<PAGE>
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, 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.
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(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.)
5225 SOUTH 37TH STREET, PHOENIX, AZ 85040
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(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 March 31, 1998.
1
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PART I - FINANCIAL INFORMATION
RADYNE CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
ITEM 1 Unaudited Audited
<S> <C> <C>
Current Assets:
Cash & Cash Equvalents $ 34,795 $ 569,692
Account Receivable, less allowance
for doubtful accounts of $17,000 and $15,000 respectively 3,238,476 2,359,443
Inventories 5,307,518 5,389,920
Prepaids and Other Current Assets 86,092 68,076
----------- -----------
Total Current Assets 8,666,881 8,387,131
----------- -----------
Property and Equipment - Net 1,277,182 1,322,551
----------- -----------
Other Assets:
Designs and Drawings - Net of accumulated amortization
of $765,065 and $705,404 respectively 414,935 471,935
Deposits 50,000 50,000
----------- -----------
Total Other Assets 464,935 521,935
----------- -----------
Total Assets $10,408,998 $10,231,617
=========== ===========
Liabilities and Stockholders' Capital Deficiency
Current liabilities:
Notes payable under lines of credit $ 5,000,000 $ 5,000,000
Notes payable to affiliates 5,118,272 0
Obligations under capital leases-ST 97,764 109,258
Accounts Payable - trade 824,452 667,202
Accounts Payable - affiliates 0 16,062
Accrued Liabilities 845,615 901,032
Taxes payable 29,862 38,720
----------- -----------
Total Current Liabilities 11,915,965 6,732,274
----------- -----------
Note Payable under Line of Credit Agreement 0 4,500,000
Obligation under Capital Leases 72,551 93,543
Taxes Payable 36,763 55,861
----------- -----------
Total Liabilities 12,025,279 11,381,678
----------- -----------
Stockholders' Capital Deficiency:
Common Stock, $.002 par value, 20,000,000 shares authorized,
shares issued and outstanding, 5,931,346 at March 31, 1998
and December 31, 1997. 11,862 11,862
Additional Paid-In Capital 5,694,806 5,694,806
Accumulated Deficit (7,306,683) (6,816,643)
Notes Receivable - employees (16,266) (40,086)
----------- -----------
Total Stockholders' Capital Deficiency (1,616,281) (1,150,061)
----------- -----------
Total $10,408,998 $10,231,617
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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RADYNE CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998 March 31, 1997
<S> <C> <C>
Net Sales $3,948,501 $2,740,668
Cost of Sales 2,754,829 1,679,812
----------------------------------
Gross Profit 1,193,672 1,060,856
----------------------------------
Operating Expenses:
Selling, general and administrative 847,166 811,281
Research and development 658,944 551,643
----------------------------------
Total Operating Expenses 1,506,110 1,362,924
----------------------------------
(Loss) from operations before interest expense (312,438) (302,068)
Interest Expense - Net 177,602 172,087
----------------------------------
Net (Loss) $ (490,040) $ (474,155)
==================================
Basic and Diluted Net (loss) per common shares $ (0.08) $ (0.13)
==================================
Weighted average number of common shares
outstanding. 5,931,346 3,759,721
==================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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RADYNE CORP.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH ENDED THREE MONTH ENDED
MARCH 31, 1998 MARCH 31, 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (490,040) $ (474,155)
Adjustments to reconcile net loss to cash flows used
in operating activities:
Depreciation and Amortization 128,975 118,565
Changes in operating assets and liabilities:
Accounts Receivable (879,033) 293,181
Inventories 82,402 (915,741)
Prepaid and Other Current Assets (18,016) (126,951)
Accounts Payable - Trade 157,250 239,240
Accounts Payable - Affiliates (16,062) (416,192)
Accrued Liabilities (55,417) (332,922)
Taxes Payable (27,956) (11,268)
---------------------------------
Net Cash used in Operating Activities (1,117,897) (1,626,243)
---------------------------------
Cash flows from investing activities:
Capital Expenditures (26,606) (82,188)
---------------------------------
Cash flows from financing activities:
Net Borrowing from or (Payment on) Notes Payable under
Line of Credit Agreements (4,500,000) 4,400,000
Proceeds from Notes Payable to Affiliates 5,118,272 0
Payments on Notes Payable to Affiliates 0 (2,500,000)
Notes Receivable - employees 23,819 0
Payments on Long Term Debt 0 (4,670)
Principle payments on capital lease obligations (32,486) 0
=================================
Net Cash provided by financing activites 609,606 1,895,330
---------------------------------
Net increase (decease) in Cash (534,897) 186,899
Cash, Beginning of year 569,692 186,488
=================================
Cash, End of Period $ 34,795 $ 373,387
=================================
Supplemental Disclosure of cash flow information:
Interest paid $ 243,250 $ 289,959
=================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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RADYNE CORP.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR MARCH 31, 1998 AND MARCH 31, 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 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, 1998 and the results of operations and cash flows for
the three months ended March 31, 1998 and March 31, 1997. Such adjustments are
of a normal recurring nature. This information should be read in conjunction
with the financial statements included in the Company's Form 10-K for the
twelve-month period 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) 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.
(d) 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
extimated useful lives of three to seven years.
(e) 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.
(f) RESEARCH AND DEVELOPMENT
The cost of research and development is charged to expense as incurred.
(g) TAXES ON INCOME
Radyne will file a consolidated federal income tax return with ETS and ST
through June 1997 (conclusion of the Rights Offering). Subsequent to June 1997,
Radyne will file separate federal income tax returns. Income taxes have been
computed as if the Company filed separate income tax returns for each year.
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
rate is recognized as income in the period that includes the enactment date.
5
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RADYNE CORP.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
(h) PER SHARE DATA
The Company presents earnings per share in accordance with Statement of
Financial 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.
(i) 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. 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.
(j) NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standard No. 130
REPORTING COMPREHENSIVE INCOME, in the quarter ended March 31, 1998.
Comprehensive income is the same as net income for the quarter.
6
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<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS
3 INVENTORIES MARCH 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
Inventories consist of the following:
Raw materials and components $3,181,822 $2,605,397
Work in Process 1,214,522 1,124,929
Finished Goods 1,232,174 1,950,594
----------------------------------------
Subtotal 5,628,518 5,680,920
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Less Valuation Allowance (321,000) (291,000)
----------------------------------------
Total $5,307,518 $5,389,920
========================================
4 PROPERTY AND EQUIPMENT MARCH 31, 1998 DECEMBER 31, 1997
Property and Equipment consist of the following:
Machinery and Equipment $1,307,567 $1,298,715
Furniture and Fixtures 391,930 373,548
----------------------------------------
Subtotal 1,699,497 1,672,263
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Less: Accumulated depreciation & Amortization (422,315) (349,712)
----------------------------------------
Total $1,277,182 $1,322,551
========================================
5 ACCRUED LIABILITIES MARCH 31, 1998 DECEMBER 31, 1997
Accrued liabilities consist of the following:
Wages and related payroll taxes $ 271,874 $ 486,840
Interest Expense 118,320 183,968
Professional fees 94,500 85,500
Warranty Reserve 105,000 105,000
Other 255,921 39,724
----------------------------------------
Total $ 845,615 $ 901,032
========================================
</TABLE>
7
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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
periods ended March 31, 1998 and March 31, 1997 were $38,181 and $347,660
respectively. Cost of such sales for the same periods were $11,459 and $250,664
respectively.
Accounts Receivable from affiliates at March 31, 1998 and March 31, 1997
was $44,834 and $441,315 respectively.
Notes payable to ST and affiliates outstanding at March 31, 1998 and March
31, 1997 were $5,118,272 and $4,100,000 respectively. An additional $250,000
was borrowed from ST on April 14, 1998. These notes bear interest at rates from
6.625% to 6.844% and mature at various dates between January 4. 1999 and January
15, 1999.
Interest expense on notes payable to affiliates was $73,926 for the current
period ended March 31, 1998 compared to $111,950 for the period ended March 31,
1997.
Accrued interest on notes payable to affiliates was $73,926 at March 31,
1998 compared to $20,170 at March 31, 1997.
7. NOTES PAYABLE
The Company had a note payable under a line of credit agreement with a bank that
permitted outstanding borrowings of $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 accrued interest with
proceeds from affiliated debt.
The Company has a $5,500,000 credit agreement with a bank 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. An ST
affiliate 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 or alternative Citibank's Quoted Rate plus 1
percent per annum (6.844 percent-6.938 percent as of December 31, 1997). At
March 31, 1998, outstanding borrowings against the line were $5,000,000 plus
accrued interest. The credit agreement requires that the Company maintain
certain financial leverage ratios. This credit facility is an uncommitted line
of credit which the bank may modify or cancel without prior notice.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's assets have increased from $10,231,617 at December 31, 1997
to $10,408,998 at March 31, 1998, while the Company's liabilities have increased
from $11,381,678 at December 31, 1997 to $12,025,279 at March 31, 1998. The
decrease in net assets (assets minus liabilities) of $466,221 is primarily due
to the company's financial performance within the first quarter.
Results of operations for the three month period ended March 31, 1998
compared to the three month period ended March 31, 1997, were as follows:
The Company's net sales increased 44% to $3,948,501 during the period ended
March 31, 1998 from $2,740,668 during the period ended March 31, 1997 primarily
as a result of the Company's introduction of new products and aggressive
marketing efforts. A portion of the sales increase came from the newer DMD-2401
modem line that has enjoyed tremendous market acceptance. Other products that
contributed to the increase were the RCS-10 and RCS-20 subsystems with
associated modems and the new digital video product line.
The Company's cost of sales as a percentage of net sales increased to 70%
during the period ended March 31, 1998 from 61% during the fiscal period ended
March 31, 1997. Start-up costs associated with the delivery of new products to
the market place accounted for the high period costs.
8
<PAGE>
Selling, general and administrative costs increased to $847,166 (21% of
sales) during the current period from $811,281 (30% of sales) during the fiscal
period ended March 31, 1997. The decreased level of expenses as a percentage of
sales for the period was a result of the increase in the Company's base business
level during the period. Marketing expenses have remained high, based on the
Company's attempts to position itself to compete head-to-head with larger
competitors without giving up margin advantages.
Research and development expenditures increased to $658,944 (17% of sales)
during the current period from $551,643 (20% of sales) during the period ended
March 31, 1997. The increased level of expenses for the period (and the related
reduction in costs in terms of percentage of sales) was a result of the increase
in the Company's base business level during the period and the redirection of
efforts to marketing our newer lines of products.
Net interest expense increased from $172,087 in the period ended March 31,
1997 to $177,602 in the current period due mainly to an increase in the
Company's debt level.
Based on the decreases in margins and higher research and development
costs, the Company experienced net loss of ($490,040), during the period ended
March 31, 1998 as compared with a net loss of ($474,155) during the period ended
March 31, 1997.
The Company's new-orders-booked (Bookings) increased by 131% to $4,935,747
for the current period from $2,132,948 for the period ended March 31, 1997.
This increase was primarily due to the introduction of certain new product
lines.
The Company's level of unfilled-orders-to-ship (Backlog) increased 211% to
$5,801,309 for the current period from $1,865,545 at March 31, 1997 primarily
due to the record breaking level of Bookings received during the prior quarters.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit was ($3,249,084) at March 31, 1998, a
decrease in working capital of ($4,903,941) from $1,654,857 at December 31,
1997. This change is primarily a result of the reclassification of debt from
long-term to short-term, based on due dates.
Net cash used in operating activities was $1,117,896 for the current
period, as compared to $1,626,243 used in the three month period ended March 31,
1997.
Cash used in investing activities, consisting of additions to equipment,
was $26,606 for the current period as compared to the prior period amount of
$82,188.
The Company derived net cash from financing activities of $609,606 and
$1,895,330 during the periods ended March 31, 1998 and March 31, 1997,
respectively.
As a result of the foregoing, the Company decreased its cash balances by
($534,897) during the current period, compared to an increase in cash balance by
$186,899 for the three month period ended March 31, 1997.
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) 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.
9
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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: April 30, 1998 RADYNE CORP.
----------------
By: /s/ Robert C. Fitting
---------------------------
Robert C. Fitting
President
By: /s/ Garry D. Kline
---------------------------
Garry D. Kline
Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-Q FOR THE QUARTER ENDED 3-31-98
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 34,795
<SECURITIES> 0
<RECEIVABLES> 3,238,476
<ALLOWANCES> (17,000)
<INVENTORY> 5,307,518
<CURRENT-ASSETS> 8,666,881
<PP&E> 1,699,497
<DEPRECIATION> (422,315)
<TOTAL-ASSETS> 10,408,998
<CURRENT-LIABILITIES> 11,915,965
<BONDS> 109,314
0
0
<COMMON> 11,862
<OTHER-SE> (1,628,143)
<TOTAL-LIABILITY-AND-EQUITY> 10,408,998
<SALES> 3,948,501
<TOTAL-REVENUES> 3,948,501
<CGS> 2,754,829
<TOTAL-COSTS> 2,754,829
<OTHER-EXPENSES> 1,504,110
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> 177,602
<INCOME-PRETAX> (488,040)
<INCOME-TAX> 0
<INCOME-CONTINUING> (488,040)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (490,040)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
