1
EXHIBIT 99.1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS
In passing the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"), Congress encouraged public companies to make "forward-looking statements"
by creating a safe harbor to protect companies from securities law liability in
connection with forward-looking statements. Radyne ComStream intends to qualify
both its written and oral forward-looking statements for protection under the
Reform Act and any other similar safe harbor provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. The words
"believe," "expect," "anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. Such statements may include,
but not are limited to: (i) continued growth in demand for satellite system
ground-based equipment and satellite-delivered communications services, (ii)
continued global deregulation and privatization of telecommunications carriers,
(iii) continued growth in worldwide demand for Internet over Satellite
connectivity and communications serves in general, (iv) an increase in total
foreign sales, and (v) sufficient cash reserves and cash from operations to fund
planned future operations and capital requirements through the end of 2001. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All forward-looking statements are inherently
uncertain as they are based on various expectations and assumptions concerning
future events and they are subject to numerous known and unknown risks and
uncertainties that could cause actual events or result to differ materially from
those projected. Due to those and other uncertainties and risks, the investment
community is urged not to place undue reliance on written or oral
forward-looking statements of Radyne ComStream. Radyne ComStream undertakes no
obligation to update or revise this Cautionary Statement Regarding
Forward-Looking Statements to reflect future developments. In addition, Radyne
ComStream undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events, or changes to future operating results over time.
Radyne ComStream provided the following risk factor disclosure in connection
with its continuing effort to qualify its written and oral forward-looking
statements under the safe harbor protection of the Reform Act and any other
similar safe harbor provisions. Important factors currently known to management
that could cause actual results to differ materially from those in
forward-looking statements include the disclosures contained in the Company's
Annual Report on Form 10-K to which this statement is appended as an exhibit and
also include the following:
RISK FACTORS
You should carefully consider the following risks before you decide to
buy our securities. If any of the following risks actually occur, our business,
financial condition or results of operations would likely suffer. As a result,
the trading price of our securities could decline, and you may lose all or part
of the money you paid to buy our securities.
We Have A History Of Operating Losses, Only Recently Became Profitable, And
Could Suffer Further Losses In The Future.
As a result of operating losses prior to 1999, we had an accumulated
deficit of $6.6 million at December 31, 2000. Although we have been profitable
over the past 2 years, the economy has shown signs of weakening, which we expect
to affect profitability in the first quarter of this year. Further, there can be
no assurance that we will remain profitable in the future. Reductions in our
profitability or losses would adversely affect our stock price.
We Depend On International Sales, Which Could Cause Our Sales Levels To Be
Volatile.
Sales to our foreign customers were approximately 50% of our net sales
for the year ended December 31, 1998, 56% of our net sales for the year ended
December 31,
2
2000. Additionally, we estimate that approximately 60% of domestic sales are
eventually exported. According to DTT Consulting, a satellite industry
consulting and research firm, there has been significant growth in the use of
satellites for Internet traffic in recent years. This growth has been centered
on connecting Internet service providers, or ISPs, with Internet servers. ISPs
rarely use satellites to provide point-to-point infrastructure for the Internet
in the United States and, thus, we expect that our sales to this market will be
primarily to customers located outside the United States. We anticipate that
foreign sales will continue to account for a significant portion of our revenue
in the near future. Our foreign sales are denominated in U.S. dollars. As a
result, any decrease in the value of foreign currencies relative to the U.S.
dollar may adversely affect the demand for our products by increasing their
costs in the currency of those countries. For example, the economic crisis in
the Pacific Rim region and other international markets decreased our bookings
from these regions and adversely affected our results of operations in the
fourth quarter of 1998 and throughout 1999 and 2000.
Additional risks in the international marketplace include the
following:
- changing regulatory requirements,
- the availability of export licenses,
- political and economic instability,
- difficulties in staffing and managing foreign operations, tariffs
and other trade barriers,
- complex foreign laws and treaties, and
- difficulty of collecting foreign account receivables.
In addition, we are subject to the Foreign Corrupt Practices Act, which
prohibits us from making payments to government officials and others in order to
influence the granting of contracts we may be seeking. Our non-U.S. competitors
are not subject to this law and this may give them a competitive advantage over
us.
The Current Downturn In The Rapidly Evolving Telecommunications And Internet
Industries Could Harm Our Business.
Our success depends upon the continued growth of the telecommunications
industry, particularly with regard to the Internet. The rapid growth and
evolution in the global telecommunications and Internet industries, as well as
the rapid growth in demand for Internet services and the resultant need for
high-speed or enhanced telecommunications products seen in prior years has been
slowed by current economic conditions in the United States and elsewhere. The
potential growth in these areas is unpredictable. We cannot provide assurance
that the deregulation, privatization and economic globalization of the worldwide
telecommunications market that has resulted in demand for technologies and
services will continue in a manner favorable to us or our business strategies.
We Depend On Developing Markets And Their Uncertain Growth Potential Could
Result In Losses.
We believe a substantial portion of the growth in demand for our
products will depend upon customers in developing countries. We cannot provide
assurance that such increases in demand will occur or that prospective customers
will accept our products. The degree to which we are able to penetrate potential
markets in developing countries will be affected to a large extent by the speed
with which other competing elements of the communications infrastructure, such
as other satellite-delivered solutions, telephone lines, television cable, and
land-based solutions, are installed in developing countries in which we sell our
products. The failure to increase the sales of our products in developing
countries would have a material adverse effect on our business, financial
condition, and results of operations.
The Loss Of The Services Of Any Member Of Our Senior Management Or The Inability
To Attract Or Retain Additional Technical Personnel Could Impair Our Ability To
Conduct And Expand Our Business.
Our future performance depends significantly on Robert C. Fitting, our
Chief Executive Officer, and Steve Eymann, our Executive Vice President and
Chief Technical Officer. The loss of either of these key employees would
adversely affect our operations. Mr. Fitting is 65 years old and the Company may
eventually need to effect an
3
appropriate transition to a new Chief Executive Officer. Any such transition may
disrupt our business, customers and employees.
Our continued ability to attract and retain highly skilled personnel
also is critical to the operation and expansion of our business. The market for
skilled engineers and other technical personnel is extremely competitive, and
recruitment and retention costs are high. Although we have been able to attract
and retain the personnel necessary to operate our business, we may not be able
to do so in the future, particularly as we expand our business into
Internet-related products and other markets. The failure to attract and retain
personnel with the necessary skills when needed could materially and adversely
affect our business and expansion plans.
Competition In Our Industry Is Intense And Can Lead To Reduced Sales And Market
Share.
The markets for ground segment systems are highly competitive. We have
a number of major competitors in the satellite communications equipment field.
These include large companies, such as Hughes Network Systems, Inc., NEC, and
Comtech Telecommunications Corp., which have significantly larger and more
diversified operations and greater financial, marketing, personnel and other
resources than we possess. As a result, these competitors may develop and expand
their products more quickly, adapt more quickly to new or emerging technologies
and changes in customer requirements, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products than we can.
We believe that the quality, performance and capabilities of our
products, our ability to customize certain network functions, and the relatively
lower overall cost of our products, as compared to the costs of the products
generally offered by our major competitors, have contributed to our ability to
compete. Most of our competitors offer products that have one or more features
or functions similar to those that we offer. Competition from current
competitors or future entrants in the markets in which we compete could cause us
to lose orders or customers or could force us to lower the prices we charge for
our products, all of which would have a material adverse impact on our business,
financial condition, and results of operations.
Our Products May Become Obsolete Due To Rapid Technological Change.
The telecommunications industry, including the ground-based satellite
communications systems business, is characterized by rapid and continuous
technological change. Future technological advances in the telecommunications
industry may result in the introduction of new products or services that compete
with our products or render them obsolete. Our success depends in part on our
ability to respond quickly to technological changes through the improvement of
our current products and the development of new products. Accordingly, we
believe that we will need to allocate a substantial amount of capital to
research and development activities in the future. We may not generate cash flow
from operations or have access to outside financing in amounts that are
sufficient to adequately fund the development of new products. Even if we are
able to obtain the required funding to develop new products, we cannot assure
you that we will be able to develop products that we will be able to sell
successfully. Our inability to improve our existing products and develop new
products could have a material adverse effect on our business, financial
condition, and results of operations.
The High Cost Of Research And Development Reduces Our Profitability.
Our future growth depends on penetrating new markets, adapting existing
satellite communications products to new applications, and introducing new
communications products that achieve market acceptance and benefit from our
established international distribution channels. Accordingly, we are actively
applying our communications expertise to design and develop new hardware and
software products and enhance existing products. We expended $9,316,633 in the
year ended December 31, 2000 on research and development activities. This
represents 13% of our net sales for the year ended December 31, 2000.
Additionally, our research and development program may not produce successful
results, which would have a material adverse effect on our business, financial
condition, and results of operations.
4
Continued Growth Could Prove Unsuccessful And Strain Our Personnel And Systems
And Divert Our Resources.
Our operations have expanded significantly as a result of our
acquisitions of ComStream and Armer Communications Engineering Services, Inc. In
order to pursue successfully the opportunities presented by the ground segment
and emerging satellite-delivered communications and Internet/intranet-
infrastructure markets, we will be required to continue to expand our
operations. This expansion would entail various risks, including the difficulty
of assimilating the operations and personnel of the acquired businesses or
products, the potential disruption of our ongoing business and, generally, our
potential inability to obtain the desired financial and strategic benefits from
the acquisition or investment. In order to manage any future growth effectively,
we will be required to:
- attract, train, motivate, and manage a significantly larger number
of employees;
- conduct product engineering and management, sales and marketing
efforts, customer support activities; and
- manage higher capital requirements.
Any failure to manage any further growth in an efficient manner and at
a pace consistent with our business could have a material adverse effect on our
growth and our business, financial condition, and results of operations.
Further, any future acquisitions and investments also could result in
substantial cash expenditures, potentially dilutive issuances of equity
securities, the incurrence of additional debt and contingent liabilities, and
amortization expenses related to goodwill and other intangible assets, which
could adversely affect our financial results and condition.
Our Competitive Position Relies Heavily On Our Proprietary Technology And
Intellectual Property.
We rely on our proprietary technology and intellectual property to
maintain our competitive position. Unauthorized parties could attempt to copy
aspects of our technologies or to obtain information that we regard as
proprietary. We may not be able to police unauthorized use of our intellectual
property. Our failure to protect our proprietary technology and intellectual
property could adversely affect our competitive position.
We generally rely on confidentiality agreements with our employees and
some of our suppliers to protect our proprietary technology. We also control
access to and distribution of confidential information concerning our
proprietary technology. We cannot guarantee that the other parties to these
agreements will not disclose or misappropriate the confidential information
concerning our proprietary technology, which could have a material adverse
effect on our business.
We rely on patents to protect certain of our proprietary technology.
Patents, however, often provide only narrow protection that may not prevent
competitors from developing products that function in a manner similar to those
covered by our patents. In addition, some foreign countries in which we sell our
products do not provide the same level of protection to intellectual property as
the laws of the United States provide. We cannot assure you that any patents we
currently own or control, or that we may acquire in the future, will prevent our
competitors from independently developing products that are substantially
similar or superior to ours.
We may find it necessary to take legal action in the future to enforce
or protect our intellectual property rights. Litigation can be very expensive
and can distract our management's time and attention, which could adversely
affect our business. In addition, we may not be able to obtain a favorable
outcome in any intellectual property litigation.
Our Products Could Infringe On The Intellectual Property Of Others.
Third parties may in the future assert that our technology violates
their intellectual property rights. As a result of such claims, we could be
required to enter into licensing arrangements or develop non-infringing
products, which could be prohibitively expensive or could divert a significant
amount of resources from other aspects of our business.
We may find it necessary to take legal action in the future to defend
against claims that our products or
5
technologies infringe the rights of third parties. Litigation can be very
expensive and can distract our management's time and attention, which could
adversely affect our business. In addition, we may not be able to obtain a
favorable outcome in any intellectual property litigation.
We Depend Upon Certain Suppliers And Subcontractors, The Loss Of Which Could
Cause An Interruption In The Production Of Our Products.
We rely on subcontractors to assemble and test some of our products.
Additionally, our products use a number of specialized chips and customized
components or subassemblies produced by a limited number of suppliers. We
maintain limited inventories of these products and do not have long-term supply
contracts with our vendors. In the event our subcontractors or suppliers are
unable or unwilling to fulfill our requirements, we could experience an
interruption in product availability until we are able to secure alternative
sources of supplies. We are also subject to price increases by suppliers that
could increase the cost of our products or require us to develop alternative
suppliers, which could interrupt our business. It may not be possible to obtain
alternative sources at a reasonable cost. Supply interruptions could cause us to
lose orders or customers, which would result in a material adverse impact on our
business, financial condition, and results of operations.
Our Quarterly Operating Results Have Fluctuated Significantly In The Past, And
We Anticipate That They Could Do So In The Future, Which Could Adversely Affect
Our Stock Price.
We may continue to experience significant quarter to quarter
fluctuations in our operating results, which may result in volatility in the
price of our common stock. These fluctuating operating results result from a
variety of factors, including the following:
- timing of the initiation and completion of our purchase orders;
- demand for our products;
- introduction of new or enhanced products by us or our competitors;
- growth of demand for Internet-based products and services in
developing countries;
- timing of significant marketing programs we may implement;
- extent and timing of hiring additional personnel;
- competitive conditions in our industry; and
- general economic conditions in the United States and abroad.
The Ownership Interest Of Our Controlling Shareholder May Make Our Stock Less
Attractive To Investors And Potential Acquirers.
ST owns a majority of our outstanding common stock. ST will, therefore,
continue to have the ability to elect all of our directors and to control the
outcome of all issues submitted to a vote of our stockholders. It also would be
impossible for a third party to acquire us without the consent or participation
of ST. ST has signed a lock-in agreement required by certain state regulatory
authorities that could, in certain circumstances, reduce the proceeds receivable
by ST in the event of a sale or merger of our company during the term of the
lock-in agreement. The lock-in agreement is for a term of two years, unless
earlier terminated as provided in the agreement. This requirement might make ST
less likely to consent to any sale or merger of our company during the term of
this lock-in agreement.
Our Outstanding Options And Warrants May Dilute Our Stockholders' Interests And
Could Hinder Us From Obtaining Additional Financing.
We grant options and warrants to purchase shares of common stock to
employees, directors and others with business relationships with us. To the
extent that outstanding options and warrants are exercised, our stockholders'
interests will be diluted. Also, we may not be able to obtain additional equity
capital on acceptable terms, because the holders of the outstanding options and
warrants will likely exercise them at a time when we may be able to obtain such
capital on better terms than those under the options and warrants.
6
Our Redemption Of Redeemable Warrants May Have An Adverse Effect On The Holders
Of The Warrants.
We have the right to redeem all, but not less than all, of the
redeemable warrants under certain conditions. Redemption of the redeemable
warrants could encourage holders to exercise them and pay the exercise price at
a time when it may be disadvantageous for the holders to do so, to sell the
redeemable warrants at the current market price when they might otherwise wish
to hold the redeemable warrants or to accept the redemption price, which may be
substantially less than the market value of the redeemable warrants at the time
of redemption. The holders of the redeemable warrants will automatically forfeit
their rights to purchase the shares of common stock issuable upon exercise of
those warrants unless the warrants are exercised before they are redeemed. The
holders of redeemable warrants will not possess any rights as stockholders
unless and until the redeemable warrants are exercised.
Stock Prices Of Technology Companies Have Declined Precipitously In The Past
Year And The Trading Price Of Our Common Stock And Redeemable Warrants Is Likely
To Be Volatile, Which Could Result In Substantial Losses To Investors.
The trading price of our common stock and redeemable warrants have
fallen in recent months and could continue to be volatile in response to factors
including the following, some of which are beyond our control:
- decreased demand in the Internet-services sector;
- variations in our operating results;
- announcements of technological innovations or new services by us or
our competitors;
- changes in expectations of our future financial performance,
including financial estimates by securities analysts and investors;
- changes in operating and stock price performance of other
technology companies similar to us;
- conditions or trends in the technology industry;
- additions or departures of key personnel; and
- future sales of our common stock.
Domestic and international stock markets often experience significant
price and volume fluctuations. These fluctuations, as well as general economic
and political conditions unrelated to our performance, may adversely affect the
price of our common stock and redeemable warrants.
The Large Number Of Shares Eligible For Future Sale May Adversely Affect The
Market Price Of Our Common Stock.
A large number of our issued and outstanding shares of common stock are
eligible for future sale. The sale, or availability for sale, of a substantial
number of shares of common stock in the public market could materially adversely
affect the market price of our common stock and could impair our ability to
raise additional capital through the sale of our equity securities.
Nasdaq Could Delist Our Common Stock Or Redeemable Warrants, Which Could Make It
More Difficult For You To Sell Or Obtain Quotations As To The Price Of Our
Common Stock Or Redeemable Warrants.
In order to continue to be listed on Nasdaq, we must meet the following
requirements:
- net tangible assets of at least $2,000,000, or a market
capitalization of $35,000,000 or $500,000 in net earnings for two
of the last three years;
- a minimum bid price of $1.00;
- two market makers;
- 300 stockholders;
- at least 500,000 shares in the public float or a minimum market
value for the public float of $1,000,000; and
7
- compliance with certain corporate governance standards.
If we cannot satisfy Nasdaq's maintenance criteria in the future,
Nasdaq could delist our common stock or redeemable warrants. In the event of
delisting, trading, if any, would be conducted only in the over-the-counter
market in the so-called "pink sheets" or the NASD's Electronic Bulletin Board.
As a result of any delisting, an investor would likely find it more difficult to
sell or obtain quotations as to the price of our common stock or redeemable
warrants.
We Have Provisions In Our Certificate Of Incorporation That Substantially
Eliminate The Personal Liability Of Members Of Our Board Of Directors For
Violations Of Their Fiduciary Duty Of Care As A Director And That Allow Us To
Indemnify Our Officers And Directors. This Could Make It Very Difficult For You
To Bring Any Legal Actions Against Our Directors For Such Violations Or Could
Require Us To Pay Any Amounts Incurred By Our Directors In Any Such Actions.
Pursuant to our certificate of incorporation, members of our Board of
Directors will have no liability for violations of their fiduciary duty of care
as a director, except in limited circumstances. This means that you may be
unable to prevail in a legal action against our directors even if you believe
they have breached their fiduciary duty of care. In addition, our certificate of
incorporation allows us to indemnify our directors from and against any and all
expenses or liabilities arising from or in connection with their serving in such
capacities with us. This means that if you were able to enforce an action
against our directors or officers, in all likelihood we would be required to pay
any expenses they incurred in defending the lawsuit and any judgment or
settlement they otherwise would be required to pay.
Since Some Members Of Our Board Of Directors Are Not Residents Of The United
States And Certain Of Our Assets Are Located Outside Of The United States, You
May Not Be Able To Enforce Any U.S. Judgment For Claims You May Bring Against
Such Directors Or Assets.
Two members of our board of directors are residents of Singapore, and
an immaterial portion of our assets and a substantial portion of the assets of
these directors are located outside the United States. As a result, it may be
more difficult for you to enforce a lawsuit within the United States against
these non-U.S. residents than if they were residents of the United States. Also,
it may be more difficult for you to enforce any judgment obtained in the United
States against our assets or the assets of our non-U.S. resident directors
located outside the United States than if these assets were located within the
United States. We cannot assure you that foreign courts would enforce:
- liabilities predicated on U.S. federal securities laws in original
actions commenced in such foreign jurisdiction; or
- judgments of U.S. courts obtained in actions based upon the civil
liability provisions of U.S. federal securities laws.
Anti-Takeover Effect Of Delaware Law And Our Charter.
Under the Delaware general Corporation Law, which we are subject to, it will be
more difficult for a third party to take control of the Company and may limit
the price some investors are willing to pay for shares of our common stock.
Furthermore, our certificate of incorporation authorizes the issuance of up to
10,000,000 shares of preferred stock without a vote or other stockholder
approval.