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 quarterly period ended September 30, 1998.
|_| 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
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(State or other jurisdiction of incorporation or organization)
11-2569467
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(IRS EMPLOYER IDENTIFICATION NO.)
3138 East Elwood Street, Phoenix, AZ 85034
------------------------------------------
(Address of principal executive offices)
602-437-9620
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(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 5,931,346 shares of its common stock, par value $.002,
outstanding as of September 30, 1998.
1
<PAGE>
PART I - FINANCIAL INFORMATION
RADYNE CORP.
CONDENSED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
Item 1 Unaudited Audited
<S> <C> <C>
Current Assets:
Cash & Cash Equvalents $ 775,832 $ 569,692
Restricted Cash 10,000,000 0
Account Receivable, less allowance
for doubtful accounts of $23,000 and $15,000 respectively 2,198,026 2,359,443
Inventories 4,269,540 5,389,920
Prepaids and Other Current Assets 452,889 68,076
------------ ------------
Total Current Assets 17,696,287 8,387,131
------------ ------------
Property and Equipment - Net 1,487,996 1,322,551
------------ ------------
Other Assets:
Designs and Drawings - Net of accumulated amortization
of $876,404 and $705,404 respectively 300,935 471,935
Deposits 50,000 50,000
------------ ------------
Total Assets $ 19,535,218 $ 10,231,617
============ ============
Liabilities and Stockholders' Capital Deficiency
Current Liabilities:
Notes payable under lines of credit $ 5,500,000 $ 5,000,000
Notes payable to parent 15,618,272 0
Obligations under capital leases 78,145 109,258
Accounts Payable - trade 1,021,948 667,202
Accounts Payable - affiliates 0 16,062
Accrued Liabilities 1,124,102 901,032
Taxes payable 53,845 38,720
------------ ------------
Total Current Liabilities 23,396,312 6,732,274
------------ ------------
Long Term Liabilities:
Notes payable under lines of credit 0 4,500,000
Obligation under Capital Leases 37,513 93,543
Taxes Payable 0 55,861
------------ ------------
Total Long Term Liabilities: 37,513 4,649,404
------------ ------------
Total Liabilities 23,433,825 11,381,678
Stockholders' Capital Deficiency
Common Stock, $0.002 par value, 20,000,000 shares authorized,
shares issued and outstanding, 5,931,346 at September 30, 1998
and December 31, 1997, respectively 11,862 11,862
Additional Paid-In Capital 5,694,806 5,694,806
Accumulated Deficit (9,605,275) (6,816,643)
Notes Receivable - employees 0 (40,086)
------------ ------------
Total Stockholders' Capital Deficiency (3,898,607) (1,150,061)
------------ ------------
Total $ 19,535,218 $ 10,231,617
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
2
<PAGE>
PART I - FINANCIAL INFORMATION
RADYNE CORP.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales $ 3,307,146 $ 4,434,112 $ 9,973,611 $ 9,986,377
Cost of Sales 2,280,421 2,397,597 7,704,856 5,529,267
--------------------------------------------------------
Gross Profit 1,026,725 2,036,515 2,268,755 4,457,110
--------------------------------------------------------
Operating Expenses:
Selling, general and
administrative 806,430 1,219,255 2,543,986 3,159,553
Research and
development 577,166 569,177 1,944,809 1,692,899
--------------------------------------------------------
Total Operating 1,383,596 1,788,432 4,488,795 4,852,452
Expenses --------------------------------------------------------
Income (loss) from operations
before interest expense (356,871) 248,083 (2,220,040) (395,342)
Interest Expense - Net 192,773 162,270 568,592 497,318
--------------------------------------------------------
Net Income (loss) before
provision for Income Taxes (549,644) 85,813 (2,788,632) (892,660)
Provision for Income Taxes 0 0 0 0
--------------------------------------------------------
Net Income (loss) available
to common stockholders $ (549,644) $ 85,813 $(2,788,632) $ (892,660)
========================================================
Earnings (loss) per common
share - basic $ (0.09) $ 0.01 $ (0.47) $ (0.19)
========================================================
Earnings (loss) per common
share - diluted $ (0.09) $ 0.01 $ (0.47) $ (0.19)
========================================================
Weighted average common and
equivilent shares - basic 5,931,346 6,432,854 5,931,346 4,734,185
========================================================
Weighted average common and
equivilent shares - diluted 5,931,346 6,432,854 5,931,346 4,734,185
========================================================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION
RADYNE CORP.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (2,788,632) $ (892,660)
Adjustments to reconcile net loss to cash flows used
in operating activities:
Depreciation and Amortization 395,653 347,202
Changes in operating assets and liabilities:
Accounts Receivable 161,417 (850,970)
Inventories 1,120,380 (3,258,394)
Prepaid and Other Current Assets (384,813) 60,307
Accounts Payable - Trade 354,746 414,821
Accounts Payable - Affiliates (16,062) (436,362)
Accrued Liabilities 223,070 (122,372)
Taxes Payable (40,736) (21,232)
----------------------------------------
Net Cash used in Operating Activities (974,977) (4,759,660)
----------------------------------------
Cash flows from investing activities:
Investment in Restricted Cash (10,000,000) 0
Capital Expenditures (390,098) (555,544)
----------------------------------------
Net Cash flows from investing activities: (10,390,098) (555,544)
----------------------------------------
Cash flows from financing activities:
Net borrowing from or (payment on) Notes
Payable under Line of Credit Agreements (4,000,000) 6,706,180
Proceeds from Notes Payable to Affiliates 15,618,272 0
Payments on Notes Payable to Affiliates 0 (6,600,000)
Net Proceeds from sale of common stock 0 5,093,367
Notes Receivable - employees 40,086 (59,228)
Principal payments on capital lease obligations (87,143) (11,520)
----------------------------------------
Net Cash provided by financing activites 11,571,215 5,128,799
----------------------------------------
Net increase (decease) in Cash 206,140 (186,405)
Cash, Beginning of Year 569,692 186,488
----------------------------------------
Cash, End of Period $ 775,832 $ 83
========================================
Supplemental Disclosure of cash flow information:
Interest paid $ 698,201 $ 622,738
========================================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
RADYNE CORP.
Notes to Condensed Financial Statements
(Information for SEPTEMBER 30, 1998 and SEPTEMBER 30, 1997 is Unaudited)
1. Business
Radyne Corp. (the "Company") was incorporated on November 25, 1980 and
commenced operations on May 22, 1981. On August 12, 1996 the Company became a
majority owned subsidiary of Stetsys US, Inc ("ST"). 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 unaudited condensed financial statements furnished reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of financial position as of September 30, 1998 and the results of
operations for the three and nine months ended September 30, 1998 and 1997, and
cash flows for the nine months ended September 30, 1998 and 1997. Such
adjustments are of a normal recurring nature. The financial statements and notes
have been prepared in accordance with the requirements of Form 10-Q and
consequently do not include all of the disclosure normally required by generally
accepted accounting principles. This information should be read in conjunction
with the financial statements included in the Company's Form 10-K for the year
ended December 31, 1997.
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) Restricted Cash
Restricted cash consists of $10,000,000 derived from a loan from an
affiliate. This loan is restricted for the purpose of funding the purchase of
Comstream Holdings, Inc. (See Note 8, Subsequent Event.)
(d) Inventories
Inventories, consisting of satellite modems, converters and related
products, are valued at the lower of cost (first-in, first-out) or market value
including material, direct labor and overhead costs.
(e) Property and Equipment
Property and equipment is stated at cost. Expenditures for repairs and
maintenance are charged to operations as incurred, and improvements that extend
the useful lives of assets are capitalized. Depreciation and amortization of
machinery and equipment are computed using the straight-line method over the
estimated useful life of four to seven years.
5
<PAGE>
RADYNE CORP.
Notes to Condensed Financial Statements
(Information for SEPTEMBER 30, 1998 and SEPTEMBER 30, 1997 is Unaudited)
(f) Designs and Drawings
The valuation 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.
Amortization of designs and drawings is computed using the straight-line method
over an estimated useful life of four to seven years.
(g) Research and Development
The cost of research and development is charged to expense as incurred.
(h) Taxes on Income
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 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
rate is recognized as income in the period that includes the enactment date.
(i) Earnings (Loss) Per Share
The Company presents earnings (loss) per share in accordance with
Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS
No. 128"). SFAS No. 128 prescribes a presentation of basic earnings per share,
which is calculated utilizing only weighted average common shares outstanding,
and a diluted earnings per share which gives effect to all dilutive potential
common shares outstanding during the reporting periods.
(j) Rights Offering
In November 1996 the Board of Directors approved the distribution to
stockholders, other than the Company's principal stockholder, ST, of
subscription rights for the purchase of 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 and was
concluded in June 1997. ST's affiliate exercised 1,976,000 of its rights and
individuals associated with such affiliate exercised another 34,000. 51,525
rights issued to stockholders other than ST were also exercised. In a related
offering under the Company's Incentive Stock Option Plan, 110,100 shares of the
Company's common stock were purchased by employees at $2.50 per share. Total
proceeds received from the Rights Offering were partially offset by $336,000 of
associated costs. The proceeds from the exercise of these rights were used, in
part, to satisfy notes payable to affiliates.
(k) Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130
Reporting Comprehensive Income, in the quarter ended March 31, 1998.
Comprehensive income is the same as net income for the quarter and nine months
ended September 30, 1998.
6
<PAGE>
PART I - FINANCIAL INFORMATION
RADYNE CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
3 Inventories September 30, December 31,
1998 1997
(Unaudited) (Audited)
Inventories consist of the following:
Raw materials and components $ 1,824,723 $2,605,397
Work in Process 2,261,352 1,124,929
Finished Goods 363,465 1,950,594
---------------------------------
Subtotal 4,449,540 5,680,920
---------------------------------
Less Valuation Allowance (180,000) (291,000)
---------------------------------
Total $ 4,269,540 $5,389,920
=================================
4 Accrued Liabilities September 30, December 31,
1998 1997
(Unaudited) (Audited)
Accrued liabilities consist of the
following:
Wages and related payroll taxes $356,068 $ 486,840
Interest expense 313,902 183,968
Warranty reserve 140,000 85,500
Professional fees 140,500 105,000
Other 173,632 39,724
---------------------------------
Total $ 1,124,102 $ 901,032
==================================
5 Earnings (Loss) per Share
A summary of the reconciliation from basic earnings (loss) per share
to diluted earnings (loss) per share for the nine month periods ended
September 30, 1998 and 1997.
September 30, September 30,
1998 1997
(Unaudited) (Unaudited)
Net (loss) $(2,788,632) $ (892,660)
----------------------------------
Basic EPS - weighted average shares
outstanding 5,931,346 4,734,185
----------------------------------
Basic earnings (loss) per share $ (0.47) $ (0.19)
----------------------------------
Diluted EPS - weighted average shares
outstanding 5,931,346 4,734,185
Diluted earnings (loss) per share $ (0.47) $ (0.19)
7
<PAGE>
RADYNE CORP.
Notes to Condensed Financial Statements
(Information for SEPTEMBER 30, 1998 and SEPTEMBER 30, 1997 is Unaudited)
6. Related Party Transactions
Sales to Engineering and Technical Services, Inc. and Agilis Communication
Technologies Pte Ltd, companies under common control with Radyne, for the three
months ended September 30, 1998 and 1997 were $13,589 and $199,800,
respectively. Cost of such sales for the same periods were $5,336 and $151,492,
respectively. For the nine months ended September 30, 1998 and 1997 sales to
these companies were $163,345 and $666,010, respectively. Cost of such sales for
the same periods were $87,039 and $499,986, respectively.
Accounts Receivable from affiliates at September 30, 1998 and December 31,
1997 was $59,221 and $281,775, respectively.
Notes payable to parent (ST) outstanding at September 30, 1998 and
December 31, 1997 were $15,618,272 and $ 0, respectively. These notes bear
interest at rates from 6.388% to 6.844% and mature during 1999. Of this amount,
$10,000,000 was borrowed in September 1998 for the acquisition of Comstream
Holdings, Inc ("Comstream") (See Note 8).
Interest expense on notes payable to parent was $99,916 and $0 for the
three month period ended September 30, 1998 and 1997, respectively. For the nine
month periods, which ended September 30, 1998 and 1997, interest expense on
notes payable to parent was $265,928 and $147,929 respectively.
7. Notes Payable
The Company had a note payable under a line of credit agreement with a
bank that permitted borrowings of up to $4,500,000. At December 31, 1997,
outstanding borrowings against the line were $4,500,000 plus accrued interest.
On January 15, 1998, the Company repaid the note and related accrued interest
with the proceeds from affiliated debt. The bank line was subsequently
terminated.
The Company has a $20,500,000 credit agreement with Citibank, N.A. that
includes $20,000,000 available under an uncommitted line of credit facility and
facilities for bank guarantees and/or standby letters of credit up to $500,000.
An affiliate of ST 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 LIBOR plus 1% per annum or alternative Citibank's
Quoted Rate plus 1% per annum (rates varied from 6.4063% to 6.75% on balances
owed at September 30, 1998). The credit agreement requires the Company to
maintain certain financial leverage ratios. The availability of additional
borrowings under the credit agreement expires September 29, 1999 and is
renewable annually at the option of the Bank. The Company owed principal of
$5,500,000 under the line of credit as of September 30, 1998. Subsequent to the
end of the period reported on herein, the Company borrowed another $500,000
under the credit agreement at 6.1563%.
8. Subsequent event
On August 28, 1998, Radyne Corporation signed a definitive agreement (the
"Agreement") to acquire ComStream from Spar Aerospace Limited ("Spar"). On
October 15, 1998 (the "Closing Date"), Radyne acquired Comstream (the
"Acquisition"), with Comstream becoming a wholly owned subsidiary of Radyne.
On the Closing Date, Radyne purchased all of the outstanding shares of common
stock of ComStream for an aggregate purchase price of $17 million, of which $10
million was paid in cash at the closing and $7 million will be payable up to
nine months thereafter pursuant to a note (the "Note") which is convertible into
Radyne common stock, par value $.002 per share (the "Common Stock"), under
certain circumstances. A Registration Rights Agreement would provide Spar with
piggy-back and demand registration rights in the event that the Note is
converted into Common Stock.
The Acquisition will be accounted for under the purchase method and will result
in a one-time charge, which represents the value assigned to purchased
8
<PAGE>
"in-process-research-and-development" ("IPR&D"). The amounts of these charges
are dependent upon the valuation analysis, which is underway, by an independent
valuation consulting firm. In addition, Radyne expects to incur a charge for
restructuring costs related to employee severance and a lease termination.
Radyne intends to finance the repayment of debt incurred for the Acquisition,
certain planned restructuring costs and its ongoing working capital needs
through (i) a rights offering pursuant to which it will offer approximately
$17,700,000 of Common Stock to its existing shareholders and (ii) the existing
bank line of credit. This offering will be made strictly by means of a
prospectus which will be distributed to shareholders of record at a date
selected at the time of Radyne's filing a registration statement for such
offering with the Securities and Exchange Commission.
9
<PAGE>
RADYNE CORP
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
This form 10-Q may contain forward-looking statements that involve risks
and uncertainties, including, but not limited to, the impact of competitive
products and pricing, product demand and market acceptance risks, the presence
of competitors with greater financial resources, product development and
commercialization risks, costs associated with the integration and
administration of acquired operations, capacity and supply constraints or
difficulties, the results of financing efforts, Year 2000 issues and other risks
detailed from time to time in the Company's Securities and Exchange Commission
filings. The Company filed it 1997 Form 10-K in March, 1998. Please refer to
this document for a more detailed discussion of the risks and uncertainties
associated with the Company's future operations.
Results of Operations
The Company's assets have increased from $10,231,617 at December 31, 1997
to $19,535,218 at September 30, 1998, while the Company's liabilities have
increased from $11,381,678 at December 31, 1997 to $23,433,825 at September 30,
1998. This increase was due primarily to an increase in restricted cash of
$10,000,000 derived from a loan from an affiliate (See Note 6, Related Party
Transactions). The purpose of this loan was to have sufficient cash on hand to
fund the purchase of Comstream Holdings, Inc. from Spar Aerospace Limited, a
Canadian company, which closed on October 15, 1998 (See Note 8, Subsequent
Event).
Results of operations for the three month period ended September 30, 1998
compared to the three month period ended September 30, 1997, were as follows:
The Company's net sales decreased 25% to $3,307,146 during the period
ended September 30, 1998 from $4,434,112 during the period ended September 30,
1997 primarily as a result of a decline in sales into the Asian Market, due to
the continued unfavorable economic conditions in that market, during the current
period compared to the prior period.
The Company's cost of sales as a percentage of net sales increased to 69%
during the period ended September 30, 1998 from 54% during the period ended
September 30, 1997. Start-up costs associated with the delivery of new products
to the market place during the current period accounted for the increased costs.
Selling, general and administrative costs decreased to $806,430 (24% of
sales) during the current period from $1,219,255 (27% of sales) during the three
month period ended September 30, 1997. The decreased level of expenses was, in
part, due to the reduced sales commissions as a result of the lower sales output
during the current period as compared to the prior period.
Research and development expenditures increased to $577,166 during the
period ended September 30, 1998 from $569,177 during the period ended September
30, 1997. The increased level of expenses coincides with the Company's goals to
bring newer product lines to market.
Net interest expense increased from $162,270 in the period ended September
30, 1997 to $192,773 in the current period due to an increase in the Company's
debt level.
Based on the decrease in margins (higher costs in terms of percentage of
sales) as outlined above, the Company experienced a net loss of $549,644 during
the period ended September 30, 1998 as compared with net income of $85,813
during the period ended September 30, 1997.
The Company's new-orders-booked (Bookings) increased by 88% to $3,930,265
for the quarter ended September 30, 1998 from $2,094,061 for the period ended
September 30, 1997. This increase is primarily due to new product orders within
the quarter.
The Company's level of unfilled-orders-to-ship (Backlog) increased 35% to
$6,253,075 at September 30, 1998 from $4,621,790 at September 30, 1997 primarily
due to the level of Bookings received during the current quarter. About 70% of
the backlog is scheduled to be shipped by the end of the current calendar year.
10
<PAGE>
RADYNE CORP
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Results of operations for the nine month period ended September 30, 1998
compared to the nine month period ended September 30, 1997, were as follows:
The Company's net sales decreased slightly to $9,973,611 during the period
ended September 30, 1998 from $9,986,377 during the nine month period ended
September 30, 1997 as a result of the decline in sales to the Asian Market due
to its deteriorated economic situation. However, the market acceptance of the
Company's newer products is demonstrated by sales remaining level over the nine
month comparison in spite of the impact of the Asian economic situation. A
substantial portion of current period sales came from the new DMD-2401 modem
that has enjoyed positive market acceptance. Other products which contributed
were the RCS-10 and RCS-20 subsystems with associated modems, the RF product
lines, the new digital video products and the new lines of high-speed modems and
peripherals.
The Company's cost of sales as a percentage of net sales increased to 77%
during the nine months ended September 30, 1998 from 55% during the nine month
period ended September 30, 1997. An increase in start-up costs associated with
the delivery of new products to the market place during the current period
accounted for the major portion of the increase in costs. In June of 1998, the
Company expensed $911,000 to revalue inventory including revisions to standard
costs and a provision for obsolescence.
Selling, general and administrative costs decreased to $2,543,986 (26% of
sales) during the current period from $3,159,553 (32% of sales) during the nine
month period ended September 30, 1997. The decreased level of expenses for the
period (and the related reduction in costs in terms of percentage of sales) was,
in part, a result of the Company's cost containment measures. However the
Company's marketing expenses remain high as the Company has attempted to
position itself in the marketplace to compete head-to-head with larger
competitors without giving up margin advantages. Additionally, the Company has
embarked on a full-scale marketing effort to seek out new product opportunities,
which will enhance our current product lines and provide a full array of product
options for our customers.
Research and development expenditures increased to $1,944,809 (19% of
sales) during the nine months ended September 30, 1998 from $1,692,899 (17% of
sales) during the nine months ended September 30, 1997. The increased level of
expenses for the period was, in part, a result of new product development and
research to lower older product lines' manufacturing costs.
Net interest expense increased from $497,318 in the period ended September
30, 1997 to $568,592 in the current period due to an increase in the Company's
debt level.
Based mainly on lower gross margins as outlined above, the Company
experienced a net loss of ($2,788,632) during the period ended September 30,
1998 as compared with a net loss of ($892,660) during the nine month period
ended September 30, 1997.
The Company's new-orders-booked (Bookings) increased 22% to $11,489,973
for the nine months ended September 30, 1998 from $9,442,062 for the period
ended September 30, 1997. This increase was primarily due to the successful
introduction of certain new product lines to the market during the current
period.
The Company's level of unfilled-orders-to-ship (Backlog) increased 35% to
$6,253,075 at September 30, 1998 from $4,621,790 at September 30, 1997 primarily
due to the level of Bookings received during the current period. About 70% of
the above backlog is scheduled to be shipped by the end of the current calendar
year.
Year 2000 Issue
The Company recognizes the potential business impacts related to the Year
2000 computer system issue and is implementing a plan to assess and improve the
Company's state of readiness with respect to such issues. The year 2000 issue is
one where computer systems may recognize the designation "00" as the year 1900
when it is intended to mean the year 2000, resulting in system failure or
miscalculations.
Commencing in 1997, the Company began a comprehensive review of its
information technology systems, which the Company is dependent upon for the
conduct of day to day business operations, in order to determine the adequacy of
those systems in light of future business requirements. Year 2000 readiness was
one of the factors considered in the review process.
11
<PAGE>
The Company has completed its review of internal systems. The majority of
the Company's application software programs are purchased from and maintained by
vendors. Therefore, the Company is working with these software vendors to verify
these applications are, or will become, Year 2000 compliant.
The Company presently believes that all mission critical systems are Year
2000 compliant and therefore the Year 2000 issue will not pose significant
operational problems for the Company's internal systems. All Year 2000 costs to
date have been expensed and the Company does not expect to incur any significant
future costs related to the Year 2000 issue. However, the Company may choose to
upgrade certain existing software that is already Year 2000 compliant and, if it
does, the costs related to those upgrades will be capitalized in the normal
coarse of business.
As part of the Company's comprehensive review, it is continuing to verify
the Year 2000 readiness of third parties (vendors and customers) with whom the
Company has material relationships. The Company is not able to determine the
effect on the Company's results of operations, liquidity and financial condition
in the event the Company's material vendors and customers are not Year 2000
compliant. The Company will continue to monitor the progress of its material
vendors and customers and formulate a contingency plan if and when the Company
concludes that a material vendor or customer may not be compliant.
During the current period a Year 2000 readiness survey was sent to all of
the Company's material vendors and customers. The readiness surveys are
currently being collected for review and analysis. The Company has also started
to generate a formal Year 2000 plan. This plan document should be completed by
March 31, 1999.
Liquidity and Capital Resources
The Company's working capital deficit was ($5,700,025) at September 30,
1998, compared to working capital of $1,654,857 at December 31, 1997. The
decrease in working capital is primarily due to the maturation of $4,500,000 in
debt which was classified as long-term as of December 31, 1997 and has been
replaced with short term loans and losses incurred by the Company during the
period.
Net cash used in operating activities was $974,977 for the nine month
period ended September 30, 1998, as compared to $4,759,660 used in the nine
month period ended September 30, 1997, mainly due to decreased inventory and
account receivable levels and increases in accounts payable and accrued
liability levels.
Cash used in investing activities, consisting of additions to equipment,
amounting to $390,098 for the nine month period ended September 30, 1998 was
comparable to the prior period amount of $555,544.
The Company derived net cash from financing activities of $11,571,215 and
$5,128,799 during the nine month periods ended September 30, 1998 and September
30, 1997, respectively. A $10,000,000 loan was taken for the acquisition of
Comstream during the quarter ended September 30, 1998.
As a result of the foregoing, the Company increased its cash balance by
$10,206,140 for the nine month period ended September 30, 1998, as compared to a
decrease in its cash balance by $186,405 for the nine month period ended
September 30, 1997.
The Company believes that it will be able to satisfy its working capital
and capital expenditure requirements for the foreseeable future from existing
cash balances, from anticipated cash flow from operating activities, from funds
advanced under the line of credit agreement and from funds advanced from the
Company's parent. In this connection, the parent company has committed to
purchase approximately $16,000,000 worth of the Company's common stock in order
to enable the Company to retire a like amount of short term debt to the parent.
12
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibit Description
------- -----------
3.1* Restated Certificate of Incorporation
3.2** Bylaws, as amended and restated
27 Financial Data Schedule
(b) 1. A report on Form 8-K was filed with regard to Item 4,
Changes in Registrant's Certifying Accountant, on July 23,
1998.
2. An amended report on Form 8-K was filed with regard to Item
4, Changes in Registrant's Certifying Accountant, on July 31,
1998.
3. A report was filed on form 8-K with regard to Item 5, Other
Events (relating to Registrant's agreement to acquire the
shares of Comstream Holdings, Inc.) on August 28, 1998.
* Incorporated by reference from Registrant's report on Form
10-Q, filed August 14, 1998.
** Incorporated by reference from Registrant's report on Form
10-Q, filed March 11, 1997
13
<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: November 12, 1998 RADYNE CORP.
-------------------
By: /s/ Robert C. Fitting
------------------------------
Robert C. Fitting
President
By: /s/ Garry D. Kline
------------------------------
Garry D. Kline
Chief Financial Officer
14
<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 9-30-98
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 775,832
<SECURITIES> 0
<RECEIVABLES> 2,221,026
<ALLOWANCES> (23,000)
<INVENTORY> 4,269,540
<CURRENT-ASSETS> 17,696,287
<PP&E> 2,062,361
<DEPRECIATION> (574,365)
<TOTAL-ASSETS> 19,535,218
<CURRENT-LIABILITIES> 23,396,312
<BONDS> 37,513
0
0
<COMMON> 11,862
<OTHER-SE> (3,910,469)
<TOTAL-LIABILITY-AND-EQUITY> 19,535,218
<SALES> 9,973,611
<TOTAL-REVENUES> 9,973,611
<CGS> 7,704,856
<TOTAL-COSTS> 7,704,856
<OTHER-EXPENSES> 4,488,795
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 568,592
<INCOME-PRETAX> (2,788,632)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,788,632)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,788,632)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
