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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ____________ to____________.
Commission File Number ( 0-21767 )
VIASAT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0174996
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2290 COSMOS COURT, CARLSBAD, CALIFORNIA 92009
(760) 438-8099
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.0001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, as of June 21, 1999 was approximately $67,138,563 (based on
the closing price for shares of the registrant's Common Stock as reported by the
Nasdaq National Market for the last trading day prior to that date). Shares of
Common Stock held by each officer, director and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of shares outstanding of the registrant's Common Stock, $.0001 par
value, as of June 21, 1999 was 8,039,875.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A in
connection with its 1999 Annual Meeting of Stockholders are incorporated herein
by reference into Part III of this Report. Such Proxy Statement will be filed
with the Securities and Exchange Commission not later than 120 days after the
registrant's fiscal year ended March 31, 1999.
Certain exhibits filed with the registrant's Registration Statement on
Form S-1 (File No. 333-13183), as amended, Annual Report on Form 10-K for the
fiscal years ended March 31, 1997 and March 31, 1998, and Proxy Statement
relating to its 1998 Annual Meeting of Stockholders, are incorporated by
reference into Part IV of this Report.
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VIASAT, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
INDEX
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Page
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PART I
Item 1. Business 1
Item 2. Properties 29
Item 3. Legal Proceedings 29
Item 4. Submission of Matters to a Vote of Security Holders 30
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 31
Item 6. Selected Financial Data 32
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 33
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 38
Item 8. Financial Statements 38
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures 38
PART III
Item 10. Directors and Executive Officers of the Registrant 39
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners and Management 39
Item 13. Certain Relationships and Related Transactions 39
PART IV
Item 14. Exhibits, Financial Statement, Schedules and Reports on Form 8-K 40
Glossary of Selected Terms 43
Signatures 45
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PART I
ITEM 1. BUSINESS
Certain statements in this Report, including, but not limited to, in
this Item 1 - "Business" and in Item 7 - "Management's Discussion and Analysis
of Financial Condition and Results of Operations," contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995, that are not historical facts but
rather reflect current expectations concerning future results and events. The
words "believes," "expects," "intends," "plans," "anticipates," "likely,"
"will," and similar expressions identify such forward-looking statements.
ViaSat, Inc. ("ViaSat" or the "Company") future results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not specifically limited to, timely product
development, variation of royalty, license and other revenues, failure to
satisfy performance obligations, uncertainty regarding the Company's patents and
property rights (including the risk that the Company may be forced to engage in
costly litigation to protect such patents and rights and the material adverse
consequences to the Company if there were an unfavorable outcome of any such
litigation), difficulties in obtaining components needed for the production of
wireless equipment and changes in economic conditions of various markets the
Company serves, as well as the other risks detailed in this section, in
particular under the heading Risk Factors. See "Glossary of Selected Terms" for
definitions of certain terms used in this Report.
INTRODUCTION
ViaSat designs, produces and markets advanced digital satellite
telecommunications and other networking and signal processing equipment. The
Company has achieved thirteen consecutive years of internally generated revenue
growth and twelve consecutive years of profitability, primarily through
defense-related applications. More recently, the Company has been developing and
marketing its technology through strategic alliances for emerging commercial
markets, such as private corporate networks, mobile applications, alternative
carrier access and broadband Internet/Intranet access by satellite to multiple
servers. ViaSat is a leading provider of Demand Assigned Multiple Access
("DAMA") technology, which allows a large number of Very Small Aperture Terminal
("VSAT") subscribers to economically share common satellite transponders for
high-performance voice, fax or data communications.
The Company believes that DAMA satellite technology is superior to other
existing VSAT networking technologies for many important applications. DAMA
provides direct, on-demand switched networking capabilities that do not require
a terrestrial hub and allow faster and more efficient use of expensive satellite
transponder resources. In addition, the Company believes that its DAMA products,
commercially marketed under the tradename StarWire, offer greater network
flexibility and permit as much as 50% greater satellite capacity than competing
DAMA systems. Older Time Division Multiplex/Time Division Multiple Access
("TDM/TDMA") networking systems feature a "hub and spoke" architecture which
requires all transmissions to be routed through a central terrestrial hub,
requiring two satellite round trips to route traffic to its destination.
ViaSat's "hubless" architecture accomplishes the same routing with only one
satellite round trip, reducing latency (time delay) as well as the likelihood of
bottlenecks. See "The ViaSat Advantage" and "Technology."
ViaSat's DAMA products include satellite modems, networking processors and
network control systems for managing large numbers of network subscribers. The
Company's DAMA technology consists of proprietary real-time firmware and
software designed to run on industry-standard digital signal processors. The
Company also has developed DAMA network control software that operates on Intel
based personal computers running Windows NT(TM) operating systems. The Company's
DAMA technology operates on satellites in the military UHF and SHF frequency
bands, and commercial C and K(u) bands. In addition to DAMA products, the
Company offers network information security products, communications simulation
and test equipment, and spread spectrum digital radios for satellite and
terrestrial data networks. The Company additionally provides system
architecture, systems integration, and turnkey project management services.
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RECENT DEVELOPMENTS
During the fiscal year ended March 31, 1999, the Company executed existing
critical government UHF satellite contracts, as well as other government
contracts including TCP/IP-based network encryption, digital anti-jam radios,
and complex RF communications test equipment. In addition, the Company made
considerable investments in commercial satellite networking. Some specific
highlights follow:
o Executed a partnering contract with Telia AB, telecommunications
provider in Sweden, to use StarWire DAMA for satellite
bandwidth-on-demand services.
o Shipment of first production units of the new "Turbo" UHF DAMA
SatCom modem to the Space and Naval Warfare Systems Command
(SPAWAR). The Turbo modem, an upgrade of ViaSat's MD-1324/U modem,
provides higher data rates and incorporates a UHF receiver without
an increase in size or weight.
o Initial shipments of the Calypso Business Terminal, a lower-cost
subscriber terminal for StarWire DAMA customers.
o First sale of ViaSat UHF DAMA satellite communications products into
Europe. The $5 million subcontract is with Elmer Marconi, which has
a contract with the Italian Ministry of Defense to provide a network
under the SICRAL program. The order includes Network Control Station
("NCS") software and DAMA modems.
o Second generation UHF DAMA modem module development began under a
contract with Raytheon Systems Company. The advanced modem can
upgrade existing UHF DAMA products as well.
o Awarded a $30 million Indefinite Delivery, Indefinite
Quantity("IDIQ") ordering contract with SPAWAR for UHF DAMA
satellite equipment. This "catalog" sets pricing and product
specifications that provide government customers with a simple way
to place orders, up to a maximum of $30 million over the next three
years.
o Key management additions including Richard Baldridge from Raytheon
as CFO, Thomas Wittenschlaeger from Hughes Space and Communications
as VP and general manager of StarWire, and Stephen Cable from
Rockwell-Collins as VP of strategic development.
INDUSTRY BACKGROUND
A broad array of new consumer, business and government markets, as well
as the development of new technologies, has driven the significant expansion of
the wireless communications industry. In addition to common consumer
applications such as paging, cellular telephony and Personal Communications
Services ("PCS"), there is a wide range of other specialized terrestrial and
space-based wireless applications. Such wireless applications include government
fixed and mobile networking and commercial fixed-site, switched satellite
services, ViaSat's principal lines of business. The growth in software-intensive
wireless equipment markets stems from, among other things, increasing dependence
on voice and data networks of all types, growth in data as a fraction of total
networking traffic, regulatory reform, advances in technology, decreasing costs
of equipment and services, economic growth in developing nations, the increasing
importance of communications infrastructure as a catalyst of economic growth,
and increasing user acceptance of and confidence in wireless solutions. This
growth in wireless equipment markets corresponds to a transition away from mere
point to point radio links connecting remote or mobile users towards offering
more comprehensive wireless network services. Market demands for wireless
services are being addressed by both terrestrial- and satellite-based systems.
GOVERNMENT APPLICATIONS. Historically, the military has driven
development of many new wireless technologies -- pioneering applications of
satellite communications, digital radios, spread spectrum and mobile wireless
networks to connect widely dispersed operations. In many cases, these
technologies have been extended and increased in scale for broader non-defense
products. Defense applications of wireless technologies also have evolved over
the same time period. The break-up of the Soviet Union has caused a de-emphasis
on strategic missions and a shift towards more localized tactical roles such as
peacekeeping, counter-terrorism, counter-insurgency and drug enforcement. These
missions create new demands for
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rapidly deployable, mobile connectivity. Overall reductions in the defense
budget have led to a numerically smaller, more technologically advanced force
structure. As a result, defense networks increasingly build around real-time
transmission of digital tactical data. Defense systems also are adopting and
extending low cost commercial technologies to meet their needs. Cooperative
efforts among multiple nations, such as in the Gulf War, Bosnia and Kosovo,
require that allies have a common communications platform. There are
requirements for some units of NATO and other allies to have UHF DAMA capable
satellite terminals.
There has been a constantly shifting flow of technology between
government and commercial network applications. Both government and commercial
users developed fixed-site, long-haul applications. The government pioneered
mobile satellite terminals, as well as non-geosynchronous, high power and
extremely high frequency satellites. Commercial users adopted elements of these
technologies for Low Earth Orbit ("LEO") mobile telephony and high-powered
Direct Broadcast Satellite ("DBS") television systems. Now government agencies
are planning to integrate these technologies into still more advanced military
networks. Often, companies with both government and commercial expertise have
facilitated such technology transitions.
COMMERCIAL APPLICATIONS. The worldwide demand for data connectivity has
grown in both developed and developing countries. As new infrastructure is
established to deliver these services, the technology exists to provide
cost-effective, satellite-based transmission systems, augmenting terrestrial
wired and wireless systems, to connect subscribers to the data infrastructure.
Recent worldwide trends toward consolidation of network providers and
deregulation of local telephone ("local loop") services have resulted in
increased competition in the delivery of services by alternative access
providers. Many of these new access providers must install or upgrade
infrastructure to support basic and enhanced services. Additionally, the Company
sees the rapid growth of Internet Protocol networking as a good example of
opportunities for a broad base of commercial business beyond today's traditional
voice and data.
A growing segment of the wireless communications industry involves
VSATs, which are communications systems utilizing fixed-site satellite
terminals. Historically, these systems were primarily designed for certain
specific data applications. But recent improvements in VSAT technology for
satellite-based voice and data networks have led to their increasing use in a
variety of broader, higher throughput commercial applications such as mobile and
rural telephony and more complicated data transmissions. Satellite telephony and
broadband systems are aimed at private corporate networks and developing
countries that lack a terrestrial-based telecommunication infrastructure.
Additionally, even where terrestrial systems exist, satellite systems are used
to fill in coverage for remote areas.
EVOLUTION OF VSAT TECHNOLOGY. The commercial VSAT business began with
U.S. customers who operated large, sophisticated private networks using TDM/TDMA
technology. Customers such as chain retailers, hotels and auto dealers operated
private data networks with hundreds or thousands of sites and a high flow of
short transactions from remote terminals to host mainframe computers for credit
card validations, point-of-sale data collection, reservations or similar
applications. Customers who used VSATs for data networking still relied on
terrestrial providers for telephone service and possibly other telecommunication
needs for their sites.
TDM/TDMA technology, while more established than DAMA technology,
features a "hub and spoke" architecture which requires all transmissions to be
routed through a central hub and is most useful for remote to mainframe network
connections. Remote-to-remote TDM/TDMA connections require two satellite hops.
DAMA is better suited for remote-to-remote connections than TDM/TDMA because it
provides better voice quality and DAMA networks use expensive satellite
transponders more efficiently. DAMA satellite technology allows individual
subscribers to request links on demand directly to any other subscriber with a
single satellite hop. DAMA allows users to make exactly the connections needed,
lasting only for the duration of a voice call, fax, electronic mail or digital
file transfer. DAMA technology has been under development for many years by the
DOD to serve large networks of fixed and mobile subscribers sharing a limited
amount of satellite capacity, but is only recently being deployed in significant
quantities by the DOD.
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The Company believes the opportunities for government and commercial
ground station equipment sales are increasing. DAMA is applicable to several
different satellite bands, including government UHF and SHF and commercial C,
K(u) and K(a) bands. DAMA is also being used by commercial customers who believe
that it is better suited for their applications than the earlier VSAT
technologies.
THE VIASAT ADVANTAGE
ViaSat believes that DAMA networks will better serve some emerging
markets for broadband, two-way connections for integrated data, voice and
multimedia services. Virtually all of the VSAT equipment makers are adding DAMA
products to their line of products. VSAT vendors are now developing new
transmission waveforms, multiple access techniques, DAMA protocols, DAMA control
software, subscriber terminals and interface protocols to support the targeted
applications (voice, fax, dial-up data, video conferencing or others), which
creates an opportunity for new equipment suppliers such as the Company.
In light of the limitations of the TDM/TDMA architecture, and the
magnitude of the potential market for voice and data services, the Company
believes that its DAMA-based products have technological advantages over
competing DAMA products in offering practical solutions for telecommunications
applications through several means:
FLEXIBILITY
Since communications networks are evolving so quickly, a system such as
the Company's that can be easily extended and configured has a competitive
advantage.
o REAL-TIME DIGITAL SIGNAL PROCESSING FIRMWARE. The Company's
technology involves extensive use of real-time digital signal
processing firmware to implement both signal processing and DAMA
networking protocol functions. This approach was developed and
proven under several government programs, especially UHF DAMA. The
Company believes that digital signal processing firmware offers
great flexibility in adding new features, because it allows
modification without more expensive hardware changes, and that
product costs should decrease if prices of Texas Instruments digital
signal processing chips and associated peripherals continue to
decline. The Company's digital signal processing design allows
common hardware to be applied to both government and commercial
markets.
o WINDOWS NT(TM)-BASED NETWORK CONTROL. ViaSat believes that it is a
leader in using an Intel PC/Windows NT(TM) computer platform for its
network control system. ViaSat developed and proved Windows NT(TM)
as a viable network control platform under government funded UHF and
SHF DAMA programs.
CAPACITY
ViaSat's narrow-spacing technology, developed during the course of its
government DAMA contracts, results in less unused bandwidth between channels
than other DAMA systems. The Company's patented Paired Carrier Multiple Access
("PCMA") technology expands capacity by allowing both directions of a
bi-directional connection to be carried on the same frequency. For dedicated
SCPC circuits, PCMA can as much as double the capacity of a transponder.
However, when used in conjunction with DAMA, PCMA can increase the capacity by
more than a factor of 4 compared to the capacity with DAMA alone. Modeling of
different types of customer profiles has shown a reduction in satellite
bandwidth required relative to dedicated SCPC solutions ranging from a factor of
4 to a factor of 30. The actual savings realized with the Company's products
will vary based upon the traffic requirements of a given customer.
STRATEGY
ViaSat's objective is to become a leading developer and supplier of
DAMA-based products to commercial markets and to retain a leadership position in
developing and supplying DAMA-based products to the government market. The
Company's strategy incorporates the following key elements:
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PROVIDE SUPERIOR VALUE (COST/BENEFIT) THROUGH CUSTOMER FOCUS. The
Company intends to focus its market development efforts to tailor "standard
products" that have completed development into markets in which total cost of
ownership carries strategic leverage.
DEVELOP STRATEGIC ALLIANCES. The Company's strategy is to develop
strategic alliances with leading prime defense contractors, major
telecommunications equipment suppliers/service suppliers, and global satellite
service providers. The Company targets those companies whose financial and
technological resources and established customer bases allow them to jointly
introduce new technologies and penetrate new markets sooner and at a lower cost
than the Company could alone. The Company has entered into strategic
relationships with defense companies, such as Raytheon Systems Company, formerly
Hughes Defense Communications, Lockheed Martin Corporation, and The Boeing
Company; commercial telecommunications equipment suppliers, such as Nortel
Networks, Inc.; and commercial telecommunications service providers, such as
Telia AB, Hutchison Corporate Access (HK) Limited, and HCL Comnet Systems and
Services Limited.
DEVELOP GLOBAL DISTRIBUTION NETWORK OF BLUE CHIP SYSTEM INTEGRATORS AND
SERVICE. The Company's strategy is to develop its products so that they may be
marketed and used throughout the world. The Company is a market leader in
DAMA-based defense products for the United States and its allies. The Company
believes that the international market opportunities for the Company's products
are significant. The 1998-1999 recession in Asia has slowed the growth of sales
in this area. However, the Company believes its focus on meeting applicable
international communication standards and establishing key international
strategic alliances will enable it to effectively penetrate foreign markets.
MAINTAIN AND ENHANCE TECHNOLOGY LEADERSHIP POSITION. The Company's
strategy is to maintain and enhance its leadership position in DAMA-based
satellite technology by continuing its participation in selected DOD programs
involving networking technology and other related real-time signal processing
and networking software. The Company is also investing in proprietary research
for commercial applications. The Company's objective is to continue to offer
high-performance, software-oriented products, which provide the most effective
use of satellite power and bandwidth, as well as offering the most flexible
platform for continued growth.
DEVELOP BROAD BASE OF INNOVATIVE PROPRIETARY PRODUCTS. The Company's
strategy is to continue to develop and market to both defense and commercial
customers a broad variety of signal processing and networking software products.
The Company has over 170 research engineers on staff and emphasizes offering
technologically superior products. The Company generally retains certain
proprietary rights from the government-funded research and development of its
defense products and is also devoting a significant amount of its own resources
to independent product development.
LEVERAGE TECHNOLOGICAL EXPERTISE INTO COMMERCIAL MARKETS. The Company's
strategy is to continue using its technological expertise developed in defense
applications to develop and market products to respond to the increasing demand
for DAMA-based VSAT solutions for commercial voice and data applications. The
Company is targeting commercial markets which it believes will offer high growth
potential and where it believes ViaSat's technology will have competitive
advantages, such as private corporate networks, telephony, alternative carrier
access, mesh broadband networks for enterprise applications, and
Internet/Intranet access by satellite. The Company believes its products are
competitive largely because of their technological advantages over competing
products. The Company's strategy is to capitalize on these technological
advantages by utilizing a "cost of ownership" marketing approach that emphasizes
the overall lower cost to customers over the operating life of the Company's
products because of the products' adaptability and more efficient use of limited
satellite capacity.
AUGMENT ENTERPRISE INTERNET/INTRANET CAPABILITIES. The Company believes
there is a significant under-served need for broadband access by enterprises to
support the increased information content of today's business applications.
Among Fortune 500 companies, less than 30% of their sites with fewer than 100
employees have the means to access Internet/Intranet applications at rates as
high as 1 Mbps. Many of these sites do not have sufficient traffic to justify
the capital cost of installing fiber optic or similar high-
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speed terrestrial connections. The Company's strategy in this area is to combine
its bandwidth saving technologies (e.g. DAMA, IP networking, multi-casting and
PCMA) with the inherent satellite characteristics of ubiquitous coverage, long
haul connections and re-deployable capacity to provide cost effective solutions
for broadband enterprise connectivity. With efficient bandwidth utilization, the
Company can, under certain conditions, enable enterprises to augment/expand the
reach of their Internet/Intranet connectivity at costs that are comparable to
terrestrial solutions.
DEVELOP ATTRACTIVE SOLUTIONS FOR INTERACTIVE BROADBAND ACCESS FOR
CONSUMERS/SMALL OFFICE/HOME OFFICE (SOHO). Over the last year, high speed
Internet access has become an important element in the drive to provide bundled
telecommunications services to the consumer and SOHO markets. The Company
believes that satellites can play a meaningful role in meeting this demand
driven by two factors: 1) the desire of national service providers to bypass the
local terrestrial access supplier (telephony local loop and/or coaxial cable)
and 2) the high cost of providing wired broadband access to households in low
density areas. The Company's strategy is to develop products and technologies
which, in conjunction with the capabilities and market reach of strategic
partners, meet the demands of these two market drivers at a cost of ownership
which is comparable to terrestrial wireline and wireless solutions.
TECHNOLOGY
The Company's VSAT technology is focused on DAMA that allows individual
subscribers to request links on demand to any other subscriber through one
satellite hop. A DAMA system consists of (1) a set of subscribers with
DAMA-capable terminals, (2) a network management terminal which orchestrates
access to a shared satellite resource, and (3) satellite transponder capacity
managed by the network controller and shared by subscribers. DAMA subscribers
use networking protocols to interact with the controller and each other. The
essence of DAMA is that the network controller allocates a shared satellite
resource to a particular combination of subscribers only when they request it,
and then terminates the connection when they are finished.
DAMA protocols may be either "open" or "proprietary." Open standards
are published so that multiple manufacturers can develop equipment that works
together. The DOD has designated two different open DAMA standards defining
over-the-air interfaces for narrowband UHF satellite communications channels.
MIL-STD 188-182 defines an interoperable waveform for channels with 5 kHz
bandwidth, and MIL-STD 188-183 defines the 25 kHz channel waveform. The DOD is
expected to define open standards for SHF channels and for government DAMA use
of commercial C and K(u) band transponders. There are no widely accepted
commercial open DAMA standards, and no open standards have evolved for TDM/TDMA
VSATs.
DAMA VS. TDM/TDMA. DAMA is being sought by customers who see that it is
a better fit than TDM/TDMA VSATs for non-transaction applications such as voice
and certain types of data transmissions. The principal limitations of TDM/TDMA
for non-transaction applications are:
CAPACITY LIMITATIONS AND COSTS. The TDM/TDMA hub and spoke architecture
is primarily designed for rapid service for sporadic, short, burst transactions
between a remote site and a mainframe computer. The hubs typically only support
a maximum instantaneous aggregate data rate of 256 kbps to approximately 1 Mbps
divided among the entire subscriber population (as many as several thousand
terminals). This is a bottleneck for sustained circuit-type services like
telephony, data or peer-to-peer file transfers. In contrast, a comparable DAMA
system has a much higher aggregate capacity. For small networks the TDM/TDMA hub
performance is not a capacity bottleneck, but the typical hub price of
approximately $1.0 million, amortized over a small number of subscribers, may be
prohibitively expensive. The equipment cost for a comparable DAMA network
controller for voice use, in contrast, would be significantly less.
TRANSMISSION TIME. The hub and spoke architecture requires all calls
(voice or data) between two remote nodes to be routed through the hub. This
causes each call to traverse two separate satellite hops in each direction
(remote A-to-satellite-to-hub and then hub-to-satellite-to-remote B, with the
return path from remote B to remote A also traversing two satellite hops). The
additional time delay due to the extra satellite
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hops is striking for voice communications and is unacceptable to many users.
Plus, the two satellite hops consume more expensive transponder resources per
call than a single hop DAMA connection.
DAMA VS. DEDICATED SCPC. In contrast to DAMA, which allows individual
subscribers to request links to other subscribers on demand, dedicated Single
Channel Per Carrier ("SCPC")-based systems maintain dedicated, unswitched links
between subscribers, such as for long distance trunk lines. Dedicated links
provide high quality transmissions, but only between particular subscriber sets.
In order to provide connections among many sites, a SCPC-based system would
require a dedicated link between each subscriber and each other subscriber,
which would be prohibitively expensive. As a result, DAMA is a much more
attractive solution for managing large numbers of network subscribers with time
varying connections, as DAMA provides transmissions of equally high quality,
without restricting the subscribers' ability to establish links on demand to any
other subscriber.
MOBILE SATELLITE VS. FIXED-SITE DAMA. The obvious advantage of
commercial mobile satellite systems, such as Iridium(TM) and GlobalStar(TM), is
that they allow subscribers to be mobile. A mobile satellite terminal can be
used by either a mobile or a fixed subscriber, while a fixed terminal cannot be
used by a mobile subscriber. However, in order to gain mobility, mobile
terminals employ an omni-directional antenna that operates at lower frequencies
and provides less bandwidth than is available in the fixed-site DAMA satellite
bands. Less bandwidth corresponds to less capacity and fewer voice circuits.
Also, mobile satellite systems typically require a greater investment in unique
space-based satellite resources than fixed-site DAMA systems that use existing
capacity on general-purpose communication satellites. The combination of lower
capacity plus higher capital investments means that mobile service providers are
projecting per-minute service costs that are significantly higher than that
possible through fixed-site DAMA-based systems. Therefore, the Company believes
that customers who require satellite telephony services at fixed locations will
find fixed-site DAMA services to be more economical than using mobile satellite
phones -- even if they already own mobile satellite phones for mobile use.
NON-DAMA TECHNOLOGY. The Company offers products outside of DAMA and
satellite communications that benefit from the Company's networking software and
related technology. Important non-DAMA applications include:
o Spread spectrum digital radios for real-time tactical data networks
among ground and airborne users. The MIDS radio system builds on the
Company's software, firmware and hardware technology. The government
is investing in "digitized battlefield" communications in an effort
to obtain greater effectiveness from expensive tactical aircraft.
o Information security modules that encrypt classified information
that can be broadcasted and routed across unclassified wired or
wireless networks. This technology allows the government and
contractors handling secure information to make better use of
commercial networks for securely transmitting classified
information.
o Equipment that tests wireless receivers in the presence of complex,
simulated radio wave environments. This technology allows the
government to more thoroughly test sophisticated airborne radio
equipment without expensive flight exercises.
GOVERNMENT MARKETS, PRODUCTS AND CUSTOMERS
GOVERNMENT MARKETS. The Company believes it has an opportunity to build
on its government DAMA technology, software, hardware design and manufacturing
base to capture significant revenues in the government markets. Recent changes
in DOD procurement regulations have created a "commercial" environment for
standard products, including marketing and pricing techniques. The recent award
of the SPAWAR IDIQ ordering contract is an example of this change.
UHF DAMA MARKETS. The Company is considered a leader in the UHF DAMA
market. The Company believes its DAMA manpack subcontract is the largest
outstanding government DAMA contract in terms of quantity of units sold. The
Company also believes that it was the first to develop and market a
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stand-alone airborne DAMA modem. The DOD requires all UHF satellite
communications terminals to meet open DAMA standards. This mandate has helped
stimulate the UHF DAMA market. ViaSat is active in the following business
segments:
o UHF DAMA NETWORK CONTROL INFRASTRUCTURE. Viasat has completed
several contracts with the U.S. Air Force for development,
production, installation and support for four global network control
system sites. Each site can serve as a primary controller for seven
channels and as an alternate for seven channels. Each satellite has
38 channels, offering a potential market for additional production,
installation and support services.
o NATO UHF SATCOM. Cooperative efforts among multiple nations, such as
in the Gulf War, Bosnia and Kosovo, require that allies have a
common communications platform. There are requirements for some
units of NATO and other allies to have UHF DAMA capable satellite
terminals. ViaSat has a subcontract with Elmer Marconi, which is
providing the Italian Ministry of Defense with a network under the
SICRAL program. The order includes Network Control System (NCS)
software and the development of ground, ship and airborne modems to
support a UHF satellite communications network. The Company believes
that there may be opportunities for follow-on orders for other NATO
allies, including the ground station infrastructure for a second
satellite network launch, scheduled for 2003. However, there can be
no assurance that the Company's products will be procured under any
such programs.
o MANPACK TERMINALS. ViaSat has a contract with Raytheon Systems
Company for over 7,000 DAMA modems for manpacks. As of March 31,
1999, the funded contract value was $39.5 million, of which $32
million had been delivered.
o AIRBORNE DAMA TERMINALS. The 5 kHz channel DAMA protocols were
designed to support U.S. Air Force aircraft. The U.S. Navy is also a
major user of airborne UHF terminals. ViaSat equipment has been
designed into a number of platforms, including P-3, S-3, Air Force
One, ES-3, Tomahawk cruise missiles and others.
The Company's strategy includes actively working to expand the UHF DAMA
market as a whole, while sustaining its leading market share. Increasing the
market means extending UHF satellite communications capability to new users. UHF
satellite communications access and market size is limited in the following
ways:
o AVAILABILITY OF SATELLITE CAPACITY. Without DAMA, many users are
denied access because higher priorities consume all channels. DAMA
expands capacity. The Company anticipates increases in the UHF
market, versus pre-DAMA levels, over the next seven years due to
pent-up demand for service.
o EQUIPMENT SIZE AND WEIGHT. Most users are mobile and thus size and
weight sensitive. They carry equipment in backpacks, or airframes
where communication gear displaces weapons or mission critical
payloads. Easier to carry, smaller, lighter equipment may expand the
market beyond a core group who require DAMA to complete their
mission.
o EQUIPMENT PRICE. The Company believes that the UHF DAMA market can
expand by reducing the price of DAMA equipment. Embedded DAMA radios
are less expensive than stand-alone models, and offer reduced size
and weight.
o IMPROVED DAMA SUBSCRIBER SERVICES. The current DAMA system is a data
"pipe." The Company anticipates that demand for DAMA can grow by
increasing the value of the content sent over the pipes. Several
areas are being explored, including improved secure voice quality,
increased message routing capability, higher data rates and improved
service set-up times.
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DAMA SIGNAL PROCESSING. Airborne DAMA is currently limited to large,
slow aircraft for surveillance, airlift, command and control, or similar
missions. High performance aircraft are excluded because current satellite
communications antennas degrade mission performance or safety. A promising
solution is to use low profile, conformal antennas with active antenna
combiners. The Company has completed a contract for such active antenna
combiners with Lockheed Martin for surveillance aircraft. Successful use of
active antenna combiners, along with development of low profile, conformal UHF
satellite antennas could increase the potential market for airborne DAMA
equipment.
ViaSat is also applying the market expansion strategy to its Advanced
Data Controller ("ADC") products. ADC conforms to MIL-STD 188-184 for packet
processing. It provides error-free data transmission over noisy channels. ADC
works for terrestrial and satellite communications wireless links. The Company
is working to reduce size, weight and price for ADC products, and potentially
licensing other manufacturers to embed ViaSat's ADC digital signal processing
firmware directly into their radios.
TRI-BAND DAMA MARKETS. The U.S. government is a major consumer of
leased commercial satellite capacity in the C and K(u) bands. Since satellite
availability is limited, the government has specified the purchase of "tri-band"
terminals (i.e., terminals which can operate on any of three bands, SHF (X
band), C or K(u) band). This makes it easier for subscribers to use available
capacity in any band, as a function of time and location. The government
established the Commercial Satellite Communications Initiative program to
manage:
o Long term leases for commercial satellite transponders.
o Contracts to purchase tri-band satellite terminals.
o Bandwidth Management Centers to act as network controllers for the
tri-band terminals.
The DOD is planning to define an "open" standard for DAMA in SHF and
commercial satellite bands. The government owns and operates the Defense
Satellite Communication System constellation at SHF. Bandwidth at SHF is much
greater than at UHF -- over 200 MHz per satellite compared to less than 2 MHz at
UHF. Still, SHF capacity is limited and could be improved via DAMA. More
effective SHF use should reduce the government's monthly lease on commercial
satellites used for overflow. The potential market for SHF DAMA capable
terminals may be as large as that for UHF DAMA terminals.
The government tri-band DAMA market is still immature. This market will
likely not grow substantially until the DOD adopts a final standard and mandates
its use. Implementation and adoption of a standard is being pursued by the
government through the upcoming competitive procurement of a replacement DSCS
frequency control system. There can be no assurance that the Company's products
will be procured by the government or prime contractors, even if a standard
similar to the draft version is adopted. The Company is working to position its
SHF DAMA products through participation in government-industry standards working
groups. ViaSat also has been working with terminal manufacturers to help ensure
that its DAMA equipment integrates easily into their products. Finally, the
Company is working to maintain a prudent level of commonality between the
government and commercial DAMA modem platforms. The benefit of commonality is
that the larger commercial market offers economies of scale that reduce
manufacturing costs for the smaller government market.
LINK-16 MARKETS. Link-16 is a high-performance tactical data link
system selected by the U.S. Government and numerous allied nations to support
networked information dissemination across a variety of air, sea, and
ground-based platforms. Two U.S. companies have dominated the Link-16 market for
the last decade. As the government begins to test and deploy the new MIDS Low
Volume Terminal (LVT) version of Link-16, it desires additional competition in
this market.
The Company's strategy to address the Link-16 market is: 1) offer the
government an alternative for increased competition by providing fully
compliant, state-of-the-art MIDS terminals at a competitive price and 2) offer
the government, either direct or via prime contractors, improved Link-16
equipment in support of Link-16 integration and test activities and to support
various niche markets in a timely fashion.
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The Company is active in the following business segments:
o MULTIFUNCTION INFORMATION DISTRIBUTION SYSTEMS (MIDS). MIDS
represents a US-led, international consortium to define, produce,
and field Link-16 capable terminals for tactical platforms. By
developing joint requirements for a common terminal the consortium
hopes to provide an affordable Link-16 capability to allied forces.
The Company has an agreement with the U.S. Navy SPAWAR to
demonstrate the capability to produce the MIDS Low Volume Terminal
(LVT). An open competition for first article qualification and
initial production quantities of the LVT is pending with multiple
awards anticipated.
o LOW COST/ADVANCED TECHNOLOGY LINK-16. While MIDS and the tactical
fighter environment represents the most-demanding application for
Link-16 terminals, less demanding applications such as test and
evaluation or fixed ground site installations exist as well. Often,
these applications require improvements or additional capabilities
compared to airborne tactical uses. For these applications, the
Company has been developing low cost Link-16 equipment for over six
years and currently offers a range of low cost Link-16 equipment for
a variety of needs. The Company has a contract with Logicon to
provide such equipment for their Link Monitoring Systems-16 product
line and a contract with Boeing to provide an advanced Link-16
simulator/stimulator. The Company has developed various advanced
technologies for Link-16 under small R&D contracts with the U. S.
Air Force and the U.S. Navy.
SIMULATION & TEST SYSTEMS MARKETs. The Company is a leader in the
development of high-performance signal simulation systems for military test and
evaluation. These simulators are recognized for their ability to realistically
mimic a dense communications environment for the testing needs of the military.
Under contract with the US Navy, as party to the DOD's Central Test & Evaluation
Investment Program, the Company is currently developing the Joint Communication
Simulator or JCS. The JCS will be provided to two of the nation's premier test
facilities. Under contract with Lockheed Martin Aeronautical Systems, the
Company is currently developing the Communication, Navigation, and
Identification Stimulator, or CNIS. The CNIS will support the test and
evaluation of the F-22 Raptor Air Superiority Fighter. The Company is active in
the following business segments:
o TEST & TRAINING IMPROVEMENT & MODERNIZATION. The DOD has a number of
significant efforts ahead to improve and modernize their test and
training facilities. Large-scale signal simulators are key to a
number of these efforts. Various commercial interests such as weapon
systems developers as well as allied defense forces are also
pursuing such improvements.
o WEAPON SYSTEM DEVELOPMENTS. Large weapons systems with a great deal
of sensor-related functionality are either planned or under
development across the services. In many cases, the test and
evaluation needs of these developments include high-fidelity signal
simulators. Example areas include signal intelligence, communication
intelligence, and communication jamming platforms and systems,
tactical aircraft developments, and next-generation naval ship
development.
The Company's strategy to address the simulation & test system market
is to work aggressively to increase the market as a whole by increasing
exposure to the benefits of simulation versus other test and training
alternatives for government, commercial, and international parties.
Additionally, the Company is extending its current capabilities and
competitive position to further address the government's evolving needs
for high-performance signal simulation & test equipment.
GOVERNMENT PRODUCTS
ViaSat's DAMA products for the government market include:
o AN/PSC-5 (EMUT-ENHANCED MANPACK UHF TERMINAL) also known as the
AN/PSC-5 "Spitfire" is a battery-operated UHF satellite radio that
Raytheon Systems Company builds for
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the U.S. Army. ViaSat provides a DAMA modem to Raytheon under
subcontract. EMUT is used to send encrypted voice, electronic mail,
fax or other data via satellite. The DAMA modem allows the operator
to automatically request a portion of a satellite channel to a
selected destination whenever the operator asks to send a message or
make a call. The EMUT radio, combined with a portable satellite
antenna, can be used to make a secure voice or data call almost
anywhere in the world.
o NCS (NETWORK CONTROL SYSTEM) is the DAMA network management system
for the U.S. Air Force. There are four sites worldwide that manage
automatic DAMA access to 5 kHz bandwidth UHF satellite channels. The
network control computer automatically allocates satellite resources
to subscriber terminals (such as EMUT) whenever a subscriber
requests a voice or data service. The NCS also keeps track of which
satellite terminals are active, how much capacity is used and how
much is available. ViaSat designs, installs and supports the NCS at
each site.
o MD-1324 (VM-200) is ViaSat's stand-alone UHF DAMA modem product. The
modem can be used with many UHF satellite radios having an industry
standard 70 MHz interface. The VM-200 enables a satellite radio to
connect to a DAMA network. VM-200 modems also are used in the NCS to
communicate with subscribers. The modems connect to external voice
coders, computers or encryption equipment and provide network access
for those devices.
o TURBO MODEM (ALSO CALLED MD-1324A) is an upgrade to ViaSat's MD-1324
product. The Turbo version adds an upgraded digital signal processor
to enable higher throughput waveforms within the same package. In
addition, a UHF receiver replaces the 70 MHz interface, providing
full-duplex terminal capability when connected to a single
half-duplex radio.
o VM300 is ViaSat's next generation UHF DAMA SatCom terminal product
line. The VM300 includes four modules, modem, input/output, up
converter and down converter, allowing flexible configuration of UHF
SatCom terminals. This product line is intended for applications
throughout the U.S. services and in foreign military sales.
o STARWIRE is a satellite networking system that usually consists of
three major elements, a network control system, public network
access terminals (also called gateways) and customer premises
subscriber terminals. (See: "Commercial Products") The purpose of
the system is to make satellite connections on an "as-needed" basis
among: customer premises terminals into public network gateways, or
from a customer premises terminal to a distant customer premises
terminal, or from one public network access point to a distant
public network access point. StarWire provides toll-quality voice,
data and Internet Protocol (IP) circuits on a demand basis,
efficiently sharing satellite resources and thereby reducing costs
to the end-user and the network service provider.
ViaSat's other government wireless networking products include:
o MIDS (MULTIFUNCTION INFORMATION DISTRIBUTION SYSTEM) is an anti-jam
radio system which implements the Link-16 waveform, message, and
networking protocols for communicating real-time tactical data among
ships, aircraft and ground units. MIDS terminals connect to sensors
(like radar), computers, and targeting systems and provide
information used for navigation, target identification, tracking and
fire control. Link-16 is currently being implemented as a key
element of the wireless communication system for "digital
battlefields." For example, it allows individual fighter planes to
obtain a broad view of the battlefield that is synthesized from many
different views from many different participants.
o CES/JCS/CNIS (COMMUNICATION ENVIRONMENT SIMULATOR/JOINT
COMMUNICATION SIMULATOR/ COMMUNICATIONS NAVIGATION AND
IDENTIFICATION SIMULATOR) is used to simulate a realistic
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radio environment that can be used to test how well surveillance or
other radio systems work in the presence of various and changing
signals. This simulation is done by generating very accurate RF
signals which can be radiated and received by the equipment under
test or potentially directly inserted into multiple receive antenna
ports.
o EIP (EMBEDDABLE INFOSEC PRODUCT) is a plug-in module that encrypts
classified information so that it can be broadcast over wireless
systems (terrestrial or satellite) or sent over unclassified
wirelines. EIP is unique because it can work for packet data systems
instead of on circuits. EIP can encrypt information using the
Internet Protocol (. EIP also can separate the addressing and
routing information from a packet and allow such information to
remain unencrypted so that the network can correctly route the
packet to its destination.
o QDC-100 (QUAD DIVERSITY COMBINER) is a unique product that combines
four satellite antennas into one steerable high gain "virtual"
antenna. Without the Combiner, an aircraft loses communications if
its single fixed antenna is pointed away from the satellite by
aircraft position changes. First production units were completed in
March 1998, and are in use on US Navy P3 reconnaissance aircraft in
the Anti Surface Warfare Improvement Program (AIP). Potential uses
for the Combiner include international and shipboard applications.
In addition to an order from the Royal Norwegian Air Force, the US
and Royal New Zealand navies are evaluating the product for
shipboard use, where it can replace heavy, mechanically driven
antennas.
o TURBO COMBINER upgrades the QDC-100 product by adding a UHF SatCom
terminal within the same form factor. This upgrade will be
applicable to U.S. and foreign aircraft and surface ships with
multiple antennas that require UHF SatCom capabilities.
o ADC (ADVANCED DATA CONTROLLER) is a packet processing system which
provides error-free data transmission over noisy channels. ADC works
for terrestrial and satellite communications wireless links. The ADC
family of products include the VDC-200 which uses a serial PC
interface, the VDC-300 which can be used in aircraft or vehicles,
the VDC-400 which is packaged in a type II PCMCIA card for use with
mobile PCs, and the VDC-500 which integrates Internet Protocol for
communications from an Ethernet LAN to a wireless VDC network. The
Company also offers two messaging applications that include DTS/WIN
and ViaSat eMail(TM). Both applications give users a Windows(R)
operating system interface to set up, control, manage, and log
messages when communicating using VDCs.
o PLANET (PERSONNEL LOCATOR AND EQUIPMENT TRACKING) is a prototype
spread spectrum communication system that operates in the license
free 902-928 MHz ISM band. PLanET is a wireless network that
provides identification, location and tracking information for
hundreds to thousands of small, low-cost, battery-powered wristwatch
or pager-size transmitters. Identification and location of a
transmitter is performed by a receiver. In addition to
identification and location, PLanET also provides a low data rate
wireless communication network. Potential markets include tracking
and monitoring personnel, equipment and assets, as well as
networking distributed sensor data.
GOVERNMENT CUSTOMERS
The Company's major customers in the government DAMA market include:
o Raytheon Systems Company is the customer for the EMUT DAMA modem.
Approximately 13% of the Company's fiscal 1999 revenues were derived
from this contract.
o The U.S. Air Force Electronics System Center ("ESC") was the initial
customer for the 5 kHz and 25 kHz UHF DAMA Global Network Control
System. ESC also procures stand-alone DAMA modems and
Control/Indicators for various user agencies.
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o Elmer Marconi is the customer for a UHF Network Control System for
the Italian military.
o The U. S. Navy, SPAWAR is a major customer for DAMA modems and
Control/Indicators and antenna combiner (QDC-100).
o Lockheed Martin was the initial customer for the airborne
DAMA-capable UHF satellite communications antenna combiner.
o The Company also has entered into a number of smaller contracts with
the DOD for UHF DAMA and ADC satellite equipment.
The Company's major government customers for other wireless networking
products include:
o The U.S. Air Force, U.S. Navy, and the International Program Office
are the customers for MIDS and other Link-16 products.
o Lockheed Martin is the customer for CNIS that will become part of
Lockheed's Integrated Hardware-in-the-loop Avionics Test Lab.
o The U.S. Navy and U.S. Air Force are the customers for CES/JCS.
o The U.S. Navy is the customer for EIP.
COMMERCIAL MARKETS, PRODUCTS AND CUSTOMERS
COMMERCIAL MARKETS:
DAMA technology is increasingly being used in emerging commercial
telecommunications markets. In contrast to "pre-assigned" or "hub and spoke"
satellite networks, DAMA is well suited to primary "circuit-oriented"
telecommunication because it routes connections in real-time on a call-by-call
basis from any subscriber to any other subscriber with only one satellite hop.
See " Industry Background" and "Technology." DAMA commercial markets include the
following:
o TURNKEY PRIVATE NETWORK EQUIPMENT SALES for corporations and
government. These customers require voice and/or data services.
Users manage their own networks and/or contract for management
services. They lease satellite capacity in bulk. DAMA equipment is
selected based primarily on purchase and operating costs for
specific needs. Customers typically need to operate ten or more
sites for a turnkey private network to be economical.
o "SHARED HUB" PRIVATE NETWORK SERVICE PROVIDERS. Customers with small
networks may use a satellite service provider. The provider
purchases a DAMA network and obtains transponder capacity at
wholesale rates. The provider manages small "virtual" nets for its
customers. Customers buy capacity from the provider at retail
annual, monthly, daily, hourly or minute rates. Breadth and depth of
service offerings are more important to service providers since they
must attract a broad base of customers. Over the last year, high
speed internet access has become a more important element in bundled
telecommunications services. DAMA terminals should support a range
of telephone and data equipment. Providers generally prefer flexible
user terminal configurations to meet varying customer needs. They
profit from the difference between wholesale transponder lease costs
and retail prices, so DAMA performance may be important to their
operating margins. Efficiency advantages (measured, for example, by
voice circuits per unit bandwidth) may offset a higher initial
terminal purchase price over the term of a service contract,
depending on the specific traffic mix, connections among satellite
terminals, and volume of bandwidth required.
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o PUBLIC NETWORK CARRIER SERVICE PROVIDERS. Many telecommunications
carriers use satellite links as part of their long distance
networks. However, the satellite segment usually consists of a
pre-planned link establishing a particular geographic connection at
a fixed capacity. Satellite DAMA can serve as either a primary link
or as a back up when terrestrial links are congested. DAMA satellite
technology provides an economical secondary connection because the
satellite pool of trunk lines can be quickly applied to any of the
primary terrestrial routes. The DAMA network's ability to reach many
different destinations offers a competitive advantage to a DAMA
operator whose business is selling wholesale minutes of long
distance service to national or regional carriers.
o PUBLIC NETWORK "LOCAL LOOP" SUBSCRIBER SERVICE PROVIDERS. Subscriber
services differ from the carrier services in that there is a local
loop interface between the DAMA satellite switch and a subscriber
telephone. This allows a subscriber with a small VSAT terminal to
connect directly into the public switched telephone network by using
a single dial tone to call to other satellite subscribers or to
terrestrial phones through national (and/or international) switches.
While the Company believes the local loop subscriber service has, by
far, the greatest potential market volume for equipment
manufacturers and also represents the greatest opportunity for
service providers, there are numerous technical, regulatory and
business management hurdles to implementing this service.
o NETWORK OPERATIONS CENTER (NOC) SERVICES. The Company offers
centralized management services for StarWire networks in the United
States from a ViaSat facility using ViaSat employees. This relieves
the customer from the need to train its own network management staff
and maintain the expertise, facilities and equipment necessary to
operate a StarWire DAMA network.
Other commercial markets include products developed in the Company's
Advanced Program group, which develops innovative applications from core company
technologies. While still a small portion of the overall business, there are
opportunities for products such as the MiniDAT, Miniature Data Acquisition
Transceiver, described below. The Company's strategy is to explore markets for
these products through agreements with system integrators or other strategic
partners.
COMMERCIAL PRODUCTS
STARWIRE is a satellite networking system that usually consists of
three major elements, a network control system, public network access terminals
(also called gateways) and customer premises subscriber terminals. The purpose
of the system is to make satellite connections on an "as-needed" basis among:
customer premises terminals into public network gateways, or from a customer
premises terminal to a distant customer premises terminal, or from one public
network access point to a distant public network access point. StarWire provides
toll-quality voice, data and Internet Protocol (IP) circuits on a demand basis,
efficiently sharing satellite resources and thereby reducing costs to the
end-user and the network service provider.
STARWIRE PRODUCTS INCLUDE:
o AURORA TERMINAL is a ten slot rack mountable chassis configured with
one VMM-101 and one TIM-201 (described below). The terminal is
expandable to six user traffic channels by inserting additional VMM
or VHS modems and TIM modules. Expansion beyond six channels is
possible by using additional Aurora chassis with VMM modems and TIM
modules installed.
o VMM-101 is a DAMA modem module designed for the Aurora. The VMM-101
is a single modem used for both user-data transmission and
order-wire control channels.
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o VHS-101 is a high speed DAMA modem designed for high-speed
applications. The VHS-101 is capable of speeds up to 2 MBPS.
o TIM-201 is a dual channel voice encoder/decoder module designed for
the Aurora. The TIM-201 has a fax modem on board, along with an
integrated echo canceller.
o TMC-100 is a terminal monitor and control card designed for the
Aurora. TMC has an integrated LAN Ethernet port. The TMC-101
supports multiple daughter-cards for data communications and
additional external equipment control support.
o STARWIRE DAMA NETWORK CONTROL SOFTWARE (NCS) provides the real-time
network control and monitoring functions of the StarWire DAMA
networking system. The NCS software acts as a switch to route calls
through the network. In addition, the StarWire NCS monitors system
operation as well as collecting historical information about calls
and maintaining detailed call records for billing purposes. The NCS
is composed of a Network Control Computer and Network Control
Terminal.
o STARWIRE NETWORK CONTROL COMPUTER (NCC) is computing and networking
equipment designed to support the operation of the NCS software. The
non-redundant configuration (NCC-100) provides for one operator
workstation/server, Ethernet interface, Windows NT(TM) operating
system and back-up media. The redundant configuration (NCC-200)
provides two operator workstations/servers, Ethernet adapter cards,
Windows NT(TM) operating system and back-up media.
o STARWIRE NETWORK CONTROL TERMINAL (NCT) is a ten slot rack mountable
Aurora chassis with one Network Control Computer (NCC) interface
card and two VMM-101 modems (operating as DAMA system control
channel modems).
o CALYPSO is StarWire's second generation subscriber terminal. It is a
self-contained lower-cost terminal capable of supporting one
low-speed channel plus a second optional low or high-speed channel.
Calypso includes RF equipment, making this an easy solution for
satisfying low volume requirements for voice, fax, data, or Internet
Protocol services. As complimentary products, the Calypso and Aurora
subscriber terminals are fully interoperable and controllable via
the common StarWire Network Control system.
Calypso is packaged as a complete terminal that includes both the
indoor unit (IDU) and outdoor unit (ODU) electronics. The Calypso
IDU can be configured with analog voice services, synchronous or
asynchronous data services, or IP Ethernet.
OTHER COMMERCIAL PRODUCTS INCLUDE:
o MINIDAT (MINIATURE DATA ACQUISITION TRANSCEIVER) is a compact
platform for wireless and networked data acquisition. Specifically
designed for compatibility with the most popular instrumentation and
automation software, the MiniDAT can add wireless capability to an
installed base of PC-based data acquisition and control
installations. Using a spread-spectrum waveform in one of the
internationally recognized license-free ISM bands makes the MiniDAT
suitable for use in challenging environments in a number of
countries. The MiniDAT may be applied to industrial automation,
on-vehicle testing and remote monitoring/control.
COMMERCIAL CUSTOMERS
The Company is still in the early stages of establishing sales for its
StarWire commercial DAMA product. Activities to date have primarily focused on
establishing distribution agreements with "in-country" service providers,
distributors and original equipment manufacturers ("OEMs"). The Company also has
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provided several test versions of the StarWire product for customer evaluation
and demonstration purposes. The Company's major customers in the commercial DAMA
market include:
o HUTCHISON CORPORATE ACCESS is a Hong Kong-based affiliate of the
global Hutchison Whampoa group. HCA operates two classes of StarWire
networks. The first provides carrier access capability, primarily in
Asia. StarWire terminals are connected to international telephone
switching centers, and so provide a means for handling telephone
traffic between several locations without the need to transit the
normal metropolitan switching centers. The second class of HCA
StarWire network involves Bandwidth-on-Demand, or BOD, services. HCA
provides private network services which support voice, fax, data,
Internet, video-conferencing, and other features.
o HCL COMNET, LTD. is the Company's exclusive distributor in India,
and operates a large TDM/TDMA transaction VSAT network for the
national stock exchange in that country. Some smaller Company DAMA
networks are currently being deployed by HCL for a number of uses.
For example, one of the states of India, Karnataka, is currently
installing a StarWire network to link power control facilities
throughout its electrical distribution system. Additionally, because
of its history and expertise in network management, HCL is able to
operate customers' network operations centers at various locations
in India.
o TELIA AB was the monopoly telephone company in Sweden for most of
this century. As in many parts of the world, however,
telecommunications in Sweden has been deregulated, so that Telia now
finds it must be sensitive to market demands and competitive
pressures. After an evaluation of VSAT products and vendors, Telia
AB selected the Company to install a pilot network in Sweden. Based
on this recently-concluded pilot activity and companion market
assessment study, Telia has approved further product purchases and
is initiating a pan-European marketing campaign based on StarWire.
o SATELLITE COMMUNICATIONS SYSTEMS INCORPORATED is under contract with
the International Civil Aviation Organization to provide
communications connectivity between air traffic control sites in
regions where terrestrial connectivity is poor. SCSI selected
StarWire for this application, and currently operates two StarWire
networks in the Caribbean area.
o WAM!NET is a provider of data transport services, most notably to
the data-intensive entertainment and medical-imaging industries.
Wam!Net operates a prototype StarWire network to augment its
conventional infrastructure, with services consisting of Internet
Protocol links operating at rates up to 2 megabits-per-second. The
Company manages this network for the customer from its Carlsbad
Network Operations Center.
o STARCRUISES is implementing ship-to-shore and ship-to-ship voice,
data, and video communication onboard its fleet of cruise ships
using StarWire DAMA IP, satellite-networking products. When
complete, the system will include a shore-based hub station in Port
Klang, Malaysia and satellite subscriber terminals for the Star
Cruises fleet. The Company received this contract after the end of
the Company's fiscal year 1999.
o The Company has established in-country service agreements with
distributors in various locations, and has successfully delivered
and commissioned several networks.
RESEARCH AND DEVELOPMENT
The Company believes that future success depends on the ability to
adapt to the rapidly changing satellite communications and related real-time
signal processing and networking software environment. Therefore, the continued
timely development and introduction of new products is essential in maintaining
its competitive position. The Company develops most of its products in-house and
currently has a research and development staff that includes over 170 engineers.
A significant portion of the Company's research and development efforts in the
defense industry have generally been conducted in direct response to the
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specific requirements of a customer's order and, accordingly, such amounts are
included in the cost of sales when incurred and the related funding (which
includes a profit component) is included in revenues at such time. Revenues for
funded research and development during the fiscal years ended March 31, 1999,
1998 and 1997 were approximately $40.5 million, $25.6 million, and $21.3
million, respectively. In addition, the Company invested $7.6 million, $7.6
million and $5.1 million, respectively, during the fiscal years ended March 31,
1999, 1998 and 1997 on independent research and development, which is not
directly funded by a third party. Funded research and development contains a
profit component and is therefore not directly comparable to independent
research and development. As a government contractor, the Company also is able
to recover a portion of its independent research and development expenses,
consisting primarily of salaries and other personnel-related expenses, supplies
and prototype materials related to research and development programs, pursuant
to its government contracts.
The Company has benefited and continues to benefit from the Small
Business Innovation Research ("SBIR") program, through which the government
provides research and development funding for companies with fewer than 500
employees. While the Company has already harvested significant benefits from the
SBIR program throughout the initial developmental stages of its core technology
base, the Company believes that its business, financial condition and results of
operations would not be materially adversely affected if the Company were to
lose its SBIR funding status. The Company plans to leverage from this technology
base to further develop products for commercial applications.
MANUFACTURING
The Company's manufacturing objective is to produce products that
conform to its specifications at the lowest possible manufacturing cost. The
Company is engaged in an effort to increase the standardization of its
manufacturing process in order to permit it to more fully utilize contract
manufacturers. As part of its program to reduce the cost of its manufacturing
and to support an increase in the volume of orders, the Company primarily
utilizes contract manufacturers in its manufacturing process. The Company
conducts extensive testing and quality control procedures for all products
before they are delivered to customers.
The Company also relies on outside vendors to manufacture certain
components and subassemblies used in the production of the Company's products.
Certain components, subassemblies and services necessary for the manufacture of
the Company's products are obtained from a sole supplier or a limited group of
suppliers. In particular, Texas Instruments is a sole source supplier of digital
signal processing chips, which are critical components used by the Company in
substantially all of its products. The Company intends to reserve its limited
internal manufacturing capacity for new products and products manufactured in
accordance with a customer's custom specifications or expected delivery
schedule. Therefore, the Company's internal manufacturing capability for
standard products has been, and is expected to continue to be, very limited, and
the Company intends to rely on contract manufacturers for large scale
manufacturing. There can be no assurance that the Company's internal
manufacturing capacity and that of its contract manufacturers and suppliers will
be sufficient to fulfill the Company's orders in a timely manner. Failure to
manufacture, assemble and deliver products and meet customer demands on a timely
and cost effective basis could damage relationships with customers and have a
material adverse effect on the Company's business, financial condition and
operating results.
SALES AND MARKETING
The Company markets its products to the DOD and to commercial customers
worldwide primarily through the Company's internal sales and marketing staff.
After the Company has identified key potential customers in its market segments,
the Company makes calls with its sales, management and engineering personnel. In
order to promote widespread acceptance of its products and provide customers
with support for their wireless transmission needs, the Company's sales and
engineering teams work closely with its customers to develop tailored solutions
to their wireless transmission needs. The Company believes that its customer
engineering support provides it with a key competitive advantage.
During the fiscal year ended March 31, 1999, ViaSat sold products to
approximately 90 customers, of which defense related contracts accounted for
approximately 92% of total revenues.
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BACKLOG
At March 31, 1999, the Company had firm backlog of $44.9 million, of
which $36.8 million was funded. Of the $44.9 million in firm backlog,
approximately $36.3 million is expected to be delivered in the fiscal year
ending March 31, 2000, $3.4 million is expected to be delivered in the fiscal
year ending March 31, 2001, and the balance is expected to be delivered in the
fiscal year ending March 31, 2002 and thereafter. The Company's $44.9 million in
firm backlog at March 31, 1999 excludes an additional $45.2 million of customer
options. These options include the recently awarded $30.0 million Indefinite
Delivery/Indefinite Quantity (IDIQ) UHF Satcom products contract from the U.S.
Navy. As a result of the Federal Acquisition Streamlining Act of 1994, the trend
in U.S. Government procurement is toward more off the shelf products and
technology. More of the Company's backlog is expected to come from this type of
order with shorter lead-times. Consequently the Company's backlog is expected to
remain lower than historical trends would indicate.
The Company had firm backlog of $72.7 million, not including options of
$24.3 million, at March 31, 1998, compared to firm backlog of $78.4 million, not
including options of $24.9 million, at March 31, 1997. The Company includes in
its backlog only those orders for which it has accepted purchase orders.
However, backlog is not necessarily indicative of future sales. A majority of
the Company's backlog scheduled for delivery can be terminated at the
convenience of the government since orders are often made substantially in
advance of delivery, and the Company's contracts typically provide that orders
may be terminated with limited or no penalties. In addition, purchase orders may
set forth product specifications that would require the Company to complete
additional product development. A failure to develop products meeting such
specifications could lead to a termination of the related purchase order.
The backlog amounts as presented are comprised of funded and unfunded
components. Funded backlog represents the sum of contract amounts for which
funds have been specifically obligated by customers to contracts. Unfunded
backlog represents future contract or option amounts that customers may obligate
over the specified contract performance periods. The Company's customers
allocate funds for expenditures on long-term contracts on a periodic basis. The
Company is committed to produce products under its contracts to the extent funds
are provided. The funded component of the Company's backlog at March 31, 1999
was approximately $36.8 million, and the funded components of the Company's
backlog at March 31, 1998 and 1997 were $48.0 million and $67.6 million,
respectively. The ability of the Company to realize revenues from government
contracts in backlog is dependent upon adequate funding for such contracts.
Although funding of its government contracts is not within the Company's
control, the Company's experience indicates that actual contract fundings have
ultimately been approximately equal to the aggregate amounts of the contracts.
GOVERNMENT CONTRACTS
A substantial portion of the Company's revenues is derived from
contracts and subcontracts with the DOD and other federal government agencies.
Many of the Company's contracts are competitively bid and awarded on the basis
of technical merit, personnel qualifications, experience and price. The Company
also receives some contract awards involving special technical capabilities on a
negotiated, noncompetitive basis due to the Company's unique technical
capabilities in special areas. Recently the Federal Acquisition Streamlining Act
of 1994 has encouraged the use of "commercial" type pricing on dual use
products. Future revenues and income of the Company could be materially affected
by changes in procurement policies, a reduction in expenditures for the products
and services provided by the Company, and other risks generally associated with
federal government contracts. See "Risk Factors -- Dependence on Defense Market"
and "-- Government Regulations."
The Company provides products under federal government contracts that
usually require performance over a period of one to five years. Long-term
contracts may be conditioned upon continued availability of congressional
appropriations. Variances between anticipated budget and congressional
appropriations may result in a delay, reduction or termination of such
contracts. Contractors often experience revenue
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uncertainties with respect to available contract funding during the first
quarter of the government's fiscal year beginning October 1, until differences
between budget requests and appropriations are resolved.
The Company's federal government contracts are performed under
cost-reimbursement contracts, time-and-materials contracts and fixed-price
contracts. Cost-reimbursement contracts provide for reimbursement of costs (to
the extent allowable, allocable and reasonable under Federal Acquisition
Regulations) and for payment of a fee. The fee may be either fixed by the
contract (cost-plus-fixed fee) or variable, based upon cost control, quality,
delivery and the customer's subjective evaluation of the work (cost-plus-award
fee). Under time-and-materials contracts, the Company receives a fixed amount by
labor category for services performed and is reimbursed (without fee) for the
cost of materials purchased to perform the contract. Under a fixed-price
contract, the Company agrees to perform certain work for a fixed price and,
accordingly, realizes the benefit or detriment to the extent that the actual
cost of performing the work differs from the contract price. Revenues generated
from contracts with the federal government or its prime contractors for the
fiscal year ended March 31, 1999 were approximately 17.1% from
cost-reimbursement contracts, approximately 2.6% from time-and-materials
contracts and approximately 72.3% from fixed-price contracts of total revenues.
See "Risk Factors -- Contract Profit Exposure."
The Company's allowable federal government contract costs and fees are
subject to audit by the Defense Contract Audit Agency. Audits may result in
non-reimbursement of some contract costs and fees. While the government reserves
the right to conduct further audits, audits conducted for periods through fiscal
1996 have resulted in no material cost recovery disallowances for the Company.
The Company's federal government contracts may be terminated, in whole
or in part, at the convenience of the government. If a termination for
convenience occurs, the government generally is obligated to pay the cost
incurred by the Company under the contract plus a pro rata fee based upon the
work completed. When the Company participates as a subcontractor, the Company is
at risk if the prime contractor does not perform its contract. Similarly, when
the Company as a prime contractor employs subcontractors, the Company is at risk
if a subcontractor does not perform its subcontract.
Some of the Company's federal government contracts contain options that
are exercisable at the discretion of the customer. An option may extend the
period of performance for one or more years for additional consideration on
terms and conditions similar to those contained in the original contract. An
option may also increase the level of effort and assign new tasks to the
Company. In the Company's experience, options are usually exercised.
The Company's eligibility to perform under its federal government
contracts requires the Company to maintain adequate security measures. The
Company has implemented security procedures that it believes are adequate to
satisfy the requirements of its federal government contracts.
REGULATORY ENVIRONMENT
Certain of the Company's products are incorporated into wireless
telecommunications systems that are subject to regulation domestically by the
Federal Communications Commission and internationally by other government
agencies. Although the equipment operators and not the Company are responsible
for compliance with such regulations, regulatory changes, including changes in
the allocation of available frequency spectrum and in the military standards
which define the current networking environment, could materially adversely
affect the Company's operations by restricting development efforts by the
Company's customers, making current products obsolete or increasing the
opportunity for additional competition. Changes in, or the failure by the
Company to manufacture products in compliance with, applicable domestic and
international regulations could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
increasing demand for wireless telecommunications has exerted pressure on
regulatory bodies worldwide to adopt new standards for such products, generally
following extensive investigation and deliberation over competing technologies.
The delays inherent in this governmental approval process have in the past
caused and may in the future cause the cancellation,
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<PAGE> 23
postponement or rescheduling of the installation of communication systems by the
Company's customers, which in turn may have a material adverse effect on the
sale of products by the Company to such customers.
The Company is also subject to a variety of local, state and federal
governmental regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic or other hazardous substances used
to manufacture the Company's products. The failure to comply with current or
future regulations could result in the imposition of substantial fines on the
Company, suspension of production, alteration of its manufacturing processes or
cessation of operations. To date, these regulations have not had a material
effect on the Company, as the Company has neither incurred significant costs to
maintain compliance nor to remedy past noncompliance.
The Company believes that it operates its business in material
compliance with applicable government regulations. The Company is not aware of
any pending legislation that if enacted could have a material adverse effect on
the Company's business, financial condition and results of operations.
COMPETITION
The markets for the Company's products and services are extremely
competitive, and the Company expects that competition will increase in such
markets. See "Risk Factors -- Competition." The Company faces intense
competition in both government and commercial wireless networking markets.
Government DAMA Competition. Competition in the government DAMA market
consists primarily of other companies offering DAMA capable modem, radio or
network control equipment that is compatible with the open MIL-STD protocols.
The government DAMA competitors are significantly larger companies than ViaSat
and include Titan Corporation, Rockwell International, Raytheon Corporation and
GEC (UK). The Company believes that it is competitively positioned among these
companies because of its installed base of equipment, the contracts it has in
place, its market lead time with respect to certain DAMA product capabilities
and its participation in both the network control and subscriber terminal
markets.
Government Non-DAMA Competition. There is also intense competition in
other wireless networking markets. The MIDS market, in particular, is dominated
by two very large competitors (Rockwell and GEC-Marconi) which have formed a
joint venture called Data Link Solutions.
The Company's simulation and test equipment products represent
relatively new technologies in markets that are still small. Most of the
Company's competition in these markets stems from alternative technologies that
may or may not be applicable to any particular customer.
The Company faces formidable competition in the network encryption
business from GTE and Motorola.
Commercial DAMA Competition. There is intense competition in the
commercial DAMA market from companies that have strong positions in the TDM/TDMA
VSAT business, as well as from other companies using DAMA technology. Most of
the leading TDM/TDMA VSAT companies are offering DAMA products, including Hughes
Network Systems (see "Risk Factors -- Dependence on Defense Market"), Scientific
Atlanta Inc., Gilat Satellite Networks Ltd., STM Wireless Inc. and NEC. In
addition, there are also other types of competing DAMA technologies being
developed.
In different situations, DAMA products may be evaluated in comparison
with either TDM/TDMA technology, DAMA technology from other companies, dedicated
SCPC technology, mobile satellite technology or possibly terrestrial wireless
solutions. The Company believes that it has a good understanding of those
situations where DAMA systems in general, and its technology in particular,
offer the best overall value to its customers, and tends to focus its marketing
and selling efforts on those applications. DAMA technology is most attractive
for customers with telephone, fax or other circuit-oriented applications. DAMA
technology also allows networks to achieve much higher total capacity, with
better voice quality than TDM/TDMA networks. The Company sees the anticipated
growth of two-way high speed Internet
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Protocol networking as an example of opportunities for StarWire business beyond
traditional voice and data.
The Company seeks to establish strategic alliances with satellite
service providers that would most benefit from its particular technological
advantages. The Company has established such relationships with a few key
companies, including HCL Comnet in India and Telia AB in Sweden. The Company
believes that its products offer the lowest total cost of ownership for service
providers considering the flexibility of its equipment, its transponder capacity
advantages and the breadth of its service offerings.
In the future there will likely be formidable competition for
high-speed (broadband) single-hop satellite networking from several announced Ka
band satellite systems such as Spaceway, Astrolink, Skybridge, and Teledesic. In
many cases these systems will offer capabilities that are similar to those
enabled by StarWire networks. Pricing and availability for these anticipated Ka
band systems is still somewhat uncertain.
INTELLECTUAL PROPERTY
The Company relies on a combination of patents, trade secrets,
copyrights, trademarks, service marks and contractual rights to protect its
intellectual property. The Company attempts to protect its trade secrets and
other proprietary information through agreements with its customers, suppliers,
employees and consultants, and through other security measures. Although the
Company intends to protect its rights vigorously, there can be no assurance that
these measures will be successful. In addition, the laws of certain countries in
which the Company's products are or may be developed, manufactured or sold may
not protect the Company's products and intellectual property rights to the same
extent as the laws of the United States.
While the Company's ability to compete may be affected by its ability
to protect its intellectual property, the Company believes that, because of the
rapid pace of technological change in the wireless personal communications
industry, its technical expertise and ability to introduce new products on a
timely basis will be more important in maintaining its competitive position than
protection of its intellectual property and that patent, trade secret and
copyright protections are important but must be supported by other factors such
as the expanding knowledge, ability and experience of the Company's personnel,
new product introductions and frequent product enhancements. Although the
Company continues to implement protective measures and intends to defend
vigorously its intellectual property rights, there can be no assurance that
these measures will be successful. See "Risk Factors -- Limited Protection of
the Company's Intellectual Property."
There can be no assurance that third parties will not assert claims
against the Company with respect to existing and future products. In the event
of litigation to determine the validity of any third party's claims, such
litigation could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel, whether or not such
litigation is determined in favor of the Company. The wireless communications
industry has been subject to frequent litigation regarding patent and other
intellectual property rights. Leading companies and organizations in the
industry have numerous patents that protect their intellectual property rights
in these areas. In the event of an adverse result of any such litigation, the
Company could be required to expend significant resources to develop
non-infringing technology or to obtain licenses to the technology that is the
subject of the litigation. There can be no assurance that the Company would be
successful in such development or that any such license would be available on
commercially reasonable terms.
EMPLOYEES
As of March 31, 1999, the Company had 367 employees (19 of which were
temporary employees), including over 176 in research and development, 14 in
marketing and sales, 91 in production, and 64 in corporate, administration and
production coordination. The Company believes that its future prospects will
depend, in part, on its ability to continue to attract and retain skilled
engineering, marketing and management personnel, who are in great demand. In
particular, there is a limited supply of highly qualified
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engineers with appropriate experience. See "Risk Factors -- Dependence on Key
Personnel." Each of the Company's employees is required to sign an Invention and
Confidential Disclosure Agreement upon joining the Company. Under such
agreement, each employee agrees that any inventions developed by such employee
during the term of employment are the exclusive property of the Company and that
such employee will not disclose or use in any way information related to the
Company's business or products, either during the term of such employee's
employment or at any time thereafter. The Company currently employs over 170
engineers, including 75 engineers who have masters degrees and seven engineers
who have doctorate degrees. None of the Company's employees are covered by a
collective bargaining agreement and the Company has never experienced any strike
or work stoppage. The Company believes that its relations with its employees are
good.
RISK FACTORS
DEPENDENCE ON DEFENSE MARKET
Approximately 92% of the Company's revenues for the fiscal year ended
March 31, 1999 were derived from U.S. government defense applications. Although
the Company has invested heavily in developing commercial satellite products,
there can be no assurance that the percentage of the Company's commercial
business will increase. In addition, there can be no assurance that the
Company's revenues from its government business will continue to increase at
historical rates or at all. U.S. government business is subject to various risks
including (1) unpredictable contract or project terminations, reductions in
funds available for the Company's projects due to government policy changes,
budget cuts and contract adjustments and penalties arising from post-award
contract audits, and incurred cost audits in which the value of the contract may
be reduced, (2) risks of underestimating ultimate costs, particularly with
respect to software and hardware development, for work performed pursuant to
fixed-price contracts where the Company commits to achieve specified deliveries
for a predetermined fixed price, (3i) limited profitability from
cost-reimbursement contracts under which the amount of profit attainable is
limited to a specified negotiated amount and (4) unpredictable timing of cash
collections of certain unbilled receivables as they may be subject to acceptance
of contract deliverables by the customer and contract close-out procedures,
including government approval of final indirect rates. See "Business --
Government Contracts." In addition, substantially all of the Company's backlog
scheduled for delivery can be terminated at the convenience of the government
since orders are often made well in advance of delivery, and the Company's
contracts typically provide that orders may be terminated with limited or no
penalties. See "Business -- Backlog."
Certain of the Company's contracts individually contribute a
significant percentage of the Company's revenues. For the fiscal year ended
March 31, 1999, the Company's largest contracts (by revenues) were contracts
related to the Company's UHF DAMA technology, which generated approximately 51%
of the Company's total revenues, including a contract with Raytheon Systems
Company which generated approximately 13% of the Company's total revenues.
Scheduled deliveries pursuant to firm purchase orders under this contract are
scheduled to be completed during the fiscal year ending March 31, 2000. See
"Business -- Competition."
The Company's five largest contracts (by revenues) generated
approximately 61% of the Company's total revenues for the fiscal year ended
March 31, 1999. The Company expects revenues to continue to be concentrated in a
relatively small number of large U.S. government contracts. Termination or
disruption of such contracts, especially the Company's largest contract, or the
Company's inability to renew or replace such contracts when they expire, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
PENETRATION OF COMMERCIAL MARKETS; NEW PRODUCT INTRODUCTIONS
The Company's ability to grow will depend substantially on its and its
customers' ability to apply its expertise and technologies to existing and
emerging commercial satellite communications markets. The Company's efforts to
penetrate commercial markets have resulted, and the Company anticipates that it
will continue to result, in increased sales and marketing and research and
development expenses. If the Company's net revenues do not correspondingly
increase, the Company's business, financial condition and
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results of operations could be materially adversely affected. The Company's
success in penetrating commercial markets also depends upon the success of new
product introductions by the Company, which will be dependent upon several
factors, including timely completion and introduction of new product designs,
achievement of acceptable product costs, establishment of close working
relationships with major customers for the design of their new wireless
communications systems incorporating the Company's products and market
acceptance. Sales of the Company's commercial StarWire products (see "Business
- -- Commercial Markets, Products and Customers -- Commercial Products") have not
yet achieved profitability. The Company believes that as the market expands for
the StarWire products, average production costs for such products should
decrease and sales of such products should become profitable. However, there can
be no assurance that the market for such products will expand or that average
production costs will decrease. If the Company is unable to design, manufacture,
integrate (in the case of turnkey system sales), and market profitable new
products for existing or emerging commercial markets, its business, financial
condition and results of operations will be adversely affected. No assurance can
be given that the Company's product development efforts for commercial products
will be successful or that any new commercial products it develops will achieve
market acceptance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Commercial Markets,
Products and Customers."
DEVELOPMENT CONTRACTS
The telecommunications industry is characterized by rapid technological
change. As a result, many companies involved in the telecommunications industry,
including the Company, are often parties to governmental and commercial
contracts that involve development of various products. Pursuant to such
contracts, the company performing the development services typically must agree
to meet strict performance covenants and project milestones which there is a
risk it may not be able to satisfy. Under the terms of such contracts, the
failure by a company to meet such performance covenants and milestones permit
the other party to terminate the contract and, under certain circumstances,
recover liquidated damages or other penalties from the breaching party. The
Company is not currently or in the past has not been in compliance with every
outstanding performance covenant and project milestone. While the Company's past
experience has been that in situations where the Company has not met all
performance covenants and project milestones generally the other party has not
elected to terminate such contracts or seek liquidated damages from the Company,
there can be no assurance that this will not occur in the future with respect to
current or future contracts and that such termination or damages would not have
a material adverse effect on the Company.
FLUCTUATIONS IN RESULTS OF OPERATIONS
The Company has experienced and expects to continue to experience
significant fluctuations in quarterly and annual revenues, gross margins and
operating results. The procurement process for most of the Company's current and
potential customers is complex and lengthy, and the timing and amount of
revenues is difficult to predict reliably. The Company recognizes a majority of
its revenues under the percentage of completion method that requires estimates
regarding costs that will be incurred over the life of a specific contract.
Actual results may differ from those estimates. In such event, the Company has
been and may in the future be required to adjust revenues in subsequent periods
relating to revisions of prior period estimates, resulting in fluctuations in
the Company's results of operations from period to period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." In
addition, a single customer's order scheduled for delivery in a quarter can
represent a significant portion of the Company's potential revenues for such
quarter. The Company has at times failed to receive expected orders, and
delivery schedules have been deferred as a result of, among other factors,
changes in customer requirements or parts shortages. In fiscal 1999,
approximately 13% of the Company's revenues were derived from one contract.
Disruption with respect to a single large contract could have a material adverse
effect on the Company in any period where such a disruption occurs. See
"Business -- Government Markets, Products and Customers -- Government
Customers." As a result of the foregoing and other factors, the Company's
operating results for particular periods have in the past been and may in the
future be materially adversely affected by a delay, rescheduling or cancellation
of even one purchase order. Moreover, purchase orders are often received and
accepted substantially in advance of delivery, and the failure to reduce actual
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costs to the extent anticipated or an increase in anticipated costs before
delivery could materially adversely affect the gross margins for such orders,
and as a result, the Company's results of operations. There can be no assurance
that the Company will continue to realize positive gross margins or operating
results in the future, and even if so realized, there can be no assurance as to
the level of such gross margins and operating results.
Large portions of the Company's expenses are fixed and difficult to
reduce should revenues not meet the Company's expectations, thus magnifying the
material adverse effect of any revenue shortfall. Furthermore, announcements by
the Company or its competitors of new products and technologies could cause
customers to defer or cancel purchases of the Company's products and services,
which could materially adversely affect the Company's business, financial
condition and results of operations or result in fluctuations in the Company's
results of operations from period to period. Additional factors that may cause
the Company's revenues, gross margins and results of operations to vary
significantly from period to period include mix of products and services sold;
manufacturing efficiencies, costs and capacity; price discounts; market
acceptance and the timing of availability of new products by the Company or its
customers; usage of different distribution and sales channels; warranty and
customer support expenses; customization of products and services; and general
economic and political conditions. In addition, the Company's results of
operations are influenced by competitive factors, including the pricing and
availability of, and demand for, competitive products. All of the above factors
are difficult for the Company to forecast, and these and other factors could
materially adversely affect the Company's business, financial condition and
results of operations or result in fluctuations in the Company's results of
operations from period to period. As a result, the Company believes that
period-to-period comparisons are not necessarily meaningful and should not be
relied upon as indications of future performance. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
CONTRACT PROFIT EXPOSURE
The Company's products and services are provided primarily through
three types of contracts: fixed-price, time-and-materials and cost-reimbursement
contracts. Approximately 80.3% of the Company's total revenues for the fiscal
year ended March 31, 1999 were derived from fixed-price contracts that require
the Company to provide products and services under a contract at a stipulated
price. The Company derived approximately 2.6% of its revenues during the year
from time-and-materials contracts which reimburse the Company for the number of
labor hours expended at an established hourly rate negotiated in the contract,
plus the cost of materials utilized in providing such products or services.
Approximately 17.1% of the Company's revenues for the fiscal year ended March
31, 1999 were derived from cost-reimbursement contracts under which the Company
is reimbursed for actual costs incurred in performing the contract to the extent
that such costs are within the contract ceiling and allowable, allocable and
reasonable under the terms of the contract, plus a fee or profit. See "Business
- -- Government Contracts."
The Company assumes greater financial risk on fixed-price contracts
than on either time-and-materials or cost-reimbursement contracts. In the
current environment, the Company believes that an increasing percentage of its
contracts will be fixed-priced. Failure to anticipate technical problems,
estimate costs accurately or control costs during performance of a fixed-price
contract may reduce the Company's profit or cause a loss. In addition, greater
risks are involved under time-and-materials contracts than under
cost-reimbursement contracts because the Company assumes the responsibility for
the delivery of specified products or services at a fixed hourly rate. Although
management believes that it adequately estimates costs for fixed-price and
time-and-materials contracts, no assurance can be given that such estimates are
adequate or that losses on fixed-price and time-and-materials contracts will not
occur in the future.
To compete successfully for business, the Company must satisfy client
requirements at competitive rates. Although the Company continually attempts to
lower its costs, there are other companies that may provide the same or similar
products or services at comparable or lower prices than the Company. There can
be no assurance that the Company will be able to compete effectively on pricing
or other requirements, and as a result, the Company could lose clients or be
unable to maintain historic gross margin levels or to operate profitably. See
"Business -- Competition."
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DECLINING AVERAGE SELLING PRICES; FLUCTUATIONS IN GROSS MARGINS
Average selling prices for the Company's products may fluctuate from
period to period due to a number of factors, including product mix, competition
and unit volumes. In particular, the average selling prices of a specific
product tend to decrease over that product's life. To offset such decreases, the
Company intends to rely primarily on obtaining yield improvements and
corresponding cost reductions in the manufacture of existing products and on
introducing new products that incorporate advanced features and therefore can be
sold at higher average selling prices. However, there can be no assurance that
the Company will be able to obtain any such yield improvements or cost
reductions or introduce any such new products in the future. To the extent that
such cost reductions and new product introductions do not occur in a timely
manner or the Company's or its customers' products do not achieve market
acceptance, the Company's business, financial condition and results of
operations could be materially adversely affected. See "Business --
Manufacturing."
The Company's gross margins in any period are affected by a number of
different factors. Because of the different gross margins on various products,
changes in product mix can impact gross margins in any particular period. In
addition, in the event that the Company is not able to adequately respond to
pricing pressures, the Company's current customers may decrease, postpone or
cancel current or planned orders, and the Company may not be able to secure new
customers or orders. As a result, the Company may not be able to achieve desired
production volumes or gross margins.
CHANGES IN REGULATORY ENVIRONMENT
The Company's products are incorporated into wireless communications
systems that are subject to various government regulations. Regulatory changes,
including changes in the allocation of available frequency spectrum and in the
military standards and specifications which define the current satellite
networking environment, could significantly impact the Company's operations by
restricting development efforts by the Company's customers, making current
products obsolete or increasing the opportunity for additional competition.
There can be no assurance that regulatory bodies will not promulgate new
regulations that could have a material adverse effect on the Company's business,
financial condition and results of operations. Changes in, or the failure by the
Company to comply with, applicable domestic and international regulations could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the increasing demand for wireless
communications has exerted pressure on regulatory bodies worldwide to adopt new
standards for such products and services, generally following extensive
investigation of and deliberation over competing technologies. The delays
inherent in this governmental approval process have caused and may continue to
cause the cancellation, postponement or rescheduling of the installation of
communications systems by the Company's customers, which in turn may have a
material adverse effect on the sale of products by the Company to such
customers. See "Business - Regulatory Environment."
The Company has benefitted and continues to benefit from the SBIR
program, through which the government provides research and development funding
for companies with fewer than 500 employees. While the Company has already
harvested significant benefits from the SBIR program throughout the initial
developmental stages of its core technology base, the Company believes that its
business, financial condition and results of operations would not be materially
adversely affected if the Company were to lose its SBIR funding status. See
"Business -- Research and Development."
EMERGING MARKETS IN WIRELESS COMMUNICATIONS
A number of the commercial markets for the Company's products in the
wireless communications area, including its DAMA products, have only recently
begun to develop. Because these markets are relatively new, it is difficult to
predict the rate at which these markets will grow, if at all. If the markets for
the Company's products in the commercial wireless communications area fail to
grow, or grow more slowly than anticipated, the Company's business, financial
condition and results of operations could be materially adversely affected.
Conversely, to the extent that growth in these markets results in capacity
limitations in the wireless communications area, the Company's business,
financial condition and results of operations
25
<PAGE> 29
could also be materially adversely affected. See "Business -- Commercial
Markets, Products and Customers."
FIXED SITE SATELLITE TELEPHONY MARKET
The Company's strategy includes establishing satellite telephony
networking infrastructure for developing countries through strategic alliances
with regional and local service providers (see "Business -- Strategy "). There
can be no assurance that a substantial market for fixed site telephony equipment
will ever develop, or if such a market does develop that fixed-site DAMA
VSAT-based equipment will capture a significant portion of that market, or that
the Company's products in particular will capture a significant portion of the
fixed-site DAMA business. The Company's ability to penetrate such markets will
be dependent upon its ability to develop equipment and software which can be
utilized by service providers to develop and implement such infrastructure and
for such service providers to market and sell the use of such systems.
Furthermore, there can be no assurance that service providers will be able to
successfully market subscriber terminals to subscribers. The development and
implementation of such satellite telephony systems will be dependent upon, among
other things, the continued development of the necessary hardware and software
technologies (including the necessary expenditures of a large amount of funds
and resources), the implementation of cost-effective systems, market acceptance
for such systems and approval by the appropriate regulatory agencies. There can
be no assurance that the Company will be able to develop equipment and software
which can be utilized in such telephony systems and accepted by service
providers or that any service providers will be able to develop, implement and
market satellite telephony systems. Furthermore, if the Company successfully
introduces such products and service providers successfully develop and
implement such systems, there is no assurance that the Company will generate
enough revenues to cover the Company expenditures in the development and
marketing of such products. Even if the Company is able to realize sales of such
products, the Company is not assured that it will realize any significant
revenues from these applications.
DEPENDENCE ON CONTRACT MANUFACTURERS; RELIANCE ON SOLE OR
LIMITED SOURCES OF SUPPLY
The Company's internal manufacturing capacity is limited. The Company
utilizes contract manufacturers to produce its products and expects to rely
increasingly on such manufacturers in the future. The Company also relies on
outside vendors to manufacture certain components and subassemblies, including
printed wiring boards. Certain components, subassemblies and services necessary
for the manufacture of the Company's products are obtained from a sole supplier
or a limited group of suppliers. In particular, Texas Instruments is a sole
source supplier of digital signal processing chips, which are critical
components used by the Company in substantially all of its products. There can
be no assurance that the Company's internal manufacturing capacity and that of
its contract manufacturers and suppliers will be sufficient to timely fulfill
the Company's orders. See "Business -- Manufacturing."
The Company's reliance on contract manufacturers and on sole suppliers
or a limited group of suppliers involves several risks, including a potential
inability to obtain an adequate supply of required components, and reduced
control over the price, timely delivery, reliability and quality of finished
products. From time to time, the Company enters into long-term supply agreements
with its manufacturers and suppliers. Manufacture of the Company's products and
certain of its components and subassemblies is an extremely complex process, and
the Company has from time to time experienced and may in the future experience
delays in the delivery of and quality problems with products and certain
components and subassemblies from vendors. Certain of the Company's suppliers
have relatively limited financial and other resources. Any inability to obtain
timely deliveries of components and subassemblies of acceptable quality or any
other circumstance that would require the Company to seek alternative sources of
supply, or to manufacture its finished products or such components and
subassemblies internally, could delay or prevent the Company from timely
delivery of its systems or raise issues regarding quality, which could damage
relationships with current or prospective customers and have a material adverse
effect on the Company's business, financial condition and results of operations.
26
<PAGE> 30
COMPETITION
The markets for the Company's products and services are extremely
competitive, and the Company expects that competition will increase in such
markets. Many of the Company's competitors have entrenched market positions,
established patents, copyrights, tradenames, trademarks, service marks and
intellectual property rights and substantial technological capabilities. The
Company's existing and potential competitors include large and emerging domestic
and international companies, many of which have significantly greater financial,
technical, manufacturing, marketing, sales and distribution resources and
management expertise than the Company. The Company believes that its ability to
compete successfully in the markets for its products and services depends upon a
number of factors within and outside its control, including price, quality,
availability, product performance and features, timing of new product
introductions by the Company, its customers and competitors, and customer
service and technical support. The Company's customers continuously evaluate
whether to develop and manufacture their own products and could elect to compete
with the Company at any time. Price competition in the markets in which the
Company currently competes is likely to increase, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Competition."
LIMITED PROTECTION OF THE COMPANY'S INTELLECTUAL PROPERTY
The Company's ability to compete may depend, in part, on its ability to
obtain and enforce intellectual property protection for its technology in the
United States and internationally. The Company relies on a combination of
patents, trade secrets, copyrights, trademarks, service marks and contractual
rights to protect its intellectual property. There can be no assurance that the
steps taken by the Company will be adequate to deter misappropriation or impede
third party development of the Company's technology. In addition, the laws of
certain foreign countries in which the Company's products are or may be sold do
not protect the Company's intellectual property rights to the same extent as do
the laws of the United States. The failure of the Company to protect its
proprietary information could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Intellectual Property."
Litigation may be necessary to protect the Company's intellectual
property rights and trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
infringement, invalidity, right to use or ownership claims by third parties or
claims for indemnification resulting from infringement claims will not be
asserted against the Company in the future. If any claims or actions are
asserted against the Company, the Company may seek to obtain a license under a
third party's intellectual property rights. There can be no assurance, however,
that a license will be available under reasonable terms or at all. In addition,
should the Company decide to litigate such claims, such litigation could be
extremely expensive and time consuming and could materially adversely affect the
Company's business, financial condition and results of operations, regardless of
the outcome of the litigation. If the Company's products are found to infringe
upon the rights of third parties, the Company may be forced to incur substantial
costs to develop alternative products. There can be no assurance that the
Company would be able to develop such alternative products or that if such
alternative products were developed, they would perform as required or be
accepted in the applicable markets.
REQUIREMENT FOR RESPONSE TO RAPID TECHNOLOGICAL CHANGE AND REQUIREMENT FOR
FREQUENT NEW PRODUCT INTRODUCTIONS
The wireless communications market in general, and the satellite
communications market in particular, are subject to rapid technological change,
frequent new product introductions and enhancements, product obsolescence and
changes in end-user requirements. The Company's ability to be competitive in
this market will depend in significant part upon its ability to successfully
develop, introduce and sell new products and enhancements on a timely and
cost-effective basis that respond to changing customer requirements. Any success
of the Company in developing new and enhanced products will depend upon a
variety of factors, including new product selection, integration of the various
elements of its complex technology, timely and efficient completion of product
design, timely and efficient implementation of manufacturing and assembly
processes and its cost reduction efforts, development and completion of related
software tools, product performance, quality and reliability and development of
competitive products by competitors. The
27
<PAGE> 31
Company may experience delays from time to time in completing development and
introduction of new products. Moreover, there can be no assurance that the
Company will be successful in selecting, developing, manufacturing and marketing
new products or enhancements. There can be no assurance that errors will not be
found in the Company's products after commencement of deliveries, which could
result in the loss of or delay in market acceptance. The inability of the
Company to introduce in a timely manner new products that achieve market
acceptance and thereby contribute to revenues could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Research and Development."
INTERNATIONAL OPERATIONS; RISKS OF DOING BUSINESS IN DEVELOPING COUNTRIES
The Company anticipates that international sales will account for an
increasing percentage of its revenues for the foreseeable future. The Company's
international sales may be denominated in foreign or U.S. currencies. The
Company does not currently engage in foreign currency hedging transactions. As a
result, a decrease in the value of foreign currencies relative to the U.S.
dollar could result in losses from transactions denominated in foreign
currencies. With respect to the Company's international sales that are U.S.
dollar-denominated, such a decrease could make the Company's products less
price-competitive. Additional risks inherent in the Company's international
business activities include various and changing regulatory requirements, cost
and risks of localizing systems in foreign countries, increased sales and
marketing and research and development expenses, availability of suitable export
financing, timing and availability of export licenses, tariffs and other trade
barriers, political and economic instability, difficulties in staffing and
managing foreign operations, difficulties in managing distributors, potentially
adverse taxes, complex foreign laws and treaties and the possibility of
difficulty in accounts receivable collections. Certain of the Company's customer
purchase agreements are governed by foreign laws, which may differ significantly
from U.S. laws. Therefore, the Company may be limited in its ability to enforce
its rights under such agreements and to collect damages, if awarded. There can
be no assurance that any of these factors will not have a material adverse
effect on the Company's business, financial condition and results of operations.
VOLATILITY OF STOCK PRICE
Historically, the Company's stock price has been volatile. The sales
price for the Company's Common Stock has ranged from $7.00 to $19.88 per share
during the 52-week period ended March 31, 1999. The Company believes that
factors such as announcements of developments related to the Company's business,
announcements of technological innovations or new products or enhancements by
the Company or its competitors, developments in the Company's relationships with
its customers, partners, distributors and suppliers, changes in analysts'
estimates, regulatory developments, fluctuations in results of operations and
general conditions in the Company's market or the markets served by the
Company's customers or the economy could cause the price of the Common Stock to
fluctuate, perhaps substantially. In addition, in recent years the stock market
in general, and technology companies in particular have been subject to
significant price fluctuations, which have often been unrelated to the operating
performance of affected companies. Such fluctuations could adversely affect the
market price of the Common Stock. There can be no assurance that the market
price of the Common Stock will not experience significant fluctuations in the
future, including fluctuations that are unrelated to the Company's performance.
CONTROL BY EXISTING STOCKHOLDERS
As of March 31, 1999, members of the Board of Directors and the
executive officers of the Company, together with members of their families and
entities that may be deemed affiliates of or related to such persons or
entities, beneficially owned approximately 36% of the outstanding shares of the
Company's Common Stock. Accordingly, these stockholders may be able to elect all
members of the Company's Board of Directors and determine the outcome of
corporate actions requiring stockholder approval, such as mergers and
acquisitions. This level of ownership may have a significant effect in delaying,
deferring or preventing a change in control of the Company and may adversely
affect the voting and other rights of other holders of the Common Stock.
28
<PAGE> 32
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Bylaws could discourage potential acquisition proposals, could
delay or prevent a change in control of the Company and could make removal of
management more difficult. Such provisions could diminish the opportunities for
a stockholder to participate in tender offers, including tender offers that are
priced above the then current market value of the Company's Common Stock. The
provisions also may inhibit increases in the market price of the Common Stock
that could result from takeover attempts. Additionally, the Board of Directors
of the Company, without further stockholder approval, may issue up to 5,000,000
shares of Preferred Stock, in one or more series, with such terms as the Board
of Directors may determine, including rights such as voting, dividend and
conversion rights which could adversely affect the voting power and other rights
of the holders of Common Stock. Preferred Stock may be issued quickly with terms
that delay or prevent a change in control of the Company or make removal of
management more difficult. Also, the issuance of Preferred Stock may have the
effect of decreasing the market price of the Common Stock.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends in large part on the continued
service of its key technical, marketing and management personnel and on its
ability to continue to attract and retain qualified employees, particularly its
Chief Executive Officer, Mark D. Dankberg, and those highly skilled design,
process and test engineers involved in the manufacture of existing products and
the development of new products and processes. The competition for such
personnel is intense, and the loss of key employees could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company does not have employment agreements with any of its
officers or employees. The Company has attempted to address this issue by
recruiting key executive personnel with the background and expertise necessary
to assume responsibility for the Company or lead the Company until a successor
could be named. The Company has obtained, a key man insurance policy on the life
of Mr. Dankberg in the amount of $500,000, for which the Company is the sole
beneficiary. See "Business -- Employees."
ITEM 2. PROPERTIES
The Company's headquarters are located in an approximately 37,000
square foot leased facility in Carlsbad, California. This facility houses the
Company's management, marketing and sales personnel. The lease for this facility
terminates upon thirty days written notice by either party. The Company leases
two other facilities in Carlsbad, California containing approximately 56,000 and
26,000 square feet for research and development, application engineering and
manufacturing coordination activities. The leases for these two facilities
terminate in November 1999. In addition, the Company leases two smaller
facilities aggregating approximately 3,000 square feet located in Acton,
Massachusetts, and Norcross, Georgia. The Massachusetts lease terminates in
April 2000. The Georgia lease is a month to month lease. Annual leasing costs of
the Company totaled $1.3 million, $1.1 million and $793,000 for the fiscal years
ended March 31, 1999, 1998 and 1997, respectively.
In April 1998, the Company entered into a long-term agreement to lease
a facility under construction in Carlsbad, California which will house the
Company's entire California based operations. The facility will contain
approximately 180,000 square feet and is expected to be completed in December
1999. The term of the lease is 10 years with two three-year option periods. The
initial minimum lease payments are $2.3 million per year and will be payable
commencing upon completion of the facility.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than various
claims and lawsuits arising in the ordinary course of its business which, in the
opinion of the Company's management, are not individually or in the aggregate
material to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
29
<PAGE> 33
No matters were submitted to a vote of security holders during the
quarter ended March 31, 1999.
30
<PAGE> 34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "VSAT." The Common Stock was initially offered to the public on
December 3, 1996 at $9.00 per share. The following table sets forth the range of
high and low sales prices on the Nasdaq National Market of the Company's Common
Stock for the periods indicated, as reported by Nasdaq. Such quotations
represent inter-dealer prices without retail markup, markdown or commission and
may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
FISCAL 1998 HIGH LOW
------- -------
<S> <C> <C>
First Quarter $ 16.13 $ 8.88
Second Quarter 23.50 11.00
Third Quarter 24.38 10.00
Fourth Quarter 19.13 12.81
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1999 HIGH LOW
------- -------
<S> <C> <C>
First Quarter $ 19.88 $ 14.00
Second Quarter 19.75 8.25
Third Quarter 12.63 7.00
Fourth Quarter 12.25 8.75
</TABLE>
To date, the Company has neither declared nor paid any dividends on the
Common Stock. The Company currently intends to retain all future earnings, if
any, for use in the operation and development of its business and, therefore,
does not expect to declare or pay any cash dividends on the Common Stock in the
foreseeable future. As of June 21, 1999, there were 316 holders of record of the
Common Stock.
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<PAGE> 35
ITEM 6. SELECTED FINANCIAL DATA
The following data has been derived from the Company's audited
financial statements. The balance sheet at March 31, 1999 and 1998 and the
related statements of income, of cash flows and of stockholders' equity of the
Company for the three years ended March 31, 1999 and notes thereto appear
elsewhere herein. The data should be read in conjunction with such financial
statements and other financial information appearing elsewhere herein. All
amounts shown are in thousands, except per share data.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues $ 71,509 $ 64,197 $ 47,715 $ 29,017 $ 22,341
Cost of revenues 44,182 40,899 33,102 20,983 16,855
-------- -------- -------- -------- --------
Gross profit 27,327 23,298 14,613 8,034 5,486
Operating expenses:
Selling, general and administrative 10,093 7,862 4,752 3,400 2,416
Independent research and
development 7,639 7,631 5,087 2,820 788
-------- -------- -------- -------- --------
Income from operations 9,595 7,805 4,774 1,814 2,282
Net interest income (expense) 584 586 100 (231) (87)
-------- -------- -------- -------- --------
Income before income taxes 10,179 8,391 4,874 1,583 2,195
Provision (benefit) for income taxes 3,883 3,104 1,702 (50) 888
-------- -------- -------- -------- --------
Net income $ 6,296 $ 5,287 $ 3,172 $ 1,633 $ 1,307
======== ======== ======== ======== ========
Basic net income per share $ 0.79 $ 0.68 $ 0.66 $ 0.50 $ 0.42
======== ======== ======== ======== ========
Diluted net income per share $ 0.77 $ 0.65 $ 0.48 $ 0.28 $ 0.24
======== ======== ======== ======== ========
Shares used in Basic per share
calculations 7,977 7,801 4,810 3,267 3,080
======== ======== ======== ======== ========
Shares used in Diluted per share
calculations 8,173 8,175 6,642 5,735 5,479
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments $ 20,793 $ 9,208 $ 12,673 $ 2,297 $ 2,731
Working capital 31,298 24,276 20,406 4,651 2,808
Total assets 50,016 42,793 35,674 13,262 9,377
Long-term debt, less current portion 1,243 1,544 1,428 1,747 1,220
Total stockholders' equity 36,847 29,610 23,619 5,217 3,413
</TABLE>
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<PAGE> 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Historically, the Company's revenues have been principally derived from
contracts with the DOD. The Company's DOD revenues have continued to grow
despite government budgetary constraints, and in addition, the Company's
revenues from foreign military customers have also increased. Since 1992, the
Company's total revenues have grown at a compounded annual growth rate of
approximately 55.4%. DOD revenues amounted to $65.5 million, $58.2 million and
$46.3 million for the fiscal years ended March 31, 1999, 1998 and 1997,
respectively. Foreign military revenues were approximately 3.0% of total revenue
in the fiscal year ended March 31, 1999. The Company has achieved this growth
rate entirely through internal growth, and not through acquisitions. See "Risk
Factors -- Fluctuations in Results of Operations."
The Company's products and services are provided primarily through
three types of contracts: fixed-price, time-and-materials and cost-reimbursement
contracts. Approximately 80.3%, 72.8% and 63.3% of the Company's total revenues
for the fiscal years ended March 31, 1999, 1998 and 1997, respectively, were
derived from fixed-price contracts which require the Company to provide products
and services under a contract at a stipulated price. The Company derived
approximately 2.6%, 4.6% and 6.0% of its revenues during such periods from
time-and-materials contracts which reimburse the Company for the number of labor
hours expended at an established hourly rate negotiated in the contract, plus
the cost of materials utilized in providing such products or services. The
remaining 17.1%, 22.6% and 30.7% of the Company's revenues for the fiscal years
ended March 31, 1999, 1998 and 1997, respectively, were derived from
cost-reimbursement contracts under which the Company is reimbursed for all
actual costs incurred in performing the contract to the extent that such costs
are within the contract ceiling and allowable under the terms of the contract,
plus a fee or profit. See "Risk Factors -- Contract Profit Exposure."
As of March 31, 1999, the Company had firm backlog of $44.9 million, of
which $36.8 million was funded. Of the $44.9 million in firm backlog,
approximately $36.3 million is expected to be delivered in the fiscal year
ending March 31, 2000, approximately $3.4 million is expected to be delivered in
the fiscal year ending March 31, 2001 and the balance is expected to be
delivered in the fiscal years ending March 31, 2002 and thereafter. The Company
received $43.7 million in awards during the year ended March 31, 1999. The
Company's $44.9 million in firm backlog at March 31, 1999 excludes an additional
$45.2 million of customer options. These options include the recently awarded
$30.0 million Indefinite Delivery/Indefinite Quantity (IDIQ) UHF Satcom products
contract from the U.S. Navy. As a result of the Federal Acquisition
Streamlining Act of 1994, the trend in U.S. Government procurement is toward
more off the shelf products and technology. More of the Company's backlog is
expected to come from this type of order with shorter lead-times. Consequently
the Company's backlog is expected to remain lower than historical trends would
indicate. See "Business -- Backlog."
Historically, a significant portion of the Company's revenue has been
derived from research and development contracts. The research and development
efforts are conducted in direct response to the specific requirements of a
customer's order and, accordingly, expenditures related to such efforts are
included in cost of sales when incurred and the related funding (which includes
a profit component) is included in net revenues at such time. Revenues are
recognized using the percentage of completion method on these long-term
development contracts. Revenues for funded research and development during the
fiscal years ended March 31, 1999, 1998 and 1997 were approximately $40.5
million, $25.6 million and $21.3 million, respectively. See "Business --
Research and Development."
Beginning in fiscal 1995, production contracts for delivery of
previously developed equipment became a more significant percentage of total
revenues. Production contracts amounted to approximately 35.4%, 52.6% and 35.3%
of fiscal 1999, 1998 and 1997 total revenues, respectively.
The Company invests in independent research and development ("IR&D"),
which is not directly funded by a third party. The Company expenses IR&D costs
as they are incurred. IR&D expenses consist primarily of salaries and other
personnel-related expenses, supplies and prototype materials related to research
and development programs. IR&D expenses for governmental and commercial
applications were
33
<PAGE> 37
minimal prior to fiscal 1995. In the fourth quarter of fiscal 1995, the Company
began investing a significant amount of IR&D funds primarily in the development
of satellite broadband services, telephony and other satellite DAMA products.
The Company expended approximately 10.7%, 11.9% and 10.6% of total revenues in
IR&D during the fiscal years ended March 31, 1999, 1998 and 1997, respectively.
As a government contractor, the Company is able to recover a portion of its IR&D
expenses pursuant to its government contracts.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues,
certain income data for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31,
-----------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of revenues 61.8 63.7 69.4
----- ----- -----
Gross profit 38.2 36.3 30.6
Operating expenses:
Selling, general and administrative 14.1 12.2 10.0
Independent research and development 10.7 11.9 10.6
----- ----- -----
Income from operations 13.4 12.2 10.0
Income before income taxes 14.2 13.1 10.2
Net income 8.8 8.2 6.6
</TABLE>
FISCAL YEAR ENDED MARCH 31, 1999 VS. FISCAL YEAR ENDED MARCH 31, 1998
Revenues. The Company's revenues increased 11.4% from $64.2 million in
fiscal 1998 to $71.5 million in fiscal 1999. This increase was primarily due to
increases in revenues generated by government development and production
programs. These increases were partially offset by a decrease in revenues
related to commercial satellite networking systems.
Gross Profit. Gross profit increased 17.3% from $23.3 million (36.3% of
revenues) in fiscal 1998 to $27.3 million (38.2% of revenues) in fiscal 1999.
The increase in gross profit was primarily the result of improvements on
development programs due to increased recovery of IR&D expenditures and a better
mix of higher margin products in the Company's sales for the year ended March
31, 1999 relative to the prior year. In addition, certain long-term contracts
realized higher profits than initial estimates. The increases were offset in
part by allowances for obsolete inventory.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased 28.4% from $7.9 million (12.2% of
revenues) in fiscal 1998 to $10.1 million (14.1% of revenues) in fiscal 1999.
The Company increased its business development and administrative staffing in
support of both defense and commercial programs. Bid and proposal efforts
increased from $1.5 million in fiscal 1998 to $1.8 million in fiscal 1999.
Independent Research and Development. IR&D expenses remained at $7.6
million for both years, but decreased as a percentage of revenues from 11.9% of
revenues in fiscal 1998 to 10.7% of revenues in fiscal 1999.
Interest Expense. Interest expense increased 18.5% from $211,000 in
fiscal 1998 to $250,000 in fiscal 1999. Interest expense relates to loans for
the purchase of capital equipment and to short term borrowings under the
Company's line of credit to cover working capital requirements. Total
outstanding equipment loans were $2.6 million and $2.5 million at March 31, 1998
and 1999, respectively. There were no outstanding borrowings at the end of each
fiscal year.
34
<PAGE> 38
Interest Income. Interest income increased 4.6% from $797,000 in fiscal
1998 to $834,000 in fiscal 1999. Interest income relates to interest earned on
cash and short-term investments, as well as overdue government receivables where
interest income increased from $17,000 in fiscal 1998 to $102,000 in fiscal
1999.
Provision (Benefit) for Income Taxes. The Company's effective income
tax rate increased from 37% in fiscal 1998 to 38% in fiscal 1999. The Company's
effective income tax rate increased due to a limitation on qualified research
and development expenditures used to calculate the Company's research and
development tax credit.
FISCAL YEAR ENDED MARCH 31, 1998 VS. FISCAL YEAR ENDED MARCH 31, 1997
Revenues. The Company's revenues increased 34.5% from $47.7 million in
fiscal 1997 to $64.2 million in fiscal 1998. This increase was primarily due to
increases in revenues generated by MD-1324s (UHF DAMA stand-alone modems),
StarWire satellite networking systems and Joint Communication Simulator ("JCS")
products. These increases were partially offset by a decrease in revenues
derived from UHF DAMA network control stations and modems and Enhanced Manpack
UHF Terminal ("EMUT") production.
Revenue from commercial customers grew from $1.5 million in fiscal 1997
to $5.9 million in fiscal 1998. Simulator product revenues grew from $4.8
million in fiscal 1997 to $11.5 million in fiscal 1998. UHF DAMA business area
revenues grew from $32.8 million (68.8% of revenues) in fiscal 1997 to $35.0
million (54.5% of revenues) in fiscal 1998.
Gross Profit. Gross profit increased 59.4% from $14.6 million (30.6% of
revenues) in fiscal 1997 to $23.3 million (36.3% of revenues) in fiscal 1998.
The increase in gross profit was primarily the result of a larger content of
higher margin products in the Company's sales for the year ended March 31, 1998
relative to the same period of the prior year. In addition, certain long-term
contracts realized higher profits than initial estimates.
Selling, General and Administrative Expenses. SG&A expenses increased
65.5% from $4.8 million (10.0% of revenues) in fiscal 1997 to $7.9 million
(12.2% of revenues) in fiscal 1998. The Company increased its business
development and administrative staffing in support of both defense and
commercial programs. Bid and proposal efforts increased from $1.2 million in
fiscal 1997 to $1.5 million in fiscal 1998.
Independent Research and Development. IR&D expenses increased 50.0%
from $5.1 million (10.6% of revenues) in fiscal 1997 to $7.6 million (11.9% of
revenues) in fiscal 1998. This increase resulted primarily from higher IR&D
expenses related to the Company's StarWire DAMA product, which represented
approximately 88% of total IR&D for fiscal 1998.
Interest Expense. Interest expense decreased 16.9% from $254,000 in
fiscal 1997 to $211,000 in fiscal 1998. Interest expense relates to loans for
the purchase of capital equipment and to short-term borrowings under the
Company's line of credit to cover working capital requirements. Total
outstanding equipment loans were $2.6 million at March 31, 1997 and 1998. There
were no outstanding borrowings under the Company's line of credit at the end of
each fiscal year.
Interest Income. Interest income increased 125.1% from $354,000 in
fiscal 1997 to $797,000 in fiscal 1998. Interest income relates to interest
earned on cash and short-term investments.
Provision (Benefit) for Income Taxes. The Company's effective income
tax rate increased from 35% in fiscal 1997 to 37% in fiscal 1998. The Company's
effective income tax rate increased due to a limitation on qualified research
and development expenditures used to calculate the Company's research and
development tax credit.
35
<PAGE> 39
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily from cash
flows from operations, bank line of credit financing, equity financing and loans
for the purchase of capital equipment. Cash provided from operating activities
for the fiscal year ended March 31, 1999 was $13.4 million, while cash used in
operating activities for the fiscal year ended March 31, 1998 was $127,000. The
relative increase in cash provided from operating activities for the year ended
March 31, 1999 compared to the prior year was primarily due to an increase in
net income and reductions in accounts receivable and inventory. The reduction in
accounts receivable resulted from the collection of overdue receivables from the
U.S. Government at March 31, 1998, and from the timing of customer payments.
Cash used in investing activities for the fiscal years ended March 31,
1999 and 1998 was $11.4 million and $10.0 million, respectively. This increase
in cash used was the result of purchasing $8.9 million in short-term, investment
grade debt securities offset by lower purchases of property and equipment of
$2.5 million, primarily consisting of test equipment and computers.
Cash provided by financing activities for the fiscal years ended March
31, 1999 and 1998 was $717,000 and $745,000, respectively.
At March 31, 1999, the Company had $6.0 million in cash and cash
equivalents, $14.8 million in short-term investments, $31.3 million in working
capital and $2.5 million in long-term debt which consists of equipment
financing.
The equipment line consists of three loans, each of which limits
borrowings to an 80.0% advance against the purchase price, net of sales tax,
delivery and insurance. All three loans have been converted into fully
amortizing loans which mature on September 15, 1999, 2000 and 2001,
respectively. The Company's credit facilities, including the line of credit and
future equipment financing, with Union Bank of California expired December 15,
1998.
The Company's future capital requirements, which management anticipates
will not exceed the Company's $20.0 million cash balance over the next 12
months, will depend upon many factors, including the progress of the Company's
research and development efforts, expansion of the Company's marketing efforts,
and the nature and timing of commercial orders. The Company believes that its
current cash and short-term investment balances and net cash expected to be
provided by operating activities, will be sufficient to meet its working capital
and capital expenditure requirements for at least the next 12 months. Management
intends to invest the Company's cash in excess of current operating requirements
in short-term, interest-bearing, investment-grade securities.
YEAR 2000 ISSUE
Many computer programs have been written using two digits rather than four to
define the applicable year. This poses a problem when 1/1/00 could represent
either year 2000 or year 1900. This, in turn, could result in system failures or
miscalculations, and is generally referred to as the "Year 2000 issue." The
Company's Year 2000 Plan includes four phases--evaluation, implementation of any
required changes, testing and release/installation.
The Company has completed the evaluation and implementation of modifications for
its business systems software and has completed testing of Company computers.
Because the Company's fiscal year 2000 began April 1, 1999, applications which
depend upon the fiscal year instead of the calendar year were required to be
free of any Year 2000 issues by April 1, 1999. All critical business systems
dependent upon the fiscal year 2000 were compliant before April 1, 1999, and
subsequently there have been no related issues. A few personal computers were
found to need modifications and/or replacement to be Year 2000 compliant. All
necessary modifications and replacements will be complete before January 1,
2000.
The Company has conducted evaluations of its products to determine if they are
Year 2000 compliant. The Company does not believe that there are any material
Year 2000 defects in its products. The Company has
36
<PAGE> 40
been asked by some customers to complete tests on products to determine if there
are any Year 2000 issues. The products have passed these tests. The Company does
not believe that any Year 2000 compliance issues related to its products will
result in a material adverse effect on the financial position or results of
operations of the Company.
The Company has completed extensive inquiries with significant suppliers to
evaluate their Year 2000 status to determine the extent to which the Company is
vulnerable to those third parties' failure to remedy their own Year 2000 issues.
The Company does not believe that any Year 2000 compliance issues related to its
suppliers will result in a material adverse effect on the financial position or
results of operations of the Company.
The Company currently estimates that the total cost of implementing its Year
2000 Plan will be less than $100,000.
The Company anticipates that the Year 2000 issue will not have a material
adverse effect on the financial position or results of operations of the
Company. There can be no assurances, however, that the systems of other
companies or the U.S. Government, on which the Company relies for supplies, cash
payments, and future business, will be timely converted, or that a failure to
convert by another company or the U.S. Government, would not have a material
adverse effect on the financial position or results of operations of the
Company. If third party service providers and vendors, due to the Year 2000
issue, fail to provide the Company with components or materials which are
necessary to manufacture its products, with sufficient electrical power and
other utilities to sustain its manufacturing process, or with adequate, reliable
means of transporting its products to its customers worldwide, then any such
failure could have a material adverse effect on the Company's ability to conduct
business, as well as the Company's financial position and results of operations.
Because the Company has adopted a plan to address Year 2000 issues, it has not
developed a comprehensive contingency plan for dealing with the most reasonably
likely worst case scenario. However, if the Company identifies significant risks
in the future or is unable to meet its anticipated schedule for completion of
its Year 2000 compliance, the Company will develop contingency plans to the
extent necessary at that time.
The foregoing discussion of Year 2000 issues contains forward-looking statements
and, along with all other forward-looking statements herein, are made in
reliance on the safe harbor provisions discussed in Item 1 above.
37
<PAGE> 41
SUMMARIZED QUARTERLY DATA (UNAUDITED)
The following financial information reflects all normal recurring
adjustments which are, in the opinion of management, necessary for the fair
statement of the results for the interim periods. Summarized quarterly data for
fiscal 1999 and 1998 is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1999
Revenues $16,304 $18,037 $18,928 $18,240
Gross profit 6,472 6,809 6,527 7,519
Income from operations 2,177 2,127 2,485 2,806
Net income 1,389 1,377 1,657 1,873
Basic net income per share 0.18 0.17 0.21 0.23
Diluted net income per share 0.17 0.17 0.20 0.23
1998
Revenues $14,476 $15,931 $15,991 $17,799
Gross profit 5,117 5,418 5,757 7,006
Income from operations 1,706 1,760 2,006 2,333
Net income 1,175 1,203 1,351 1,558
Basic net income per share 0.15 0.15 0.17 0.20
Diluted net income per share 0.15 0.15 0.16 0.19
</TABLE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's market risks pursuant to Item 7A are not material and
therefore are not disclosed.
ITEM 8. FINANCIAL STATEMENTS
The Company's financial statements at March 31, 1999 and 1998, and for
each of the three years in the period ended March 31, 1999, and the Report of
PricewaterhouseCoopers LLP, Independent Accountants, are included in this Report
on pages F-1 through F-14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
38
<PAGE> 42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be set forth under the
captions "Election of Directors" and "Executive Officers" in the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission in connection with its 1999 Annual Meeting of Stockholders (the
"Proxy Statement"), which is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the Proxy Statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Certain Transactions."
39
<PAGE> 43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
(a) Documents filed as part of the report:
(1) Report of Independent Accountants F-1
Balance Sheet at March 31, 1999 and 1998 F-2
Statement of Income for Fiscal 1999, 1998 and 1997 F-3
Statement of Cash Flows for Fiscal 1999, 1998 and 1997 F-4
Statement of Stockholders' Equity for Fiscal 1999, 1998
and 1997 F-5
Notes to Financial Statements F-6
</TABLE>
Financial statement schedules have been omitted because they are either
not required, not applicable or the information is otherwise included.
(2) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation.(1)
3.2 Bylaws.(1)
4.1 Form of Common Stock Certificate.(1)
10.3 Form of Stock Restriction Agreement by and between the
Company and each stockholder of the Company.(1)
10.4 Form of Invention and Confidential Disclosure Agreement by
and between the Company and each employee of the
Company.(1)
10.5 ViaSat, Inc. 1993 Stock Option Plan (the "1993 Stock
Option Plan").(1)
10.6 First Amendment to the 1993 Stock Option Plan.(2)
10.7 Form of Incentive Stock Option Agreement under the 1993
Stock Option Plan.(1)
10.8 Form of Nonqualified Stock Option Agreement under the 1993
Stock Option Plan.(1)
10.9 The 1996 Equity Participation Plan of ViaSat, Inc. (the
"1996 Equity Participation Plan").(3)
10.10 Form of Incentive Stock Option Agreement under the 1996
Equity Participation Plan.(1)
10.11 Form of Nonqualified Stock Option Agreement under the 1996
Equity Participation Plan.(1)
10.12 The ViaSat, Inc. Employee Stock Purchase Plan.(1)
10.13 ViaSat, Inc. 401(k) Profit Sharing Plan.(1)
10.14 Loan Agreement, dated as of September 15, 1995, by and
between the Company and Union Bank.(1)
10.15 Waiver and First Amendment to Loan Agreement, dated as of
March 31, 1997, by and between the Company and Union
Bank.(2)
10.16 Business Loan Agreement, dated as of April 5, 1994, as
amended, by and between the Company and Scripps Bank.(1)
10.17 Equipment Financing Agreement, dated April 28, 1994, by
and between the Company and Heritage Leasing Capital.(1)
10.18 Equipment Financing Agreement, dated May 13, 1994, by and
between the Company and Heritage Leasing Capital.(1)
10.19 Equipment Financing Agreement, dated September 19, 1994,
by and between the Company and Heritage Leasing
Capital.(1)
10.20 Equipment Financing Agreement, dated December 6, 1994, by
and between the Company and Heritage Leasing Capital.(1)
10.21 Sublease, dated as of August 20, 1993, by and between
Whittaker Corporation and the Company (2290 Cosmos Court,
Carlsbad, California).(1)
</TABLE>
40
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.22 Lease Agreement, dated December 8, 1994, by and between
The Campus, LLC and the Company (The Campus, Carlsbad,
California).(1)
10.23 Lease, dated March 21, 1995, by and between Nagog
Development Co. and the Company (125 Nagog Park, Acton,
Massachusetts).(1)
10.24 Lease, dated March 8, 1996, by and between Harry and Wendy
Brandon and the Company(1900 S. Harbor City Blvd.,
Melbourne, Florida).(1)
10.25 Lease, dated December 9, 1997, by and between Newport
National Corporation and the Company(5962 La Place Court,
Carlsbad, California).(4)
10.26 Lease, dated April 22, 1997, by and between Onimac
Corporation and the Company (2320 Camino Vida Roble,
Carlsbad, California).(4)
10.27 Lease, dated March 24, 1998, by and between W9/LNP Real
Estate Limited Partnership and the Company (6155 El Camino
Real, Carlsbad, California).(4)
10.25 Basic Ordering Agreement, dated November 8, 1994, as
amended, by and between the Company and AT&T acting
through its Tridom division.(1)
10.26 Supply & Services Contract, dated June 2, 1996, by and
between HCL Comnet Systems and Services Limited and the
Company.(1)
10.27 Basic Ordering Agreement Subcontract, dated March 4, 1994,
by and between Magnavox Electronic Systems Company and the
Company.(1)
10.28 Purchase Order Change to Basic Ordering Agreement
Subcontract, dated February 25, 1997, by and between
Hughes Defense Communications (formerly Magnavox
Electronic Systems Company) and the Company.(2)
10.29 Award/Contract, effective March 29, 1996, as amended,
issued by Electronic Systems Center/MCK Air Force Materiel
Command, USAF to the Company.(1)
10.30 Amendment of Award/Contract, effective February 24, 1997,
issued by Electronic Systems Center/MCK Air Force Materiel
Command, USAF to the Company.(2)
10.31 Award/Contract, effective October 2, 1995, issued by
Electronic Systems Center/MCK Air Force Materiel Command,
USAF to the Company.(1)
10.32 Award/Contract, effective September 29, 1993, as amended,
issued by Information Technology Acquisition Center to the
Company.(1)
10.33 Turnkey Agreement, dated August 9, 1996, by and between
Hutchison Corporate Access (HK) Limited and the
Company.(1)
10.34 Award/Contract, effective July 30, 1991, issued by
Electronic Systems Division Air Force Systems Command,
USAF to the Company.(1)
10.35 Award/Contract, effective September 27, 1993, as amended,
issued by Contracting Officer Naval Research Laboratory to
the Company.(1)
10.36 Award Contract, effective September 21, 1994, as amended,
issued by Technical Contract Management Office to the
Company.(1)
10.37 Fixed Price Contract, dated as of October 18, 1995, by and
between the Company and Spectragraphics.(1)
10.38 Amendment to lease, dated January 4, 1999, by and between
Prentiss Properties Acquisition Partners, L.P. and the
Company (The Campus, Carlsbad, California).(5)
10.39 Amendment to lease, dated January 4, 1999, by and between
Prentiss Properties Acquisition Partners, L.P. and the
Company (5962 La Place Court, Carlsbad, California).(5)
21.1 Subsidiaries.(1)
23.1 Consent of Independent Accountants.(5)
27.1 Financial Data Schedule.(5)
</TABLE>
- -----------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 filed with the Securities and Exchange Commission (the "Commission")
on October 1, 1996 (File No. 333-13183), as amended by Amendment No. 1
filed with the Commission on November 5, 1996, Amendment No. 2 filed with
the Commission on November 20, 1996, and Amendment No. 3 filed with the
Commission on November 22, 1996.
41
<PAGE> 45
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1997.
(3) Incorporated by reference to Exhibit A to the Company's Proxy Statement
relating to its 1998 Annual Meeting of Stockholders.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1998.
(5) Filed herewith.
(B) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed by the Company during the
fourth quarter of the fiscal year ended March 31, 1999.
(C) EXHIBITS
The exhibits required by this Item are listed under Item 14(a)(2).
42
<PAGE> 46
GLOSSARY OF SELECTED TERMS
<TABLE>
<S> <C>
DAMA............................Demand Assigned Multiple Access. A protocol for
assigning a communication channel to a user
only upon request.
DOD.............................Department of Defense.
Downlink........................A radio transmission from a satellite back down
toward the earth.
EMUT............................Enhanced Manpack UHF Terminal. A small, portable
satellite terminal for DOD that operates in
the UHF frequency band.
FDMA............................Frequency Division Multiple Access. A protocol
that assigns each communication channel to a
different transmission frequency.
GHz.............................Giga Hertz. One billion cycles per second. A
measure of frequency or bandwidth.
LEO.............................Low Earth Orbit.
Local Loop Services.............Local telephony service.
MHz.............................Mega Hertz. One million cycles per second. A
measure of frequency or bandwidth.
MIL-STD.........................Military standard.
NCS.............................Network Control System. The satellite terminal
and computer that manages channel assignments
in a DAMA network.
Network.........................A collection of user terminals linked together
by a satellite.
PSTN............................Public Switched Telephone Network.
RF..............................Radio Frequency.
SCPC............................Single Channel Per Carrier. A signalling
technique that transmits one voice or data
circuit per radio channel.
SHF.............................Super High Frequency radio transmissions.
TDM.............................Time Division Multiplexing. A protocol for
combining several different circuits into a
single, continuous transmission.
TDMA............................Time Division Multiple Access. A protocol for
time sharing a single communication channel
among a number of different users.
Transponder.....................A receiving and transmitting device on board a
satellite that relays an uplink transmission
from a satellite terminal back down to earth.
UHF.............................Ultra High Frequency radio transmissions.
</TABLE>
43
<PAGE> 47
<TABLE>
<S> <C>
Uplink..........................A radio transmission from a satellite terminal
that is sent up to a satellite.
VSAT............................Very Small Aperture Terminal. A satellite
terminal with a very small antenna. A VSAT
antenna is typically considered to be less
than 3.7 meters in diameter.
Wireless Local Loop ............Wireless switched local telephony service.
</TABLE>
44
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: June 28, 1999.
ViaSat, Inc.
By: /s/ MARK D. DANKBERG
----------------------------------------
Mark D. Dankberg
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MARK D. DANKBERG Chairman of the Board, June 28, 1999
- -------------------------------------- President and Chief
Mark D. Dankberg Executive Officer (Principal
Executive Officer)
/s/ RICHARD BALDRIDGE Vice President and Chief June 28, 1999
- -------------------------------------- Financial Officer
Richard Baldridge (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ ROBERT W. JOHNSON Director June 28, 1999
- --------------------------------------
Robert W. Johnson
/s/ JEFFREY M. NASH Director June 28, 1999
- --------------------------------------
Jeffrey M. Nash
/s/ B. ALLEN LAY Director June 28, 1999
- --------------------------------------
B. Allen Lay
/s/ JAMES F. BUNKER Director June 28, 1999
- --------------------------------------
James F. Bunker
/s/ WILLIAM A. OWENS Director June 28, 1999
- --------------------------------------
William A. Owens
</TABLE>
45
<PAGE> 49
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of ViaSat, Inc.
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) on page 40 present fairly, in all material respects, the financial
position of ViaSat, Inc. at March 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1999, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Diego, California
May 12, 1999
F-1
<PAGE> 50
VIASAT, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,005,000 $ 3,290,000
Short-term investments 14,788,000 5,918,000
Accounts receivable 16,176,000 19,056,000
Inventory 2,525,000 4,687,000
Deferred income taxes 2,358,000 1,548,000
Other current assets 446,000 479,000
----------- -----------
Total current assets 42,298,000 34,978,000
Property and equipment, net 6,630,000 6,986,000
Other assets 1,088,000 829,000
----------- -----------
Total assets $50,016,000 $42,793,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,754,000 $ 4,555,000
Accrued liabilities 6,027,000 5,087,000
Current portion of notes payable 1,219,000 1,060,000
----------- -----------
Total current liabilities 11,000,000 10,702,000
----------- -----------
Notes payable 1,243,000 1,544,000
Other liabilities 926,000 937,000
----------- -----------
Total long-term liabilities 2,169,000 2,481,000
----------- -----------
Commitments and contingencies (Notes 11 & 12)
Stockholders' equity:
Series A, convertible preferred stock, $.0001 par value; 5,000,000
shares authorized; no shares issued and outstanding at March 31,
1999 and 1998, respectively
Common stock, $.0001 par value, 25,000,000
shares authorized; 8,034,204 and 7,920,639
shares issued and outstanding at March 31,
1999 and 1998, respectively 81,000 81,000
Paid in capital 17,609,000 16,668,000
Retained earnings 19,157,000 12,861,000
----------- -----------
Total stockholders' equity 36,847,000 29,610,000
----------- -----------
Total liabilities and stockholders' equity $50,016,000 $42,793,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 51
VIASAT, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 71,509,000 $ 64,197,000 $ 47,715,000
Cost of revenues 44,182,000 40,899,000 33,102,000
------------ ------------ ------------
Gross profit 27,327,000 23,298,000 14,613,000
Operating expenses:
Selling, general and
administrative 10,093,000 7,862,000 4,752,000
Independent research and
development 7,639,000 7,631,000 5,087,000
------------ ------------ ------------
Income from operations 9,595,000 7,805,000 4,774,000
Other income (expense):
Interest income 834,000 797,000 354,000
Interest expense (250,000) (211,000) (254,000)
------------ ------------ ------------
Income before income taxes . 10,179,000 8,391,000 4,874,000
Provision for income taxes 3,883,000 3,104,000 1,702,000
------------ ------------ ------------
Net income $ 6,296,000 $ 5,287,000 $ 3,172,000
============ ============ ============
Basic net income per share $ 0.79 $ 0.68 $ 0.66
============ ============ ============
Diluted net income per share $ 0.77 $ 0.65 $ 0.48
============ ============ ============
Shares used in computing basic
net income per share 7,976,848 7,801,212 4,810,472
============ ============ ============
Shares used in computing diluted
net income per share 8,172,660 8,174,994 6,641,805
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 52
VIASAT, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,296,000 $ 5,287,000 $ 3,172,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 2,853,000 2,182,000 1,389,000
Tax benefit from exercise of stock options 82,000 -- --
Deferred income taxes (1,082,000) (811,000) (721,000)
Increase (decrease) in cash resulting
from changes in:
Accounts receivable 2,880,000 (8,741,000) (4,144,000)
Inventory 2,162,000 (209,000) (3,255,000)
Other assets 46,000 1,078,000 (1,620,000)
Accounts payable (801,000) (289,000) 2,070,000
Accrued liabilities 940,000 1,318,000 1,612,000
Other liabilities (11,000) 58,000 275,000
------------ ------------ ------------
Net cash provided by (used in)
operating activities 13,365,000 (127,000) (1,222,000)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of short-term investments, net (8,870,000) (5,918,000) --
Purchases of property and equipment (2,497,000) (4,083,000) (3,685,000)
------------ ------------ ------------
Net cash used in investing activities (11,367,000) (10,001,000) (3,685,000)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from short-term bank borrowings -- -- 2,600,000
Repayment of short-term bank borrowings -- -- (2,600,000)
Proceeds from issuance of notes payable 1,092,000 1,448,000 889,000
Repayment of notes payable (1,234,000) (1,407,000) (836,000)
Proceeds from issuance of common stock 859,000 704,000 15,230,000
------------ ------------ ------------
Net cash provided by financing activities 717,000 745,000 15,283,000
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 2,715,000 (9,383,000) 10,376,000
Cash and cash equivalents at beginning of year 3,290,000 12,673,000 2,297,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 6,005,000 $ 3,290,000 $ 12,673,000
============ ============ ============
Supplemental information:
Cash paid for interest $ 250,000 $ 211,000 $ 254,000
============ ============ ============
Cash paid for income taxes $ 4,263,000 $ 3,857,000 $ 2,293,000
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 53
VIASAT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------- ------------------------ STOCKHOLDERS'
NUMBER OF NUMBER OF PAID IN NOTES RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 3,225,000 $ 32,000 3,342,101 $ 46,000 $ 737,000 $ 4,402,000
Issuance of common stock 2,034,635 3,000 15,307,000
Conversion of preferred stock
to common stock (3,225,000) (32,000) 2,365,538 32,000
Shares subscribed $ (80,000)
Net income 3,172,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 1997 7,742,274 81,000 16,044,000 (80,000) 7,574,000
Exercise of stock options 126,273 149,000
Issuance for Employee Stock
Purchase Plan 52,092 475,000
Payment for shares subscribed 80,000
Net income 5,287,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 1998 7,920,639 81,000 16,668,000 12,861,000
Tax benefit from exercise of
stock options 82,000
Exercise of stock options 60,481 334,000
Issuance for Employee Stock
Purchase Plan 53,084 525,000
Net income 6,296,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 1999 8,034,204 $ 81,000 $17,609,000 $19,157,000
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 54
VIASAT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES
The Company
ViaSat, Inc. (the "Company") designs, produces and markets advanced
digital satellite telecommunications and wireless signal processing equipment.
Management Estimates and Assumptions
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Estimates have been prepared on the basis of the most current and best
available information and actual results could differ from those estimates.
Cash Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of 90 days or less.
Investments
At March 31, 1999, the Company held investments in investment grade
debt securities with various maturities. Management determines the appropriate
classification of its investments in debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. The Company's
investments in these securities as of March 31, 1999 and 1998 totaled
$18,686,000 and $9,176,000, respectively. The Company has included $3,898,000
and $3,258,000 of these securities in cash and cash equivalents, as of March 31,
1999 and 1998, respectively, as they have original maturities of less than 90
days. The remaining $14,788,000 and $5,819,000 as of March 31, 1999 and 1998,
respectively, have been classified as short-term investments. The Company has
designated all of its investments as held to maturity.
Revenue Recognition
The majority of the Company's revenues are derived from services
performed for the United States Government and its prime contractors under a
variety of contracts including cost-plus-fixed fee, fixed-price, and time and
materials contracts. Such sales amounted to $65,478,000, $58,249,000 and
$46,292,000 for the years ended March 31, 1999, 1998 and 1997, respectively.
Included in these revenues are sales to a significant customer under various
subcontracts totaling $9,058,000, $8,964,000 and $12,830,000 during the years
ended March 31, 1999, 1998 and 1997, respectively. The Company's five largest
contracts (by revenues) generated approximately 61%, 65% and 58% of the
Company's total revenues for the fiscal year ended March 31, 1999, 1998 and
1997, respectively. Revenues to customers in foreign countries are not
significant.
Generally, revenues are recognized as services are performed using the
percentage of completion method, measured primarily by costs incurred to date
compared with total estimated costs at completion or based on the number of
units delivered. The Company provides for anticipated losses on contracts by a
charge to income during the period in which they are first identified.
Contract costs, including indirect costs, are subject to audit and
negotiations with Government representatives. These audits have been completed
and agreed upon through fiscal year 1996. Contract revenues and accounts
receivable are stated at amounts which are expected to be realized upon final
settlement.
F-6
<PAGE> 55
Unbilled Accounts Receivable
Unbilled receivables consist of costs and fees earned and billable on
contract completion or other specified events. The majority of unbilled
receivables is expected to be collected within one year.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of cash equivalents,
short-term investments, and trade accounts receivable which are generally not
collateralized. The Company limits its exposure to credit loss by placing its
cash equivalents and short-term investments with high credit quality financial
institutions and investing in high quality short-term debt instruments.
Concentrations of credit risk with respect to receivables are generally limited
because the Company's principal customers are various agencies of the United
States Government and its prime contractors.
Inventory
Inventories are valued at the lower of cost or market, cost being
determined by the first-in, first-out method.
Software Costs
Software product development costs incurred from the time technological
feasibility is reached until the product is available for general release to
customers are capitalized and reported at the lower of cost or net realizable
value. Through March 31, 1999, no significant amounts were expended subsequent
to reaching technological feasibility.
Property and Equipment
Equipment, computers, and furniture and fixtures are recorded at cost,
and depreciated over estimated useful lives of 3 to 7 years under the
straight-line method. Additions to property and equipment together with major
renewals and betterments are capitalized. Maintenance, repairs and minor
renewals and betterments are charged to expense. When assets are sold or
otherwise disposed of, the cost and related accumulated depreciation or
amortization are removed from the accounts and any resulting gain or loss is
recognized.
Long-lived Assets
The Company assesses potential impairments to its long-lived assets
when there is evidence that events or changes in circumstances have made
recovery of the asset's carrying value unlikely. An impairment loss would be
recognized when the sum of the expected future undiscounted net cash flows is
less than the carrying amount of the asset. No such impairment losses have been
identified by the Company.
Warranty Reserves
The Company provides limited warranties on certain of its products for
periods of up to three years. The Company records warranty reserves when
products are shipped based upon an estimate of total warranty costs, with
amounts expected to be incurred within twelve months classified as a current
liability.
Income Taxes
Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred income tax asset or liability is
established for the expected future tax consequences resulting from differences
in the financial reporting and tax bases of assets and liabilities. Deferred
income tax expense (benefit) is the net change during the year in the deferred
income tax asset or liability.
F-7
<PAGE> 56
Stock Based Compensation
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income and earnings per share as if the fair value method had
been applied in measuring compensation expense.
Earnings Per Share
Basic earnings per share is computed based upon the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is based upon the weighted average number of common shares outstanding and
dilutive common stock equivalents during the period. Common stock equivalents
include options granted under the Company's stock option plans which are
included in the earnings per share calculations using the treasury stock method
and common shares expected to be issued under the Company's employee stock
purchase plan
Fair Value of Financial Instruments
At March 31, 1999, the carrying amounts of the Company's financial
instruments, including cash equivalents, short-term investments, trade
receivables and accounts payable, approximated their fair values due to their
short-term maturities. At March 31, 1999, the estimated fair value of the
Company's long-term debt approximated its carrying value, as a majority of the
related borrowing rates are variable.
NOTE 2 - COMPLETION OF INITIAL PUBLIC OFFERING
On December 3, 1996, the Company completed its initial public offering
for the sale of 2,400,000 shares of common stock (of which 1,850,000 shares were
sold by the Company and 550,000 shares were sold by certain stockholders) at a
price to the public of $9 per share, which resulted in net proceeds to the
Company of $15,485,000 after payment of the underwriters' commissions but before
deduction of offering expenses.
NOTE 3 - COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash and cash equivalents:
Investments in debt securities $ 3,898,000 $ 3,258,000
Cash 2,107,000 32,000
------------ ------------
$ 6,005,000 $ 3,290,000
============ ============
Accounts receivable:
Billed $ 7,765,000 $ 12,077,000
Unbilled 8,411,000 6,979,000
------------ ------------
$ 16,176,000 $ 19,056,000
============ ============
Inventory:
Raw materials $ 914,000 $ 1,564,000
Work in process 1,157,000 2,372,000
Finished goods 454,000 751,000
------------ ------------
$ 2,525,000 $ 4,687,000
============ ============
Property and equipment:
Machinery and equipment $ 9,249,000 $ 8,224,000
Computer equipment 4,179,000 4,108,000
Furniture and fixtures 326,000 339,000
------------ ------------
13,754,000 12,671,000
Less accumulated depreciation (7,124,000) (5,685,000)
------------ ------------
$ 6,630,000 $ 6,986,000
============ ============
Accrued liabilities:
Current portion of warranty reserve $ 1,440,000 $ 1,279,000
Accrued vacation 1,143,000 974,000
Accrued bonus 1,195,000 500,000
Accrued 401(k) matching contribution 791,000 671,000
Income taxes payable 694,000 309,000
Collections in excess of revenues 527,000 930,000
Other 237,000 424,000
------------ ------------
$ 6,027,000 $ 5,087,000
============ ============
</TABLE>
F-8
<PAGE> 57
NOTE 4 - SHORT-TERM BANK BORROWINGS
The Company's credit facilities, including the line of credit and
commitment for future equipment financing, expired on December 15, 1998. The
Company is in the process of renegotiating the terms of an agreement.
NOTE 5 - NOTES PAYABLE
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Bank installment loans, with various
maturity dates through September 2001,
total monthly payments of $117,000 with
interest rates ranging between 8% and 9%,
collateralized by equipment $ 2,462,000 $ 2,485,000
Finance company installment loans, with
various maturity dates through April 1999,
total monthly payments of $20,000 with
interest rates ranging between 10.23%
and 11.81%, collateralized by equipment 119,000
----------- -----------
2,462,000 2,604,000
Less current portion (1,219,000) (1,060,000)
----------- -----------
$ 1,243,000 $ 1,544,000
=========== ===========
</TABLE>
Principal maturities of notes payable as of March 31, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
---------------------
<S> <C>
2000 $ 1,219,000
2001 908,000
2002 335,000
-----------
$ 2,462,000
===========
</TABLE>
NOTE 6 - COMMON STOCK AND OPTIONS
In July 1993, the Company adopted the 1993 Stock Option Plan (the
"Plan") which authorizes 733,500 shares to be granted no later than July 2003.
The Plan provides for the grant of both incentive stock options and
non-qualified stock options which are subject to a three-year vesting period.
The exercise prices of the options represent the estimated fair value of the
Company's common stock as determined by the Company's Board of Directors. In
November 1996, the Plan was terminated and replaced by the 1996 Equity
Participation Plan. No options have been issued under the Plan since July 1996.
In November 1996, the Company adopted the ViaSat, Inc. 1996 Equity
Participation Plan (the "1996 Equity Participation Plan") designed to update and
replace the 1993 Stock Option Plan. The 1996 Equity
F-9
<PAGE> 58
Participation Plan provides for the grant to executive officers, other key
employees, consultants and non-employee directors of the Company a broad variety
of stock-based compensation alternatives such as nonqualified stock options,
incentive stock options, restricted stock and performance awards. A maximum of
1,250,000 shares are reserved for issuance under the 1996 Equity Participation
Plan. As of March 31, 1999, the Company had granted options to purchase 762,000
shares of common stock under this plan with vesting terms of 3 to 5 years.
In November 1996, the Company adopted the ViaSat, Inc. Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") to assist employees in
acquiring a stock ownership interest in the Company and to encourage them to
remain in the employment of the Company. The Employee Stock Purchase Plan is
intended to qualify under Section 423 of the Internal Revenue Code. A maximum of
250,000 shares of common stock are reserved for issuance under the Employee
Stock Purchase Plan. The Employee Stock Purchase Plan permits eligible employees
to purchase common stock at a discount through payroll deductions during
specified six-month offering periods. No employee may purchase more than $25,000
worth of stock in any calendar year. The price of shares purchased under the
Employee Stock Purchase Plan is equal to 85% of the fair market value of the
common stock on the first or last day of the offering period, whichever is
lower. As of March 31, 1999, the Company has issued 105,176 shares of common
stock under this plan.
Transactions under the Company's stock option plans are summarized as
follows:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- --------------
<S> <C> <C>
Outstanding at March 31, 1996 310,087 $ .34 - 1.36
Options granted 295,673 4.09 - 10.75
Options canceled (5,284) .82 - 4.09
Options exercised (73,458) .34 - 1.36
---------
Outstanding at March 31, 1997 527,018 .34 - 10.75
Options granted 269,450 12.25 - 19.81
Options canceled (13,511) .48 - 12.75
Options exercised (126,273) .34 - 4.09
---------
Outstanding at March 31, 1998 656,684 .34 - 19.81
Options granted 324,000 7.38 - 17.08
Options canceled (109,908) 1.36 - 15.53
Options exercised (60,480) .34 - 14.13
---------
Outstanding at March 31, 1999 810,296 $ .48 - 19.81
=========
</TABLE>
The following table summarizes all options outstanding and exercisable
by price range as of March 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE-YEARS PRICE EXERCISABLE PRICE
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.48 - 1.50 94,709 1.11 $ 1.23 94,709 $ 1.23
4.09 - 4.50 84,605 2.25 4.18 54,191 4.19
7.38 - 9.38 122,500 9.14 8.48 18,334 9.00
10.09 - 10.75 82,000 8.29 10.66 25,000 10.68
11.56 - 12.75 170,482 8.17 12.73 52,008 12.74
14.03 - 19.81 256,000 9.03 15.76 16,104 16.14
------- -------
$ 0.48 - 19.81 810,296 7.16 10.60 260,346 6.52
======= =======
</TABLE>
F-10
<PAGE> 59
NOTE 7 - SHARES USED IN EARNINGS PER SHARE CALCULATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding used in
calculating basic net income per share 7,976,848 7,801,212 4,810,472
Weighted average options to purchase common stock as
determined by application of the treasury stock method 185,452 360,118 226,840
Incremental shares for assumed conversion of
convertible preferred stock -- -- 1,600,788
Employee Stock Purchase Plan equivalents 10,360 13,664 3,705
--------- --------- ---------
Shares used in computing diluted net income per share 8,172,660 8,174,994 6,641,805
========= ========= =========
</TABLE>
All outstanding shares of the Company's preferred stock automatically
converted into shares of common stock upon the closing of the Company's initial
public offering on December 3, 1996. Shares used in computing diluted net income
per share for 1997 assume the conversion of all outstanding shares of the
convertible preferred stock at the beginning of those years. Antidilutive shares
excluded from the calculation were 420,735, 18,493, and 24,527 shares for the
fiscal years ended March 31, 1999, 1998, and 1997 respectively.
NOTE 8 - PRO FORMA EARNINGS PER SHARE
The fair values of options granted during the years ended as reported
below were estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
EMPLOYEE EMPLOYEE STOCK
STOCK OPTIONS PURCHASE PLAN
------------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Expected life (in years) 3.50-5.00 3.50-5.50 3.50-5.00 0.50 0.50 0.50
Risk-free interest rate 4.46-5.42% 5.65-5.68% 6.45% 5.66%-6.22% 5.54% 5.97%
Expected volatility 50.00% 50.00% 50.00% 50.00% 50.00% 50.00%
Expected dividend yield 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
The weighted average estimated fair value of employee stock options
granted during 1999, 1998, and 1997 was $6.27, $6.30, and $3.55 per share,
respectively. The weighted average estimated fair value of shares granted under
the Employee Stock Purchase Plan during 1999, 1998 and 1997 was $4.00, $4.00 and
$2.78 per share, respectively.
For purposes of pro forma disclosures, the estimated fair value of
options is amortized to expense over the vesting period. The Company's pro forma
information for the years ended March 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- ----------
<S> <C> <C> <C>
Net income as reported $ 6,296,000 $ 5,287,000 $3,172,000
Pro forma net income 5,157,000 4,489,000 3,016,000
Pro forma basic earnings per share 0.65 0.58 0.63
Pro forma diluted earnings per share 0.65 0.56 0.46
</TABLE>
F-11
<PAGE> 60
NOTE 9 - INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current tax provision
Federal $ 3,977,000 $ 3,200,000 $ 1,954,000
State 988,000 715,000 469,000
----------- ----------- -----------
4,965,000 3,915,000 2,423,000
----------- ----------- -----------
Deferred tax (benefit) provision
Federal (863,000) (683,000) (563,000)
State (219,000) (128,000) (158,000)
----------- ----------- -----------
(1,082,000) (811,000) (721,000)
----------- ----------- -----------
Total provision for
income taxes $ 3,883,000 $ 3,104,000 $ 1,702,000
=========== =========== ===========
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Warranty reserve $ 706,000 $ 738,000
Inventory reserve 1,377,000 383,000
Accrued vacation 396,000 328,000
State income taxes 335,000 243,000
Other 337,000 377,000
---------- ----------
Total deferred tax assets $3,151,000 $2,069,000
========== ==========
</TABLE>
A reconciliation of the provision for income taxes to the amount computed
by applying the statutory federal income tax rate to income before income taxes
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Tax expense at statutory rate $ 3,461,000 $ 2,853,000 $ 1,657,000
State tax provision,
net of federal benefit 507,000 388,000 205,000
Research tax credit (67,000) (179,000) (181,000)
Other (18,000) 42,000 21,000
----------- ----------- -----------
$ 3,883,000 $ 3,104,000 $ 1,702,000
=========== =========== ===========
</TABLE>
F-12
<PAGE> 61
NOTE 10 - EMPLOYEE BENEFITS
The Company has a voluntary deferred compensation plan under Section
401(k) of the Internal Revenue Code. The Company may make discretionary
contributions to the plan which vest equally over six years. Employees who have
completed 90 days of service and are at least 21 years of age are eligible to
participate in the plan. Participants are entitled, upon termination or
retirement, to their vested portion of the plan assets which are held by an
independent trustee. Discretionary contributions accrued by the Company during
fiscal years 1999, 1998 and 1997 amounted to $791,000 $671,000 and $553,000,
respectively. The cost of administering the plan is not significant.
NOTE 11 - COMMITMENTS
The Company leases office facilities under noncancelable operating leases
with initial terms ranging from one to ten years which expire between November
1999 and December 2009. Certain of the Company's facilities leases contain
option provisions which allow for extension of the lease terms. Rent expense was
$1,312,000, $1,079,000 and $793,000 in fiscal years 1999, 1998 and 1997,
respectively.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
---------------------
<S> <C>
2000 $ 1,465,000
2001 2,294,000
2002 2,294,000
2003 2,294,000
2004 2,294,000
Thereafter 12,999,000
------------
$ 23,640,000
============
</TABLE>
NOTE 12 - CONTINGENCIES
The Company is currently a party to various government and commercial contracts
which require the Company to meet performance covenants and project milestones.
Under the terms of these contracts, failure by the Company to meet such
performance covenants and milestones permit the other party to terminate the
contract and, under certain circumstances, recover liquidated damages or other
penalties. The Company is currently not in compliance (or in the past was not in
compliance) with the performance or milestone requirements of certain of these
contracts. Historically, the Company's customers have not elected to terminate
such contracts or seek liquidated damages from the Company and management does
not believe that its existing customers will do so; therefore, the Company has
not accrued for any potential liquidated damages or penalties.
NOTE 13 - SUBSEQUENT EVENT
From time to time, the Company issues standby letters of credit for its
customers. In April 1999, the Company has secured these letters of credit with a
$1,000,000 time certificate of deposit with the Company's bank.
F-13
<PAGE> 1
EXHIBIT 10.38
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE ("Amendment") is made and entered into as of
January 4, 1999, by and between PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
a Delaware limited partnership ("Landlord"), successor-in-interest to The
Campus, LLC, a California Limited Liability Company ("Campus LLC"), and VIASAT,
INC., a Delaware corporation ("Tenant").
R E C I T A L S
A. Campus LLC and Tenant entered into that certain lease dated as of
December 8, 1994 (the "Lease"), concerning that certain premises containing
49,675 rentable square feet (the "Premises") in a building located at 5964 La
Place Court, Suite 150, Carlsbad, California (the "Building"), and more
particularly described in the Lease.
B. Campus and Tenant amended the Lease by a First Amendment to Lease in
order to reduce the rentable square footage to 30,914 rentable square feet,
reduce the base rent and to exercise an option to reduce the initial term from
sixty (60) months to forty-eight (48) months.
C. Campus and Tenant amended the Lease and First Amendment to Lease by a
Second Amendment to Lease by which the Premises, now called Suite 100, was
increased to 49,675 rentable square feet.
D. Landlord succeeded to Campus LLC's interest in the Lease.
E. The Lease term expires July 31, 1999, and Tenant desires to extend
the lease for an additional term.
F. Landlord and Tenant further desire to amend the Lease to reflect the
extended term and to otherwise modify the Lease as set forth in this Amendment.
A G R E E M E N T :
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby amend
the Lease as follows:
1. INCORPORATION: DEFINED TERMS. The Lease is hereby incorporated into
this Amendment by this reference. All capitalized terms used and not otherwise
defined in this Amendment, but defined in the Lease, shall have the same meaning
in this Amendment as in the Lease.
2. EXTENSION OF TERM. The term of the Lease is hereby extended for an
additional four (4) months commencing on August 1, 1999 and expiring on
November 30, 1999 ("Extended Term").
3. BASE RENT. For the Extended Term, Tenant shall pay Base Rent monthly
in accordance with the following schedule:
<TABLE>
<CAPTION>
Base Rent Per
Period Month
------ -------------
<S> <C>
8/1/99 -11/30/99 $47,688.00
</TABLE>
4. LANDLORD IMPROVEMENTS. Tenant shall accept the Premises in its
current "as-is" condition.
5. NO CONCESSIONS. Tenant shall not be entitled to any rent abatement or
other concessions during the Extended Term.
6. MISCELLANEOUS.
(a) Effect of Amendment. Except to the extent the Lease is modified
by this Amendment, the remaining terms and provisions of the Lease shall remain
unmodified and in full force and effect. In the event of conflict between the
terms of the Lease and the terms of this Amendment, the terms of this Amendment
shall prevail.
(b) Entire Agreement. This amendment embodies the entire
understanding between Landlord and Tenant with respect to its subject matter and
can be changed only by an instrument in writing signed by Landlord and Tenant.
<PAGE> 2
(c) Counterparts. This Amendment may be executed in counterparts,
each of which shall be deemed an original, but all of which, together, shall
constitute one in the same Amendment.
(d) Attorney's Fees. The provisions of the Lease respecting payment
of attorneys' fees shall also apply to this Amendment.
(e) Corporate Authority. Each individual executing this Amendment
for the Tenant represents that he or she is duly authorized to execute and
deliver this Amendment for the Tenant and that the Amendment is binding upon
the Tenant in accordance with its terms.
7. BROKERAGE COMMISSIONS. Tenant hereby represents and warrants to
Landlord that, other than Business Real Estate Brokerage Company and Prentiss
Properties (collectively, the "Brokers") no other broker or finder has been
engaged by it in connection with the transaction contemplated by this Amendment
or to its knowledge is in any way connected with such transaction. In the event
of any claims or brokers' or finders' commissions or fees in connection with
the negotiation, execution or consummation of this Amendment other than by the
Brokers, then Tenant shall indemnify, defend and hold harmless Landlord from
and against any such claims if they shall be based upon any statement or
representation or agreement of Tenant.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and year first set forth above.
LANDLORD: PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P., a
Delaware limited partnership
By: Prentiss Properties I, Inc.
Its: General Partner
By: /s/ LOUAY ALSADEK
--------------------------------------
Name: Louay Alsadek
-------------------------------------
Title: Vice President
------------------------------------
By:
--------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
TENANT:
VIASAT, INC.
a Delaware corporation
By: /s/ GREG MONAHAN
--------------------------------------
Name: Greg Monahan
-------------------------------------
Title: Vice President
------------------------------------
By: /s/ [SIG. ILLEGIBLE]
--------------------------------------
Name: [Sig. Illegible]
-------------------------------------
Title: Vice President
------------------------------------
<PAGE> 1
EXHIBIT 10.39
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("Amendment") is made and entered into as of
January 4, 1999, by and between PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.,
a Delaware limited partnership ("Landlord"), successor-in-interest to The
Campus, LLC, a California Limited Liability Company ("Campus LLC"), and VIASAT,
INC., a Delaware corporation ("Tenant").
RECITALS
A. Campus LLC and Tenant entered into that certain lease dated as of
November 11, 1997 (the "Lease"), concerning that certain premises containing
6,736 rentable square feet (the "Premises") in a building located at 5962 La
Place Court, Suites 225, 260, 230, Carlsbad, California (the "Building"), and
more particularly described in the Lease.
B. Landlord succeeded to Campus LLC's interest in the Lease.
C. The Lease term expires May 31, 1999, and Tenant desires to extend the
lease for an additional term.
D. Landlord and Tenant further desire to amend the Lease to reflect the
extended term and to otherwise modify the Lease as set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby amend
the Lease as follows:
1. INCORPORATION: DEFINED TERMS. The Lease is hereby incorporated into
this Amendment by this reference. All capitalized terms used and not otherwise
defined in this Amendment, but defined in the Lease, shall have the same meaning
in this Amendment as in the Lease.
2. EXTENSION OF TERM. The term of the Lease is hereby extended for an
additional six (6) months commencing on June 1, 1999 and expiring on November
30, 1999 ("Extended Term").
3. BASE RENT. For the Extended Term, Tenant shall pay Base Rent monthly
in accordance with the following schedule:
<TABLE>
<CAPTION>
Base Rent Per
Period Month
------ --------------
<S> <C>
6/1/99 - 11/30/99 $11,990.00
</TABLE>
4. LANDLORD IMPROVEMENTS. Tenant shall accept the Premises in its current
"as-is" condition.
5. NO CONCESSIONS. Tenant shall not be entitled to any rent abatement or
other concessions during the Extended Term.
6. MISCELLANEOUS.
(a) Effect of Amendment. Except to the extent the Lease is modified
by this Amendment, the remaining terms and provisions of the Lease shall remain
unmodified and in full force and effect. In the event of conflict between the
terms of the Lease and the terms of this Amendment, the terms of this Amendment
shall prevail.
(b) Entire Agreement. This Amendment embodies the entire understanding
between Landlord and Tenant with respect to its subject matter and can be
changed only by an instrument in writing signed by Landlord and Tenant.
(c) Counterparts. This Amendment may be executed in counterparts, each
of which shall be deemed an original, but all of which, together, shall
constitute one in the same Amendment.
(d) Attorney's Fees. The provisions of the Lease respecting payment of
attorneys' fees shall also apply to this Amendment.
<PAGE> 2
(e) Corporate Authority. Each individual executing this Amendment for
the Tenant represents that he or she is duly authorized to execute and deliver
this Amendment for the Tenant and that the Amendment is binding upon the Tenant
in accordance with its terms.
7. BROKERAGE COMMISSIONS. Tenant hereby represents and warrants to
Landlord that, other than Business Real Estate Brokerage Company and Prentiss
Properties (collectively, the "Brokers") no other broker or finder has been
engaged by it in connection with the transaction contemplated by this Amendment
or to its knowledge is in any way connected with such transaction. In the event
of any claims or brokers' or finders' commissions or fees in connection with
the negotiation, execution or consummation of this Amendment other than by the
Brokers, then Tenant shall indemnify, defend and hold harmless Landlord from
and against any such claims if they shall be based upon any statement or
representation or agreement of Tenant.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
and year first set forth above.
LANDLORD: PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P., a
Delaware limited partnership
By: Prentiss Properties I, Inc.
Its: General Partner
By: /s/ LOUAY ALSADEK
------------------------------------
Name: LOUAY ALSADEK
------------------------------
Title: VICE PRESIDENT
-----------------------------
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
TENANT: VIASAT, INC.
a Delaware corporation
By: /s/ GREG MONAHAN
-----------------------------------------
Name: GREG MONAHAN
-----------------------------------
Title: VICE PRESIDENT
----------------------------------
By: /s/ [SIGNATURE ILLEGIBLE]
-----------------------------------------
Name: [ILLEGIBLE]
-----------------------------------
Title: VICE PRESIDENT
----------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-21113 and 333-68757) of ViaSat, Inc. of our
report dated May 12, 1999, relating to the financial statement which appears in
this Form 10-K.
PricewaterhouseCoopers LLP
San Diego, California
June 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE VIASAT,
INC. FINANCIAL STATEMENTS FOR YEAR ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 6,005
<SECURITIES> 14,788
<RECEIVABLES> 16,176
<ALLOWANCES> 0
<INVENTORY> 2,525
<CURRENT-ASSETS> 42,298
<PP&E> 13,754
<DEPRECIATION> 7,124
<TOTAL-ASSETS> 50,016
<CURRENT-LIABILITIES> 11,000
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 36,766
<TOTAL-LIABILITY-AND-EQUITY> 50,016
<SALES> 71,509
<TOTAL-REVENUES> 71,509
<CGS> 44,182
<TOTAL-COSTS> 44,182
<OTHER-EXPENSES> 17,732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (584)
<INCOME-PRETAX> 10,179
<INCOME-TAX> 3,883
<INCOME-CONTINUING> 6,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,296
<EPS-BASIC> .79
<EPS-DILUTED> .77
</TABLE>
