decrease in accounts receivable, as offset by increases
of approximately $187,000 in cash and cash equivalents, $127,000 in prepaid and
other assets, $916,000 in inventories, a $333,000 reduction in accrued
liabilities and a $177,000 net reduction in accounts payable.
Net cash used in operating activities was $1,626,000 for the quarter ended
March 31, 1997, as compared to $550,000 used in the quarter ended March 31,
1996. Management considers these differences to be consistent with the
introduction of new products which resulted in increased inventory levels
coupled with an increase in the overall business activities of the Company.
Cash used in investing activities, consisting of additions to equipment,
amounting to $82,000 for the quarter ended March 31, 1997 was considerably less
than the prior period reported herein because that period included a buildup of
the Company's infrastructure to handle increased business activity.
The Company derived net cash from financing activities of $1,895,000 and
$746,000, respectively, during the quarters ended March 31, 1997 and March 31,
1996, with the difference resulting from greater net borrowings during the
current period.
As a result of the foregoing, the Company increased its cash balances by
$187,000 and decreased its cash balances by $10,000 for the quarter ended March
31, 1997 and the quarter ended March 31, 1996, respectively.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
A special meeting of shareholders in lieu of annual meeting was held
on January 8, 1997. Proxies were neither solicited nor given. 17,110,500
shares were represented at the meeting. The following matters were voted
on at the meeting:
(1) The election of Lim Ming Seong, Lee Yip Loi, Chan Wee Piak,
Robert A. Grimes and Robert C. Fitting as Directors of the Company. All
17,110,500 shares represented at the meeting were voted for each of the
five candidates.
(2) Amendment of the Company's Certificate of Incorporation (A) to
provide that the purpose for which the Company is formed is to engage in
any lawful activity for which corporations may be organized, (B) to
provide for a 1-for-5 reverse split of the Company's Common Stock, (C) to
eliminate shareholders' preemptive rights under Section 622 of the New
York Business Corporation Law, (D) to remove a paragraph purporting to
govern the Company's choice of accounting year, and (E) to update the
Company's address for copies of process. All 17,110,500 shares represented
at the meeting were voted for items (A), (D) and (E). 17,110,000 shares
were voted for, and 500 shares were voted against, items (B) and (C).
(3) Approval of the Company's 1996 Incentive Stock Option Plan. All
17,110,500 shares represented at the meeting were voted in favor of
approval.
(4) Ratification of the selection of Deloitte & Touche LLP as the
Company's independent certified public accountants for the fiscal year
ended December 31, 1996. All 17,110,500 shares represented at the meeting
were voted in favor of ratification.
Item 6 - Exhibits and Reports on Form 8-K.
11
<PAGE>
(a) Exhibit Description
------- -----------
3.1* Restated Certificate of Incorporation
3.2* Bylaws, as amended and restated
10.1** 1996 Incentive Stock Option Plan
10.2*** Employment Agreement with Robert C. Fitting (Radyne Termsheet)
10.3*** Agreement with Merit Microwave, inc. and Peter Weisskopf
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter covered by this
report.
* Incorporated by reference from Registrant's report on Form 10-Q, filed
March 11, 1997.
** Incorporated by reference from Registrant's Registration Statement on
Form S-8, dated and declared effective on March 12, 1997.
*** Incorporated by reference from Registrant's amended Registration
Statement on Form S-1, dated May 9, 1997 and declared effective on May 12,
1997.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: May 15, 1997 RADYNE CORP.
By: /s/Robert C. Fitting
-------------------------------------
Robert C. Fitting
President
By: /s/Garry D. Kline
-------------------------------------
Garry D. Kline
Acting Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the Form 10-Q for the quarter ended 3-31-97
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 373,387
<SECURITIES> 0
<RECEIVABLES> 2,453,721
<ALLOWANCES> (13,000)
<INVENTORY> 2,907,101
<CURRENT-ASSETS> 5,942,458
<PP&E> 1,057,525
<DEPRECIATION> (183,243)
<TOTAL-ASSETS> 7,472,950
<CURRENT-LIABILITIES> 12,249,531
<BONDS> 0
0
0
<COMMON> 7,519
<OTHER-SE> 605,782
<TOTAL-LIABILITY-AND-EQUITY> 7,472,950
<SALES> 2,740,668
<TOTAL-REVENUES> 2,740,668
<CGS> 1,679,812
<TOTAL-COSTS> 1,679,812
<OTHER-EXPENSES> 1,362,924
<LOSS-PROVISION> (13,000)
<INTEREST-EXPENSE> 172,087
<INCOME-PRETAX> (474,155)
<INCOME-TAX> 0
<INCOME-CONTINUING> (474,155)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (474,155)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
