MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS: BELOW AND ELSEWHERE IN THIS ANNUAL REPORT INCLUDES "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT, AND IS
SUBJECT TO THE SAFE HARBOR CREATED BY THAT SECTION. FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD LOOKING
STATEMENTS INCLUDE CHANGES IN GENERAL ECONOMIC CONDITIONS, INDUSTRY TRENDS,
CUSTOMER REQUIREMENTS, CUSTOMER CAPITAL EXPENDITURES AND PRODUCT DEVELOPMENTS BY
COMPETITORS.
PREFACE
- -------
Radiant Technology Corporation completed its fiscal 1999 year posting a
significant loss. This follows four years of high earnings before any
extraordinary items. Management attributes the loss to a significant reduction
in revenue, increased costs associated with R&D and a $100,000 increase in
marketing expense, an increase in reserves against inventory, and a major
increase in reserves for accounts receivable due to a likely write off of a
major account owed.
SALES
- -----
During the fiscal years ended September 30, 1999, 1998, and 1997, the
Company's revenues were derived from sales of the following products:
Gross Sales
- -----------
(in thousands) 1999 1998 1997
------------ ------------ ------------
$ % $ % $ %
--------------------------------------------
Conveyorized Infrared
Ovens and Furnaces 2,313 70 3,919 84 3,797 86
Field Service & Parts 971 30 767 16 615 14
Total 3,284 100 4,686 100 4,412 100
The Company is engaged in the marketing, design, manufacture and
service of highly precision thermal processing systems that are primarily used
by manufacturers of electronic componentry. The Company's conveyorized (belt)
ovens and furnaces are in demand, worldwide, to meet ever-changing process
requirements in the semiconductor packaging, flat panel display, hybrid thick
film firing, multichip module, photovoltaic (solar cell) and printed circuit
board assembly industries. New and inventive uses of the product line for other
applications continue to be discovered.
The nature and high intensity of the infrared heat produced in the
Company's furnaces permits a high rate of heat absorption by the electronic
parts processed through them, making them more adaptable to the exacting
tolerances and high-speed heating requirements of certain industrial users.
Operating costs for RTC units are significantly lower than for
conventional ovens and furnaces. Since these ovens and furnaces can be brought
up to operating temperatures in a shorter time span, operate at a faster
conveyor belt speed, require less floor space and use less electric energy.
To obtain financial growth and stability the Company concentrates on
managing the following key elements of its business:
Technological Leadership: The Company is constantly in contact with its
customers soliciting their input for both continued product improvement and new
product development. The Company encourages customers anticipating new thermal
processing requirements to contact it regarding their new opportunities and
needs. This past year, this approach has been responsible for the development of
three new products.
The Company's new products are:
A conduction furnace for the wafer bump manufacturing step of the growing flip
chip assembly market. RTC's new TriBelt(TM) tool incorporates three conveyor
belts in series; one for each of the major stages of the wafer bump process.
This design provides a more thermally reliable and cost effective process than
other equipment being offered for the nitrogen-enhanced environment. It is
complimentary to and augments the RTC hydrogen furnaces being offered to
customers whose products require this method of production.
A new furnace extending the thermal processing range of RTC equipment from
1000(Degree)C higher to 1300(Degree)C in either a nitrogen or oxygenated
environment. Until now customers who required higher temperature furnaces where
required to look to other suppliers. Now they can stay with RTC as their
preferred and primary vendor.
A furnace incorporating ultra-violet enhanced heating in conjunction with or
separated from infrared heating. This was the result of the expression of a high
degree of interest in the potential value of UV enhancement by solar cell
industry. RTC has orders for three such systems from as many customers. The
company expects to sell other units to the industry in the near future; and also
finds requests from other customer areas interested in this new technology.
Customer Diversity: Customers from different facets of the electronics industry
are sought and maintained. As demand for the various manufacturing elements in
the electronics high technology industry shifts, RTC works to position itself to
be ready to be immediately responsive to changing market emphasis.
Service: The Company concentrates on providing timely, high quality,
responsiveness to its customer base. Most service concerns are handled by Phone,
FAX or E-mail immediately. Customer Service Engineers, when needed, are
dispatched within the day. Internationally, the Company retains Sales/Service
representatives, factory trained, to provide the same level of dedication in
placing the concerns and needs of the customer first. Modems are installed in
customers equipment, making it possible to analyze and implement customer
requests online from Company headquarters.
MARKETS AND PRODUCTS:
The Company's near infrared processing systems are principally in
demand for the following applications:
SemiConductor Packaging: In recent years, flip chip packaging technology has
gained widespread acceptance. The first process, called wafer bumping, involves
a reflow solder process to form the solder balls on all of the input/output
(I/O) pads on the wafer. Because of the extremely small geometries involved, in
some instances this process is best accomplished in a hydrogen atmosphere. RTC
offers a high temperature furnace for this application, equipped with the
hydrogen package, providing a reflow process in a 100% hydrogen atmosphere. For
a second process, called "chip joining", RTC offers both a near infrared or
forced convection oven. RTC's D-series ovens are well suited for low temperature
curing applications such as "under-fill" epoxy or curing epoxy glob tops for
chip on board manufacturers.
For more traditional chip packaging technologies, RTC offers an
AG-series furnace designed specifically for the silver-glass die attach process.
A critical thermal profile is required to achieve the proper mechanical and
thermal properties of the silver-glass material. Other packaging thermal
processes such as final lid sealing (metal or glass) and lead frame embed or pin
brazing are easily accomplished in RTC's furnaces.
Photovoltaics: For well over a decade, RTC has been the major supplier of
sintering furnaces used by photocell manufacturers for firing metallized inks to
form the front-side contacts and the back-side fields on the individual solar
cells. The product ideally suited for sintering of the metallized inks is our
C-series furnace. In recent years, existing RTC customers have been
experimenting with using a modified version of our S-series furnace for
phosphorus diffusion, which is the first thermal process in the manufacture of
solar cells. An extremely precise thermal process is required for phosphorus
diffusion as this step ultimately determines the cell's efficiency in generating
power when exposed to sunlight.
Flat Panel Display: While the flat panel display market has been primarily in
Japan, it is a relatively new market for US equipment manufacturers. RTC has
developed, in close cooperation with a flat panel manufacturer, one of the first
US built systems for processing large glass panels. The RTC furnace can handle
glass panels up to 58 inches wide. In addition to the challenges of achieving
uniform heating over the entire panel, there were unique mechanical challenges
for handling the large glass panels while loading and unloading the furnace.
Printed Circuit Board: RTC offers both infrared and forced convection heating
technology for printed circuit board assembly. These ovens are used for mass
reflow soldering of surface mount components to a printed circuit assembly.
Hybrid Thick Film: Hybrid thick film technology involves the firing of various
types of "inks" screen printed on ceramic substrates to form conductors and
resistors. Precise thermal profiles are required to achieve the desired resistor
value, or electrical properties of the conductors. RTC offers furnaces for
firing thick film inks in air, and for firing thick film materials in a
controlled, inert atmosphere having a low oxygen content.
MARKETING, SALES AND CUSTOMERS
The Company sells its products throughout the world, primarily to
organizations engaged in the manufacture of electronic components and
assemblies. Most of its customers are the prominent names associated with the
high technology field. RTC maintains factory direct sales in the United States.
Internationally the Company is represented through independent sales/service
organizations.
Customers evaluate furnace vendors on their technological leadership
resulting in high process yield of material produced. This primary benefit
combined with high up time, low meantime between failure, (MTBF) quick reliable
service and spare parts response time combine to produce low cost of equipment
ownership.
The Company does not experience a seasonal demand for its product.
Rather the demand for product, is dependent on the demand for new manufacturing
equipment.
HISTORY AND PROFITS
- -------------------
Radiant Technology Corporation was incorporated in the State of
California in 1972.
Net sales of $3,336,674 decreased $1,349,708 or 29% for the fiscal year
ended September 30, 1999. Net sales of $4,696,000 fiscal 1998 increased $274,000
or 6% from the fiscal 1997 level of $4,412,000.
Fiscal 1999 was a financially disappointing year for the Company. The
Company suffered a loss of $475,820 or $.25 per share.
Cost of Sales were up slightly, due to under absorbed burden. Selling
and G & A costs were up, due to planned increases in sales efforts and a
doubtful A/R caused by a single customer.
Interest was booked as income, rather than expense. Borrowing is
reserved only for short-term requirements.
Research and Development costs were increased to a higher rate than
prior years. These costs are essential to the Company's long term future. A
future that can move very quickly in the high technology field. Three new
products were initiated this year and should help with future years income.
Operating Data
- --------------
(in thousands) Year Ended September 30
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
Net Sales $3,336 $4,686 $4,412 $4,173 $4,023
Income (loss) from
Continuing Operations (476) 416 592 222 (85)
Total Assets 4,061 $4,063 4,102 2,524 1,775
Long-term debt 0 0 0 0 0
Per Share Information
Income(loss) from
Continuing Operations (.25) .22 .32 .18 (.44)
Cash Dividends 0 0 0 0 0
LIQUIDITY AND CAPITAL RESOURCES
During 1999, cash decreased by $337,305. The Company anticipates that
it has sufficient cash to fund planned sales growth in 2000 without any long
term borrowing. There may be occasional periods when short-term borrowing will
be accommodated, although little of this type of activity is foreseen.
Furthermore, the Company anticipates having sufficient cash to purchase planned
capital equipment requirements.
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTER
- -------------------------------------------------------------------------
The Company's common stock, symbol RTNC, is quoted by the National
Quotation Bureau, Inc. ("NQBI") on the "Pink Sheets". The table below sets forth
the representative high and low bid prices for the common stock each calendar
period indicated. The Quotations represent interdealer prices without
adjustments for retail mark-ups, mark-downs or commissions and consequently do
not necessarily reflect actual transactions.
Holders of shares of Common Stock are entitled to receive such
dividends, if any, as may be declared by the Board of Directors of the Company
out of funds legally available therefore and, upon the liquidation, dissolution
or winding up of the Company are entitled to share ratably in all net assets
available for distribution to such share holders. The Company has never paid any
dividends. It is anticipated that all earnings, if any, will be retained for
development of working capital to grow the business of the Company and there is
no present intention to declare dividends in the foreseeable future.
SHAREHOLDERS OF RECORD: As of September 30, 1999, the number of
recorded holders of the Company's Common Stock was 409.
Stock Price
- -----------
HIGH LOW
------------ -----------
1999
1st Quarter $ 1.75 $ .78125
2nd Quarter 1.03125 .53125
3rd Quarter 1.125 .40625
4th Quarter 1.01 .375
1998
1st Quarter $ .25 $ .25
2nd Quarter 1.00 .25
3rd Quarter 1.875 .375
4th Quarter 2.00 1.375
YEAR 2000, Y2K, READINESS DISCLOSURE
- ------------------------------------
The Year 2000 issue, Y2K, is the result of older computer programs
being written using two digits rather than four digits to define the applicable
year. Computer equipment, software and other devices with embedded technology
that are time-sensitive may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in the inability of business processes to
function correctly in the year 2000 and could have serious adverse effects on
companies and entities throughout the world.
RTC has addressed issues related to the impact of the Year 2000 in its products,
internal computer systems that handle business and engineering processes, and
suppliers. Upgrades to internal critical systems have been completed. All known
users of RTC equipment that could experience Y2K anomalies have been contacted.
Some have elected equipment up dates, some have not. All major suppliers have
warranted Y2K compliance.
Notwithstanding this plan program to make a smooth transition, there can be no
assurance that these estimates will prove to be accurate and actual results
could differ materially from those currently anticipated. Moreover, the Company
could be adversely impacted by the Year 2000 issues faced by customers, vendors,
governments and financial service organization with which the company interacts.
The varying definitions of "compliance with Year 2000" and the products by the
company in the past may lead to claims whose impact on the company is not
currently estimable. The company has product and general liability insurance
policies, which provide coverage in the event of certain product failures. We
have not purchased Year 2000 specific insurance because the cost is prohibitive
and likely of little value. No assurance can be given that the aggregate cost of
defending and resolving such claims will not financially adversely affect the
company.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors and Stockholders
Radiant Technology Corporation
We have audited the accompanying balance sheets of Radiant Technology
Corporation as of September 30, 1999 and 1998, and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
three year period ended September 30, 1999. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Radiant Technology Corporation
as of September 30, 1999 and 1998 and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1999 in
conformity with generally accepted accounting principles.
CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
November 29, 1999
RADIANT TECHNOLOGY CORPORATION
BALANCE SHEET
SEPTEMBER 30,
--------------------------------
1999 1998
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 2,384,902 $ 2,327,925
Accounts receivable 591,306 565,777
Inventories 433,906 443,607
Deferred taxes 100,000 170,000
-------------- --------------
Total current assets 3,510,114 3,507,309
PROPERTY AND EQUIPMENT 421,801 502,378
DEFERRED TAXES 70,000 -
OTHER 59,164 53,331
-------------- --------------
$ 4,061,079 $ 4,063,018
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 1,500,000 $ 1,000,000
Accounts payable 176,123 61,040
Accrued expenses 236,041 197,884
Income taxes payable - 38,640
Customer deposits 18,747 159,466
-------------- --------------
Total current liabilities 1,930,911 1,457,030
-------------- --------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Preferred stock - -
Capital stock 1,153,108 1,153,108
Retained earnings 977,060 1,452,880
-------------- --------------
Total stockholders' equity 2,130,168 2,605,988
-------------- --------------
$ 4,061,079 $ 4,063,018
============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
RADIANT TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
NET SALES $ 3,336,674 $ 4,686,382 $ 4,412,024
COST OF SALES 2,283,801 3,038,095 2,859,096
------------ ------------ ------------
Gross profit 1,052,873 1,648,287 1,552,928
------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 1,290,047 976,756 906,379
Research and development 282,766 250,964 254,561
------------ ------------ ------------
Total operating expenses 1,572,813 1,227,720 1,160,940
------------ ------------ ------------
Income/(loss) from operations (519,940) 420,567 391,988
INTEREST INCOME, NET 44,120 46,020 41,824
------------ ------------ ------------
Income/(loss) before provision
for income taxes (475,820) 466,587 433,812
PROVISION (BENEFIT) FOR INCOME TAXES - 51,000 (158,000)
------------ ------------ ------------
NET INCOME/(LOSS) $ (475,820) $ 415,587 $ 591,812
============ ============ ============
BASIC EARNINGS PER SHARE:
Net income/(loss) $ (0.25) $ 0.22 $ 0.32
============ ============ ============
DILUTED EARNINGS PER SHARE:
Net income/(loss) $ (0.25) $ 0.18 $ 0.32
============ ============ ============
BASIC NUMBER OF COMMON SHARES
OUTSTANDING: 1,895,638 1,875,474 1,867,638
============ ============ ============
DILUTED NUMBER OF COMMON SHARES
OUTSTANDING: 1,895,638 2,277,096 1,867,638
============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
RADIANT TECHNOLOGY CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
CAPITAL STOCK
------------------------ RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1996 1,867,678 $1,143,008 $ 445,481 $1,588,489
Net income - - 591,812 591,812
----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1997 1,867,678 1,143,008 1,037,293 2,180,301
Exercise of options 28,000 10,100 - 10,100
Net income - - 415,587 415,587
----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1998 1,895,678 1,153,108 1,452,880 2,605,988
Net loss - - (475,820) (475,820)
----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1999 1,895,678 $1,153,108 $ 977,060 $2,130,168
=========== =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
RADIANT TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/ (loss) $ (475,820) $ 415,587 $ 591,812
Adjustments to reconcile net income/
(loss) to net cash provided by
operating activities:
Bad debt expense 183,807 3,500 17,800
Depreciation and amortization 195,011 179,539 118,924
Inventory obsolescence 40,000 39,000 15,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (209,336) 187,228 (15,182)
Inventory (30,299) 231,851 (88,612)
Deferred taxes - - (170,000)
Other assets (14,549) 8,155 (9,087)
Increase (decrease) in:
Accounts payable 115,083 (107,558) (6,162)
Accrued expenses 38,157 (148,198) 70,084
Income taxes payable (38,640) - -
Customer deposits (140,719) (208,918) (78,101)
------------ ------------ ------------
Net cash provided by/(used in)
operating activities (337,305) 600,186 446,476
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (105,718) (99,677) (239,288)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock - 10,100 -
Borrowing on short-term debt 500,000 - 1,000,000
------------ ------------ ------------
Net cash provided by financing
activities 500,000 10,100 1,000,000
------------ ------------ ------------
Net increase in cash and equivalents 56,977 510,609 1,207,188
CASH AND EQUIVALENTS, BEGINNING OF YEAR 2,327,925 1,817,316 610,128
------------ ------------ ------------
CASH AND EQUIVALENTS, END OF YEAR $ 2,384,902 $ 2,327,925 $ 1,817,316
============ ============ ============
(CONTINUED)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
RADIANT TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
Supplemental disclosures of cash flow information and non-cash investing and
financing activities:
1999 1998 1997
------------ ------------ ------------
Cash paid during the year for:
Interest $ 4,614 $ 7,317 $ -
Income taxes $ 34,286 $ 9,270 $ 800
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SEPTEMBER 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------
Nature of Operations
--------------------
Radiant Technology Corporation (the "Company") is engaged in the
manufacturing and marketing of infrared conveyorized ovens and furnaces
used primarily by the microelectronics manufacturing industry.
All of the Company's operations are located in California. Sales to
entities located outside the United States are as follows:
COUNTRIES 1999 1998 1997
------------ ------------ ------------ ------------
European $ 640,511 $ 605,800 $ 819,600
Middle East 443,178 - -
Pacific Rim 178,170 847,700 616,900
NAFTA 38,963 116,200 52,500
------------ ------------ ------------
$ 1,300,822 $ 1,569,700 $ 1,489,000
============ ============ ============
Revenue recognition
-------------------
The Company recognizes revenue from product sales upon shipment or upon
completion when the customer requests the unit to be held at the facility
for later shipment.
Cash and cash equivalents
-------------------------
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit and all highly liquid debt instruments
with original maturities of three months or less.
Accounts receivable
-------------------
The allowance for doubtful accounts includes management's estimate of the
amount expected to be lost on specific accounts and for losses on other
unidentified accounts included in accounts receivable. In estimating the
allowance component for unidentified losses, management relies on
historical experience. The amounts the Company will ultimately realize
could differ materially in the near term from the amounts assumed in
arriving at the allowance for doubtful accounts in the accompanying
financial statements.
Inventories
-----------
Inventories include material, direct labor and manufacturing overhead and
are reported at the lower of cost (determined on the first-in-first-out
method) or market. Allowances for slow moving and obsolete inventory are
based on management's estimate of the amount considered obsolete based on
specific review of inventory items. In estimating the allowance,
management relies on its knowledge of the industry as well as its current
inventory levels.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ------------------------------------------------------------
Equipment
---------
Equipment is stated at cost, less accumulated depreciation. Depreciation
is calculated using the straight-line method over the estimated useful
lives of the related assets or over the lesser of the term of the lease or
the estimated useful life for leasehold improvements.
Intangibles
-----------
The cost of patents are being amortized using the straight line method
over their estimated lives of five years. Amortization expense charged to
operations in 1999, 1998 and 1997 was $8,716, $8,737, and $8,695,
respectively.
Software development costs
--------------------------
The Company capitalizes internal software development costs in accordance
with Statement of Financial Accounting Standards No. 86. The
capitalization of these costs begins when a product's technological
feasibility has been established and ends when the product is available
for general release to customers. The Company uses the working model
approach to establish technological feasibility. Amortization is computed
on an individual product group on the straight-line method over the
estimated economic life of the product. Currently, the Company is using an
estimated economic life of three years for all capitalized software costs.
Amortization expense was $106,550, $63,330, and $45,363 for 1999, 1998,
and 1997, respectively. Unamortized cost on capitalized software as of
September 30, 1999 and 1998 was $153,237 and $181,332, respectively.
Customer deposits
-----------------
The Company often requires a deposit from customers before commencing work
on a furnace. It is the Company's policy to record the deposit as a
receivable with a corresponding deferred liability at the time the sales
order is written. When the deposit is received, the receivable is
relieved.
Income taxes
------------
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax
laws and statutory rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes represents
the tax payable for the period and the change during the period in
deferred tax assets and liabilities.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ------------------------------------------------------------
Earnings per common share
-------------------------
Earnings per common share is computed by dividing reported earnings by the
weighted average number of common shares outstanding during the respective
periods. Common stock equivalents were excluded from the computation of
earnings per share in 1999 and 1997 because the effect of including such
equivalents in the computation would have been anti-dilutive.
Fair value of financial instruments
-----------------------------------
The fair value of financial instruments, consisting principally of
short-term debt payable is based on interest rates available to the
Company and comparison to quoted prices. The fair value of these financial
instruments approximates carrying value.
Stock based compensation
------------------------
The Company accounts for compensation costs related to employee stock
options and other forms of employee stock-based compensation plans in
accordance with the requirements of Accounting Principles Board Opinion 25
("APB 25"). APB 25 requires compensation costs for stock based
compensation plans to be recognized based on the difference, if any,
between the fair market value of the stock on the date of the grant and
the option exercise price. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards 123,
Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123 established
a fair value-based method of accounting for compensation costs related to
stock options and other forms of stock-based compensation plans. However,
SFAS 123 allows an entity to continue to measure compensation costs using
the principles of APB 25 if certain pro forma disclosures are made. The
Company adopted the provisions of pro forma disclosure requirements of
SFAS 123 in fiscal 1997. Options granted to non-employees are recognized
at their estimated fair value at the date of grant.
Use of estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Reclassifications
-----------------
Certain items in the 1997 and 1998 financial statements have been
reclassified to conform with the 1999 presentation.
2. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
- ------------------------------------------------------------
The Company, from time to time, has cash deposits at financial
institutions in amounts in excess of federally-insured limits. The Company
believes that credit risk related to its cash deposits is limited due to
the quality of the financial institutions.
The Company's customers are located in several geographic markets,
primarily in the United States, Middle East, Europe and Pacific Rim
countries and are concentrated within three industries. To minimize the
risk of loss, the Company routinely assesses the financial strength of its
customers, and may require a substantial downpayment prior to commencing
machine production.
Net accounts receivable by geographic markets are as follows:
COUNTRIES 1999 1998
------------ ------------ ------------
European 51% 16%
United States 28% 52%
Middle East 21% -
Pacific Rim - 16%
NAFTA - 16%
------------ ------------
100% 100%
============ ============
During 1999, 1998 and 1997, the five largest customers represented 52, 53
and 63 percent of revenues, respectively. At September 30, 1999 and 1998
the five largest balances represented 72 and 66 percent, respectively, of
total accounts receivable.
3. ACCOUNTS RECEIVABLE
- -------------------------
1999 1998
------------ ------------
Trade receivables $ 802,123 $ 603,277
Allowance for doubtful accounts (210,817) (37,500)
------------ ------------
$ 591,306 $ 565,777
============ ============
3. ACCOUNTS RECEIVABLE (CONTINUED)
- -------------------------------------
Activity relating to the allowance for doubtful accounts and sales returns
is as follows:
1999 1998 1997
------------ ------------ ------------
Balance at beginning of year $ 37,500 $ 37,500 $ 86,000
Provision 183,807 3,500 17,800
Write offs (10,490) (3,500) (66,300)
------------ ------------ ------------
Balance at end of year $ 210,817 $ 37,500 $ 37,500
============ ============ ============
4. INVENTORIES
- -----------------
1999 1998
------------ ------------
Raw materials $ 358,778 $ 461,931
Work in process 183,774 81,676
Finished goods 31,354 -
------------ ------------
573,906 543,607
Allowance for obsolescence inventories (140,000) (100,000)
------------ ------------
$ 433,906 $ 443,607
============ ============
Activity relating to the allowance for obsolescence inventories is as
follows:
1999 1998 1997
------------ ------------ ------------
Balance at beginning of year $ 100,000 $ 100,000 $ 179,000
Provision 40,000 39,000 15,000
Write offs - (39,000) (94,000)
------------ ------------ ------------
Balance at end of year $ 140,000 $ 100,000 $ 100,000
============ ============ ============
5. EQUIPMENT
- ---------------
LIFE IN
YEARS 1999 1998
------------ ------------ ------------
Machinery and equipment 7 $ 384,270 $ 372,262
Office furniture and equipment 7 66,371 51,116
Leasehold improvements 5 53,226 53,226
Vehicles 5 15,050 15,050
Capitalized computer software 3 397,714 319,259
------------ ------------
916,631 810,913
Less: accumulated depreciation
and amortization (494,830) (308,535)
------------ ------------
$ 421,801 $ 502,378
============ ============
Depreciation and amortization expense for 1999, 1998, and 1997 was
$186,295, $170,802, and $110,229, respectively.
6. SHORT-TERM DEBT
- ---------------------
The Company's borrowings are at LIBOR plus 2 7/8 percent and due on
demand.
7. ACCRUED EXPENSES
- ----------------------
1999 1998
------------ ------------
Payroll and related items $ 96,173 $ 78,916
Commissions 79,100 37,185
Warranties 40,000 40,000
Other 20,768 41,783
------------ ------------
$ 236,041 $ 197,884
============ ============
8. COMMITMENTS AND CONTINGENCIES
- -----------------------------------
Operating leases
----------------
In November 1996 the Company signed a five year lease on a building in
Fullerton, California. Base monthly rent is $10,600 plus common area
charges of approximately $3,400 per month. The Company also leases office
equipment under operating leases expiring in various years through 2002.
Minimum future lease payments under non-cancelable operating leases are:
Year ending September 30,
2000 175,968
2001 175,512
2002 71,524
------------
$ 423,004
============
Rent expense for 1999, 1998 and 1997 was $172,228, $150,090, and $147,200,
respectively.
Environmental matters
---------------------
The Company, like others in similar businesses, is subject to federal,
state and local environmental laws and regulations. Although Company
environmental policies and practices are designed to ensure compliance
with these laws and regulations, future developments and increasingly
stringent regulation could require the Company to make unforeseen
environmental expenditures.
9. STOCKHOLDERS' EQUITY
- --------------------------
Preferred stock
---------------
At September 30, 1999 and 1998 there were 5,000,000 authorized shares of
preferred stock, of which no shares were issued and outstanding.
Common stock
------------
The Company has authorized 24,000,000 shares of no par value common stock.
At September 30, 1999 and 1998, 1,895,638 shares were issued and
outstanding.
9. STOCKHOLDERS' EQUITY (CONTINUED)
- --------------------------------------
EMPLOYEE STOCK OPTIONS
----------------------
Incentive and non-statutory option plan
---------------------------------------
The Company adopted an incentive and non-statutory stock option plan which
provides for granting options to key employees and officers. Under the
plan, options up to 1,000,000 shares may be granted at a price not less
than the fair market value of such shares on the date of the grant, and
the maximum term of each option may not exceed ten years. With respect to
any participant who owns stock possessing more than 10% of the voting
rights of the Company's outstanding capital stock, the exercise price of
any stock option must not be less than 110% of the fair market value on
the date of the grant and the maximum term may not exceed five years. On
January 22, 1998 and April 15, 1999 the Board authorized options to
purchase 70,000 and 100,000 shares, respectively. Of these shares, 120,000
have been granted at an exercise price that was at or above the market
price on the date of the grant. The options vest between January 5, 2000
and March 22, 2002 and expire three years from the vesting date.
Non-statutory director options
------------------------------
On September 30, 1996, the Company granted 20,000 non-statutory options to
each of three outside board members. The options vested immediately and
expire 50% at September 30, 2000 and 50% at September 30, 2001. The option
price is $.48 per share, which was equal to the market price at the date
of the grant.
Lawrence McNamee
----------------
On January 1, 1991, the Company and its chairman, Lawrence McNamee,
executed a one year employment agreement wherein Mr. McNamee was granted
six blocks of options totaling 275,350 options which amounted to 10% of
the outstanding shares. The option price varied according to the date of
the grant. The employment agreement provided that in the event the Company
issued any additional (or repurchased existing) shares of common stock
(excluding shares issued or issuable pursuant to Mr. McNamee's employment
agreement), the number of options issued to Mr. McNamee should be
automatically and proportionately adjusted as to preserve the ratio of ten
percent of the outstanding common stock. Under certain conditions, Mr.
McNamee may be issued additional options in the amount equal to five
percent of the outstanding options and warrants excluding those belonging
to Mr. McNamee. The exercise price of any additional options issued would
be the fair market value of the stock on the date of grant. This
adjustment provision of Mr. McNamee's employment agreement is referred to
as the "Adjustment" clause. During the year ended September 30, 1996 Mr.
McNamee was granted 167,723 options under this adjustment clause, while
248,715 of the original options expired. Option prices range from $.075 to
$.375. In fiscal 1997, all of these options expired.
Mr. McNamee also holds options to acquire 346,666 shares at $.075 per
share issued to him in lieu of salary in 1992. These options have no
expiration date.
9. STOCKHOLDERS' EQUITY (CONTINUED)
- --------------------------------------
Stock options (continued)
-------------------------
The following table summarizes shares under option, including options both
under the Plan and outside the Plan, for the years ended September 30,
1999 and 1998:
Weighted
Average
Number of Price Exercise
Shares Per Share Price Exercisable
------------ ------------ ------------ ------------
September 30, 1997 519,666 $.0625-.48 $0.19 439,666
------------ ------------ ------------ ============
Granted 50,000 $0.75 $0.75
Exercised (28,000) $.0625-.48 $0.33
Canceled (45,000) $.3125-.375 $0.36
------------ ------------ ------------
September 30, 1998 496,666 $.0625-.75 $0.22 446,666
------------ ------------ ------------ ============
Granted 70,000 $0.75-1.175 $1.05
Exercised - - -
Canceled - - -
------------ ------------ ------------
September 30, 1999 566,666 $.0625-1.175 $0.32 446,666
============ ============ ============ ============
The following information applies to employee options outstanding at
September 30, 1999:
Weighted
Average Weighted
Range of Remaining Average
Exercise Number of Contractual Exercise
Prices Shares Life (Years) Price
------------ ------------ ------------ ------------
$0.0625 10,000 1 $0.06
$0.075 346,666 4 $0.08
$0.48 90,000 2 $0.48
$0.75 70,000 4 $0.75
$1.175 50,000 5 $1.175
------------ ------------
566,666 $0.32
============ ============
Statement of Financial Accounting Standards 123, "Accounting for
Stock-Based Compensation", encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
9. STOCKHOLDERS' EQUITY (CONTINUED)
- --------------------------------------
Stock options (continued)
-------------------------
Principles Board Opinion 25, "Accounting for Stock Issued to Employees",
and related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of grant over the amount an employee must
pay to acquire the stock.
Had compensation cost for the plan been determined based on the fair value
of the options at the grant dates consistent with the method of SFAS 123,
the Company's net income/(loss) and earnings/(loss) per share would have
been:
1999 1998
------------ ------------
Net income/(loss):
As reported $ (475,820) $ 415,587
Pro forma $ (507,110) $ 377,821
Basic earnings per share:
As reported $ (0.25) $ 0.22
Pro forma $ (0.27) $ 0.20
Diluted earnings per share:
As reported $ (0.25) $ 0.18
Pro forma $ (0.27) $ 0.17
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to grants made before 1996. In addition, potential deferred tax
benefits of approximately $12,500, $15,000, and $19,200 in 1999, 1998 and
1997, respectively, have not been reflected in the pro forma amounts due
to the uncertainty of realizing any benefit. The fair value of these
options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions for
1999, 1998 and 1997:
Expected life (years) 4
Risk-free interest rate 6.00%
Volatility 100%
Expected dividends None
The weighted fair value of options granted during the years ended
September 30, 1999 and 1998 for which the exercise price approximated the
market price on the grant date was $.21 and $.58, respectively.
10. INCOME TAXES
- ------------------
Income tax expense (benefit) consisted of the following:
1999 1998 1997
------------ ------------ ------------
Current tax expense $ - $ 51,000 $ 12,000
Deferred tax benefit - - (170,000)
------------ ------------ ------------
$ - $ 51,000 $ (158,000)
============ ============ ============
Income tax expense (benefit) differed from the amounts computed by
applying the U.S. federal income tax rate of 34% to pretax income from
continuing operations in 1999, 1998 and 1997 as a result of the following:
1999 1998 1997
------------ ------------ ------------
Continuing operations:
Federal expected tax
expense (benefit) $ (167,000) $ 159,000 $ 147,000
State expected tax
expense (benefit) (48,000) 44,000 40,000
Inventory allowance (40,000) (25,000) (32,000)
Accounts receivable allowance (42,000) - (19,000)
Moving expense accrual - - (36,000)
Depreciation timing differences 20,000 32,000 14,000
Deferred tax valuation allowance 277,000 - (170,000)
Use of NOL carryforwards
- federal - (159,000) (88,000)
Use of NOL carryforwards
- state - - (14,000)
------------ ------------ ------------
$ - $ 51,000 $ (158,000)
============ ============ ============
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at September 30, 1999 and
1998 are as follows:
1999 1998
------------ ------------
Net operating loss carryforwards $ 516,000 $ 360,000
Allowance for slow moving inventories 56,000 34,000
Allowance for doubtful accounts 32,000 15,000
Other (1,000) (144,000)
------------ ------------
Deferred tax assets 603,000 265,000
Less valuation allowance (433,000) (95,000)
------------ ------------
Net deferred tax asset $ 170,000 $ 170,000
============ ============
10. INCOME TAXES (CONTINUED)
- ------------------------------
During 1998 the Company reduced the valuation allowance to reflect the
deferred tax assets utilized in fiscal 1998. The recognized deferred tax
asset is based upon expected utilization of the net operating loss
carryforwards and reversal of certain temporary differences. The ultimate
realization of the deferred tax asset will require aggregate taxable
income of approximately $1,486,000 in future years.
At September 30, 1999, the Company had net operating loss carryforwards
for federal and state income tax purposes expiring as follows:
FEDERAL STATE
------------ ------------
2002 $ - $ 209,506
2007 433,811 -
2009 620,976 -
2014 431,356 -
------------ ------------
$ 1,486,143 $ 209,506
============ ============
Federal investment credit and other general business credit carryforwards
total $35,600 and $105,500, respectively, and expire at various dates
through 2003.
11. BASIC AND DILUTED EARNINGS/(LOSS) PER SHARE
- -------------------------------------------------
The following tables illustrate the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted
earnings/(loss) per share computations.
1999 1998 1997
------------ ------------ ------------
BASIC EARNINGS/(LOSS) PER SHARE:
--------------------------------
Numerator
---------
Net income/(loss) $ (475,820) $ 415,587 $ 591,812
============ ============ ============
Denominator
-----------
Basic weighted average number
of common shares outstanding
during the period 1,895,638 1,875,474 1,867,638
============ ============ ============
Basic net income/(loss) per share $ (0.25) $ 0.22 $ 0.32
============ ============ ============
1999 1998 1997
------------ ------------ ------------
DILUTED EARNINGS/(LOSS) PER SHARE:
----------------------------------
Numerator
---------
Income/(loss) $ (475,820) $ 415,587 $ 591,812
============ ============ ============
Denominator
-----------
Weighted average number of
common shares used in
basic earnings per share 1,895,638 1,875,474 1,867,638
Effect of dilutive securities:
Stock options (1) - 401,622 -
------------ ------------ ------------
Weighted number of common
shares and dilutive
potential common stock
used in diluted earnings
per share 1,895,638 2,277,096 1,867,638
============ ============ ============
Diluted earnings/(loss)
per share $ (0.25) $ 0.18 $ 0.32
============ ============ ============
(1) Stock options were anti-dilutive for the years ended September 30,
1999 and 1997. See Note 10 for stock option activity.
12. EMPLOYEE BENEFIT PLAN
- ---------------------------
The Company's 401(k) plan was re-activated during fiscal 1996. All
employees are eligible as long as they are 21 years of age and have
completed one year of employment. The plan provides for contributions by
the Company in such amounts as management may determine. Contribution
expense charged to operations in 1999 was $13,027. No expense was charged
to operations in 1998 or 1997.
BOARD OF DIRECTORS
- ------------------
Lawrence R. McNamee
Chairman of the Board and
Chief Executive Officer
Carson T. Richert
President
Peter D. Bundy
Investor-Consultant
Joseph S. Romance
Consultant
Robert B. Thompson
Investor-Consultant
OFFICERS
- --------
Lawrence R. McNamee,
Chairman of the Board and
Chief Executive Officer
Carson T. Richert
President
Raymond G. Kruzek, PhD
Vice President
Marie M. May, CPA
Controller
Mercy Gingrich
Corporate Secretary
AUDITORS
- --------
Cacciamatta Accountancy Corporation
2600 Michelson Drive, Suite 490
Irvine, CA 92612
COUNSEL
- -------
Oppenheimer, Wolf & Donnelly, LLP
500 Newport Center Drive
Suite 700
Newport Beach, CA 92660
REGISTRAR AND TRANSFER AGENT
- ----------------------------
U. S. Stock Transfer Corporation
1745 Gardena Avenue
Second Floor
Glendale, CA 91204
The financial statements and related notes, which appear herein, have been
reported to the Securities and Exchange Commission.
A copy of Form 10-K will be made available without charge to beneficial owners
of stock, upon your written request to the company at the following address:
RADIANT TECHNOLOGY CORPORATION
SHAREHOLDER RELATIONS
1335 SOUTH ACACIA AVENUE
FULLERTON, CA 92831
TEL: (714) 991-0200
FAX: (714) 991-0600
E-MAIL: GENERAL@RADIANTTECH.COM