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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549





FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

|                          |  |                
|------------------------- |  | ---------------
|For the fiscal year ended |  | Commission File
|                         
|                         
|                         
|                         
|December 31, 2001         |  | Number 0-11685 




RADYNE COMSTREAM INC.

(Exact name of Registrant as specified in its charter)


|                                  |  |                    
|--------------------------------- |  | -------------------
|Delaware                          |  | 11-2569467         
|                                 
|                                 
|                                 
|                                 
|(State or other jurisdiction      |  | (I.R.S. Employer   
|                                 
|                                 
|                                 
|                                 
|of incorporation or organization) |  | Identification No.)

|                                          |  |           
|----------------------------------------- |  | ----------
|3138 East Elwood Street, Phoenix, Arizona |  | 85034     
|                                         
|                                         
|                                         
|                                         
|(Address of Principal Executive Offices)  |  | (Zip Code)

Registrants telephone number including area code: (602) 437-9620

Securities Registered Under Section 12(b) of the Exchange Act: None

Securities Registered Under Section 12(g) of the Exchange Act:

Common Stock, $.001 Par Value
Common Stock Purchase Warrants




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 (CHECK BOX) No (BOX)

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. (BOX)

The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $25 million based on the closing price of
$4.82 per share of common stock as reported on the Nasdaq Stock Market on March
22, 2002. For purposes of this determination, shares of common stock held by
each officer and director and by each person who owns 5% or more of the
outstanding common stock have been excluded in that such persons may be deemed
to be affiliates of the registrant. This determination of affiliate status is
not necessarily a conclusive determination for other purposes. The number of
outstanding shares of the registrants common stock as of the close of business
were 15,119,490.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12, and 13 of Part III incorporate information by
reference from the definitive proxy statement for the registrants Annual
Meeting of Stockholders to be held on May 22, 2002.



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|                                                                         |                                                                                                   |  |  |  |  |  |  | 
|------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                  
|                                                                         | ITEM 1.     BUSINESS                                                                             
|                                                                         | ITEM 2.     PROPERTIES                                                                           
|                                                                         | ITEM 3.     LEGAL PROCEEDINGS                                                                    
|                                                                         | ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                                                 
|                                                                         | ITEM 5.     MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|                                                                         | ITEM 6.     SELECTED FINANCIAL DATA                                                              
|                                                                         | ITEM 7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
|                                                                         | ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                                         | ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|Independent Auditors Report                                            
|                                                                         | Consolidated Balance Sheets                                                                      
|                                                                         | Consolidated Statements of Operations                                                            
|Consolidated Statements of Stockholders Equity and Comprehensive Income
|                                                                         | Consolidated Statements of Cash Flows                                                            
|                                                                         | Notes to Consolidated Financial Statements                                                       
|                                                                         | ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|PART III                                                                
|                                                                         | ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES                                     
|                                                                         | ITEM 11.     DIRECTOR AND EXECUTIVE COMPENSATION                                                 
|                                                                         | ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                                         | ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|PART IV                                                                 
|                                                                         | ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.                    
|EXHIBIT                                                                 
|SIGNATURES                                                              
|EX-10.6                                                                 
|EX-21.1                                                                 
|EX-23.1                                                                 
|EX-99.1                                                                 



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PART I

DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, includes statements that constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the Reform Act) and Radyne ComStream claims
the protection of the safe-harbor for forward-looking statements contained in
the Reform Act. These forward-looking statements are often characterized by
the terms may, believes, projects, expects, or anticipates, and do
not reflect historical facts. Specific forward-looking statements contained in
this Annual Report on Form 10-K in the Notes to Consolidated Financial
Statements and under the captions Business and Managements Discussion and
Analysis of Financial Condition and Results of Operations include, but are not
limited to: (i) growth in demand for satellite system ground-based equipment
and satellite-delivered communications services, (ii) continued global
deregulation and privatization of telecommunications carriers, (iii) worldwide
demand for Internet over Satellite connectivity and communications services in
general, (iv) an increase in total foreign sales, and (v) an increase in market
share and (vi) sufficient cash reserves and cash from operations to fund
planned future operations and capital requirements through the end of 2002.

Forward-looking statements involve risks, uncertainties and other factors
which may cause actual results, performance or achievements of Radyne ComStream
to be materially different from those expressed or implied by such
forward-looking statements. Factors that could affect Radyne ComStreams
results and cause them to materially differ from those contained in the
forward-looking statements include:



| |  |  | loss of, and failure to replace, any significant customers;                                                                                   
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | timing and success of new product introductions;                                                                                              
|
| |  |  | product developments, introductions and pricing of competitors;                                                                               
|
| |  |  | timing of substantial customer orders;                                                                                                        
|
| |  |  | availability of qualified personnel;                                                                                                          
|
| |  |  | the impact of local political and economic conditions and foreign
exchange fluctuations on international sales;                               
|
| |  |  | performance of suppliers and subcontractors;                                                                                                  
|
| |  |  | market demand and industry and general economic or business conditions;                                                                       
|
| |  |  | availability, cost and terms of capital;                                                                                                      
|
| |  |  | the Risk Factors set forth in Exhibit 99.1, which is attached
hereto and incorporated by reference into this Annual Report on Form
10-K; and
|
| |  |  | Other factors that Radyne ComStream is currently unable to identify
or quantify, but may exist in the future.                                 

In addition, the foregoing factors may affect generally Radyne ComStreams
business, results of operations and financial position.

Forward-looking statements speak only as of the date the statement was
made. Radyne ComStream does not undertake and specifically declines any
obligation to update any forward-looking statements.





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ITEM 1.    BUSINESS

Overview

We design, manufacture, install and sell equipment used in the
ground-based portion of satellite communication systems to receive, and
transmit data, video, audio and Internet over satellite communications links.
We also design, manufacture, and sell equipment used in cable television
systems. Our products are used in applications for telephone, data, video and
audio broadcast communications, private and corporate data networks, Internet
applications, and digital television for cable and network broadcast. We serve
customers in over 80 countries, including customers in the television broadcast
industry, international telecommunications companies, Internet service
providers, private communications networks, network and cable television and
the United States government.

Our products have been utilized in major communication systems worldwide,
including the following:



| |  |  | The worlds highest capacity domestic, digital satellite telephone network  PT Telkom, Indonesia.                                                                                                                  
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Italys first digital telephone/data network  Telespacio, Italian Railways.                                                                                                                                        
|
| |  |  | Colombias first alternate telecommunications network  Americatel.                                                                                                                                                 
|
| |  |  | Supplied HDTV Encoders and IRDs for Major Korean Broadcasters                                                                                                                                                       
|
| |  |  | Earth stations for the first international satellite links in China, India, Pakistan, Brazil, Haiti and Zambia.                                                                                                     
|
| |  |  | One of the worlds largest private satellite broadcast network  Reuters.                                                                                                                                           
|
| |  |  | International Cablecasting Technologies  utilizing 40,000 digital audio broadcast receivers.                                                                                                                       
|
| |  |  | Supply of Ground equipment for delivery of IP over Satellite to major satellite bandwidth providers.                                                                                                                
|
| |  |  | First major Internet over Satellite network with 300 terminals
deployed in the Dominican Republic for a distance learning
application.                                                                              
|
| |  |  | Major private audio network in Mexico and Central America for a
department store chain which transmits music, advertising and product
announcements to all its store locations.                                     
|
| |  |  | Supply of major control room equipment plus engineering,
installation and training at new customer service center for PanAmSat
Corporation.                                                                         
|
| |  |  | Broadband satellite modems and frequency converters to provide
telephone and Internet connectivity for VSNL, the largest
international telecommunications provider in India.                                        
|
| |  |  | High-Speed DVB Modulators for Hughes Direct to PC network.                                                                                                                                                          
|
| |  |  | High Definition Television encoders and IRDs for major
international sporting events (2002 winter Olympics through NBC, 2002
World Cup through Korea Telecom and various programming through
ESPN-Star in Singapore)
|
| |  |  | First Internet broadcast network in the Republic of Myanmar.                                                                                                                                                        
|
| |  |  | Major expansion of US Government Satellite Communications Network.                                                                                                                                                  

Industry Overview

Satellite technology has been established as a key element in the
worldwide infrastructure of communications systems. Satellites enable
high-speed communications service where there is no suitable alternative
available. Unlike the cost of land-based





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networks, such as microwave and fiber cable, the cost to provide services via
satellite does not increase with the distance between sending and receiving
stations. Satellite networks can be rapidly installed, upgraded, and
reconfigured as compared with land-based networks, which require rights-of-way
and are expensive and time consuming to install and upgrade. The three
principal categories of satellite communications service applications are fixed
satellite services, mobile satellite services, and direct broadcast services.

Fixed Satellite Services.Fixed satellite services provide point-to-point
and point-to-multipoint satellite communication of voice, data, and video
between fixed ground-based earth stations. The introduction of high-power
satellites has created additional growth within the fixed satellite services
segment by enabling the use of smaller, less costly earth stations for
applications such as corporate data networks, Intranet access, and rural
telephony.

Mobile Satellite Services.Mobile satellite services operate between fixed
earth stations and mobile user earth stations, or terminals. These services
provide mobile voice and data transmission capability on land, sea, and air.
New mobile satellite services are being developed to bring more extensive
coverage and circuit reliability for mobile telephone and data services to
under-served populations throughout the world.

Direct Broadcast Services.Direct broadcast satellite services provide a
direct transmission link from high-power satellites to customers over a wide
geographic area. This includes direct-to-home television services, direct
broadcast data services, and Internet access.

Satellite communication systems that are used to provide these services
consist of two elements: satellites (the space segment) and ground-based
transmission and reception systems (the ground segment). The space segment
consists of a single satellite or a constellation of satellites in earth orbit,
which typically provide continuous communications coverage over a wide
geographic area. These satellites typically contain multiple transponders, each
of which is capable of simultaneously receiving and transmitting one or more
signals to or from multiple users. The satellite ground segment consists
principally of one or more earth stations. An earth station is an integrated
system consisting of antennae, radio signal transmitting and receiving
equipment, a satellite modem, a frequency controller, and voice, data, and
video network interface equipment. Earth stations provide a communications link
to the end user either directly or through land-based networks.

We have participated principally in the ground segment products, systems,
and networks portion of the market. A Merrill Lynch Study, Global Satellite
Marketplace 2000, estimated the global market for satellite ground equipment
and integration services was $30 billion in 2000, of which our management
estimates $1 billion was for the type of equipment and systems we develop,
manufacture, and market.

Industry Growth

We believe that demand for satellite system ground-based equipment has
been and will continue to be driven by, among other things, the growth of
satellite-delivered communications services such as the fixed, mobile, and
direct broadcast services described above. We believe that future demand for
satellite communications services will be driven principally by the following
major factors:



| |  |  | Continued global deregulation and privatization of
government-monopolized telecommunications carriers, which will
stimulate growth in the communications industry in general.                                               
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Worldwide demand for Internet over Satellite connectivity.
Approximately 80% of the World Wide Web sites reside in North America
and high-speed access to the web will continue to be a major issue
over the next 3-5 years.
|
| |  |  | Worldwide demand for communications services in general,
including data communications services, high-speed digital
television/HDTV and corporate Intranets.                                                                
|
| |  |  | The relative cost-effectiveness of satellite communications for
many applications, such as digital television delivery.                                                                                                     





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| |  |  | Technological advancements that broaden applications for and
increase the capacity in satellite networks.                  
| | - |  | ---------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Lack of global terrestrial infrastructure to support increased
demand for Broadband and Internet applications and services.
|
| |  |  | U.S. Federal Communications Commission mandate for Television
Broadcasters to adopt DTV standards by 2006.                 

Deregulation and Privatization.Many developing countries that had
previously not committed significant resources to or placed a high priority on
developing and upgrading their communications systems are now doing so,
primarily through deregulation and privatization. A significant number of these
countries do not have the resources, or have large geographic areas or terrain
that make it difficult, to install extensive land-based networks on a
cost-effective basis. This provides an opportunity for satellite communications
services systems to meet the requirement for communications services in these
countries.

Worldwide Demand for Communications Services.Factors contributing to the
demand for communications services include worldwide economic development and
the increasing globalization of commerce. Businesses have a need for higher
bandwidth services to communicate with their customers and employees around the
world and are increasingly reliant upon Internet and multimedia applications.
We expect demand for these kinds of higher bandwidth services to grow in both
developed and developing countries.

Cost-Effectiveness of Satellite Communications.The relative
cost-effectiveness of satellite communications services is a major factor
driving the growth of satellite communications services in areas with rapidly
growing telecommunications infrastructures. Large geographic areas, where
population concentrations are separated by significant distances, require a
technology whose cost and speed of implementation is relatively insensitive to
distance. Unlike the cost of land-based networks, the cost to provide services
via satellite does not increase with the distance between sending and receiving
stations.

Technological Advances.Technological advances continue to increase the
capacity of a single satellite and reduce the overall cost of a system and the
service it delivers. This increases the number of potential end-users for the
services and expands the available market. We believe that recent technological
developments such as bandwidth on demand, digital television compression
technology, and signal processing methods will continue to stimulate the demand
for the use of satellite communication services.

Market Opportunities

Satellite communication systems provide a number of advantages over
land-based networks for a variety of applications. We have identified several
key markets and customer groups that we believe provide opportunities to sell
our products.





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International and Rural Telephony

Satellite communication systems enjoy advantages in international
telecommunications markets for several reasons:



| |  |  | It is not cost-effective to utilize land-based networks in many
areas of the world, especially developing countries where modern
communications capabilities are just beginning to develop.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | All areas within a satellite beam receive the same level of
service, making it highly attractive in rough terrain or
underdeveloped regions.                                               
|
| |  |  | Satellites can be deployed much more rapidly to offer
international services.                                                                                                              

We believe there are certain communication requirements that can be
reasonably satisfied only with satellite systems. For example, satellite
communications offer a cost-effective solution that can be installed relatively
quickly to provide communications services in remote or sparsely populated
areas, in rugged or in mountainous terrain, or in nations composed of many
islands, a geographical feature which is relatively common in the Pacific
region.

The potential to reach areas of low subscriber density without costly
construction of land-based networks makes satellite communication systems a
viable solution for rural telephony systems. Rural telephony can be described
as an intra-country telecommunications network linking many remote locations,
such as small villages or islands. These networks allow villages to communicate
with each other and with the world. In a typical rural telephony system, a
small village might install a satellite earth station in a central location
such as the local post office. Residents then use this convenient location to
communicate throughout the country and the world.

Private Networks

As businesses and other organizations expand into regions of the world
where the telecommunications infrastructure is inadequate for land-based
networks, the need for alternative communications connections among multiple
facilities becomes evident. A private network is a dedicated communications
and/or data transmission network. Such a network may link employees of a
multiple-location business with co-workers located throughout the world. Users
can consolidate multiple-applications over a single satellite network and
receive the same quality of service at a lower over-all cost. We believe the
satellite communications industry is poised to gain a foothold in this market
by offering reliable high-speed connectivity. Satellite systems can bypass the
complexity of land-based networks, multiple carriers, and varying price and
billing schedules.

Information and Radio Broadcasts

Satellites are an ideal transmission medium for broadcast services, as a
single satellite has the ability to communicate with ground locations spread
across up to one-third of the surface of the earth. Financial news providers,
merchandise retailers, and others use satellite systems to provide financial
data and other audio and video transmissions for a variety of applications,
such as news wire services and supermarket in-store radio.

Television Video Distribution

Compressed digital video is a recently developed technology that provides
significant new market opportunities for the satellite communications industry.
The development of digital compression technology allows the transmission of
television signals via satellite in a smaller bandwidth than is currently
possible through alternative technologies. This advance in communications
technology is enabling a wider application of satellite solutions for
television and video broadcast services, including the following:



| |  |  | Satellites provide television broadcasters with an efficient
and economical method to distribute their programming to cable
service providers and direct broadcast satellite operators.   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Compressed video encoding and decoding make satellites
available for less demanding video transmissions, including business
teleconferencing, private business networks, and telemedicine.
|
| |  |  | The economics of compressed video allow the use of satellite
transmission for long-distance teaching applications.                                                                        





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| |  |  | Digital cinema distribution is emerging as a viable alternative
to the physical distribution of feature length films.
| | - |  | ---------------------------------------------------------------------------------------------------------------------
|
| |  |  | There is an emerging market to provide data and video directly
to the personal computer via satellite.               

Internet Communications

The Internet is evolving into a global medium, allowing millions of
individuals throughout the world to communicate, share information, and engage
in electronic commerce. Growth in this sector is expected to be driven by the
large and growing number of personal computers installed in homes and offices,
the declining prices of personal computers, improvements in network
infrastructure, the availability of faster and cheaper Internet access, and the
increasing familiarity with and acceptance of the Internet by businesses and
consumers. Internet usage also is expected to continue to grow rapidly due to
unique characteristics that differentiate it from traditional media, such as
real-time access to interactive content, real-time communication capabilities,
and the absence of geographic or temporal limitations.

We expect satellite communications to continue to offer a cost-effective
augmentation capability for Internet service providers, particularly in markets
where land-based networks are unlikely to be either cost-effective or abundant,
such as rural areas. Additionally, satellite broadcast architecture provides an
attractive alternative for Internet service providers, which presently are
dealing with the bottlenecks associated with rapid and uneven Internet growth.
Satellite systems can relieve congestion by providing a low-cost means of
selectively distributing content to sites closer to end-users. Today, only
1,000 Websites represent over 80% of the most frequently accessed content on
the Internet. These Web pages can be transmitted via satellite at regular
intervals to designated server destinations and then stored in servers for
local users to access. This cached content reduces the need to retrieve the
most popular data from the source, thus reducing delays and congestion on the
Internet. Likewise, we expect Internet multicasting to serve as a solution for
the distribution of large applications, such as database updates.

Government and Military

The United States government provides a significant market opportunity for
satellite equipment manufacturers as the defense budget shrinks and government
policies encourage the use of commercial off-the-shelf components whenever
feasible. This provides us with the opportunity to configure our standard
products for a customer that is sizable and likely to provide consistent
business.

Strategy

Our business goals are to expand our market share in our ground-based
satellite systems business and improve profitability. We expect to achieve
these goals through the following strategies:

Target Providers of Fixed, Mobile, and Direct Broadcast Communications
Services Worldwide.We plan to target developing markets that we believe will
account for a significant portion of the demand for satellite-based systems.
These markets typically lack terrestrial infrastructure adequate to support
demand for domestic and international communications services. We plan to
target providers of rural telephony services and Internet service providers in
developing markets because we believe they will rely extensively upon satellite
communication solutions. In developed countries, we plan to target emerging
satellite communications service providers such as those offering direct
broadcast applications.

Exploit New Applications for Our Existing Satellite Technology.We plan to
adapt existing products for use in the Internet broadband, cable television,
and television news gathering markets, which utilize digital receivers and
transmission equipment using many of the same modulation, coding, interface,
and protocol technologies as the satellite business. We have adapted some of
our products for the television distribution market, including satellite modems
that we converted for use in cable television systems.

Develop New Products to Exploit New Market Opportunities.We plan to use
our international sales force and our research and development capabilities to
identify new market opportunities and develop new products to exploit these
opportunities. We intend to develop new products to penetrate and increase our
presence in the markets for Internet communications, rural telephony for
developing markets, high-speed satellite communications, government data
equipment, cable television distribution, and private networks for businesses
and governments.





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Provide High-Margin Customized Products to Niche Markets.We design our
products so we can adapt them to differing specifications with minimal
engineering. We plan to design and produce customized products for niche
markets, particularly military and government markets, which require customized
technology.

Pursue Strategic Acquisitions.We intend to pursue strategic acquisitions
of competitive or complementary companies in order to gain market share,
increase our revenues, expand our product lines, improve our sales force and
increase our profitability.

Products and Services

We offer the following product families:



| |  |  | Satellite modems and earth stations.                                                                       
| | - |  | -----------------------------------------------------------------------------------------------------------
|
| |  |  | Internet via Satellite terminal equipment                                                                  
|
| |  |  | Frequency converters.                                                                                      
|
| |  |  | Data, audio, and video broadcast equipment.                                                                
|
| |  |  | Digital video broadcast (DVB) and high-speed modems.                                                       
|
| |  |  | Cable and microwave modems.                                                                                
|
| |  |  | Standard and High Definition digital Television (HDTV) encoders
and IRDs (Integrated Receivers / Decoders).
|
| |  |  | Digital TV ATM and network interface adapters                                                              

We offer the following services:



| |  |  | Design, integration and installation of turnkey communication systems.
| | - |  | ----------------------------------------------------------------------

Satellite Modems and Earth Stations



| |  | We produce satellite modems that are sold individually and earth stations
that are a bundled solution built around our satellite modems. Satellite
modems transform user information, such as data, video or audio, into a
signal that can be further processed for transmission via satellite. We
produce several varieties of satellite modems, which operate at different
speeds using a variety of modulation techniques.                                                                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Weve recently introduced a major addition to our satellite modem line, the
Turbo forward error correction codec. The turbo product provides customers
with greatly improved satellite and bandwidth performance, which directly
translates to space segment cost savings. This product also affords our
installed base of customers (in excess of 10,000 modems) the opportunity to
improve their performance at a significant operational cost saving.                                                                                                                                                   
|
| |  | Our earth stations commonly consist of several components, including a
satellite modem, a frequency converter, a transceiver, a transmitter, and an
antenna. Earth stations serve as an essential link in transmitting signals
to, and receiving signals from, satellites. Our earth stations enable users
to program power levels and operating parameters in order to compensate for
low signal levels, extreme weather conditions, and other variables. We design
and manufacture our earth stations using components that we manufacture as
well as components that we obtain from other manufacturers.
|
| |  | Our Star Network Management System augments these product offerings. The Star
Network Management System, which consists of a Windows NT® point and click
system, is used to remotely monitor and maintain the functioning of an entire
network of modems, earth stations, and ancillary equipment. This can be done
from a single location, thereby eliminating the                                                                                                                                                                                                                                        





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| |  | need to travel to each remote location. This system provides local and remote
modem management, control of the equipment connected to the modems and earth
stations, collection of network status and alarm information, remote channel
monitoring, and dial-up control.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Frequency Converters



| |  | We currently market two varieties of converters used to transmit signals to
satellites and three converters used to receive signals relayed from
satellites. We also produce a redundancy control unit, which will switch a
satellite system to stand-by equipment in the event of a malfunction in a
satellite modem or converter. Such redundancy is a critical element for many
of our customers, such as rural or international telephony networks, that
strive to provide uninterrupted satellite communications services to their
customers.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Each satellite is configured to receive or transmit a particular radio wave
pattern, otherwise called a frequency band, which is typically different from
the frequency of the satellite modem. Frequency converters are used to alter
the input/output of a satellite modem into a wave pattern that can be
interpreted by the particular satellite being used in the satellite system to
relay communication signals.                                                                                                                           

Data, Audio and Video Broadcast Equipment



| |  | Our digital audio distribution products provide radio networks, service
providers, and merchandise retailers with a satellite distribution system for
the broadcast of in-store advertising and background music. Our data
distribution products deliver real-time, high-value data and digital video
broadcast services. To date, the primary customers for our data distribution
products have been participants in the financial industry. For example, our
IntelliCast Digital Data Broadcast Receiver is used by customers, such as
Reuters, to distribute financial information, up-to-date news stories or
image files of weather information and database updates from a central
location to many remote outlets. Recently the Ministry of Radio & Television
in the Republic of Myanmar has also adopted our IntelliCast Digital Data
Broadcast Receiver as the standard for their distance learning network.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Our MediaCast Satellite PC/Receiver card allows personal computers to request
information over a telephone link and then receive a digital video broadcast
of a wide range of data, audio, and video information directly from a
satellite. This speeds the reception of information, particularly in regions
with underdeveloped telephony, and is often used by Internet service
providers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Two-way Internet Satellite Terminal Equipment



| |  | Our IPSat Internet Satellite Terminal is designed as a fully integrated
modular system capable of receive only, transmit only or full duplex
satellite connectivity to the Internet anywhere in the world. Utilizing the
IPSats modularity and integrated routing capabilities end users can take
advantage of hybrid configurations in situations where terrestrial return
resources such as telephone, cable or other upstream technologies are
available to be used in conjunction with satellite broadcasting. Where such
return resources are not available, or too expensive, the IPSat system can
support the return channel over satellite. The IPSat can offer the most
flexible, cost efficient performance for high-speed satellite downloads from
the World Wide Web for ISPs, Corporations, Educational Institutions and
Government Agencies.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Digital Video Broadcast (DVB) and High-Speed Modems



| |  | Our DVB modems facilitate the transmission of high-quality video images among
multiple locations via satellite. These modems utilize digital compression
technology that allows users to transmit television signals in a smaller
bandwidth than is possible using older technology, thereby making television
transmission by satellite more economical. Video compression allows for the
transmission by satellite of a much higher number of channels than was
previously the case, thus producing a significant new market for our
products. Satellites are often used in industries where live, high-quality
video images are essential, such as direct television broadcasts.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Our high-speed digital modems transmit a greater volume of data than standard
satellite modems. Our modems are used in large satellite system connections
that transmit significant amounts of data at high speeds. Internet service
providers and                                                                                                                                                                                                                                                                                                                                                                                                                                 





---



##### Table of Contents





| |  | government agencies are principal customers for our high-speed and digital
high-speed products.
| |  | -----------------------------------------------------------------------------------------------

Cable and Microwave Modems



| |  | Our cable modems are used primarily in the distribution of digital video for
use by cable television distributors and in high-definition television. The
design of our cable modems allows for the transmission of digital video on
terrestrial, broadband cable and enables system operators to manage and
control the available bandwidth. Our microwave modems transmit over microwave
frequencies and usually feature high-speed and multidata-rate capabilities
that provide a complete point-to-multipoint communication link that
facilitates microwave link upgrades. For example, television stations use our
microwave modems to transmit audio and video over a microwave link to and
from digital news gathering trucks.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Standard and High Definition digital TV encoders



| |  | We offer a complete product line of Standard and High Definition TV encoders
for professional applications. Our encoders are used throughout the world to
provide distribution, contribution and broadcast services. Encoders are used
in satellite, cable and terrestrial applications. The majority of US
broadcasters rely on our encoders to provide news gathering and direct to
home service. Our encoders are recognized for their outstanding picture
quality, ease of use and rugged design.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Digital TV Integrated Receivers / Decoders



| |  | Our integrated receiver/decoders complement the encoder products enabling
us to provide complete system solutions. Receivers and decoders support DVB
and ATSC standards for use in both domestic and international markets. One
of our receiver/decoders, the TDR6 has been adopted by ABC and NBC as a
standard. The modular TDR6 is unique, in that it supports both standard
definition and high definition TV.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Digital TV ATM and Network Interface Adapters



| |  | There is an increasing demand to transport TV terrestrially via common and
private carriers. Terrestrial transport of video introduces technical
requirements relating to interface types, stability and jitter. Interface
adapters allow encoders and decoders to operate in circuit-switched and ATM
networks. Our products are widely accepted for these applications. For
example, the TUI10 Universal Interface Adapter has been certified by AT&T
and is an industry standard.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Design, Integration and Installation of Turnkey Communications Systems



| |  | At our Armer Communications Engineering facility in Chandler, Arizona, we
design, integrate and test turnkey communications systems ranging from small
VSAT installations to Intelsat standard stations. We deliver products and
services from initial engineering and system development to final testing and
after sales support. Our ability to deliver a full compliment of equipment
and services to our customers is a benefit to our customers who desire a
one-stop solution to their needs.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





---



##### Table of Contents



Research and Development

We conduct an active and ongoing research and development program that
focuses on advancing technology, developing improved design and manufacturing
processes, and improving the overall quality of the products we provide. Our
goal is to provide our customers with new solutions that address their needs.
Our research and development personnel concentrate on technology for the
satellite and microwave communications, telecommunications, and cable
television industries. Our future growth depends on increasing the market share
of our new products, adapting our existing products/technologies to new
applications, and introducing new communications products that will find market
acceptance and benefit from our established international distribution
channels. Accordingly, we are actively applying our communications technology
expertise to improving the performance of our existing products and developing
new products to serve existing and new markets.

We work closely with our customers and potential customers to assess their
needs in order to facilitate our design and development of new products. We
believe that this approach minimizes our development risk and improves the
potential for market acceptance of our product introductions. Additionally, we
use information obtained from our customers and our technological expertise to
develop custom-designed products for our customers special applications.

Research and development expenses amounted to $10.8 million for the year
ended December 31, 2001, $9.3 million for the year ended December 31, 2000 and
$9.1 million for the year ended December 31, 1999. A number of new products
were either launched or reached an advanced stage of development during these
periods.

We intend to use a significant portion of our cash flows from earnings to
fund our research into products for Internet over Satellite links, High
Definition Television (HDTV) and other new telecommunications products. We also
plan to target our research and development activities at digital audio, video,
and data products. However, there is no assurance that we will continue to
have access to sufficient capital to fund the necessary research and
development or that such efforts, even if adequately funded, will prove
successful.

Sales and Marketing

We sell our products through an international sales force with sales
and/or service offices in San Diego, Phoenix, Boca Raton, Beijing, Singapore,
London, Amsterdam, and Jakarta. Our direct sales force consists of 14
individuals supported by systems and applications engineers. We focus direct
sales activities on expanding our international sales by identifying emerging
markets and establishing new customer accounts. Additionally, we directly
target certain major accounts that may provide entry into new markets or lead
to subsequent distribution arrangements. International representatives,
distributors and systems integrators sell our products, supported by our sales
and marketing personnel.

We participate in approximately six trade shows each year. We also
generate new sales leads through advertising in trade magazines, direct mail,
and our Web site (www.RadyneComStream.com) (reference to our Web site is
intended to be an inactive textual reference).

We maintain a customer service and support staff that primarily supports
customers and distributors and is responsible for after-sale support and
installation supervision. In certain instances, we use third-party companies to
install and maintain our products at our customers sites.

Customers

Our customers generally include national and international
telecommunications providers, digital television users, including broadcast and
cable networks, Internet service providers, financial information providers,
systems integrators, and the U.S. government.

During the years ended December 31, 2001 and 1999, no single customer
represented more than 10% of our net sales. For the year ended December 31,
2000 one customer represented 12.4% of our net sales. Because of the nature of
our business, we anticipate that any customers that represent 10% or more of
our total revenue will vary from period to period depending upon the placement
of significant orders by a particular customer or customers in any given year.





---



##### Table of Contents



Our sales in principal foreign markets for the periods indicated consisted
of the following percentages of total sales.

|                    |  |            |    |            |  |            |    |   |  |  |    |  
|------------------- |  | ---------- | -- | ---------- |  | ---------- | -- | - |  |  | -- | -
|                    |  | Year ended |    | Year ended |  | Year ended
|Region              |  | 12-31-01   |    | 12-31-00   |  | 12-31-99  
|                    |  |            |    |            |  |           
|Asia                |  |            | 20 | %          |  |            | 25 | % |  |  | 25 | %
|                   
|                   
|                   
|                   
|Africa/Middle East  |  |            | 3  | %          |  |            | 2  | % |  |  | 4  | %
|                   
|                   
|                   
|                   
|Latin America       |  |            | 7  | %          |  |            | 3  | % |  |  | 4  | %
|                   
|                   
|                   
|                   
|Europe              |  |            | 15 | %          |  |            | 13 | % |  |  | 21 | %
|                   
|                   
|                   
|                   
|Canada              |  |            | 1  | %          |  |            | 1  | % |  |  | 2  | %
|                    |  |            |    |            |  |            |    |   |  |  |    |  
|Total Foreign Sales |  |            | 46 | %          |  |            | 44 | % |  |  | 56 | %

The one customer who accounted for 12.4% of our total sales, in 2000, was
classified as a domestic customer. However, the products purchased by the
customer were used to complete Internet over satellite circuits from the U.S.
to foreign (principally Latin American) countries. Likewise, we believe that
as much as 60% of our domestic sales are ultimately destined for foreign use.

We believe that foreign sales will continue to make up the bulk of our
total sales in subsequent periods. We consider our ability to continue to sell
our products in developing markets to be important to our future growth. We may
not, however, succeed in our efforts to cultivate such markets.

Competition

We have a number of major competitors in the satellite communications
field. These include large companies, such as Hughes Network Systems, NEC, and
Comtech EFData Corp., all of which have significantly larger and more
diversified operations and greater financial, marketing, human and other
resources than we possess. We estimate that our major competitors, in the
principal markets in which we compete, have the following market shares as
compared to our market share:

|                           |  |                    |    |           |  |             |    |            |  |             |    |   |  |  |    |   |  |  |    |  
|-------------------------- |  | ------------------ | -- | --------- |  | ----------- | -- | ---------- |  | ----------- | -- | - |  |  | -- | - |  |  | -- | -
|                           |  | Market Segment    
|                           |  |                   
|                           |  | Satellite Modems & |    |           |  |             |    |            |  |             |    |   |  |  |    |   |  | 
|Principle Companies Within |  | Small Earth        |    | Broadband |  |             |    |            |  |             |    |   |  |  |    |  
|Addressable Market Segment |  | Stations           |    | IP VSAT   |  | Datacasting |    | Digital TV |  | Integration
|                           |  |                    |    |           |  |             |    |            |  |            
|Comtech EFData             |  |                    | 20 | %         |  |             | *  |            |  |             | *  |   |  |  | *  |   |  |  | *  |  
|                          
|                          
|                          
|                          
|Paradise Datacom (Intelek) |  |                    | 15 | %         |  |             | *  |            |  |             | *  |   |  |  | *  |   |  |  | *  |  
|                          
|                          
|                          
|                          
|Gilat                      |  |                    | 10 | %         |  |             | 20 | %          |  |             | 15 | % |  |  | *  |   |  |  | *  |  
|                          
|                          
|                          
|                          
|HNS                        |  |                    | *  |           |  |             | 30 | %          |  |             | 5  | % |  |  | *  |   |  |  | *  |  
|                          
|                          
|                          
|                          
|ViaSat                     |  |                    | 5  | %         |  |             | 20 | %          |  |             | 15 | % |  |  | *  |   |  |  | *  |  
|                          
|                          
|                          
|                          
|IDC                        |  |                    | *  |           |  |             | *  |            |  |             | 25 | % |  |  | *  |   |  |  | *  |  
|                          
|                          
|                          
|                          
|Tandberg TV                |  |                    | *  |           |  |             | *  |            |  |             | *  |   |  |  | 40 | % |  |  | *  |  
|                          
|                          
|                          
|                          
|Scopus                     |  |                    | *  |           |  |             | *  |            |  |             | *  |   |  |  | 10 | % |  |  | *  |  
|                          
|                          
|                          
|                          
|Wegener                    |  |                    | *  |           |  |             | *  |            |  |             | *  |   |  |  | 10 | % |  |  | *  |  
|                          
|                          
|                          
|                          
|IDB                        |  |                    | *  |           |  |             | *  |            |  |             | *  |   |  |  | *  |   |  |  | 20 | %
|                          
|                          
|                          
|                          
|Globecomm Systems          |  |                    | 5  | %         |  |             | *  |            |  |             | *  |   |  |  | *  |   |  |  | 20 | %
|                          
|                          
|                          
|                          
|Vertex RSI                 |  |                    | 5  | %         |  |             | *  |            |  |             | *  |   |  |  | *  |   |  |  | 20 | %
|                          
|                          
|                          
|                          
|Radyne ComStream           |  |                    | 20 | %         |  |             | 5  | %          |  |             | 5  | % |  |  | 10 | % |  |  | 5  | %



---

|* |  | Competitor does not participate in product category or comprises less than
5% of the total market.
|- |  | --------------------------------------------------------------------------------------------------

We do not believe that any other single competitor has a greater than 10%
market share for any of these product classes. However, the foregoing market
share figures represent estimates based on the limited information available to
us, and we cannot assure you that it is accurate.

We compete by concentrating our sales efforts in the international market
and emphasizing our product features, quality and after-sales service. We
believe that the quality, performance, and capabilities of our products, our
ability to customize certain
Table of Contents

network functions, and the relatively lower overall cost of our products as
compared to the cost of the competing products generally offered by our major
competitors represent major factors in our ability to compete. However, our
major competitors have the resources to develop products with features and
functions that are competitive with or superior to our products. 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.

We believe we are well positioned to capitalize on the demand for
satellite ground segment systems and that our future success in this market
will be based upon our ability to leverage our competitive advantages, which
include the following:



| |  |  | An experienced management group, which has extensive
technological and engineering expertise and excellent customer
relationships. The members of our management team have an average of
over 20 years of experience in the satellite communications industry.                                 
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our expansive line of well-known, well-respected,
off-the-shelf, state-of-the-art equipment that enables us to meet our
customers requirements.                                                                                                                                               
|
| |  |  | Our ability to custom design products for our customers
special applications and to provide a one-stop shopping option to our
customers.                                                                                                                                                      
|
| |  |  | Our ability to meet the complex satellite ground communications
systems requirements of our customers in diverse political, economic,
and regulatory environments in various locations around the world.                                                                                       
|
| |  |  | Our worldwide sales and service organization with the expertise
to successfully conduct business internationally through sales and
service offices staffed by our employees in most of our major markets
throughout the world, including in Beijing, Singapore, London,
Jakarta, and Amsterdam.

Manufacturing

We assemble and test certain products at our Phoenix, Arizona and San
Diego, California facilities using subsystems and circuit boards that we obtain
from subcontractors. We obtain the remainder of our products, completely
assembled and tested, from subcontractors. Although we believe that we maintain
adequate stock to reduce the procurement lead-time for certain components, our
products use a number of specialized chips and customized components or
subassemblies produced by a limited number of suppliers. In the event that such
suppliers were unable or unwilling to fulfill our requirements, we could
experience an interruption in production until we develop an alternative supply
source. We maintain an inventory of certain chips and components and
subassemblies to limit the potential for such an interruption. We believe that
there are a number of companies capable of providing replacements for the types
of chips and customized components and subassemblies used in our products.

During 1999 and 2000, our Phoenix and San Diego facilities were awarded
ISO 9001 certification, the international quality control standard for research
and development, marketing, sales, manufacturing, and distribution processes.
subsequently, we have continued to improve our processes and methods of
operations, consistent with our goals and the certification requirements. This
certification will assist in increasing the acceptance of our products in
foreign markets.

Intellectual Property

We rely on our proprietary technology and intellectual property to
maintain our competitive position. We protect a significant portion of our
proprietary technology as trade secrets by relying on confidentiality
agreements with our employees and some of our suppliers. We also control access
to and distribution of confidential information concerning our proprietary
information.

We also have patents which protect certain of our proprietary technology.
We have been cautious in seeking to obtain patent protection for our products,
since patents 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 of the foreign countries
Table of Contents

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 will
continue to seek patent protection for our proprietary technology in those
cases where we think it can be obtained and will provide us with a competitive
advantage.

Employees

As of December 31, 2001, we had 259 full-time employees, including four
executive officers, 154 in engineering and manufacturing, 47 in sales and
marketing, 27 in installation and customer service and 31 in administration.
These figures include employees who are based outside the United States. A
union does not represent our employees in their collective bargaining with us.
We believe that our relationships with our employees are satisfactory.




ITEM 2.     PROPERTIES

We currently have 76,000 square feet available in Phoenix, 16,000 square
feet in Chandler and 66,000 square feet available for our San Diego facility.
The lease for our Phoenix facility expires in July 2008 and we have an option
to renew for two consecutive terms of five years each. The lease for our
Chandler facility expires in October 2008 and we have an option to renew for
five years. The lease for our San Diego facility expires in March 2005 and we
have an option to renew for two consecutive terms of five years each. We also
lease facilities for our regional sales and service offices in Boca Raton,
Beijing, Singapore, London, Jakarta, and Amsterdam. We believe that our
facilities are adequate to meet current and reasonably anticipated needs in the
immediate future.




ITEM 3.     LEGAL PROCEEDINGS

From time to time, we are party to certain legal proceedings incidental to
the conduct of our business. We believe that the outcome of pending legal
proceedings will not, either individually or in the aggregate, have a material
adverse effect on our business, financial position, results of operations, cash
flows or liquidity.




ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of securities holders during the three
months ended December 31, 2001.





---



##### Table of Contents






PART II




ITEM 5.    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Common Stock

Our common stock was traded on the OTC Bulletin Board under the symbol
RADN as of December 31, 1999. As a result of our public offering, which
became effective February 7, 2000, our common stock and warrants now trade on
the Nasdaq National Market under the symbols RADN and RADNW, respectively.
The following table sets forth the range of high and low trading prices as
reported by the OTC Bulletin Board and Nasdaq National Market for the periods
indicated.

| |       |  |  |                |  |  |        |  |  |  |       | 
| | ----- |  |  | -------------- |  |  | ------ |  |  |  | ----- | 
| |       |  |  |                |  |  | High $ |  |  |  | Low $ | 
| |       |  |  |                |  |  |        |  |  |  |       | 
| | 1999: | 
|
|
|
|
| |       |  |  | First Quarter  |  |  | 4.25   |  |  |  | 2.25  | 
|
|
|
|
| |       |  |  | Second Quarter |  |  | 3.75   |  |  |  | 2.50  | 
|
|
|
|
| |       |  |  | Third Quarter  |  |  | 3.56   |  |  |  | 2.25  | 
|
|
|
|
| |       |  |  | Fourth Quarter |  |  | 8.50   |  |  |  | 2.75  | 
|
|
|
|
| | 2000: | 
|
|
|
|
| |       |  |  | First Quarter  |  |  | 35.00  |  |  |  | 6.50  | 
|
|
|
|
| |       |  |  | Second Quarter |  |  | 23.38  |  |  |  | 11.13 | 
|
|
|
|
| |       |  |  | Third Quarter  |  |  | 17.56  |  |  |  | 7.81  | 
|
|
|
|
| |       |  |  | Fourth Quarter |  |  | 10.13  |  |  |  | 3.91  | 
|
|
|
|
| | 2001: | 
|
|
|
|
| |       |  |  | First Quarter  |  |  | 8.63   |  |  |  | 4.88  | 
|
|
|
|
| |       |  |  | Second Quarter |  |  | 7.36   |  |  |  | 4.44  | 
|
|
|
|
| |       |  |  | Third Quarter  |  |  | 6.17   |  |  |  | 3.60  | 
|
|
|
|
| |       |  |  | Fourth Quarter |  |  | 6.10   |  |  |  | 3.54  | 

Holders of Record

As of March 22, 2002, we had approximately 400 holders of record of our
common stock. We estimate that there are more than 4,600 beneficial owners
of our common stock.

Dividends

We have not paid dividends on our common stock since inception and we do not
intend to pay any dividends to our stockholders in the foreseeable future.
We currently intend to reinvest earnings, if any, in the development and
expansion of our business. The declaration of dividends in the future will
be at the election of our Board of Directors and will depend upon our
earnings, capital requirements and financial position, general economic
conditions and other pertinent factors.

Sale of Unregistered Securities

During the fourth quarter of 2001, we did not issue any equity
securities that were not registered under the Securities Act of 1933, as
amended.





---



##### Table of Contents






ITEM 6.     SELECTED FINANCIAL DATA

The following selected statement of operations data for the years ended
December 31, 2001, 2000, 1999, 1998, and 1997, and the selected balance sheet
data at those dates, are derived from our consolidated financial statements and
notes thereto audited by our independent auditors, KPMG LLP (in the case of the
years ended December 31, 2001, 2000, 1999 and 1998) and Deloitte & Touche LLP
(in the case of the year ended December 31, 1997). Per share data and shares
outstanding reflect an adjustment for the effects of the 1-for-5 reverse split
of our common stock, which became effective on January 9, 1997. The following
data is not necessarily indicative of results of future operations and should
be read in conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated financial statements
and notes thereto included elsewhere in this 10-K Annual Report.

STATEMENT OF OPERATIONS DATA:

|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |       |  
|---------------------------------------------------------- | ----------------------------------------- | - | -------------------------------- | ---- | ---- | - | ---------- | ---- | ---- | - | --------- | ---- |  | - | --------- | ----- | - | - | --------- | ----- | -
|                                                           |                                           |   | Years Ended December 31,        
|                                                           |                                           |   | (in thousands except share data)
|                                                           |                                           |   | 2001                             |      | 2000 |   | 1999       |      | 1998 |   | 1997     
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |          
|Net sales                                                  |                                           | $ | 68,471                           |      |      | $ | 70,107     |      |      | $ | 55,840    |      |  | $ | 21,112    |       |   | $ | 13,447    |      
|                                                          
|                                                          
|                                                          
|                                                          
|Cost of sales                                              |                                           |   | 39,559                           |      |      |   | 38,280     |      |      |   | 29,971    |      |  |   | 15,808    |       |   |   | 8,022     |      
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|Gross profit                                               |                                           |   | 28,912                           |      |      |   | 31,827     |      |      |   | 25,869    |      |  |   | 5,304     |       |   |   | 5,425     |      
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|Selling, general and administrative expense                |                                           |   | 15,307                           |      |      |   | 13,573     |      |      |   | 12,355    |      |  |   | 5,531     |       |   |   | 4,242     |      
|                                                          
|                                                          
|                                                          
|                                                          
|Research and development expense                           |                                           |   | 10,812                           |      |      |   | 9,317      |      |      |   | 9,127     |      |  |   | 4,296     |       |   |   | 2,262     |      
|                                                          
|                                                          
|                                                          
|                                                          
|Stock option compensation expense                          |                                           |   |                                 |      |      |   |           |      |      |   | 350       |      |  |   | 1,566     |       |   |   |          |      
|                                                          
|                                                          
|                                                          
|                                                          
|In-process research and development expense                |                                           |   |                                 |      |      |   |           |      |      |   |          |      |  |   | 3,909     |       |   |   |          |      
|                                                          
|                                                          
|                                                          
|                                                          
|Restructuring costs                                        |                                           |   |                                 |      |      |   |           |      |      |   |          |      |  |   | 3,100     |       |   |   |          |      
|                                                          
|                                                          
|                                                          
|                                                          
|Asset impairment charges(1)                                |                                           |   |                                 |      |      |   |           |      |      |   |          |      |  |   | 263       |       |   |   |          |      
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|Total operating expenses                                   |                                           |   | 26,119                           |      |      |   | 22,890     |      |      |   | 21,832    |      |  |   | 18,665    |       |   |   | 6,504     |      
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|Earnings (loss) from operations                            |                                           |   | 2,793                            |      |      |   | 8,937      |      |      |   | 4,037     |      |  |   | (13,361   | )     |   |   | (1,079    | )    
|                                                          
|                                                          
|                                                          
|                                                          
|Interest expense                                           |                                           |   | 54                               |      |      |   | 492        |      |      |   | 1,910     |      |  |   | 1,199     |       |   |   | 677       |      
|                                                          
|                                                          
|                                                          
|                                                          
|Interest income                                            |                                           |   | (523                             | )    |      |   | (1,076     | )    |      |   | (76       | )    |  |   | (23       | )     |   |   |          |      
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|Earnings (loss) before income taxes and extraordinary item |                                           |   | 3,262                            |      |      |   | 9,522      |      |      |   | 2,203     |      |  |   | (14,537   | )     |   |   | (1,756    | )    
|                                                          
|                                                          
|                                                          
|                                                          
|Income taxes                                               |                                           |   | 1,326                            |      |      |   | (2,919     | )    |      |   | 85        |      |  |   |          |       |   |   |          |      
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|Earnings (loss) before extraordinary item                  |                                           |   | 1,936                            |      |      |   | 12,441     |      |      |   | 2,118     |      |  |   | (14,537   | )     |   |   | (1,756    | )    
|                                                          
|                                                          
|                                                          
|                                                          
|Extraordinary item                                         |                                           |   |                                 |      |      |   |           |      |      |   | 188       |      |  |   |          |       |   |   |          |      
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|Net earnings (loss)                                        |                                           | $ | 1,936                            |      |      | $ | 12,441     |      |      | $ | 2,306     |      |  | $ | (14,537   | )     |   | $ | (1,756    | )    
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|Basic earnings (loss) per share:                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Earnings (loss) before extraordinary item |   | $                                | 0.13 |      |   | $          | 0.89 |      |   | $         | 0.30 |  |   | $         | (2.45 | ) |   | $         | (0.35 | )
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Extraordinary item                        |   |                                  | 0.00 |      |   |            | 0.00 |      |   |           | 0.02 |  |   |           | 0.00  |   |   |           | 0.00  |  
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|                                                           | Net earnings (loss)                       |   | $                                | 0.13 |      |   | $          | 0.89 |      |   | $         | 0.32 |  |   | $         | (2.45 | ) |   | $         | (0.35 | )
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|Diluted earnings (loss) per share:                         |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Earnings (loss) before extraordinary item |   | $                                | 0.13 |      |   | $          | 0.81 |      |   | $         | 0.28 |  |   | $         | (2.45 | ) |   | $         | (0.35 | )
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Extraordinary item                        |   |                                  | 0.00 |      |   |            | 0.00 |      |   |           | 0.02 |  |   |           | 0.00  |   |   |           | 0.00  |  
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|                                                           | Net earnings (loss)                       |   | $                                | 0.13 |      |   | $          | 0.81 |      |   | $         | 0.30 |  |   | $         | (2.45 | ) |   | $         | (0.35 | )
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|Weighted average shares used in computation                |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|                                                          
|                                                          
|                                                          
|                                                          
|Basic                                                      |                                           |   | 14,943,516                       |      |      |   | 13,972,078 |      |      |   | 7,111,777 |      |  |   | 5,931,346 |       |   |   | 5,012,664 |      
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|Diluted                                                    |                                           |   | 15,411,568                       |      |      |   | 15,426,297 |      |      |   | 7,571,425 |      |  |   | 5,931,346 |       |   |   | 5,012,664 |      
|                                                           |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|EBITDA (2)                                                 |                                           | $ | 6,367                            |      |      | $ | 11,164     |      |      | $ | 6,948     |      |  | $ | (12,297   | )     |   | $ | (625      | )    
|                                                          
|                                                          
|                                                          
|                                                          
|BALANCE SHEET DATA:                                        |                                           |   |                                  |      |      |   |            |      |      |   |           |      |  |   |           |       |   |   |           |      
|                                                          
|                                                          
|                                                          
|                                                          
|Cash and cash equivalents                                  |                                           | $ | 7,211                            |      |      | $ | 16,245     |      |      | $ | 2,948     |      |  | $ | 225       |       |   | $ | 570       |      
|                                                          
|                                                          
|                                                          
|                                                          
|Working capital (deficit)                                  |                                           |   | 35,959                           |      |      |   | 33,858     |      |      |   | (2,555    | )    |  |   | (8,804    | )     |   |   | (1,655    | )    
|                                                          
|                                                          
|                                                          
|                                                          
|Total assets                                               |                                           |   | 53,241                           |      |      |   | 51,844     |      |      |   | 28,236    |      |  |   | 29,191    |       |   |   | 10,232    |      
|                                                          
|                                                          
|                                                          
|                                                          
|Long-term liabilities                                      |                                           |   | 684                              |      |      |   | 769        |      |      |   | 760       |      |  |   | 16,862    |       |   |   | 4,649     |      
|                                                          
|                                                          
|                                                          
|                                                          
|Total liabilities                                          |                                           |   | 7,893                            |      |      |   | 10,030     |      |      |   | 23,909    |      |  |   | 44,428    |       |   |   | 11,382    |      
|                                                          
|                                                          
|                                                          
|                                                          
|Stockholders equity (deficiency)                          |                                           |   | 45,347                           |      |      |   | 41,814     |      |      |   | 4,327     |      |  |   | (15,237   | )     |   |   | (1,150    | )    



---

|(1) |  | Consists of the writedown of designs and drawings in light of the introduction of replacement products.                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | EBITDA is earnings before interest, taxes, depreciation and amortization, a measure not defined by generally accepted accounting principles.





---



##### Table of Contents






ITEM 7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

We design, manufacture, install and sell equipment used in the
ground-based portion of satellite communication systems to receive, and
transmit data, video, audio and Internet over satellite communications links.
We also design, manufacture, and sell equipment used in cable television
systems. Our products are used in applications for telephone, data, video and
audio broadcast communications, private and corporate data networks, Internet
applications, and digital television for cable and network broadcast. We serve
customers in over 80 countries, including customers in the television broadcast
industry, international telecommunications companies, Internet service
providers, private communications networks, network and cable television and
the United States government.

On December 8, 2000, we completed the acquisition of all of the outstanding
shares of common stock of Armer Communications Engineering Services, Inc.
(Armer) for an aggregate purchase price of $1.9 million. This purchase price
consisted of $1.2 million in cash and 130,680 shares of our common stock. The
fair value of the stock was determined based on the average market price of the
stock over a reasonable period of time before and after the terms of the
acquisition were agreed to and announced. Armer specializes in innovative
solutions for the integration and installation of turnkey satellite
communications systems. This acquisition was recorded in accordance with the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the assets purchased and the liabilities assumed based upon the
estimated fair values at the date of acquisition. The excess of the purchase
price over the fair values of the net assets acquired was approximately $1.9
million and has been recorded as goodwill, which is being amortized on a
straight-line basis over twelve years. The results of operations of the
acquired operations have been included in the accompanying statements of
operations from the acquisition date.

On April 18, 2001, we completed the acquisition of all of the assets of
Tiernan Communications, Inc. for an aggregate purchase price of $4.0 million.
We manufacture the Tiernan products, which are used in the television broadcast
industry. The acquisition has been recorded in accordance with the purchase
method of accounting and, accordingly, the purchase price has been allocated
to the assets purchased and the liabilities assumed based upon the estimated
fair value at the date of acquisition. The excess of the purchase price over
the fair value of the net assets acquired was approximately $1.4 million and
has been recorded as goodwill, which is being amortized on a straight-line
basis over seven years.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make a number of 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. Such estimates
and assumptions affect the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, we evaluate our estimates, including
those related to bad debts, inventories, intangible assets, income taxes,
warranty obligations, and contingencies based upon historical experience and
various other assumptions, factors, and circumstances. We believe that our
estimates and assumptions are reasonable in the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions and future
conditions.

We believe the following critical accounting policies affect our more
significant judgements and estimates used in the preparation of our
consolidated financial statements:



| |  |  | Revenue Recognition. We recognize revenues for orders of products to
be shipped as we ship the products and transfer ownership to our
customers. We maintain allowances for sales returns.                                     
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Allowance for Doubtful Accounts. We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our
customers to make required payments. If the financial condition of our
customers were to





---



##### Table of Contents





| |   |  | deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Long-Lived Assets.We estimate the useful lives of our property and
equipment, goodwill and other identifiable intangibles. We may
experience losses if these assets suffered impairment due to the useful
lives ultimately being shorter than they were originally estimated or if
the carrying value of the long-lived assets are not recoverable from our
operations.                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | Warranties.We provide for the estimated cost of product warranties
at the time revenue is recognized. While we engage in extensive product
quality programs and processes, including actively monitoring and
evaluating the quality of our vendors, our warranty obligation is
affected by product failure rates and material usage and service
delivery costs incurred in correcting any product failures. Should
actual product failure rates, material usage or service delivery costs
differ from our estimates, revisions to the estimated warranty liability
would be required.                                                                                                                                                                                                               
|
| |  |  | Inventories.We write down our inventory for estimated obsolescence
or the inability to market its inventory equal to the difference between
the cost of inventory and the estimated market value based upon
assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management,
additional inventory write-downs may be required.                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | Deferred Taxes.We
record a valuation allowance to reduce our
deferred tax assets to the amount that is more likely than not to be
realized. While we have considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need for
the valuation allowance, in the event we were to determine that we would
be able to realize our deferred tax assets in the future in excess of
our net recorded amount, an adjustment to the deferred tax asset would
increase income in the period such determination was made. Likewise,
should we determine that we would not be able to realize all or part of
our deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period such determination was
made.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000

Our net sales decreased 2% to $68.5 million during the year ended December
31, 2001 from $70.1 million during the year ended December 31, 2000. This
decrease is primarily attributable to the economic slowdown over the last year
and was offset by sales of products from the Tiernan and Armer acquisitions.
The products attributable to these acquisitions accounted for approximately
$18.0 million of sales during the current year compared to approximately $2.0
million of sales for the prior year. We experience normal margins on the
Tiernan products and lower margins on the Armer products.

Our cost of sales as a percentage of net sales increased by 3% to 58%
during the year ended December 31, 2001 from 55% for the year ended December
31, 2000. The change in costs as a percent of sales is primarily due to
changes in the mix of products shipped, namely, the typically lower margins on
the Armer products and higher unabsorbed overhead from our core businesses due
to the lower sales during the current year.

Selling, general and administrative costs increased to $15.3 million, or
22% of sales, during the year ended December 31, 2001 from $13.6 million, or
19% of sales, for the year ended December 31, 2000. The increase in expenses
during the year is primarily attributed to the additional expenses associated
with the Armer and Tiernan product lines, which were approximately $1.5 million
and $2.0 million respectively.

Research and development expenditures increased to $10.8 million, or 16%
of sales, during the year ended December 31, 2001 from $9.3 million, or 13% of
sales, during the year ended December 31, 2000. In addition to our continued
commitment to invest in our future through technological advances and our
efforts to improve our older product lines for manufacturability and lower
costs, the increase in research and development expenses reflects added efforts
for our Tiernan product lines and a significant effort to develop the IPSat
related product lines. Our research and development personnel concentrate on
technology for the satellite and microwave communications, telecommunications,
and cable television industries, as well as the newly acquired Tiernan product
lines, which target the digital television broadcast industry. We have
reorganized to reduce research and development costs for the ensuing year by
reducing personnel dedicated to the IPSat product lines as we believe we are
nearing completion of the development phase of this product.





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##### Table of Contents



As a result of the decrease in our gross profit and our higher operating
costs as a percentage of sales, 38% in 2001 compared to 33% in 2000, we
recorded earnings from operations of $2.8 million during 2001 compared to $8.9
million in 2000.

Interest expense decreased to $54,000 in 2001, or 0.1% of sales, from
$492,000 in 2000, or .7% of sales, due to the payoff of our credit line during
the prior year.

Interest income decreased to $523,000 in 2001 from $1.1 million in 2000.
The decrease is due to the reduced cash levels in 2001 compared to 2000. As
discussed below, cash decreased primarily as a result of the acquisition in
Tiernan in April 2001.

We recorded an income tax expense in 2001 of $1.3 million compared to an
income benefit in 2000 of $2.9 million. The benefit recorded in the prior year
was primarily due to a one-time tax benefit of $4.3 million in the third
quarter of 2000 resulting from the reduction of the valuation allowance
pertaining to our net operating loss carryforward.

Based on all of the above, we recorded net earnings of $1.9 million, or
$0.13 per diluted weighted average share outstanding, during 2001 as compared
to $12.4 million, or $0.81 per diluted weighted average share outstanding,
during 2000.

New orders booked (bookings) decreased 9% to $65.6 million for the year
ended December 31, 2001 from $72.1 million for the year ended December 31,
2000. This decrease is primarily due to the economic slowdown over the prior
year. Our backlog of orders to be shipped, which are unshipped orders from the
prior period plus new orders booked less orders shipped during the period, was
$14.9 million as of December 31, 2001, a decrease of 13% from the $17.0 million
in backlog as of December 31, 2000. This reduction is a direct result of the
lower bookings compared to sales during the current period. Our Backlog
consists of firm orders as evidenced by written contracts and/or purchase
orders from customers.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999

Our net sales increased 26% to $70.1 million during the year ended
December 31, 2000 from $55.8 million during the year ended December 31, 1999.
This increase is primarily attributable to our introduction of a number of new
products into our traditional markets, which resulted in an increase in market
share.

Our cost of sales as a percentage of net sales increased to 54.6%
during the year ended December 31, 2000 from 53.7% for the year ended
December 31, 1999. The change in costs as a percent of sales is primarily
due to changes in the mix of products shipped.

Selling, general and administrative costs increased to $13.6 million, or
19% of sales, during the year ended December 31, 2000 from $12.4 million, or
22% of sales, for the year ended December 31, 1999. The increase in expenses
during the year is primarily attributed to an increase in commissions and other
selling expenses due to the increase in sales compared to the prior year and an
increased focus on our marketing strategies. The decrease of SG&A expenses in
terms of percentage of sales is primarily due to our ability to increase sales
at a faster rate than expenses. Research and development expenditures
increased to $9.3 million, or 13% of sales, during the year ended December 31,
2000 from $9.1 million, or 16% of sales, during the year ended December 31,
1999. The increase in expense reflects our continued commitment to invest in
our future through technological advances and our efforts to improve our older
product lines for manufacturability and lower costs. Our research and
development personnel concentrate on technology for the satellite and microwave
communications, telecommunications, and cable television industries. It is
anticipated that we will continue to experience high research and development
expenses as we position ourselves, through the introduction of new products, to
gain market share.

As a result of the increase in our gross profit and our lower operating
costs as a percentage of sales, 33% in 2000 compared to 39% in 1999, we
recorded earnings from operations of $8.9 million during 2000 compared to $4.0
million in 1999.

Interest expense decreased to $492,000, or 0.7% of sales, in 2000 from
$1.9 million, or 3.4% of sales, in 1999 due to the payoff of our credit line
during the current year.

Interest income increased to $1.1 million, or 1.5% of sales, in 2000 from
$76,000, or 0.1% of sales, in 1999. The increase is due to the increase in our
overall cash levels in 2000 compared to 1999. As discussed below, cash
increased
Table of Contents

primarily as a result of a public offering in February 2000.

We recorded a net income tax benefit in 2000 of $2.9 million primarily due
to a one-time tax benefit of $4.3 million in the third quarter resulting from
the reduction of the valuation allowance pertaining to our net operating loss
carryforward.

Based on all of the above, we recorded net earnings of $12.4 million, or
$0.81 per diluted weighted average share outstanding, during 2000 as compared
to $2.3 million, or $0.30 per diluted weighted average share outstanding,
during 1999.

Our new orders booked (bookings) increased 15% to $72.1 million for the
year ended December 31, 2000 from $62.5 million for the year ended December 31,
1999. This increase is primarily due to the introduction of new products into
the market place and an increased market share in the Internet over satellite
industry, in addition to increased demand for our core products. Our backlog
of orders to be shipped, which are unshipped orders from the prior period plus
new orders booked less orders shipped during the period, was $17.0 million as
of December 31, 2000, an increase of 17% over the $14.5 million in backlog as
of December 31, 1999. Our backlog consists of firm orders as evidenced by
written contracts and/or purchase orders from customers.

LIQUIDITY AND CAPITAL RESOURCES

We had working capital of $36.0 million at December 31, 2001, which
represents an increase in our working capital of $2.1 million from our working
capital of $33.9 million at December 31, 2000. Our working capital increased
primarily as a result of an increase in accounts receivable and inventory of
$3.8 million and $6.5 million, respectively, and an increase in accounts
payable of $0.2 million, a decrease in deferred tax assets of $1.3 million and
a decrease in customer deposits of $0.6 million. The increases were offset by
a decrease in cash of $9.0 million. See the discussion below of events related
to this activity.

Net cash used in operating activities was $3.7 million for the year ended
December 31, 2001 compared to cash provided by operating activities of $5.9
million for the year ended December 31, 2000. The change is primarily due to a
decrease in net earnings of $12.4 million to $1.9 million for the year ended
December 31, 2001. In addition, inventories increased by $5.1 million in 2001
compared to $2.9 million in the prior period primarily as a result of increases
in IPSat related hardware and inventory attributable to the Tiernan product
lines. Accounts receivable increased by $2.9 million during the year ended
December 31, 2001 compared to an increase of $2.1 million in the year ended
December 31, 2000 as a result of our high volume of sales during the final
month of the fourth quarter of 2001. Accounts payable and accrued expenses
decreased by $1.5 million compared to $1.8 million in the prior year. These
changes are due to the timing of vendor payments. We recorded a reduction in
the deferred taxes payable due to current year earnings compared to a net tax
benefit of $2.9 million recorded in the year ended December 31, 2000 as a
result of the reduction of the valuation allowance pertaining to our net
operating loss carryforward in that year. Net cash used in operating
activities was $3.7 million compared to cash provided by operating activities
of $5.9 million and $2.6 million during the years ended December 31, 2000 and
1999, respectively.

Cash used in investing activities was $6.0 million for the year ended
December 31, 2001 compared to $2.8 million and $279,000 for the years ended
December 31, 2000 and 1999, respectively. The increase in cash used in
investing activities is primarily due to assets, net of cash, acquired from
Tiernan Communications in the amount of $4.0 million. In addition, we had
current year additions to fixed assets of $2.1 million compared to $1.2 million
during 2000.

We derived net cash from financing activities of $773,000, $10.2 million
and $408,000 during the years ended December 31, 2001, 2000, and 1999,
respectively. During the year ended December 31, 2001, net cash from financing
activities was generated primarily through the exercise of stock options and
stock purchased through our Employee Stock Purchase Plan which provided
proceeds of $310,000 and $463,000 respectively. During the year ended December
31, 2000, net cash from financing activities was generated primarily through a
public offering, which generated cash of $16.3 million, net of offering costs.
The exercise of warrants, which were issued in connection with the public
offering, provided additional proceeds of $5.4 million. These proceeds were
partially offset by payments made on our line of credit of $12.3 million.
During the year ended December 31, 1999, net cash from financing activities was
composed primarily of $17.2 million from proceeds obtained through the sale of
common stock and $4.9 million from line of credit borrowings, offset by $15.6
million in repayments of loans from affiliates and $6.0 million in repayments
of other notes.





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##### Table of Contents



In addition, we have secured a committed line of credit with a bank in the
amount of $10.0 million. As of December 31, 2001, there was no outstanding
balance on the line of credit.

Our future debt and lease obligations are summarized by year as follows
(in thousands):

|           |       |   |            |   |               |  |             |        |  |  |       |        | 
|---------- | ----- | - | ---------- | - | ------------- |  | ----------- | ------ |  |  | ----- | ------ | 
|           |       |   | Debt       |   | Minimum Lease |  | Total Cash 
|           |       |   | Maturities |   | Commitments   |  | Obligations
|           |       |   |            |   |               |  |            
|2002       |       | $ |           |   |               |  | 2,122       |        |  |  | 2,122 |       
|          
|          
|          
|          
|2003       |       |   |           |   |               |  | 2,127       |        |  |  | 2,127 |       
|          
|          
|          
|          
|2004       |       |   |           |   |               |  | 2,122       |        |  |  | 2,122 |       
|          
|          
|          
|          
|2005       |       |   |           |   |               |  | 1,291       |        |  |  | 1,291 |       
|          
|          
|          
|          
|2006       |       |   |           |   |               |  | 1,063       |        |  |  | 1,063 |       
|          
|          
|          
|          
|Thereafter |       |   |           |   |               |  | 1,879       |        |  |  | 1,879 |       
|           |       |   |            |   |               |  |             |        |  |  |       |       
|           | Total |   | $          |  |               |  |             | 10,604 |  |  |       | 10,604 | 
|           |       |   |            |   |               |  |             |        |  |  |       |       

We believe that cash and cash equivalents on hand, anticipated future cash
receipts, and borrowings available under our credit facility will be sufficient
to meet our obligations as they become due for the next twelve months.
However, a decrease in our sales or demand for our products or services would
likely affect our working capital amounts. As part of our business strategy,
we occasionally evaluate potential acquisitions of businesses, products and
technologies. Accordingly, a portion of our available cash may be used at any
time for the acquisition of complementary products or businesses. These
potential transactions may require substantial capital resources, which, in
turn, may require us to seek additional debt or equity financing. There are no
assurances that we will be able to consummate any of these transactions. For
more detailed information, see our Risk Factors contained in Exhibit 99.1 to
our Annual Report on Form 10-K filed with the Securities and Exchange
Commission.

IMPACT OF INFLATION

We do not believe that inflation has had a material impact on revenues or
expenses during the last five fiscal periods reported on herein.

ACCOUNTING MATTERS

In July, 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and
Other Intangible Assets.Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Statement 141 also specifies criteria intangible assets acquired in a purchase
method business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce
may not be accounted for separately. Statement 142 will require that goodwill
and intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually with the provisions of
Statement 142. Statement 142 will also require that intangible assets with
definite useful lives be amortized over their respective estimated useful lives
to their estimated residual values, and reviewed for impairment in accordance
with FASB No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of.

Any goodwill and any intangible asset determined to have an indefinite
useful life that are acquired in a purchase business combination completed
after June 30, 2001 will not be amortized, but will continue to be evaluated
for impairment in accordance with the appropriate pre-Statement 142 accounting
literature. Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 sill continue to be amortized prior to the
adoption of Statement 142.

Statement 141 requires, upon adoption of Statement 142, that we evaluate
our existing intangible assets and goodwill that were acquired in a prior
purchase business combination, and to make any necessary reclassifications in
order to conform





---



##### Table of Contents



with the new criteria in Statement 141 for recognition apart from
goodwill. Upon adoption of Statement 142, we will be required to reassess the
useful lives and residual values of all intangible assets acquired in purchase
business combinations, and make any necessary amortization period adjustments
by the end of the first interim period after adoption. In addition, to the
extent an intangible asset is identified as having an indefinite useful life,
we will be required to test the intangible asset for impairment in accordance
with the provisions of Statement 142 within the first interim period. Any
impairment loss will be measured as of the date of adoption and recognized as
the cumulative effect of a change in accounting principle in the first interim
period.

In connection with the transitional goodwill impairment evaluation,
Statement 142 will require us to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. Any
transitional impairment loss will be recognized as the cumulative effect of a
change in accounting principle in our statement of operations.

As of the date of adoption, we expect to have unamortized goodwill of
approximately $4.2 million, all of which will be subject to the transition
provisions of Statements 141 and 142. Amortization expense related to goodwill
was approximately $449,000 for the year ended December 31, 2001. We are
evaluating these recently issued accounting standards. However, due to their
complexity we are unable to determine the ultimate impact on our consolidated
financial statements at this time.

On October 3, 2001, the FASB issued Statement No, 144, Accounting for the
Impairment or Disposal of Long-Lived Assets,which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While Statement No. 144 supercedes Statement 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,it retains
many of the fundamental provisions of that Statement.

Statement No. 144 also supercedes the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment
of a business. However, it retains the requirement in opinion No. 30 to report
separately discontinued operations and extends that reporting to a component of
an entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale. By broadening the
presentation of discontinued operations to include more disposal transactions,
the FASB has enhanced managements ability to provide information that helps
financial statement users to assess the effects of a disposal transaction on
the ongoing operations of an entity. Statement No, 144 is effective for fiscal
years beginning after December 15, 2001. At the current time, management does
not believe that the adoption of this statement on January 1, 2002 will have a
material impact on the Companys financial position, results of operations or
liquidity.




ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk on our financial instruments from changes in
interest rates. We do not use financial instruments for trading purposes or to
manage interest rate risk. The Company does not have any derivative financial
instruments. As of December 31, 2001, a 1% change in interest rates would,
over a years period, have a potential pretax impact of $72,000 on our interest
earnings, which is immaterial to our consolidated financial statements.





---



##### Table of Contents






ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our
consolidated financial statements as of December 31, 2001 and
2000 and for each of the years in the three-year period ended
December 31, 2001, together with related notes and the report of
KPMG LLP, independent auditors, are on the following pages. Other
required financial information is more fully described in
Item 14.



---



##### Table of Contents






Independent Auditors Report

The Board of Directors and Stockholders
Radyne ComStream Inc.:

We have audited the accompanying consolidated balance sheets of Radyne
ComStream Inc. and subsidiaries (the Company) (a majority-owned subsidiary of
Singapore Technologies Pte Ltd) as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2001. These consolidated financial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards 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. 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 consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
2001 and 2000, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States
of America.



| | /s/ KPMG LLP
| | ------------

Phoenix, Arizona
February 21, 2002





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##### Table of Contents






RADYNE COMSTREAM INC.

Consolidated Balance Sheets

|                                                                                                |                                                                                                                                                                     |                            |            |              |            |      |            |            |            | 
|----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------- | ------------ | ---------- | ---- | ---------- | ---------- | ---------- | 
|                                                                                                |                                                                                                                                                                     |                            |            | December 31,
|                                                                                                |                                                                                                                                                                     |                            |            |             
|                                                                                                |                                                                                                                                                                     |                            |            | 2001         |            | 2000
|                                                                                                |                                                                                                                                                                     |                            |            |              |            |     
|Assets                                                                                          |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Current assets:                                                                                 |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Cash and cash equivalents                                                                                                                                           |                            | $          | 7,210,937    |            |      |            | 16,244,591 |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Accounts receivable  trade, net of allowance for doubtful
Accounts of $1,172,523 and $1,014,813, respectively                                                      |                            |            | 14,785,039   |            |      |            | 11,019,149 |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Inventories, net                                                                                                                                                    |                            |            | 17,825,073   |            |      |            | 11,330,565 |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Prepaid expenses and other assets                                                                                                                                   |                            |            | 795,396      |            |      |            | 670,726    |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Deferred tax assets                                                                                                                                                 |                            |            | 2,552,549    |            |      |            | 3,854,418  |           
|                                                                                                |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                                |                                                                                                                                                                     | Total current assets       |            |              | 43,168,994 |      |            |            | 43,119,449 | 
|                                                                                                |                                                                                                                                                                     |                            |            |              |            |      |            |           
|Property and equipment, net                                                                     |                                                                                                                                                                     |                            | 4,356,587  |              |            |      | 3,288,867  |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Other assets:                                                                                   |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Purchased technology, net of accumulated amortization of $1,305,000
and $905,000 at December 31, 2001 and 2000, respectively                                        |                            |            | 1,195,000    |            |      |            | 1,595,000  |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Goodwill, net of accumulated amortization of $892,044 and
$442,478 at December 31, 2001 and 2000, respectively                                                      |                            |            | 4,204,986    |            |      |            | 3,299,536  |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Deposits and other intangibles                                                                                                                                      |                            |            | 314,933      |            |      |            | 540,693    |           
|                                                                                                |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                                |                                                                                                                                                                     | Total other assets         |            |              | 5,714,919  |      |            |            | 5,435,229  | 
|                                                                                                |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                                |                                                                                                                                                                     | $                          | 53,240,500 |              |            |      | 51,843,545 |           
|                                                                                                |                                                                                                                                                                     |                            |            |              |            |      |            |           
|Liabilities and Stockholders Equity                                                            |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Current liabilities:                                                                            |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Current installments of obligations under capital leases                                                                                                            |                            | $          | 77,385       |            |      |            | 78,056     |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Accounts payable, trade                                                                                                                                             |                            |            | 2,472,486    |            |      |            | 2,225,363  |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Accrued expenses                                                                                                                                                    |                            |            | 3,979,084    |            |      |            | 5,485,061  |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Taxes payable                                                                                                                                                       |                            |            | 78,900       |            |      |            | 280,000    |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Customer advance payments                                                                                                                                           |                            |            | 601,836      |            |      |            | 1,192,235  |           
|                                                                                                |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                                |                                                                                                                                                                     | Total current liabilities  |            |              | 7,209,691  |      |            |            | 9,260,715  | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Deferred rent                                                                                   |                                                                                                                                                                     |                            | 145,582    |              |            |      | 178,190    |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Obligations under capital leases, excluding current installments                                |                                                                                                                                                                     |                            | 36,195     |              |            |      | 85,712     |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Accrued stock option compensation                                                               |                                                                                                                                                                     |                            | 501,809    |              |            |      | 505,413    |           
|                                                                                                |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                                |                                                                                                                                                                     | Total liabilities          |            |              | 7,893,277  |      |            |            | 10,030,030 | 
|                                                                                                |                                                                                                                                                                     |                            |            |              |            |      |            |           
|Stockholders equity:                                                                           |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Common stock; $.001 par value  authorized, 20,000,000 shares;
issued and outstanding, 15,020,676 and 14,822,820 shares at
December 31, 2001 and 2000, respectively |                            |            | 15,021       |            |      |            | 14,823     |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Additional paid-in capital                                                                                                                                          |                            |            | 50,022,868   |            |      |            | 49,249,999 |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Deferred compensation                                                                                                                                               |                            |            |             |            |      |            | (844,032   | )         
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Accumulated deficit                                                                                                                                                 |                            |            | (4,671,746   | )          |      |            | (6,607,275 | )         
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Foreign currency translation adjustment                                                                                                                             |                            |            | (18,920      | )          |      |            |           |           
|                                                                                                |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                                |                                                                                                                                                                     | Total stockholders equity |            |              | 45,347,223 |      |            |            | 41,813,515 | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Commitments, contingent liabilities and subsequent events
(note 7, 8, 9, 11, 13, 15, 17 and 18) |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                                |                                                                                                                                                                     |                            |            |              |            |      |            |           
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                |                                                                                                                                                                     | $                          | 53,240,500 |              |            |      | 51,843,545 |           
|                                                                                                |                                                                                                                                                                     |                            |            |              |            |      |            |           

See accompanying notes to consolidated financial statements.





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##### Table of Contents






RADYNE COMSTREAM INC.

Consolidated Statements of Operations

|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |            |            | 
|-------------------------------------------------------------- | ----------------------------------- | ------------------------ | ---------- | ------------------------ | ---------- | ---- | ---------- | ---------- | ---------- |  | ---------- | ---------- | ---------- | 
|                                                               |                                     |                          |            | Years ended December 31,
|                                                               |                                     |                          |            |                         
|                                                               |                                     |                          |            | 2001                     |            | 2000 |            | 1999      
|                                                               |                                     |                          |            |                          |            |      |            |           
|Net sales                                                      |                                     | $                        | 68,470,929 |                          |            |      | 70,107,080 |            |            |  | 55,839,792 |           
|                                                              
|                                                              
|                                                              
|                                                              
|Cost of sales                                                  |                                     |                          | 39,558,792 |                          |            |      | 38,279,830 |            |            |  | 29,970,560 |           
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                               |                                     | Gross profit             |            |                          | 28,912,137 |      |            |            | 31,827,250 |  |            |            | 25,869,232 | 
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Operating expenses:                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Selling, general and administrative |                          |            | 15,307,442               |            |      |            | 13,573,460 |            |  |            | 12,355,188 |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Research and development            |                          |            | 10,811,459               |            |      |            | 9,316,633  |            |  |            | 9,126,545  |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Stock option compensation expense   |                          |            |                         |            |      |            |           |            |  |            | 350,000    |           
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                               |                                     | Total operating expenses |            |                          | 26,118,901 |      |            |            | 22,890,093 |  |            |            | 21,831,733 | 
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Earnings from operations                                       |                                     |                          | 2,793,236  |                          |            |      | 8,937,157  |            |            |  | 4,037,499  |           
|                                                              
|                                                              
|                                                              
|                                                              
|Other (income) expense:                                        |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest expense                    |                          |            | 54,186                   |            |      |            | 491,717    |            |  |            | 1,910,422  |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                               |                          |            | (522,527                 | )          |      |            | (1,076,432 | )          |  |            | (76,045    | )         
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Earnings before income taxes and
extraordinary item            |                                     |                          | 3,261,577  |                          |            |      | 9,521,872  |            |            |  | 2,203,122  |           
|                                                              
|                                                              
|                                                              
|                                                              
|Income taxes (benefit)                                         |                                     |                          | 1,326,048  |                          |            |      | (2,918,735 | )          |            |  | 85,000     |           
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Earnings before extraordinary item                             |                                     |                          | 1,935,529  |                          |            |      | 12,440,607 |            |            |  | 2,118,122  |           
|                                                              
|                                                              
|                                                              
|                                                              
|Extraordinary item                                             |                                     |                          |           |                          |            |      |           |            |            |  | 188,182    |           
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                               |                                     | Net earnings             |            | $                        | 1,935,529  |      |            |            | 12,440,607 |  |            |            | 2,306,304  | 
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Basic net earnings per share:                                  |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Earnings before extraordinary item  |                          | $          | 0.13                     |            |      |            | 0.89       |            |  |            | 0.30       |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Extraordinary item                  |                          |            |                         |            |      |            |           |            |  |            | 0.02       |           
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                               |                                     | Net earnings             |            | $                        | 0.13       |      |            |            | 0.89       |  |            |            | 0.32       | 
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Diluted net earnings per share:                                |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Earnings before extraordinary item  |                          | $          | 0.13                     |            |      |            | 0.81       |            |  |            | 0.28       |           
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Extraordinary item                  |                          |            |                         |            |      |            |           |            |  |            | 0.02       |           
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                               |                                     | Net earnings             |            | $                        | 0.13       |      |            |            | 0.81       |  |            |            | 0.30       | 
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Weighted average number of common shares
outstanding  basic   |                                     |                          | 14,943,516 |                          |            |      | 13,972,078 |            |            |  | 7,111,777  |           
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Weighted average number of common shares
outstanding  diluted |                                     |                          | 15,411,568 |                          |            |      | 15,426,297 |            |            |  | 7,571,425  |           
|                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           

See accompanying notes to consolidated financial statements.





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##### Table of Contents






RADYNE COMSTREAM INC.

Consolidated Statements of Stockholders Equity and Comprehensive Income
Years ended December 31, 2001, 2000 and 1999

|                                                              |                       |  |              |  |            |  |          |  |              |  |            |  |             |  |          |   |  |  |             |   |  |  |         |   |  |  |             |           | 
|------------------------------------------------------------- | --------------------- |  | ------------ |  | ---------- |  | -------- |  | ------------ |  | ---------- |  | ----------- |  | -------- | - |  |  | ----------- | - |  |  | ------- | - |  |  | ----------- | --------- | 
|                                                              |                       |  | Common stock |  | Additional |  |          |  |              |  |            |  |             |  | Foreign  |   |  |  |            
|                                                              |                       |  |              |  | paid-in    |  | Deferred |  | Accumulated  |  | Exchange   |  |             |  |         
|                                                              |                       |  | Shares       |  | Amount     |  | capital  |  | compensation |  | Deficit    |  | Rate Effect |  | Total   
|                                                              |                       |  |              |  |            |  |          |  |              |  |            |  |             |  |         
|Balances, January 1, 1999                                     |                       |  | 5,931,346    |  |            |  | 5,931    |  |              |  | 6,111,335  |  |             |  |         |   |  |  | (21,354,186 | ) |  |  |        |   |  |  | (15,236,920 | )        
|                                                             
|                                                             
|                                                             
|                                                             
|Issuance of common stock for cash                             |                       |  | 4,520,264    |  |            |  | 4,520    |  |              |  | 16,424,759 |  |             |  |         |   |  |  |            |   |  |  |        |   |  |  | 16,429,279  |          
|                                                             
|                                                             
|                                                             
|                                                             
|Exercise of stock options                                     |                       |  | 287,772      |  |            |  | 288      |  |              |  | 743,866    |  |             |  |         |   |  |  |            |   |  |  |        |   |  |  | 744,154     |          
|                                                             
|                                                             
|                                                             
|                                                             
|Tax benefit of stock option exercises                         |                       |  |             |  |            |  |         |  |              |  | 84,095     |  |             |  |         |   |  |  |            |   |  |  |        |   |  |  | 84,095      |          
|                                                             
|                                                             
|                                                             
|                                                             
|Net earnings                                                  |                       |  |             |  |            |  |         |  |              |  |           |  |             |  |         |   |  |  | 2,306,304   |   |  |  |        |   |  |  | 2,306,304   |          
|                                                              |                       |  |              |  |            |  |          |  |              |  |            |  |             |  |          |   |  |  |             |   |  |  |         |   |  |  |             |          
|Balances, December 31, 1999                                   |                       |  | 10,739,382   |  |            |  | 10,739   |  |              |  | 23,364,055 |  |             |  |         |   |  |  | (19,047,882 | ) |  |  |        |   |  |  | 4,326,912   |          
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              |                       |  |              |  |            |  |          |  |              |  |            |  |             |  |          |   |  |  |             |   |  |  |         |   |  |  |             |          
|                                                             
|                                                             
|                                                             
|                                                             
|Issuance of common stock for cash                             |                       |  | 2,828,220    |  |            |  | 2,828    |  |              |  | 16,729,599 |  |             |  |         |   |  |  |            |   |  |  |        |   |  |  | 16,732,427  |          
|                                                             
|                                                             
|                                                             
|                                                             
|Exercise of stock options                                     |                       |  | 338,755      |  |            |  | 339      |  |              |  | 1,071,509  |  |             |  |         |   |  |  |            |   |  |  |        |   |  |  | 1,071,848   |          
|                                                             
|                                                             
|                                                             
|                                                             
|Exercise of stock warrants                                    |                       |  | 616,463      |  |            |  | 617      |  |              |  | 5,393,434  |  |             |  |         |   |  |  |            |   |  |  |        |   |  |  | 5,394,051   |          
|                                                             
|                                                             
|                                                             
|                                                             
|Tax benefit of stock option exercises                         |                       |  |             |  |            |  |         |  |              |  | 1,044,000  |  |             |  |         |   |  |  |            |   |  |  |        |   |  |  | 1,044,000   |          
|                                                             
|                                                             
|                                                             
|                                                             
|Common stock issued in acquisition                            |                       |  | 300,000      |  |            |  | 300      |  |              |  | 1,647,402  |  |             |  |         |   |  |  |            |   |  |  |        |   |  |  | 1,647,702   |          
|                                                             
|                                                             
|                                                             
|                                                             
|Deferred compensation                                         |                       |  |             |  |            |  |         |  |              |  |           |  |             |  | (920,762 | ) |  |  |            |   |  |  |        |   |  |  | (920,762    | )        
|                                                             
|                                                             
|                                                             
|                                                             
|Amortization of deferred compensation                         |                       |  |             |  |            |  |         |  |              |  |           |  |             |  | 76,730   |   |  |  |            |   |  |  |        |   |  |  | 76,730      |          
|                                                             
|                                                             
|                                                             
|                                                             
|Net earnings                                                  |                       |  |             |  |            |  |         |  |              |  |           |  |             |  |         |   |  |  | 12,440,607  |   |  |  |        |   |  |  | 12,440,607  |          
|                                                              |                       |  |              |  |            |  |          |  |              |  |            |  |             |  |          |   |  |  |             |   |  |  |         |   |  |  |             |          
|Balances, December 31, 2000                                   |                       |  | 14,822,820   |  |            |  | 14,823   |  |              |  | 49,249,999 |  |             |  | (844,032 | ) |  |  | (6,607,275  | ) |  |  |        |   |  |  | 41,813,515  |          
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              |                       |  |              |  |            |  |          |  |              |  |            |  |             |  |          |   |  |  |             |   |  |  |         |   |  |  |             |          
|                                                             
|                                                             
|                                                             
|                                                             
|Exercise of stock options                                     |                       |  | 84,850       |  |            |  | 85       |  |              |  | 309,621    |  |             |  |         |   |  |  |            |   |  |  |        |   |  |  | 309,706     |          
|                                                             
|                                                             
|                                                             
|                                                             
|Issuance of common stock through
Employee Stock Purchase Plan |                       |  | 113,006      |  |            |  | 113      |  |              |  | 463,248    |  |             |  |         |   |  |  |            |   |  |  |        |   |  |  | 463,361     |          
|                                                             
|                                                             
|                                                             
|                                                             
|Deferred compensation                                         |                       |  |             |  |            |  |         |  |              |  |           |  |             |  | 844,032  |   |  |  |            |   |  |  |        |   |  |  | 844,032     |          
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Comprehensive income: |  |              |  |            |  |          |  |              |  |            |  |             |  |          |   |  |  |             |   |  |  |         |   |  |  |             |           | 
|                                                             
|                                                             
|                                                             
|                                                             
|Effects of exchange rate changes on
cash and cash equivalents |                       |  |             |  |            |  |         |  |              |  |           |  |             |  |         |   |  |  |            |   |  |  | (18,920 | ) |  |  | (18,920     | )        
|                                                             
|                                                             
|                                                             
|                                                             
|Net earnings                                                  |                       |  |             |  |            |  |         |  |              |  |           |  |             |  |         |   |  |  | 1,935,529   |   |  |  |        |   |  |  | 1,935,529   |          
|                                                              |                       |  |              |  |            |  |          |  |              |  |            |  |             |  |          |   |  |  |             |   |  |  |         |   |  |  |             |          
|                                                              | Comprehensive income  |  |              |  |            |  |          |  |              |  |            |  |             |  |          |   |  |  |             |   |  |  |         |   |  |  |             | 1,916,609 | 
|                                                              |                       |  |              |  |            |  |          |  |              |  |            |  |             |  |          |   |  |  |             |   |  |  |         |   |  |  |             |          
|Balances, December 31, 2001                                   |                       |  | 15,020,676   |  |            |  | 15,021   |  |              |  | 50,022,868 |  |             |  |         |   |  |  | (4,671,746  | ) |  |  | (18,920 | ) |  |  | 45,347,223  |          
|                                                              |                       |  |              |  |            |  |          |  |              |  |            |  |             |  |          |   |  |  |             |   |  |  |         |   |  |  |             |          

See accompanying notes to consolidated financial statements.





---



##### Table of Contents



RADYNE COMSTREAM INC.
Consolidated Statements of Cash Flows

|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |             |           |            |           |  
|-------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ----------------------------------------- | --------------------------------------------------- | --------- | ------------------------ | ---------- | ----------- | ---------- | ---------- | ---------- | ----------- | --------- | ---------- | --------- | -
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           | Years ended December 31,
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                         
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           | 2001                     |            | 2000        |            | 1999      
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |           
|Cash flows from operating activities:                                |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |            
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Net earnings                                                                                  |                                                        | $                                         | 1,935,529                                           |           |                          |            | 12,440,607  |            |            |            | 2,306,304   |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities: |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |             |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               | Forgiveness of interest                                |                                           |                                                     |          |                          |            |             |           |            |            |             | (188,182  | )         
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               | Loss on disposal of assets                             |                                           |                                                     |          |                          |            |             | 30,306     |            |            |             |          |           
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               | Deferred income taxes                                  |                                           |                                                     | 1,301,869 |                          |            |             | (2,810,418 | )          |            |             |          |           
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               | Depreciation and amortization                          |                                           |                                                     | 3,575,253 |                          |            |             | 2,330,894  |            |            |             | 2,835,024 |           
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               | Increase (decrease) in cash resulting from changes in: |                                           |                                                     |           |                          |            |             |            |            |            |             |           |           
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               |                                                        | Accounts receivable                       |                                                     |           | (2,861,062               | )          |             |            | (2,096,621 | )          |             |           | (142,421   | )        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               |                                                        | Prepaid expenses and other current assets |                                                     |           | (153,806                 | )          |             |            | 258,350    |            |             |           | (338,915   | )        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               |                                                        | Inventories                               |                                                     |           | (5,107,508               | )          |             |            | (2,874,353 | )          |             |           | 1,041,366  |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               |                                                        | Deposits and other                        |                                                     |           |                         |            |             |            | 176,870    |            |             |           | 15,410     |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               |                                                        | Accounts payable, trade                   |                                                     |           | 247,123                  |            |             |            | (1,915,151 | )          |             |           | 286,550    |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               |                                                        | Accounts payable, affiliate               |                                                     |           |                         |            |             |            |           |            |             |           | (8,150     | )        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               |                                                        | Accrued expenses                          |                                                     |           | (1,763,885               | )          |             |            | 135,229    |            |             |           | (2,853,265 | )        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               |                                                        | Customer advance payments                 |                                                     |           | (625,399                 | )          |             |            | 647,017    |            |             |           |           |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               |                                                        | Taxes payable                             |                                                     |           | (201,100                 | )          |             |            | (404,382   | )          |             |           | 70,010     |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               |                                                        | Deferred rent                             |                                                     |           | (32,608                  | )          |             |            | 178,190    |            |             |           |           |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                               |                                                        | Accrued stock option compensation         |                                                     |           | (3,604                   | )          |             |            | (190,020   | )          |             |           | (460,044   | )        
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |             |          
|                                                                     |                                                                                               |                                                        |                                           | Net cash provided by (used in) operating activities |           |                          | (3,689,198 | )           |            |            | 5,906,518  |             |           |            | 2,563,687 |  
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |            
|Cash flows from investing activities:                                |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |            
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Capital expenditures                                                                          |                                                        |                                           | (2,050,472                                          | )         |                          |            | (1,227,811  | )          |            |            | (279,048    | )        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Proceeds from disposal of assets                                                              |                                                        |                                           | 1,720                                               |           |                          |            | 200         |            |            |            |            |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Investment in non-compete agreement                                                           |                                                        |                                           |                                                    |           |                          |            | (500,000    | )          |            |            |            |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Acquisition, net of cash acquired                                                             |                                                        |                                           | (3,999,663                                          | )         |                          |            | (1,092,453  | )          |            |            |            |          
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |             |          
|                                                                     |                                                                                               |                                                        |                                           | Net cash used in investing activities               |           |                          | (6,048,415 | )           |            |            | (2,820,064 | )           |           |            | (279,048  | )
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |            
|Cash flows from financing activities:                                |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |            
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Net borrowings from notes payable under line of credit                                        |                                                        |                                           |                                                    |           |                          |            | (12,920,000 | )          |            |            | 4,920,000   |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Payment on note payable                                                                       |                                                        |                                           |                                                    |           |                          |            |            |            |            |            | (5,962,561  | )        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Payments on note payable to affiliate                                                         |                                                        |                                           |                                                    |           |                          |            |            |            |            |            | (15,618,272 | )        
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Net proceeds from sale of common stock                                                        |                                                        |                                           |                                                    |           |                          |            | 16,340,453  |            |            |            | 16,429,279  |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Net proceeds from sale of common stock to employees                                           |                                                        |                                           | 463,361                                             |           |                          |            | 391,974     |            |            |            |            |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Exercise of stock options                                                                     |                                                        |                                           | 309,706                                             |           |                          |            | 1,071,848   |            |            |            | 744,154     |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Exercise of stock warrants                                                                    |                                                        |                                           |                                                    |           |                          |            | 5,394,051   |            |            |            |            |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Principal payments on capital lease obligations                                               |                                                        |                                           | (50,188                                             | )         |                          |            | (67,849     | )          |            |            | (104,535    | )        
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |             |          
|                                                                     |                                                                                               |                                                        |                                           | Net cash provided by financing activities           |           |                          | 772,879    |             |            |            | 10,210,477 |             |           |            | 408,065   |  
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |            
|Net increase (decrease) in cash                                      |                                                                                               |                                                        | (9,014,734                                | )                                                   |           |                          | 13,296,931 |             |            |            | 2,692,704  |            
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Effects of exchange rate changes on cash and cash equivalents        |                                                                                               |                                                        | (18,920                                   | )                                                   |           |                          |           |             |            |            |           |            
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Cash and cash equivalents, beginning of year                         |                                                                                               |                                                        | 16,244,591                                |                                                     |           |                          | 2,947,660  |             |            |            | 254,956    |            
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |             |          
|Cash and cash equivalents, end of year                               |                                                                                               | $                                                      | 7,210,937                                 |                                                     |           |                          | 16,244,591 |             |            |            | 2,947,660  |            
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |            
|Supplemental disclosures of cash flow information:                   |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |            
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Cash paid for interest                                                                        |                                                        | $                                         | 54,186                                              |           |                          |            | 810,847     |            |            |            | 2,090,298   |          
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |             |          
|                                                                     | Cash paid for taxes                                                                           |                                                        | $                                         | 201,100                                             |           |                          |            | 475,036     |            |            |            | 22,000      |          
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |            
|Supplemental schedule of noncash investing and financing activities: |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |            
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Negotiated write-down of note payable                                                         |                                                        | $                                         |                                                    |           |                          |            |            |            |            |            | 515,940     |          
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |             |          
|                                                                     | Acquisitions through issuance of stock and assumption of liabilities                          |                                                        | $                                         |                                                    |           |                          |            | 1,384,786   |            |            |            |            |          
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |            
|                                                                     | Deferred compensation                                                                         |                                                        | $                                         |                                                    |           |                          |            | 920,762     |            |            |            |            |          
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |            
|                                                                     | Tax benefit of stock option exercise                                                          |                                                        | $                                         |                                                    |           |                          |            | 1,044,000   |            |            |            | 84,095      |          
|                                                                     |                                                                                               |                                                        |                                           |                                                     |           |                          |            |             |            |            |            |            

See accompanying notes to consolidated financial statements.





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##### Table of Contents






RADYNE COMSTREAM INC.
Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



|(1) |  | Organization and Acquisition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Radyne ComStream Inc. (the Company) has locations in Phoenix, Arizona and
San Diego, California. The Company designs, manufactures, and sells
products, systems and software used for the transmission and reception of
data over satellite and cable communication networks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | ComStream operates primarily in North America in the satellite
communications industry. ComStream designs, markets and manufacturers
satellite interactive modems and earth stations. Additionally, ComStream
manufactures and markets full-transponder satellite digital audio receivers
for music providers and has designed and developed a PC broadband satellite
receiver card which is an Internet and high-speed data networking product.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | Radyne Corp., a Delaware corporation, (Radyne) was incorporated on November
25, 1980. On August 12, 1996, Radyne became a subsidiary of Singapore
Technologies Pte Ltd (STPL), through its wholly-owned subsidiary, Stetsys
US, Inc. (ST). In March 1999, Radyne changed its name to Radyne ComStream
Inc. During 2000, the Company changed its state of incorporation from New
York to Delaware and changed the par value of its common stock from $.002
to $.001. This change has been reflected in the consolidated statements of
stockholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Description of Acquisitions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | On April 18, 2001, Tiernan Radyne ComStream Inc. (TRC), a wholly owned
subsidiary of the Company, obtained all of the assets of Tiernan
Communications, Inc. (TCI) through a private foreclosure sale relating to
a secured note TRC had purchased for $4.0 million in cash. Product lines
acquired include standard digital TV encoders, high definition TV encoders,
and ATM video network adapters as well as integrated receiver/decoders.
TRC offered employment to most of the employees of TCI. The acquisition
was recorded in accordance with the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets purchased
and certain liabilities assumed based upon the estimated fair values at the
date of acquisition. The excess of the purchase price over the fair values
of the net assets acquired was approximately $1,355,000 and has been
recorded as goodwill, which is being amortized on a straight-line basis
over seven years.





---



##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



| |  | The following summary, prepared on a pro forma basis, combines the
consolidated results of operations (unaudited) as if the acquisition had
taken place on January 1, 2000. Such pro forma amounts are not necessarily
indicative of what the actual results of operations might have been if the
acquisition had been effective on January 1, 2000 (in thousands, except per
share amounts):
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  |  |                   |        |                   |  |  |        |  
|--------------------------------- |  | ----------------- | ------ | ----------------- |  |  | ------ | -
|                                  |  | Year ended       
|                                  |  |                  
|                                  |  | December 31, 2001 |        | December 31, 2000
|                                  |  |                   |        |                  
|Net sales                         |  | $                 | 71,259 |                   |  |  | 82,925 |  
|                                  |  |                   |        |                   |  |  |        |  
|Other
income, net                 |  | $                 | 523    |                   |  |  | 169    |  
|                                  |  |                   |        |                   |  |  |        |  
|Total revenues                    |  | $                 | 71,782 |                   |  |  | 83,094 |  
|                                  |  |                   |        |                   |  |  |        |  
|Net earnings (loss)               |  | $                 | 137    |                   |  |  | (1,808 | )
|                                  |  |                   |        |                   |  |  |        |  
|Basic earnings (loss) per share   |  | $                 | 0.01   |                   |  |  | (0.13  | )
|                                  |  |                   |        |                   |  |  |        |  
|Diluted earnings (loss) per share |  | $                 | 0.01   |                   |  |  | (0.13  | )
|                                  |  |                   |        |                   |  |  |        |  



| |  | Effective December 1, 2000, the Company completed the acquisition of all of
the outstanding shares of common stock of Armer Communications Engineering
Services, Inc. (Armer) for an aggregate purchase price of $1,926,940
million consisting of $1,200,000 million in cash and 130,680 shares of
common stock of the Company. The fair value of the stock was determined
based on the average market price of the stock over a reasonable period of
time before and after the terms of the acquisition were agreed to and
announced. Armer specializes in the integration and installation of ground
segment equipment and networks for a wide range of satellite-based
telecommunications systems and applications. This acquisition has been
recorded in accordance with the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets purchased
and the liabilities assumed based upon the estimated fair values at the
date of acquisition. The excess of the purchase price over the fair values
of the net assets acquired was approximately $1,943,892 and has been
recorded as goodwill, which is being amortized on a straight-line basis
over twelve years. The results of operations of the acquired operations
have been included in the accompanying statements of operations from the
acquisition date.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Certain Armer stockholders were issued 169,320 shares of restricted common
stock. These shares are subject to immediate forfeiture in the event the
holder terminates employment with Armer or Radyne within one year from the
effective date of the merger. The Company recorded deferred compensation
of $920,762 which was based upon the fair value of the stock at the date of
issuance. Amortization of deferred compensation amounted to $844,032 in
2001 and $77,730 in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Concurrent with the close of this transaction, six key employees of Armer
entered into two-year non-disclosure and non-compete agreements with the
Company. The cost of these agreements was $500,000, and is being amortized
using the straight-line method over the term of the agreements. As of
December 31, 2001, $270,833 of these costs has been amortized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The following summary, prepared on a pro forma basis, combines the
consolidated results of operations (unaudited) as if the acquisition had
taken place on January 1, 2000. Such pro forma amounts are not necessarily
indicative of what the actual results of operations might have been if the
acquisition had been                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               





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##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



| |  | effective on January 1, 1999 (in thousands, except per share amounts):
| |  | ----------------------------------------------------------------------

|                           |  |                          |        |      |  |  |        | 
|-------------------------- |  | ------------------------ | ------ | ---- |  |  | ------ | 
|                           |  | Years ended December 31,
|                           |  |                         
|                           |  | 2000                     |        | 1999
|                           |  |                          |        |     
|Net sales                  |  | $                        | 72,893 |      |  |  | 60,549 | 
|                           |  |                          |        |      |  |  |        | 
|Other income               |  | $                        | 1,076  |      |  |  | 76     | 
|                           |  |                          |        |      |  |  |        | 
|Total revenues             |  | $                        | 73,969 |      |  |  | 60,625 | 
|                           |  |                          |        |      |  |  |        | 
|Net earnings               |  | $                        | 10,841 |      |  |  | 1,023  | 
|                           |  |                          |        |      |  |  |        | 
|Basic earnings per share   |  | $                        | .78    |      |  |  | .14    | 
|                           |  |                          |        |      |  |  |        | 
|Diluted earnings per share |  | $                        | .70    |      |  |  | .14    | 
|                           |  |                          |        |      |  |  |        | 



|(2) |  | Summary of Significant Accounting Policies
|--- |  | ------------------------------------------



| | (a) |  | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make a number of 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. Such estimates and assumptions affect the
reported amounts of revenues and expenses during the reporting period.
On an ongoing basis, we evaluate our estimates and assumptions based
upon historical experience and various other factors and circumstances.
We believe that our estimates and assumptions are reasonable in the
circumstances; however, actual results may differ from these estimates
under different future conditions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |     |  | The Company believes the following critical accounting policies affect
its more significant judgements and estimates used in the preparation
of its consolidated financial statements. The Company recognizes
revenues for orders of products to be shipped as we ship the products.
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required
payments. If the financial condition of the Companys customers were
to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. The Company estimates
the useful lives of its property and equipment, goodwill and other
identifiable intangibles. The Company may experience losses if these
assets suffered impairment due to the useful lives ultimately being
shorter than they were originally estimated or if their carrying value
is not recoverable from operations. The Company provides for the
estimated cost of product warranties at the time revenue is recognized.
While the Company engages in extensive product quality programs and
processes, including actively monitoring and evaluating the quality of
its vendors, the Companys warranty obligation is affected by product
failure rates and material usage and service delivery costs incurred in
correcting any product failures. Should actual product failure rates,
material usage or service delivery costs differ from the Companys
estimates, revisions to the estimated warranty liability would be
required. The Company writes down its inventory for estimated
obsolescence or the inability to market its inventory equal to





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##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



| |     |  | the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions.
If actual market conditions are less favorable than those projected by
management, additional inventory write-downs may be required. The
Company records a valuation allowance to reduce its deferred tax assets
to the amount that is more likely than not to be realized. While the
Company has considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for the
valuation allowance, in the event the Company were to determine that it
would be able to realize its deferred tax assets in the future in
excess of its net recorded amount, an adjustment to the deferred tax
asset would increase income in the period such determination was made.
Likewise, should the Company determine that it would not be able to
realize all or part of its deferred tax asset in the future, an
adjustment tot he deferred tax asset would be charged to income in the
period such determination was made.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany accounts and
transactions have been eliminated in the consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (c) |  | Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |     |  | The Company considers all money market accounts with a maturity of 90
days or less to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (d) |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |     |  | The Company recognizes revenue upon transfer of ownership and shipment
of product on short-term orders and customer contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (e) |  | Accounts Receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |     |  | The Company maintains allowances for doubtful accounts for estimating
losses resulting from the inability of its customers to make required
payments. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (f) |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | Inventories, consisting of satellite modems and related products, are
valued at the lower of cost (first-in, first-out) or market. The
Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of
inventory and the estimated market value based on assumptions about
future demand and market conditions. If actual market conditions are
less favorable than those projected by management, additional inventory
write-downs may be required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | (g) |  | Property and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |     |  | Property and equipment are stated at cost. Equipment held under
capital leases is stated at the present value of future minimum lease
payments. Expenditures for repairs and maintenance are charged to
operations as incurred, and improvements, which extend the useful lives
of the assets, are capitalized. Depreciation and amortization of
machinery and equipment are computed using the straight-line method
over an estimated useful life of three to ten years. Equipment held
under capital leases and leasehold improvements are amortized on a
straight-line basis over the shorter of the lease                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               





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##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



| |     |  | term or estimated useful lives of the assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (h) |  | Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     |  | Intangible assets consist of goodwill, which represents the excess of
purchase price over fair value of net assets acquired, is amortized on
a straight-line basis over seven to twelve years. Intangible assets
also consist of covenants not to compete which are being amortized on a
straight-line basis over the contractual term of the covenants of two
years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (i) |  | Purchased Technology                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | In connection with the acquisition of ComStream in 1998, value was
assigned to purchased technology. Purchased technology is being
amortized on a straight-line basis over the expected period to be
benefited of 6.25 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (j) |  | Impairment of Long-Lived Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |     |  | The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted
net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amounts of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell. The Company did not recognize an impairment of long-lived
assets for the years ended December 31, 2001, 2000 and 1999.                                          
|
| | (k) |  | Warranty Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |     |  | The Company provides limited warranties on certain of its products and
systems for periods generally not exceeding two years. The Company
accrues estimated warranty costs for potential product liability and
warranty claims based on the Companys claim experience. Such costs
are accrued as cost of sales at the time revenue is recognized. While
the Company engages in extensive product quality programs and
processes, including actively monitoring and evaluating the quality of
its vendors, the Companys warranty obligation is affected by product
failure rates and material usage and service delivery costs incurred in
correcting a product failure. Should actual product failure rates,
material usage or service delivery costs differ from the Companys
estimates, revisions to the estimated warranty accrued liability would
be required.
|
| | (l) |  | Research and Development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     |  | The cost of research and development is charged to expense as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (m) |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |     |  | The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future consequences attributed to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Differences between income for
financial and tax reporting purposes arise primarily from amortization
of certain intangible assets and accruals for warranty reserves and
compensated absences. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected                                                                                                                                                                    





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##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



| |     |  | to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.                                                                                                                                                                                                                                  
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (n) |  | Concentration of Credit Risk                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     |  | Financial instruments, which potentially subject the Company to
concentrations of credit risk, are principally accounts receivable.
The Company maintains ongoing credit evaluations of its customers and
generally does not require collateral. The Company provides reserves
for potential credit losses and such losses have not exceeded
managements expectations.                                         
|
| |     |  | Periodically during the year, the Company maintains cash in financial
institutions in excess of the amounts insured by the federal
government.                                                                                                                                                                                                                                                                  
|
| | (o) |  | Net Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     |  | Basic earnings per share is computed by dividing earnings available to
stockholders by the weighted-average number of shares outstanding for
the period. Diluted earnings per share reflects the potential dilution
that could occur if securities or contracts to issue common stock were
exercised or converted to stock or resulted in the issuance of stock
that then shared in the earnings of the Company.
|
| | (p) |  | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                             
|
| |     |  | The fair value of accounts receivable, accounts payable, and accrued
expenses approximates the carrying value due to the short-term nature
of these instruments.                                                                                                                                                                                                                                                





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##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



| | (q) |  | Employee Stock Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees(APB 25) and related
interpretations in accounting for its employee stock options and to
adopt the disclosure only alternative treatment under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation(SFAS 123). SFAS 123 requires the use of fair-value
option valuation models that were not developed for use in valuing
employee stock options. Under SFAS No. 123, deferred compensation is
recorded for the excess of the fair value of the stock on the date of
the option grant, over the exercise price of the option. The deferred
compensation is amortized over the vesting period of the option.                                                                                                                                                                                                                                                                                                                                                                              
|
| | (r) |  | Segment Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |     |  | The Company has only one operating business segment, the sale of
equipment for satellite and cable communications networks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (s) |  | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |     |  | Certain reclassifications have been made to the prior years
consolidated financial statement amounts to conform to the current year
presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (t) |  | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |     |  | In July, 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, Business Combinations, and Statement No. 142,
Goodwill and Other Intangible Assets.Statement 141 requires that the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Statement 141 also specifies criteria
intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be
accounted for separately. Statement 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized,
but instead tested for impairment at least annually with the provisions
of Statement 142. Statement 142 will also require that intangible
assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed
for impairment in accordance with FASB No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of.
|
| |     |  | Any goodwill and any intangible asset determined to have an indefinite
useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue
to be evaluated for impairment in accordance with the appropriate
pre-Statement 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001
sill continue to be amortized prior to the adoption of Statement 142.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |     |  | Statement 141 requires, upon adoption of Statement 142, that we
evaluate our existing intangible assets and goodwill that were acquired
in a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in
Statement 141 for recognition apart from goodwill. Upon adoption of
Statement 142, we will be required to reassess the useful lives and
residual values of all intangible assets acquired in purchase business
combinations, and make any necessary amortization period adjustments by
the end of the first interim period after adoption. In addition, to
the extent an intangible asset is identified as having an indefinite
useful life, we will be required to test the intangible asset for
impairment in accordance with the provisions of                                                                                                                                                                                                                                                                                                                             





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##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



| |  |  | Statement 142 within the first interim period. Any impairment loss
will be measured as of the date of adoption and recognized as the
cumulative effect of a change in accounting principle in the first
interim period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In connection with the transitional goodwill impairment evaluation,
Statement 142 will require us to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption.
Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in our statement of
operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | As of the date of adoption, we expect to have unamortized goodwill of
approximately $4.2 million, all of which will be subject to the
transition provisions of Statements 141 and 142. Amortization expense
related to goodwill was approximately $449,000 for the year ended
December 31, 2001. We are evaluating these recently issued accounting
standards. However, due to their complexity we are unable to determine
the ultimate impact on our consolidated financial statements at this
time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  |  | On October 3, 2001, the FASB issued Statement No, 144, Accounting for
the Impairment or Disposal of Long-Lived Assets,which addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. While Statement No. 144 supercedes Statement 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of,it retains many of the fundamental provisions
of that Statement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | Statement No. 144 also supercedes the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of
operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions, for the disposal of a segment of a business.
However, it retains the requirement in opinion No. 30 to report
separately discontinued operations and extends that reporting to a
component of an entity that either has been disposed of (by sale,
abandonment, or in a distribution to owners) or is classified as held
for sale. By broadening the presentation of discontinued operations to
include more disposal transactions, the FASB has enhanced managements
ability to provide information that helps financial statement users to
assess the effects of a disposal transaction on the ongoing operations
of an entity. Statement No, 144 is effective for fiscal years
beginning after December 15, 2001. At the current time, management
does not believe that the adoption of this statement on January 1, 2002
will have a material impact on the Companys financial position,
results of operations or liquidity.



|(3) |  | Inventories                                         
|--- |  | ----------------------------------------------------
|   
|    |  | Inventories at December 31 consist of the following:

|                             |  |      |            |      |  |  |            | 
|---------------------------- |  | ---- | ---------- | ---- |  |  | ---------- | 
|                             |  | 2001 |            | 2000
|                             |  |      |            |     
|Raw materials and components |  | $    | 11,163,147 |      |  |  | 5,999,173  | 
|                            
|                            
|                            
|                            
|Work-in-process              |  |      | 4,228,708  |      |  |  | 3,959,419  | 
|                            
|                            
|                            
|                            
|Finished goods               |  |      | 2,433,218  |      |  |  | 1,371,973  | 
|                             |  |      |            |      |  |  |            | 
|                             |  |      | 17,825,073 |      |  |  | 11,330,565 | 
|                             |  |      |            |      |  |  |            | 



|(4) |  | Property and Equipment                                         
|--- |  | ---------------------------------------------------------------
|   
|    |  | Property and equipment at December 31 consist of the following:





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RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

|                                               |  |      |            |      |  |  |            |  
|---------------------------------------------- |  | ---- | ---------- | ---- |  |  | ---------- | -
|                                               |  | 2001 |            | 2000
|                                               |  |      |            |     
|Machinery and equipment                        |  | $    | 5,473,370  |      |  |  | 3,265,723  |  
|                                              
|                                              
|                                              
|                                              
|Furniture and fixtures                         |  |      | 3,659,236  |      |  |  | 2,587,068  |  
|                                              
|                                              
|                                              
|                                              
|Leasehold improvements                         |  |      | 786,648    |      |  |  | 713,301    |  
|                                              
|                                              
|                                              
|                                              
|Computers and software                         |  |      | 747,087    |      |  |  | 1,365,077  |  
|                                               |  |      |            |      |  |  |            |  
|                                               |  |      | 10,666,341 |      |  |  | 7,931,169  |  
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |      | (6,309,754 | )    |  |  | (4,642,302 | )
|                                               |  |      |            |      |  |  |            |  
|Property and equipment, net                    |  | $    | 4,356,587  |      |  |  | 3,288,867  |  
|                                               |  |      |            |      |  |  |            |  





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##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



|(5) |  | Accrued Expenses                                         
|--- |  | ---------------------------------------------------------
|   
|    |  | Accrued expenses at December 31 consist of the following:

|                                          |  |      |           |      |  |  |           | 
|----------------------------------------- |  | ---- | --------- | ---- |  |  | --------- | 
|                                          |  | 2001 |           | 2000
|                                          |  |      |           |     
|Wages, vacation and related payroll taxes |  | $    | 1,299,951 |      |  |  | 1,100,503 | 
|                                         
|                                         
|                                         
|                                         
|Professional fees                         |  |      | 243,224   |      |  |  | 544,416   | 
|                                         
|                                         
|                                         
|                                         
|Warranty reserve                          |  |      | 1,255,670 |      |  |  | 1,622,644 | 
|                                         
|                                         
|                                         
|                                         
|Other                                     |  |      | 1,180,239 |      |  |  | 2,217,498 | 
|                                          |  |      |           |      |  |  |           | 
|Total accrued expenses                    |  | $    | 3,979,084 |      |  |  | 5,485,061 | 
|                                          |  |      |           |      |  |  |           | 



|(6) |  | Line of Credit                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company has a committed line of credit arrangement with Wells Fargo
HSBC Trade Bank (The Trade Bank) in the amount of $10,000,000. In
addition, the Company has an uncommitted line of another $10,000,000 with
The Trade Bank. The Company pays The Trade Bank a facility fee of .25% for
the committed portion of the arrangement. The Company had no borrowings
against the line of credit at December 31, 2001 or 2000.    
|   
|(7) |  | Obligations Under Capital Leases                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | The Company leases machinery and equipment under capital leases. The cost
and accumulated depreciation of the equipment was $328,984 and $158,624,
respectively, at December 31, 2001 and $294,382 and $155,020, respectively,
at December 31, 2000, and is included in property and equipment in the
accompanying consolidated balance sheets and is being amortized over the
estimated useful lives of the machinery and equipment.





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##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



| |  | Payments on capital lease obligations due after December 31, 2001 are as
follows:
| |  | ---------------------------------------------------------------------------------

|                                                              |  |   |         | 
|------------------------------------------------------------- |  | - | ------- | 
|2002                                                          |  | $ | 89,253  | 
|                                                             
|                                                             
|                                                             
|                                                             
|2003                                                          |  |   | 21,297  | 
|                                                             
|                                                             
|                                                             
|                                                             
|2004                                                          |  |   | 15,328  | 
|                                                             
|                                                             
|                                                             
|                                                             
|2005                                                          |  |   | 5,501   | 
|                                                             
|                                                             
|                                                             
|                                                             
|2006                                                          |  |   |        | 
|                                                              |  |   |         | 
|Total minimum lease payments                                  |  |   | 131,379 | 
|                                                             
|                                                             
|                                                             
|                                                             
|Less amount representing interest at rates of 2.26% to 12.96% |  |   | 17,799  | 
|                                                              |  |   |         | 
|Present value of minimum lease payments                       |  |   | 113,580 | 
|                                                             
|                                                             
|                                                             
|                                                             
|Less current installments                                     |  |   | 77,385  | 
|                                                              |  |   |         | 
|Capital lease obligations due after one year                  |  | $ | 36,195  | 
|                                                              |  |   |         | 



|(8) |  | Commitments                                                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Rent expense was $1,801,765, $1,883,743 and $1,790,248 for the years ended
December 31, 2001, 2000 and 1999, respectively. Future minimum rentals
under leases after December 31, 2001 are as follows:

|                  |  |   |            | 
|----------------- |  | - | ---------- | 
|2002              |  | $ | 2,112,145  | 
|                 
|                 
|                 
|                 
|2003              |  |   | 2,126,614  | 
|                 
|                 
|                 
|                 
|2004              |  |   | 2,122,114  | 
|                 
|                 
|                 
|                 
|2005              |  |   | 1,290,856  | 
|                 
|                 
|                 
|                 
|2006              |  |   | 1,063,202  | 
|                 
|                 
|                 
|                 
|Thereafter        |  |   | 1,878,971  | 
|                  |  |   |            | 
|Total commitments |  | $ | 10,603,902 | 
|                  |  |   |            | 



| |  | The Company currently subleases a portion of its Phoenix facility to the
University of Phoenix Online. Rent expense was offset by $251,009 for the
year ended December 31, 2001 for rent payments received through this
sublease. Future minimum rentals under leases after December 31, 2001 are
also offset by $267,098, $275,151, $283,204, $291,257, and $299,311, for
the years ended December 31, 2002, 2003, 2004, 2005, and 2006 respectively,
and by $255,018 thereafter. This sublease agreement expires in 2007.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



|    |  | The Company generally has commitments with certain suppliers and
subcontract manufacturers to supply certain components and estimates its
non-cancelable obligations to be approximately $6,986,000 at December 31,
2001.                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(9) |  | Income Taxes                                                                                                                                                                                                                                                              
|   
|    |  | Income tax expense (benefit) amounted to $1,326,048, ($2,918,735) and
$85,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
The actual tax expense (benefit) for these periods differs from the
expected tax expense for those periods as follows:

|                                   |       |   |                          |           |      |  |            |            |   |  |            |        | 
|---------------------------------- | ----- | - | ------------------------ | --------- | ---- |  | ---------- | ---------- | - |  | ---------- | ------ | 
|                                   |       |   | Years ended December 31,
|                                   |       |   |                         
|                                   |       |   | 2001                     |           | 2000 |  | 1999      
|                                   |       |   |                          |           |      |  |           
|Computed expected tax expense    |       | $ | 1,108,936                |           |      |  | 3,237,436  |            |   |  | 749,061    |       
|                                  
|                                  
|                                  
|                                  
|State tax expense                  |       |   | 357,554                  |           |      |  | 476,094    |            |   |  | 190,158    |       
|                                  
|                                  
|                                  
|                                  
|Change in valuation allowance      |       |   |                         |           |      |  | (7,790,223 | )          |   |  | (1,080,360 | )     
|                                  
|                                  
|                                  
|                                  
|Stock option exercises             |       |   |                         |           |      |  | 1,044,000  |            |   |  |           |       
|                                  
|                                  
|                                  
|                                  
|Extra territorial income exclusion |       |   | (269,739                 | )         |      |  |           |            |   |  |           |       
|                                  
|                                  
|                                  
|                                  
|Research and development credits   |       |   | (70,000                  | )         |      |  |           |            |   |  |           |       
|                                   |       |   |                          |           |      |  |            |            |   |  |            |       
|Other adjustments                  |       |   |                         |           |      |  | 113,958    |            |   |  | 226,141    |       
|                                   |       |   |                          |           |      |  |            |            |   |  |            |       
|                                   | Total |   | $                        | 1,326,048 |      |  |            | (2,918,735 | ) |  |            | 85,000 | 
|                                   |       |   |                          |           |      |  |            |            |   |  |            |       



| |  | Components of income tax expense (benefit) for 2001 and 2000 follows:
| |  | ---------------------------------------------------------------------

|      |         |       |       |          |          |        |          |            |           |           |  |            |           |           | 
|----- | ------- | ----- | ----- | -------- | -------- | ------ | -------- | ---------- | --------- | --------- |  | ---------- | --------- | --------- | 
|      |         |       |       |          | Current  |        | Deferred |            | Total    
|      |         |       |       |          |          |        |          |            |          
|2001: |         |       |       |          |          |        |          |            |           |           |  |           
|     
|     
|     
|     
|      | Federal |       | $     | 9,605    |          |        |          | 774,695    |           |           |  | 784,300    |          
|     
|     
|     
|     
|      | State   |       |       | 14,574   |          |        |          | 527,174    |           |           |  | 541,748    |          
|      |         |       |       |          |          |        |          |            |           |           |  |           
|      |         |       | Total |          | $        | 24,179 |          |            |           | 1,301,869 |  |            |           | 1,326,048 | 
|      |         |       |       |          |          |        |          |            |           |           |  |           
|2000: |         |       |       |          |          |        |          |            |           |           |  |           
|     
|     
|     
|     
|      | Federal |       | $     | (273,278 | )        |        |          | (2,295,202 | )         |           |  | (2,568,480 | )        
|     
|     
|     
|     
|      | State   |       |       | 26,550   |          |        |          | (376,805   | )         |           |  | (350,255   | )        
|      |         |       |       |          |          |        |          |            |           |           |  |           
|      |         | Total |       | $        | (246,728 | )      |          |            | 2,672,007 |           |  |            | 2,918,735 |          
|      |         |       |       |          |          |        |          |            |           |           |  |           



| |  | Current federal income tax totaled $ 85,000 for the year ended December 31,
1999.
| |  | ---------------------------------------------------------------------------------
|
| |  | Deferred tax assets at December 31 consisted of the following:                   





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##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999

|                     |                                                           |   |           |            |      |  |           |            |  
|-------------------- | --------------------------------------------------------- | - | --------- | ---------- | ---- |  | --------- | ---------- | -
|                     |                                                           |   | 2001      |            | 2000
|                     |                                                           |   |           |            |     
|Deferred tax assets: |                                                           |   |           |            |      |  |           |           
|                    
|                    
|                    
|                    
|                     | Cumulative tax effect of net operating loss carryforwards |   | $         | 4,351,385  |      |  |           | 6,634,448  |  
|                    
|                    
|                    
|                    
|                     | Tax credits                                               |   |           | 351,258    |      |  |           | 165,444    |  
|                    
|                    
|                    
|                    
|                     | Temporary differences                                     |   |           | 3,866,705  |      |  |           | 3,071,325  |  
|                    
|                    
|                    
|                    
|                     | Valuation allowance                                       |   |           | (6,016,799 | )    |  |           | (6,016,799 | )
|                     |                                                           |   |           |            |      |  |           |           
|                     |                                                           | $ | 2,552,549 |            |      |  | 3,854,418 |           
|                     |                                                           |   |           |            |      |  |           |           



|     |  | The net change in the total valuation allowance for the years ended
December 31, 2001 and 2000 was $ zero and a decrease of $7,790,223,
respectively. At December 31, 2001, the Company has net operating loss
carryforwards of approximately $15,764,000 expiring in various years
through 2021, and federal tax credit of $351,000 for utilization against
taxable income/taxes payable of future periods, if any. Management
believes that its ability to utilize certain of its net operating loss and
tax credit carryforwards to offset future taxable income within the
carryforward periods under existing tax laws and regulations is more likely
than not. During the quarter ended September 2000, the Company evaluated
the likelihood that it would utilize a portion of its net operating loss
carryforwards. The Company reduced the valuation allowance relating to net
operating loss carryforwards it expected to utilize creating a tax benefit
of $4.332 million for the quarter ended September 30, 2000. A 100 percent
valuation allowance had been recorded against the net deferred tax assets
as of December 31, 1999.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(10) |  | Significant Customers and Foreign and Domestic Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|     |  | During 2001 and 1999, no customers represented greater than 10% of net
sales. During 2000, one customer represented 12.4% of net sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|     |  | Our sales in principal foreign and domestic markets as a percentage of
total sales for the years ended December 31, 2001, 2000 and 1999 follow:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                   |  |                          |         |      |  |      |         |   |  |  |         |  
|------------------ |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                   |  | Years ended December 31,
|                   |  |                         
|                   |  | 2001                     |         | 2000 |  | 1999
|                   |  |                          |         |      |  |     
|Asia               |  |                          | 20      | %    |  |      | 25      | % |  |  | 25      | %
|                  
|                  
|                  
|                  
|Africa/Middle East |  |                          | 3       |      |  |      | 2       |   |  |  | 4       |  
|                  
|                  
|                  
|                  
|Latin America      |  |                          | 7       |      |  |      | 3       |   |  |  | 4       |  
|                  
|                  
|                  
|                  
|Europe             |  |                          | 15      |      |  |      | 13      |   |  |  | 21      |  
|                  
|                  
|                  
|                  
|Canada             |  |                          | 1       |      |  |      | 1       |   |  |  | 2       |  
|                   |  |                          |         |      |  |      |         |   |  |  |         |  
|Total foreign      |  |                          | 46      |      |  |      | 44      |   |  |  | 56      |  
|                  
|                  
|                  
|                  
|Domestic           |  |                          | 54      |      |  |      | 56      |   |  |  | 44      |  
|                   |  |                          |         |      |  |      |         |   |  |  |         |  
|                   |  |                          | 100     | %    |  |      | 100     | % |  |  | 100     | %
|                   |  |                          |         |      |  |      |         |   |  |  |         |  
|Foreign assets     |  | $                        | 388,000 |      |  |      | 372,000 |   |  |  | 333,000 |  
|                   |  |                          |         |      |  |      |         |   |  |  |         |  



|     |  | The Company has two primary product lines: 1) satellite modems and
earthstations, and 2) broadcast products. The sales of satellite modems
and earthstations accounted for approximately 73% of 2001, 63.5% of 2000
and 54% of 1999 net sales, respectively.                                                          
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(11) |  | Stockholders Equity                                                                                                                                                                                                                                                                                                  
|    
|     |  | In February 2000, the Company completed an offering of 2,400,000 units,
each consisting of one share of common stock and one five-year common stock
purchase warrant, plus an additional 360,000 units sold pursuant to the
underwriters over-allotment option, for a total of approximately
$16,340,000 cash, net of





---



##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



|     |  | issuance costs. Each warrant is exercisable to purchase one share of
common stock at a price of $8.75, subject to adjustment in certain
circumstances, at any time after the warrants are issued until February 7,
2005. Commencing February 7, 2001, the Company may redeem the warrants for
$0.01 per warrant upon no less than 30 days or more than 60 days notice
mailed within five days after the closing sales price of the common stock
has equaled or exceeded $10.9375 for each of 20 consecutive trading days.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | In December 1999, the Company completed a rights offering of 4,520,264
shares of common stock to existing shareholders for a total of
approximately $16,429,000, net of issuance costs. The Company used
$15,618,272 of the proceeds from the partial exercise by ST to pay the
total amount of debt owed to ST.                                                                                                                                                                                                         
|    
|     |  | The Compensation Committee and the Board of Directors resolved to permit
senior management to borrow funds from the Company for the purpose of
exercising stock options. In October and November 1999, the chief
executive officer, chief technology officer, and chief financial officer
borrowed $200,000, $100,000 and $50,000, respectively, for the purpose of
exercising stock options. The Company recorded the $350,000 in forgivable
loans made as compensation expense in 1999.                                
|    
|(12) |  | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|     |  | A summary of the reconciliation from basic earnings per share to diluted
earnings per share follows:                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                                              |                                    |              |            |                          |      |      |            |      |      |  |           |      |      | 
|------------------------------------------------------------- | ---------------------------------- | ------------ | ---------- | ------------------------ | ---- | ---- | ---------- | ---- | ---- |  | --------- | ---- | ---- | 
|                                                              |                                    |              |            | Years ended December 31,
|                                                              |                                    |              |            |                         
|                                                              |                                    |              |            | 2001                     |      | 2000 |            | 1999
|                                                              |                                    |              |            |                          |      |      |            |     
|Earnings available to common stockholders                     |                                    | $            | 1,935,529  |                          |      |      | 12,440,607 |      |      |  | 2,306,304 |     
|                                                              |                                    |              |            |                          |      |      |            |      |      |  |           |     
|Basic EPS-weighted average shares outstanding                 |                                    |              | 14,943,516 |                          |      |      | 13,972,078 |      |      |  | 7,111,777 |     
|                                                              |                                    |              |            |                          |      |      |            |      |      |  |           |     
|Basic earnings per share:                                     |                                    |              |            |                          |      |      |            |      |      |  |           |     
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Earnings before extraordinary item |              | $          | 0.13                     |      |      |            | 0.89 |      |  |           | 0.30 |     
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Extraordinary item                 |              |            |                         |      |      |            |     |      |  |           | 0.02 |     
|                                                              |                                    |              |            |                          |      |      |            |      |      |  |           |     
|                                                              |                                    | Net earnings |            | $                        | 0.13 |      |            |      | 0.89 |  |           |      | 0.32 | 
|                                                              |                                    |              |            |                          |      |      |            |      |      |  |           |     
|Basic EPS-weighted average shares outstanding                 |                                    |              | 14,943,516 |                          |      |      | 13,972,078 |      |      |  | 7,111,777 |     
|                                                             
|                                                             
|                                                             
|                                                             
|Effect of dilutive securities                                 |                                    |              | 468,052    |                          |      |      | 1,454,219  |      |      |  | 459,648   |     
|                                                              |                                    |              |            |                          |      |      |            |      |      |  |           |     
|Dilutive EPS-weighted average shares
outstanding              |                                    |              | 15,411,568 |                          |      |      | 15,426,297 |      |      |  | 7,571,425 |     
|                                                              |                                    |              |            |                          |      |      |            |      |      |  |           |     
|Diluted earnings per share:                                   |                                    |              |            |                          |      |      |            |      |      |  |           |     
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Earnings before extraordinary item |              | $          | 0.13                     |      |      |            | 0.81 |      |  |           | 0.28 |     
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Extraordinary item                 |              |            |                         |      |      |            |     |      |  |           | 0.02 |     
|                                                              |                                    |              |            |                          |      |      |            |      |      |  |           |     
|                                                              |                                    | Net earnings |            | $                        | 0.13 |      |            |      | 0.81 |  |           |      | 0.30 | 
|                                                              |                                    |              |            |                          |      |      |            |      |      |  |           |     
|Stock options not included in diluted EPS
since antidilutive  |                                    |              | 1,692,527  |                          |      |      | 1,452,997  |      |      |  |          |     
|                                                              |                                    |              |            |                          |      |      |            |      |      |  |           |     
|                                                             
|                                                             
|                                                             
|                                                             
|Stock warrants not included in diluted EPS
since antidilutive |                                    |              | 1,183,166  |                          |      |      | 781,675    |      |      |  |          |     
|                                                              |                                    |              |            |                          |      |      |            |      |      |  |           |     





---



##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



|(13) |  | Employee Benefit Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | We have a qualified contributory 401(k) plan that covers all employees who
have attained the age of 18 and are employed at the enrollment date. We
provided contributions of $319,457, $340,659 and $228,788, respectively,
for the years ended December 31, 2001, 2000 and 1999. Each participant may
elect to contribute up to 15% of his or her gross compensation up to the
maximum amount allowed by the Internal Revenue Service. During the year
ended December 31, 1999, we matched up to 1% of the employees salary.
During the years ended December 31, 2001 and 2000, we matched 50% of each
employee contribution to the plan up to a maximum annual match of $2,000.                                                                                            
|    
|(14) |  | Stock Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|     |  | In June 2000, the Board of Directors adopted the 2000 Long-Term Incentive
Stock Options Plan (the 2000 Plan), which was approved by the stockholders
on June 29, 2000. The 2000 Plan provided for the grant of options to
employees of the Company to purchase 2,500,000 shares of common stock. The
option price per share under the 2000 Plan may not be less than the fair
market value of the stock (110 percent of the fair market value for an
optionee who is a 10 percent stockholder) on the day the option is granted.
At December 31, 2001, the Company had 2,382,461 options outstanding in
this plan.                                                                                                                                                            
|    
|     |  | In November 1996, the Board of Directors adopted the 1996 Incentive Stock
Option Plan (the Plan), which was approved by the stockholders on January
8, 1997. The Plan provided for the grant of options to employees of the
Company to purchase up to 1,282,042 shares of common stock. The option
price per share under the Plan may not be less than the fair market value
of the stock (110 percent of the fair market value for an optionee who is a
10 percent stockholder) on the day the option is granted. In November 1998,
the Plan was amended to increase the options available by 900,000,
providing a total of 2,182,042 options available to purchase shares of
common stock. At December 31, 2001, the Company had 1,187,241 options
outstanding in this plan.
|    
|     |  | At December 31, 2001, the Company had a total of 3,569,702 options
outstanding at exercise prices ranging from $2.50 to $14.625 per share. Of
the total options, the Company had 286,689 options outstanding at an
exercise price of $2.50 per share that carry the right to a cash bonus of
$1.719 per purchased share, payable upon exercise. The stock option
compensation accrual related to the bonus is $501,809 and $505,413 at
December 31, 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                              
|    
|     |  | The Company applies APB Opinion 25 in accounting for its Plan. Had the
Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Companys net earnings
(loss) and earnings (loss) per share would have been reduced (increased) to
the pro forma amounts indicated below:                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                            |  |                       |  |                       |           |              |            |      |            |      |           |  |           |  |           | 
|--------------------------- |  | --------------------- |  | --------------------- | --------- | ------------ | ---------- | ---- | ---------- | ---- | --------- |  | --------- |  | --------- | 
|                            |  |                       |  |                       |           | December 31,
|                            |  |                       |  |                       |           |             
|                            |  |                       |  |                       |           | 2001         |            | 2000 |            | 1999
|                            |  |                       |  |                       |           |              |            |      |            |     
|Net earnings (loss)         |  | As reported           |  | $                     | 1,935,529 |              |            |      | 12,440,607 |      |           |  | 2,306,304 | 
|                           
|                           
|                           
|                           
|                            |  |                       |  | Pro forma (unaudited) |           |              | (4,229,052 | )    |            |      | 5,679,549 |  |           |  | 1,482,399 | 
|                           
|                           
|                           
|                           
|Earnings (loss) per share - |  | As reported           |  |                       | 0.13      |              |            |      | 0.89       |      |           |  | 0.32      | 
|                           
|                           
|                           
|                           
|basic                       |  | Pro forma (unaudited) |  |                       | (0.28     | )            |            |      | 0.41       |      |           |  | 0.21      | 
|                           
|                           
|                           
|                           
|Earnings (loss) per share - |  | As Reported           |  |                       | 0.13      |              |            |      | 0.81       |      |           |  | 0.30      | 
|                           
|                           
|                           
|                           
|Diluted                     |  | Pro forma (unaudited) |  |                       | (0.27     | )            |            |      | 0.37       |      |           |  | 0.20      | 





---



##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



| |  | The full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma net earnings (loss) amounts
presented above because compensation cost is reflected (increased) over the
options vesting period of three years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The fair value of options granted under the Plan was estimated on the date
of grant with vesting periods ranging from one to three years using the
Black-Scholes option-pricing model with the following weighted average
assumptions used: no dividend yield, expected volatility of 100 percent 
184 percent, risk free interest rate of 5.27 percent  6 percent, and
expected lives of five years. In addition, the Company anticipates that
approximately 5% of exercisable shares will be forfeited in each year. The
per share weighted average fair value of stock options granted under the
Plan for the periods ended December 31, 2001, 2000 and 1999 were $6.53,
$10.65 and $3.02, respectively, using the Black-Scholes option-pricing
model and the assumptions listed above.





---



##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



| |  | A summary of the aforementioned stock plan activity follows:
| |  | ------------------------------------------------------------

|                           |  |        |           |           |  |               |       | 
|-------------------------- |  | ------ | --------- | --------- |  | ------------- | ----- | 
|                           |  |        |           |           |  | Weighted     
|                           |  |        |           |           |  | Average Price
|                           |  | Number |           | Per Share
|                           |  |        |           |          
|Balance, December 31, 1998 |  |        | 1,205,957 |           |  | $             | 2.68  | 
|                          
|                          
|                          
|                          
|Granted                    |  |        | 857,000   |           |  |               | 3.60  | 
|                          
|                          
|                          
|                          
|Forfeited                  |  |        | (239,979  | )         |  |               | 3.45  | 
|                          
|                          
|                          
|                          
|Exercised                  |  |        | (287,772  | )         |  |               | 2.54  | 
|                           |  |        |           |           |  |               |       | 
|Balance, December 31, 1999 |  |        | 1,535,206 |           |  |               | 3.09  | 
|                          
|                          
|                          
|                          
|Granted                    |  |        | 1,626,465 |           |  |               | 12.27 | 
|                          
|                          
|                          
|                          
|Forfeited                  |  |        | (138,900  | )         |  |               | 6.58  | 
|                          
|                          
|                          
|                          
|Exercised                  |  |        | (344,505  | )         |  |               | 3.16  | 
|                           |  |        |           |           |  |               |       | 
|Balance, December 31, 2000 |  |        | 2,678,266 |           |  |               | 8.48  | 
|                          
|                          
|                          
|                          
|Granted                    |  |        | 1,411,100 |           |  |               | 6.60  | 
|                          
|                          
|                          
|                          
|Forfeited                  |  |        | (429,814  | )         |  |               | 9.61  | 
|                          
|                          
|                          
|                          
|Exercised                  |  |        | (89,850   | )         |  |               | 4.23  | 
|                           |  |        |           |           |  |               |       | 
|Balance, December 31, 2001 |  |        | 3,569,702 |           |  | $             | 7.71  | 
|                           |  |        |           |           |  |               |       | 



| |  | A summary of stock options granted at December 31, 2001 follows:
| |  | ----------------------------------------------------------------

| |                  |  |                     |           |                     |  |           |  |                |       |          |      |  |         |           |           |   |       |   |      | 
| | ---------------- |  | ------------------- | --------- | ------------------- |  | --------- |  | -------------- | ----- | -------- | ---- |  | ------- | --------- | --------- | - | ----- | - | ---- | 
| |                  |  | Options Outstanding |           | Options Exercisable
| |                  |  |                     |           |                    
| |                  |  |                     |           |                     |  | Weighted- |  | Weighted-      |       |          |      |  |         | Weighted-
| |                  |  | Number              |           | Average             |  | Average   |  | Number         |       | Average 
| | Range of         |  | Outstanding at      |           | Remaining           |  | Exercise  |  | Exercisable at |       | Exercise
| | Exercise Prices  |  | 12/31/01            |           | Contractual Life    |  | Price     |  | 12/31/01       |       | Price   
| |                  |  |                     |           |                     |  |           |  |                |       |         
| | $2.50 to 3.125   |  |                     | 613,291   |                     |  | 0 years   |  | $              | 2.72  |          |      |  | 613,291 |           |           | $ | 2.72  |  
|
|
|
|
| | $3.00 to 4.1875  |  |                     | 375,260   |                     |  | 1 years   |  |                | 3.54  |          |      |  | 271,885 |           |           |   | 3.53  |  
|
|
|
|
| | $5.031 to 14.625 |  |                     | 1,316,250 |                     |  | 2 years   |  |                | 12.31 |          |      |  | 785,922 |           |           |   | 12.69 |  
|
|
|
|
| | $4.25 to 7.406   |  |                     | 1,264,901 |                     |  | 3 years   |  |                | 6.57  |          |      |  | 390,468 |           |           |   | 6.67  |  
| |                  |  |                     |           |                     |  |           |  |                |       |          |      |  |         |           |           |   |       |   |      | 
| |                  |  |                     | 3,569,702 |                     |  |           |  |                |       | $        | 7.71 |  |         |           | 2,061,566 |   |       | $ | 7.38 | 
| |                  |  |                     |           |                     |  |           |  |                |       |          |      |  |         |           |           |   |       |   |      | 



|(15) |  | Employee Stock Purchase Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | On June 15, 1999, our shareholders adopted the 1999 Employee Stock Purchase
Plan (the Purchase Plan), as a means of rewarding and retaining existing
employees. The purchase plan allows employees, including officers and
directors who are employees, to purchase shares of our common stock at
semi-annual intervals through periodic payroll deductions. The purchase
price per share, in general will be 85% of the lower of the fair market
value of the common stock on the participants entry date into the offering
period or 85% of the fair market value on the semi-annual purchase date.
The Board of Directors or a committee of two or more directors, none of
whom will be officers or employees, have full authority to administer all
aspects of the Purchase Plan. As of December 31, 2001, 875,772 shares are
authorized for issuance under the plan while 762,766 shares remain unissued
as of December 31, 2001.





---



##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



|(16) |  | Related Party Transactions                                                                                                                                                                                                                                                                                                                                                                                                        
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | Sales to Agilis Communication Technologies Pte Ltd (Agilis), an affiliate
of ST, amounted to $244,022, $352,048 and $200,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.                                                                                                                                                                                                                                  
|    
|     |  | Interest expense on notes payable to affiliates was $765,914 for the year
ended December 31, 1999.                                                                                                                                                                                                                                                                                                                                
|    
|(17) |  | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|     |  | The Company is involved in litigation and claims arising in the normal
course of operations. In the opinion of management based on consultation
with legal counsel, losses, if any, from this litigation are covered by
insurance or are immaterial; therefore, no provision has been made in the
accompanying consolidated financial statements for losses, if any, that
might result from the ultimate outcome of these matters.
|    
|(18) |  | Supplemental Financial Information                                                                                                                                                                                                                                                                                                                                                                                                
|    
|     |  | A summary of additions and deductions related to the allowance for doubtful
accounts and inventory obsolescence reserve for the years ended December
31, 2001, 2000 and 1999 follows:                                                                                                                                                                                                                                             

|                                     |                          |      |  |            |           |           |  |          |         |            |  |      |   |  |  |           |         |  |  |  |           | 
|------------------------------------ | ------------------------ | ---- |  | ---------- | --------- | --------- |  | -------- | ------- | ---------- |  | ---- | - |  |  | --------- | ------- |  |  |  | --------- | 
|                                     |                          |      |  | Balance at |           |           |  |          |         | Charged    |  |      |   |  |  | Balance  
|                                     |                          |      |  | Beginning  |           |           |  |          |         | to Other   |  |      |   |  |  | at End of
|                                     |                          |      |  | of Year    |           | Additions |  | Accounts |         | Deductions |  | Year
|                                     |                          |      |  |            |           |           |  |          |         |            |  |     
|Allowances for doubtful receivables: |                          |      |  |            |           |           |  |          |         |            |  |      |   |  |  |           |         |  |  | 
|                                    
|                                    
|                                    
|                                    
|                                     | Years ended December 31: |      |  |            |           |           |  |          |         |            |  |      |   |  |  |           |         |  |  |  |          
|                                    
|                                    
|                                    
|                                    
|                                     |                          | 2001 |  | $          | 1,014,813 |           |  |          | 339,037 |            |  |      |  |  |  |           | 181,327 |  |  |  | 1,172,523 | 
|                                     |                          |      |  |            |           |           |  |          |         |            |  |      |   |  |  |           |         |  |  | 
|                                     |                          | 2000 |  | $          | 791,746   |           |  |          | 293,033 |            |  |      |  |  |  |           | 69,966  |  |  |  | 1,014,813 | 
|                                     |                          |      |  |            |           |           |  |          |         |            |  |      |   |  |  |           |         |  |  | 
|                                     |                          | 1999 |  | $          | 632,815   |           |  |          | 175,000 |            |  |      |  |  |  |           | 16,069  |  |  |  | 791,746   | 
|                                     |                          |      |  |            |           |           |  |          |         |            |  |      |   |  |  |           |         |  |  | 





---



##### Table of Contents



RADYNE COMSTREAM INC.

Notes to Consolidated Financial Statements

December 31, 2001, 2000 and 1999



|(19) |  | Quarterly Financial Data  Unaudited                                                                  
|---- |  | ------------------------------------------------------------------------------------------------------
|    
|     |  | A summary of the quarterly data for the years ended December 31, 2001 and
2000 follows (in thousands):

|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |        | 
|----- | --------------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | ----- | ------ |  |  |  | ------ |  |  |  | ------ | 
|      |                                   |  | First   |        | Second  |  | Third   |        | Fourth  |  |       |        | 
|      |                                   |  | Quarter |        | Quarter |  | Quarter |        | Quarter |  | Total
|      |                                   |  |         |        |         |  |         |        |         |  |      
|2001: |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|     
|     
|     
|     
|      | Total revenues                    |  | $       | 15,999 |         |  |         | 16,465 |         |  |       | 16,958 |  |  |  | 19,049 |  |  |  | 68,471 | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|      | Gross profit                      |  | $       | 6,611  |         |  |         | 7,715  |         |  |       | 7,206  |  |  |  | 7,380  |  |  |  | 28,912 | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|      | Operating expenses                |  | $       | 5,535  |         |  |         | 7,228  |         |  |       | 6,591  |  |  |  | 6,765  |  |  |  | 26,119 | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|      | Earnings from operations          |  | $       | 1,076  |         |  |         | 487    |         |  |       | 615    |  |  |  | 615    |  |  |  | 2,793  | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|      | Net earnings                      |  | $       | 856    |         |  |         | 293    |         |  |       | 428    |  |  |  | 359    |  |  |  | 1,936  | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|      | Basic earnings per share          |  | $       | 0.06   |         |  |         | 0.02   |         |  |       | 0.03   |  |  |  | 0.03   |  |  |  | 0.13   | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|      | Diluted earnings per share        |  | $       | 0.06   |         |  |         | 0.02   |         |  |       | 0.03   |  |  |  | 0.03   |  |  |  | 0.13   | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|2000: |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|     
|     
|     
|     
|      | Total revenues                    |  | $       | 16,752 |         |  |         | 17,921 |         |  |       | 17,334 |  |  |  | 18,100 |  |  |  | 70,107 | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|      | Gross profit                      |  | $       | 7,381  |         |  |         | 8,388  |         |  |       | 7,832  |  |  |  | 8,226  |  |  |  | 31,827 | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|      | Operating expenses                |  | $       | 6,333  |         |  |         | 5,982  |         |  |       | 5,621  |  |  |  | 4,954  |  |  |  | 22,890 | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|      | Earnings from operations          |  | $       | 1,461  |         |  |         | 2,442  |         |  |       | 2,211  |  |  |  | 2,823  |  |  |  | 8,937  | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|      | Net earnings (loss)               |  | $       | 1,392  |         |  |         | 2,486  |         |  |       | 6,565  |  |  |  | 1,998  |  |  |  | 12,441 | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|      | Basic earnings (loss) per share   |  | $       | .11    |         |  |         | .17    |         |  |       | .45    |  |  |  | .16    |  |  |  | .89    | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       
|      | Diluted earnings (loss) per share |  | $       | .10    |         |  |         | .15    |         |  |       | .41    |  |  |  | .14    |  |  |  | .81    | 
|      |                                   |  |         |        |         |  |         |        |         |  |       |        |  |  |  |        |  |  |  |       





---



##### Table of Contents






ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not Applicable.




PART III




ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

Information regarding directors and executive officers of the Company is
set forth under the captions Election of Directors and Executive Officers
and Compensation in the Companys Proxy Statement relating to its 2002 Annual
Meeting of Stockholders (the 2002 Proxy Statement) incorporated by reference
into this Form 10-K, which has been filed with the Commission within 120 days
after the end of the Companys fiscal year ended December 31, 2001. The
Compensation Committee Report on Executive Compensation, The Report of the
Audit Committee and the Stock Price Performance Graph contained in the 2002
Proxy Statement are not incorporated by reference in this Form 10-K.




ITEM 11.     DIRECTOR AND EXECUTIVE COMPENSATION

Information regarding director and executive compensation is set forth
under the captions Election of Directors and Executive Officers and
Compensation in the 2002 Proxy Statement, which information is incorporated in
this Form 10-K by reference. The Compensation Committee Report on Executive
Compensation, The Report of the Audit Committee and the Stock Price
Performance Graph contained in the 2001 Proxy Statement are not incorporated
by reference in this Form 10-K.




ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding security ownership of certain beneficial owners and
management is set forth under the caption Security Ownership of Principal
Stockholders and Management in the 2002 Proxy Statement, which information is
incorporated in this Form 10-K by reference.




ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions of
management is set forth under the caption Certain Relationships and Related
Transactions in the 2002 Proxy Statement, which information is incorporated in
this Form 10-K by reference.





---



##### Table of Contents






PART IV




ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)  (1) The following consolidated financial statements of Radyne
ComStream Inc. and subsidiaries are included in Part II, Item 8:

Independent Auditors Reports
         Consolidated Balance Sheets as of December 31, 2001 and 2000
         Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999
         Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2001, 2000 and 1999
         Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999
         Notes to Consolidated Financial Statements

(a)  (2) All financial statement schedules have been omitted because they
are not applicable, not required, or the information has been disclosed in the
consolidated financial statements or notes thereto or otherwise in this Form
10-K report.

(a)  (3) The following exhibits are included in this Form 10-K report:




EXHIBIT

|           |  |                                                                                                   
|---------- |  | --------------------------------------------------------------------------------------------------
|NO.        |  |                                                                                                   
|           |  |                                                                                                   
|3.1 (1)    |  | Restated Certificate of Incorporation                                                             
|          
|          
|          
|          
|3.2 (2)    |  | By-Laws, as amended and restated                                                                  
|          
|          
|          
|          
|10.1(a)(3) |  | 1996 Incentive Stock Option Plan                                                                  
|          
|          
|          
|          
|10.1(b)(4) |  | Amendment to 1996 Incentive Stock Option Plan                                                     
|          
|          
|          
|          
|10.2 (5)   |  | 1999 Employee Stock Purchase Plan                                                                 
|          
|          
|          
|          
|10.3 (6)   |  | 2000 Long-Term Incentive Plan                                                                     
|          
|          
|          
|          
|10.4(a)(7) |  | Lease between ADI Communication Partners, L.P. and ComStream dated
April 23, 1997                 
|          
|          
|          
|          
|10.4(b)(7) |  | First Amendment to lease between ADI Communication Partners L.P. and
ComStream dated July 16, 1997
|          
|          
|          
|          
|10.4(c)(7) |  | Second Amendment to Lease between Kilroy Realty, L.P. and
ComStream dated November 18, 1998       
|          
|          
|          
|          
|10.5(8)    |  | Lease for facility in Phoenix, Arizona                                                            
|          
|          
|          
|          
|10.6*      |  | Credit Agreement by and between the Registrant and Wells Fargo HSBC
Trade Bank, N.A.              
|          
|          
|          
|          
|21.1*      |  | Subsidiaries of the Registrant                                                                    
|          
|          
|          
|          
|23.1*      |  | Consent of KPMG LLP                                                                               
|          
|          
|          
|          
|99.1*      |  | Cautionary Statement Regarding Forward-Looking Statements and Risk Factors                        



---

|*   |  | filed herewith                                                                                                                                         
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(1) |  | Incorporated by reference from exhibit 3.1 to Registrants
description of capital stock on Form 8-A12G, filed on July 13, 2000.                        
|   
|   
|   
|   
|(2) |  | Incorporated by reference from exhibit 3.2 to Registrants
description of capital stock on Form 8-A12G, filed on July 13, 2000.                        
|   
|   
|   
|   
|(3) |  | Incorporated by reference from Registrants Registration
Statement on Form S-8, dated and declared effective on March 12,
1997 (File No. 333-23159).   
|   
|   
|   
|   
|(4) |  | Incorporated by reference from Registrants Registration
Statement on Form S-8, dated and declared effective on November 18,
1998 (File No. 333-67469).
|   
|   
|   
|   
|(5) |  | Incorporated by reference from Registrants Registration
Statement on Form S-8, dated and declared effective on November 5,
1999 (File No. 333-90383). 
|   
|   
|   
|   
|(6) |  | Incorporated by reference from Registrants Registration
Statement on Form S-8, dated and declared effective on July 19, 2000
(File No. 333-41704)     





---



##### Table of Contents



|(7) |  | Incorporated by reference from Registrants Registration
Statement on Form S-2, filed January 11, 1999 (File No. 333-70403).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(8) |  | Incorporated by reference from Registrants Annual Report on
Form 10-K for the year ended December 31, 1997.                
|   
|   
|   
|   



|(b) |  | Registrant did not file any reports on Form 8-K during the period of
October 1 through December 31, 2001
|--- |  | --------------------------------------------------------------------------------------------------------





---



##### Table of Contents






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.

| |  |     |  |                                           
| |  | --- |  | ------------------------------------------
| |  |     |  | RADYNE COMSTREAM INC.                     
|
|
|
|
|
|
| |  | By: |  | /s/ Robert C. Fitting                     
| |  |     |  |                                           
| |  |     |  | Robert C. Fitting, Chief Executive Officer

Dated: April 1, 2002

KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert C. Fitting, his
attorney-in-fact, with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Report on Form 10-K, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorney-in-fact or his substitute, may do or
cause to be done by virtue hereof.

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.

|                                         |  |                                                                      |      |              
|---------------------------------------- |  | -------------------------------------------------------------------- | ---- | -------------
|Name                                     |  | Title                                                                | Date
|                                         |  |                                                                      |      |              
|                                         |  |                                                                      |      |              
|/s/ Lim Ming Seong

Lim Ming Seong       |  | Chairman of the Board of Directors                                   |      | April 1, 2002
|                                        
|                                         |  |                                                                      |      |              
|/s/ Robert C. Fitting

Robert C. Fitting |  | Chief Executive Officer and Director                                 |      | April 1, 2002
|                                        
|                                         |  |                                                                      |      |              
|/s/ Brian J. Duggan

Brian J. Duggan     |  | Chief Operations Officer and President                               |      | April 1, 2002
|                                        
|                                         |  |                                                                      |      |              
|                                        
|                                        
|                                        
|                                        
|/s/ Garry D. Kline

Garry D. Kline       |  | Vice President, Finance
(Principal Financial and
Accounting Officer) |      | April 1, 2002
|                                        
|                                         |  |                                                                      |      |              
|/s/ C.J. Waylan

C.J. Waylan             |  | Director                                                             |      | April 1, 2002
|                                        
|                                         |  |                                                                      |      |              
|/s/ Lee Yip Loi

Lee Yip Loi             |  | Director                                                             |      | April 1, 2001
|                                        
|                                         |  |                                                                      |      |              
|/s/ Dennis Elliott

Dennis Elliott       |  | Director                                                             |      | April 1, 2002
|                                        
|                                         |  |                                                                      |      |              
|/s/ Tang Kum Chuen

Tang Kum Chuen       |  | Director                                                             |      | April 1, 2002





---



##### Table of Contents



EXHIBIT INDEX



|           |  |                                                                                                   
|---------- |  | --------------------------------------------------------------------------------------------------
|NO.        | 
|           | 
|3.1 (1)    |  | Restated Certificate of Incorporation                                                             
|          
|          
|          
|          
|3.2 (2)    |  | By-Laws, as amended and restated                                                                  
|          
|          
|          
|          
|10.1(a)(3) |  | 1996 Incentive Stock Option Plan                                                                  
|          
|          
|          
|          
|10.1(b)(4) |  | Amendment to 1996 Incentive Stock Option Plan                                                     
|          
|          
|          
|          
|10.2 (5)   |  | 1999 Employee Stock Purchase Plan                                                                 
|          
|          
|          
|          
|10.3 (6)   |  | 2000 Long-Term Incentive Plan                                                                     
|          
|          
|          
|          
|10.4(a)(7) |  | Lease between ADI Communication Partners, L.P. and ComStream dated
April 23, 1997                 
|          
|          
|          
|          
|10.4(b)(7) |  | First Amendment to lease between ADI Communication Partners L.P. and
ComStream dated July 16, 1997
|          
|          
|          
|          
|10.4(c)(7) |  | Second Amendment to Lease between Kilroy Realty, L.P. and
ComStream dated November 18, 1998       
|          
|          
|          
|          
|10.5(8)    |  | Lease for facility in Phoenix, Arizona                                                            
|          
|          
|          
|          
|10.6*      |  | Credit Agreement by and between the Registrant and Wells Fargo HSBC
Trade Bank, N.A.              
|          
|          
|          
|          
|21.1*      |  | Subsidiaries of the Registrant                                                                    
|          
|          
|          
|          
|23.1*      |  | Consent of KPMG LLP                                                                               
|          
|          
|          
|          
|99.1*      |  | Cautionary Statement Regarding Forward-Looking Statements and Risk Factors                        



---

|*   |  | filed herewith                                                                                                                                         
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(1) |  | Incorporated by reference from exhibit 3.1 to Registrants
description of capital stock on Form 8-A12G, filed on July 13, 2000.                        
|   
|   
|   
|   
|(2) |  | Incorporated by reference from exhibit 3.2 to Registrants
description of capital stock on Form 8-A12G, filed on July 13, 2000.                        
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|(3) |  | Incorporated by reference from Registrants Registration
Statement on Form S-8, dated and declared effective on March 12,
1997 (File No. 333-23159).   
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|(4) |  | Incorporated by reference from Registrants Registration
Statement on Form S-8, dated and declared effective on November 18,
1998 (File No. 333-67469).
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|(5) |  | Incorporated by reference from Registrants Registration
Statement on Form S-8, dated and declared effective on November 5,
1999 (File No. 333-90383). 
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|(6) |  | Incorporated by reference from Registrants Registration
Statement on Form S-8, dated and declared effective on July 19, 2000
(File No. 333-41704)     
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|(7) |  | Incorporated by reference from Registrants Registration
Statement on Form S-2, filed January 11, 1999 (File No. 333-70403).                           
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|(8) |  | Incorporated by reference from Registrants Annual Report on
Form 10-K for the year ended December 31, 1997.