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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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FORM 10-K

|                                               |                                                                                         
|---------------------------------------------- | ----------------------------------------------------------------------------------------
|þ                                              | Annual Report Pursuant to Section 13 or 15(D) of the Securities Exchange
Act of 1934    
|                                              
|For the fiscal year ended December 31, 2002
or
|                                              
|o                                              | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|                                              
|                                               | For the transition period from                          to                              



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Commission File Number 0-11685



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Radyne ComStream Inc.

(Exact name of Registrant as specified in its charter)


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

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. o

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934.    Yes o No þ

The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $17 million based on the closing price of
$3.25 per share of common stock as reported on the Nasdaq Stock Market on June
28,2002. 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 shares of the registrants common stock, which were outstanding
as of the close of business on March 20, 2003, was 15,308,832.

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 June 18, 2003.



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TABLE OF CONTENTS



|              |                                                                                               |  |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|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                                          
|              | 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                                      
|              | Item 14. Disclosures and Controls                                                            
|PART IV      
|              | Item 15. Exhibits, Financial Statement Schedules And Reports On Form 8-K                     
|SIGNATURES   
|EXHIBIT INDEX
|EX-21.1      
|EX-23.1      
|EX-99.1      
|EX-99.2      
|EX-99.3      



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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, (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 2003.

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.

3



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Part I




Item 1. Business

Overview

We design, manufacture, integrate, 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, microwave and cable
communications networks. 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. Through our Tiernan subsidiary (www.tiernan.com), we supply HDTV and SDTV encoding
and transmission equipment, and our Armer subsidiary
(www.armercom.com) provides innovative
solutions for the integration and installation of turnkey communications
systems. Information contained on the foregoing websites is not a part of this
report. Through our network of international sales and service offices and
area distributors and sales representatives, 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-Anditel.                                                                                                                                                          
|
| |  |  | 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.                                                                                                                                                 
|
| |  |  | Supplied complete Data Broadcast network for Shanghia Stock
Exchange-over 4,000 sites throughout mainland China.                                                                                                        
|
| |  |  | 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 TV in Singapore).
|
| |  |  | First Internet broadcast network in the Republic of Myanmar.                                                                                                                                                            
|
| |  |  | Selected by PamAmSat, Intelsat and ChinaSat as preferred
vendor for the deployment of IP over satellite solutions.                                                                                                      
|
| |  |  | Major expansion of US Government Satellite Communications
Network.                                                                                                                                                      

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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 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:



| |  |  | Worldwide demand for Internet over Satellite connectivity. A
large number of the World Wide Web sites reside in North America and
high-speed access to the web will continue to be a major issue.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Worldwide demand for communications services in general,
including data communications services, high-speed digital
television/HDTV and corporate Intranets.                                     

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| |  |  | The relative cost-effectiveness of satellite communications
for many applications, such as digital television delivery, distance
learning and IP over satellite.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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 2008.                                                      

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.

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, such as in developing countries where the
infrastructure is not in place and modern communications
capabilities are just beginning to develop.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | 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.                                                                        
|
| |  |  | Digital cinema distribution is emerging as a viable
alternative to the physical distribution of feature length                                                                            

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| |   |  | 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.

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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.

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                                                                                                                                                                                                                                                                                                                                        

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 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.

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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 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.

11



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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 $8.7 million for the year
ended December 31, 2002, $10.8 million for the year ended December 31, 2001 and
$9.3 million for the year ended December 31, 2000. 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 website.

We
maintain a warranty department which also includes customer service and support staff that support
customers and distributors and is also 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, 2002 and 2001, 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

12



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to period depending upon the placement of significant orders by a particular
customer or customers in any given year.

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              |  | 12-31-02   |    | 12-31-01   |  | 12-31-00  
|                    |  |            |    |            |  |           
|Asia                |  |            | 27 | %          |  |            | 20 | % |  |  | 25 | %
|Africa/Middle East  |  |            | 5  | %          |  |            | 3  | % |  |  | 2  | %
|Latin America       |  |            | 3  | %          |  |            | 7  | % |  |  | 3  | %
|Europe              |  |            | 11 | %          |  |            | 15 | % |  |  | 13 | %
|Canada              |  |            | 1  | %          |  |            | 1  | % |  |  | 1  | %
|                    |  |            |    |            |  |            |    |   |  |  |    |  
|Total Foreign Sales |  |            | 47 | %          |  |            | 46 | % |  |  | 44 | %

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 EF Data               |  |                    | 15 | %         |  |             | *  |            |  |             | *  |   |  |  | *  |   |  |  | *  |  
|Paradise Datacom (Intelek)    |  |                    | 15 | %         |  |             | *  |            |  |             | *  |   |  |  | *  |   |  |  | *  |  
|Gilat Satellite Networks Ltd. |  |                    | 15 | %         |  |             | 20 | %          |  |             | 15 | % |  |  | *  |   |  |  | *  |  
|Hughes Network Systems        |  |                    | *  |           |  |             | 30 | %          |  |             | 5  | % |  |  | *  |   |  |  | *  |  
|ViaSat                        |  |                    | 5  | %         |  |             | 20 | %          |  |             | 15 | % |  |  | *  |   |  |  | *  |  
|IDC                           |  |                    | *  |           |  |             | *  |            |  |             | 25 | % |  |  | *  |   |  |  | *  |  
|Tandberg Television ASA       |  |                    | *  |           |  |             | *  |            |  |             | *  |   |  |  | 40 | % |  |  | *  |  
|Scopus Network Technologies   |  |                    | *  |           |  |             | *  |            |  |             | *  |   |  |  | 10 | % |  |  | *  |  
|Wegener Corporation           |  |                    | *  |           |  |             | *  |            |  |             | *  |   |  |  | 10 | % |  |  | *  |  
|IDB Systems                   |  |                    | *  |           |  |             | *  |            |  |             | *  |   |  |  | *  |   |  |  | 20 | %
|Globecomm Systems Inc.        |  |                    | 5  | %         |  |             | *  |            |  |             | *  |   |  |  | *  |   |  |  | 20 | %
|VertexRSI                     |  |                    | 5  | %         |  |             | *  |            |  |             | *  |   |  |  | *  |   |  |  | 20 | %
|Radyne ComStream              |  |                    | 15 | %         |  |             | 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

13



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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 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 Boca Raton,
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.

14



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##### Table of Contents



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 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, 2002, we had 205 full-time employees, including four
executive officers, 119 in engineering and manufacturing, 27 in sales and
marketing, 20 in installation and customer service and 35 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.

Available Information

Our website is http://www.radynecomstream.com. We make available, free of
charge on our website, our annual, quarterly, and current reports, and any
amendments to those reports, as soon as practicable after electronically filing
the reports with the Securities and Exchange Commission. Information contained
on our website is not a part of this report.

15



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##### Table of Contents






Item 2. Properties

We currently occupy approximately 40,000 square feet of building space in
Phoenix, 16,000 square feet in Chandler and 36,000 square feet in our San Diego
facility. The lease for our Phoenix facility expires in July 2008 and has an
option to renew for two consecutive terms of five years each. The lease for
our Chandler facility expires in October 2008 and has an option to renew for
five years. The lease for our San Diego facility expires in March 2005 and has
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

Not applicable.

16



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##### Table of Contents






PART II






|Item 5. | Market for Registrants Common Equity and Related Stockholder
Matters
|------- | ---------------------------------------------------------------------

Market for Common Stock

Our common stock and warrants are quoted on the Nasdaq National Market
under the symbol RADN and RADNW, respectively. The following table sets
forth the range of high and low trading prices for our common stock as reported
by the Nasdaq National Market for the periods indicated.

|      |                |  |      |       |     |  |   |       | 
|----- | -------------- |  | ---- | ----- | --- |  | - | ----- | 
|      |                |  | High |       | Low
|      |                |  |      |       |    
|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  | 
|2002: |                |  |      |       |     |  |   |      
|      | First Quarter  |  |      | 7.50  |     |  |   | 4.66  | 
|      | Second Quarter |  |      | 4.98  |     |  |   | 3.10  | 
|      | Third Quarter  |  |      | 3.55  |     |  |   | 1.25  | 
|      | Fourth Quarter |  |      | 3.60  |     |  |   | 1.55  | 

Holders of Record

As of March 22, 2003, we had approximately 400 holders of record 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 fiscal 2002, we did not issue any equity securities that were
not registered under the Securities Act of 1933, as amended.

17



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##### Table of Contents






Item 6. Selected Financial Data

The following selected statement of operations data for the years ended
December 31, 2002, 2001, 2000, 1999 and 1998, 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. 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.

|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |       |  
|------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------ | ---------- | ----- | - | ---- | ---------- | ---- |  | ---- | ---------- | ---- |  | - | --------- | ---- |  | - | --------- | ----- | -
|                                                                                                  |                                           | Years Ended December 31,
|(in thousands, except share data)                                                                 |                                           | 2002                     |            | 2001  |   | 2000 |            | 1999 |  | 1998
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |     
|STATEMENT
OF OPERATIONS DATA:                                                                     |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|Net sales                                                                                         |                                           | $                        | 57,662     |       |   | $    | 68,471     |      |  | $    | 70,107     |      |  | $ | 55,840    |      |  | $ | 21,112    |      
|Cost of sales                                                                                     |                                           |                          | 38,041     |       |   |      | 39,559     |      |  |      | 38,280     |      |  |   | 29,971    |      |  |   | 15,808    |      
|Inventory write-down                                                                              |                                           |                          | 431        |       |   |      |           |      |  |      |           |      |  |   |          |      |  |   |          |      
|Gross profit                                                                                      |                                           |                          | 19,190     |       |   |      | 28,912     |      |  |      | 31,827     |      |  |   | 25,869    |      |  |   | 5,304     |      
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|Selling, general and administrative expense                                                       |                                           |                          | 13,471     |       |   |      | 15,307     |      |  |      | 13,573     |      |  |   | 12,355    |      |  |   | 5,531     |      
|Research and development expense                                                                  |                                           |                          | 8,665      |       |   |      | 10,812     |      |  |      | 9,317      |      |  |   | 9,127     |      |  |   | 4,296     |      
|Stock option compensation expense                                                                 |                                           |                          |           |       |   |      |           |      |  |      |           |      |  |   | 350       |      |  |   | 1,566     |      
|In-process research and development expense                                                       |                                           |                          |           |       |   |      |           |      |  |      |           |      |  |   |          |      |  |   | 3,909     |      
|Restructuring charge                                                                              |                                           |                          | 1,102      |       |   |      |           |      |  |      |           |      |  |   |          |      |  |   | 3,100     |      
|Asset impairment charges(1)                                                                       |                                           |                          | 995        |       |   |      |           |      |  |      |           |      |  |   |          |      |  |   | 263       |      
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|Total operating expenses                                                                          |                                           |                          | 24,233     |       |   |      | 26,119     |      |  |      | 22,890     |      |  |   | 21,832    |      |  |   | 18,665    |      
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|Earnings (loss) from operations                                                                   |                                           |                          | (5,043     | )     |   |      | 2,793      |      |  |      | 8,937      |      |  |   | 4,037     |      |  |   | (13,361   | )    
|Interest expense                                                                                  |                                           |                          | 62         |       |   |      | 54         |      |  |      | 492        |      |  |   | 1,910     |      |  |   | 1,199     |      
|Interest income                                                                                   |                                           |                          | (236       | )     |   |      | (523       | )    |  |      | (1,076     | )    |  |   | (76       | )    |  |   | (23       | )    
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|Earnings (loss) before income taxes and extraordinary
item                                        |                                           |                          | (4,869     | )     |   |      | 3,262      |      |  |      | 9,522      |      |  |   | 2,203     |      |  |   | (14,537   | )    
|Income taxes (benefit)                                                                            |                                           |                          | (196       | )     |   |      | 1,326      |      |  |      | (2,919     | )    |  |   | 85        |      |  |   |          |      
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|Earnings (loss) before extraordinary item and cumulative
effect of change in accounting principle |                                           |                          | (4,673     | )     |   |      | 1,936      |      |  |      | 12,441     |      |  |   | 2,118     |      |  |   | (14,537   | )    
|Cumulative effect of change in accounting principle                                               |                                           |                          | 4,281      |       |   |      |           |      |  |      |           |      |  |   |          |      |  |   |          |      
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|Extraordinary item                                                                                |                                           |                          |           |       |   |      |           |      |  |      |           |      |  |   | 188       |      |  |   |          |      
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|Net earnings (loss)                                                                               |                                           | $                        | (8,954     | )     |   | $    | 1,936      |      |  | $    | 12,441     |      |  | $ | 2,306     |      |  | $ | (14,537   | )    
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|Basic earnings (loss) per share:                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|                                                                                                  | Earnings (loss) before extraordinary item |                          | $          | (0.59 | ) |      | $          | 0.13 |  |      | $          | 0.89 |  |   | $         | 0.30 |  |   | $         | (2.45 | )
|                                                                                                  | Extraordinary item                        |                          |            | 0.00  |   |      |            | 0.00 |  |      |            | 0.00 |  |   |           | 0.02 |  |   |           | 0.00  |  
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|                                                                                                  | Net earnings (loss)                       |                          | $          | (0.59 | ) |      | $          | 0.13 |  |      | $          | 0.89 |  |   | $         | 0.32 |  |   | $         | (2.45 | )
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|Diluted earnings (loss) per share:                                                                |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|                                                                                                  | Earnings (loss) before extraordinary item |                          | $          | (0.59 | ) |      | $          | 0.13 |  |      | $          | 0.81 |  |   | $         | 0.28 |  |   | $         | (2.45 | )
|                                                                                                  | Extraordinary item                        |                          |            | 0.00  |   |      |            | 0.00 |  |      |            | 0.00 |  |   |           | 0.02 |  |   |           | 0.00  |  
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|                                                                                                  | Net earnings (loss)                       |                          | $          | (0.59 | ) |      | $          | 0.13 |  |      | $          | 0.81 |  |   | $         | 0.30 |  |   | $         | (2.45 | )
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|Weighted average shares used in computation
Basic                                                 |                                           |                          | 15,180,379 |       |   |      | 14,943,516 |      |  |      | 13,972,078 |      |  |   | 7,111,777 |      |  |   | 5,931,346 |      
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      
|Diluted                                                                                           |                                           |                          | 15,180,379 |       |   |      | 15,411,568 |      |  |      | 15,426,297 |      |  |   | 7,571,425 |      |  |   | 5,931,346 |      
|                                                                                                  |                                           |                          |            |       |   |      |            |      |  |      |            |      |  |   |           |      |  |   |           |      

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|                                  |  |                          |        |      |  |      |        |      |  |      |        |  |  |   |        |   |  |   |         |   | 
|--------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | - |  | - | ------- | - | 
|                                  |  | Years Ended December 31,
|(in thousands, except share data) |  | 2002                     |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                  |  |                          |        |      |  |      |        |      |  |     
|BALANCE SHEET DATA:               |  |                          |        |      |  |      |        |      |  |      |        |  |  |   |        |   |  |   |         |  
|Cash and cash equivalents         |  | $                        | 16,230 |      |  | $    | 7,211  |      |  | $    | 16,245 |  |  | $ | 2,948  |   |  | $ | 225     |  
|Working capital (deficit)         |  |                          | 33,996 |      |  |      | 35,959 |      |  |      | 33,858 |  |  |   | (2,555 | ) |  |   | (8,804  | )
|Total assets                      |  |                          | 44,407 |      |  |      | 53,241 |      |  |      | 51,844 |  |  |   | 28,236 |   |  |   | 29,191  |  
|Long-term liabilities             |  |                          | 593    |      |  |      | 684    |      |  |      | 769    |  |  |   | 760    |   |  |   | 16,862  |  
|Total liabilities                 |  |                          | 7,118  |      |  |      | 7,893  |      |  |      | 10,030 |  |  |   | 23,909 |   |  |   | 44,428  |  
|Stockholders equity (deficiency) |  |                          | 37,288 |      |  |      | 45,347 |      |  |      | 41,814 |  |  |   | 4,327  |   |  |   | (15,237 | )

Notes: (1) Consists of the write down of designs and
drawings in light of the introduction of replacement
products in 1998 and the write down of purchased
technologies relate to the 1998
ComStream acquisition in 2002.

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|Item 7. | Managements Discussion and Analysis of Financial Condition and
Results of Operations
|------- | -------------------------------------------------------------------------------------

General

We design, manufacture, integrate, install and sell products, systems and
software used in the ground-based portion of satellite communication systems to
receive, and transmit data, video, audio and Internet over satellite, microwave
and cable communications networks. 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. Through our network of international offices and
service centers, 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 was
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 was recorded as goodwill, which was amortized on a straight-line
basis over twelve years until the adoption of SFAS 142 on January 1, 2002, at
which time amortization was suspended and new accounting rules took effect.
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 was amortized on a straight-line basis
over seven years until the adoption of SFAS 142 on
January 1, 2001.

During
the third quarter of 2002, we implemented a restructuring plan to
reduce costs and address the economic slowdown and negative industry
conditions. This plan included the reduction in force of
approximately 10% of our workforce in the manufacturing, research and
development and sales departments, the abandonment of certain non-performing
and under-performing product lines and a provision for the excess space created
as a result of these cost cutting measures. This effort resulted in a charge
to our operating expenses of approximately $1.5 million; of which $430,826 was
charged to cost of sales and the balance was charged to selling, general and
administrative expenses. This amount included $170,000 in severance
costs.

As of December 31, 2002, we have reduced our workforce from 259 employees
at December 31, 2001 to 205 employees, abandoned certain non-performing and
under-performing product lines, reduced our utilized work space in the San
Diego facility from approximately 66,000 square feet at December 31, 2001 to
36,000 square feet and paid all charges except for $644,960 in lease exit
costs, which will be paid over the lease term expiring in February 2005.

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 the Companys 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 also affect the reported amounts of

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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 results, anticipated future events 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 conditions.

The Securities and Exchange Commission defines critical accounting polices
as those that are, in managements view, most important to the portrayal of the
Companys financial condition and results of operations and those that require
significant judgments and estimates. We do not consider revenue
recognition to be a critical accounting policy due to the nature of
our business in which revenues are generally recognized upon the actual shipment of
product and transfer of the risk of ownership to our customers in accordance
with SEC Staff Bulletin No. 101, Revenue Recognition in Financial Statements,
as amended. Accordingly, other than for estimates related to warranty
obligations, the recording of revenue does not require significant judgments or
estimates.

Management believes the Companys most critical accounting policies and
estimates used in the preparation of its consolidated financial statements
relate to:



| |  |  | Valuation of Receivables. We maintain an allowance for
doubtful accounts for estimated losses resulting from the inability of
our customers to make required payments. Bad debt reserves are
recorded based upon historic default averages as well as through the
creation of reserves established for specific customers deemed marginal
in their ability to pay based upon factors known at that time. In
general, if the financial condition of a customer was to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances may be required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Valuation and Impairment of
Intangible Assets.In assessing our goodwill and other intangible assets for impairment in
accordance with the Financial Accounting Standards Boards (FASB)
Statement of Financial Accounting Standards No. 142 (SFAS 142),
Goodwill and Other Intangible Assets, we are required to make
significant assumptions about the future cash flows, overall
performance, identity and allocation and valuation of the assets
including goodwill and other intangibles of our reporting units. Market
prices are not readily available for certain businesses, unique
physical assets, and most intangible assets to be valued in goodwill
impairment tests. Therefore, we estimate fair values using
estimating techniques and assumptions that are matters of judgment.
Our transitional impairment analysis of goodwill as of January 1,
2002, as required by SFAS 142, yielded an impairment charge of $4.3
million, recorded in fourth quarter 2002 as a cumulative effect of
change in accounting principle. We have no remaining goodwill
on our balance sheet as of December 31, 2002.
|
| |  |  | Warranty Liability.We provide limited warranties on
certain of our products and systems for periods generally not exceeding
two years. Estimated warranty costs for potential product liability
and warranty claims based on our claim experience are accrued
as cost of sales 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 liability is affected by product failure rates and
material usage and service delivery costs incurred in correcting
product failures. Should actual product failure rates, material usage
or service delivery costs differ from the Companys present estimates,
additional warranty liabilities may be required.                                                                                                                                                                                                                                                                                                                            
|
| |  |  | Valuation of Inventories.Inventories, consisting of satellite
modems and related products, are valued at the lower of cost (first-in,
first-out) or market. Our inventories include
high-technology components and systems sold into rapidly changing and
competitive markets, whereby such inventories may be subject to early
technological obsolescence. We evaluate inventories for
excess, obsolescence or other factors that may render inventories
unmarketable at normal margins. Write-downs are recorded so that
inventories reflect the approximate net realizable value. Assumptions
about future demand,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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| |   |  | market conditions and decisions to discontinue certain product lines can
impact the decision to write down inventories. If assumptions about
future demand change or actual market conditions are less favorable than
those projected by management, additional inventory write-downs may be
required. In any case, actual amounts could be different from those
estimated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Accounting for Income Taxes.Management judgment is required in
determining the provision for income taxes, deferred tax assets and
liabilities and the valuation allowance recorded against net deferred
tax assets. The carrying value of our net operating loss
carry-forwards is dependent upon our ability to generate sufficient
future taxable income. In addition, we consider historic
levels of income, expectations and risk associated with estimates of
future taxable income and ongoing prudent and feasible tax planning
strategies in assessing a tax valuation allowance. Should we
determine that we are not able to realize all or part of our deferred
tax assets in the future, a valuation allowance is recorded against the
deferred tax assets with a corresponding charge to income in the period
such determination is made. Likewise, should we determine
that we would be able to realize 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.

Results of Operations

Year Ended December 31, 2002 Compared To The Year Ended December 31, 2001

Our net sales decreased 16% to $ 57.7 million during the year ended
December 31, 2002 from $68.5 million during the year ended December 31, 2001.
This decrease is primarily attributable to the lingering effects of the
economic slowdown over the last two years and was partially offset by full year
sales of products from the Tiernan acquisition compared to approximately 8.5
months of those sales during 2001.

Our cost of sales as a percentage of net sales increased by 9% to 67%
during the year ended December 31, 2002 from 58% for the year ended December
31, 2001. 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. Other factors include a $431,000
inventory write-down taken in the third quarter, which was a result of the abandonment of certain non-performing and
under performing product lines and was related to the reduction of our
workforce related to manufacturing activities to 77 employees at December 31,
2002 from 97 employees at December 31, 2001, and the abandonment of certain
manufacturing facilities as is discussed further below.

Selling, general and administrative costs decreased to $13.5 million, or
23% of sales, during the year ended December 31, 2002 from $15.3 million, or
22% of sales, for the year ended December 31, 2001. The decrease in expenses
during the year is primarily attributed to the cost saving initiatives put in
place during the year as a result of the continued depressed market place.
These initiatives included the reduction of our workforce related to these
activities to 205 employees at December 31, 2002 from 259 employees at December
31, 2001, the reduction of our utilized work space in the San Diego facility
from approximately 66,000 square feet at December 31, 2001 to approximately
36,000 square feet at December 31, 2002. The decrease was partially offset by
increased spending on our information technologies during the year of
approximately $120,000 to upgrade our management information systems in our
Phoenix facility. The increase as a percentage of sales was due to the lower
sales amounts during the current year compared to the prior period.

Research and development expenditures decreased to $8.7 million, or 15% of
sales during the year ended December 31, 2002 from $10.8 million, or 16% of
sales, during the year ended December 31, 2001. We remain committed to invest
in our future through technological advances and our efforts to improve our
older product lines for manufacturability and lower costs, however, we found it
necessary, during the current year, to scale back on these expenditures, in
light of the current market situation. Our efforts to reduce costs included
the reduction of our

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workforce related to our research efforts to 42 employees at December 31,
2002 from 57 employees at December 31, 2001. 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 recorded an asset impairment charge of $995,000 related to the write
down of Purchased Technologies. This intangible asset, which was originally
valued at $2.5 million, was identified as the fair value of proprietary
technologies purchased in the 1998 ComStream acquisition and was being
amortized on a straight line basis over the expected life of the asset, which
was originally estimated to be 6.25 years. It was determined during the third
quarter restructuring effort, that this asset had been impaired because the
products with which the technologies were associated have been slow moving and
rendered low margins and, therefore, we determined to abandon the product lines
in favor of newer technologies. This non-cash charge will eliminate the
amortization expense related to the intangible asset, which amounted to
approximately $400,000 per year.

During
the third quarter of 2002, we implemented a restructuring plan to
reduce costs and address the economic slowdown and negative industry
conditions. This restructuring plan included the reduction in force
of approximately 10% of our workforce in the manufacturing, research
and development and sales departments and a provision for the excess
space created as a result of these cost cutting measures. This effort
resulted in a charge to our operating expenses of approximately
$1.1 million. The expense related to the reduction in force was
$170,000. As of December 31, 2002, we have reduced our workforce
from 259 employees at December 31, 2001 to 205 employees,
reduced our utilized work space in the San Diego facility from
approximately 66,000 square feet at December 31, 2001 to 36,000
square feet, and paid all charges except for $644,960 in lease exit
costs, which will be paid over the lease term expiring in February
2005.

As a result of the decrease in our gross profit and our higher operating
costs, we recorded a loss from operations of $5 million during 2002 compared to
earnings of $2.8 million in 2001.

Interest expense increased to $62,000 in 2002 from $54,000 in 2001, due to
higher capitalized lease obligations during the current fiscal year compared to
the year ended December 31, 2001.

Interest income decreased to $236,000 in 2002 from $523,000 in 2001.
Though our average cash balance on hand during the year ended December 31, 2002
increased to $11.2 million from $10.9 million during 2001, the lower average
interest rate earned during the year reduced to 2.0% compared to 4.8% average
in the prior year.

We recorded an income tax benefit in 2002 of $196,000, due to a tax
refund, compared to an income tax expense of $1.3 million in 2001. The
decrease in expense is due to the loss incurred in the current fiscal year
compared to net income in the prior year. Due to the net loss experienced in
2002 and the priority in which net operating loss carryforwards are utilized,
we provided a 100% valuation allowance against the net deferred tax
assets arising in 2002.

We adopted Statement of Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible Assets on January 1, 2002, the
first day of fiscal 2002. Therefore, the amortization of goodwill, which was
approximately $449,000 for the year ended December 31, 2001, was suspended
effective on that date. We also performed our transitional impairment
analysis of goodwill as of January 1, 2002, as required by

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SFAS 142. This analysis yielded an impairment charge of $4.3 million,
recorded in fourth quarter 2002 as a cumulative effect of change in accounting
principle. We have no remaining goodwill on our balance sheet as of
December 31, 2002.

Including restructuring and asset impairment charges and the cumulative
effect of change in accounting principle, the Company reported a net loss of
$9.0 million, or $0.59 per share on a fully diluted basis for 2002. Net income
was $1.9 million or $0.13 per fully diluted share for 2001. Excluding
restructuring and asset impairment charges and the cumulative effect of change
in accounting principle, we reported a net loss of $2.6 million or
$0.17 per fully diluted share for 2002.

New orders booked (bookings) decreased 15% to $56 million for the year
ended December 31, 2002 from $65.6 million for the year ended December 31,
2001. 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
$13.4 million as of December 31, 2002, a decrease of 10% from the $14.9 million
in backlog as of December 31, 2001. This reduction is a direct result of the
lower bookings compared to sales during the current period. Our backlog
consists of orders as evidenced by written contracts and/or purchase orders
from customers with fixed pricing and delivery dates. We charge cancellation
charges for orders that cancel and the net difference between the backlog
amount and the cancellation charge is recorded as a negative booking. There is
no guarantee that cancellation charges will ultimately be paid to us.

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 margins on the Tiernan
products that are comparable to our other products and lower margins on the
Armer products and services.

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.

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.

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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 (41%
effective tax rate) compared to an income benefit in 2000 of $2.9 million
(31% effective tax rate). The benefit recorded in the prior year was
primarily due to a 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.

Liquidity and Capital Resources

We had working capital of $34.0 million at December 31, 2002, which
represents a decrease of $2.0 million from $36.0 million at December 31,
2001. Our working capital decreased primarily as a result of a decrease in
accounts receivable and inventory of $4.3 million and $7.2 million,
respectively. The decreases were offset by an increase in cash of $9.0
million and a decrease in accounts payable of $0.6 million. See the
discussion below of events related to this activity.

Net cash provided by operating activities was $9.7 million for the
year ended December 31, 2002 compared to cash used in operating activities
of $3.7 million for the year ended December 31, 2001. The change is
primarily due to a decrease in inventory of $7.2 million to $10.7 million
for the year ended December 31, 2002, compared to an increase of $5.1
million during the year ended December 31, 2001. In addition, accounts
receivable decreased by $4.3 million to $10.5 million for the year ended
December 31, 2002, compared to an increase of $2.9 million during the year
ended December 31, 2001. Accrued expense decreased by only $0.08 million
during the year ended December 31, 2002 compared to a decrease of $1.8
million during the year ended December 31, 2001. This activity, which
resulted in positive changes in the Companys cash flow was partially
offset by a net loss of $9.0 million for the year ended December 31, 2002
compared to net earnings of $1.9 million for the year ended December 31,
2001. However, the net loss during the current year included items that
did not have an effect on cash, such as the cumulative effect of a change
in accounting principle of $4.3 million which represented the impairment of
the remaining goodwill related to prior year acquisitions, and an asset
impairment charge of $1.0 million and depreciation and amortization of $2.5
million, which were included in the net loss for the year ended December
31, 2002 but had no effect on cash. Net cash provided by operating
activities was $9.7 million for the year ended December 31, 2002 compared
to cash used in operating activities of $3.7 million for the year ended
December 31, 2001 and cash provided by operating activities of $5.9 million
during the year ended December 31, 2000.

Cash used in investing activities was $1.5 million for the year ended
December 31, 2002 compared to $6.0 million and $2.9 million for the years
ended December 31, 2001 and 2000, respectively. The decrease 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 during the year
ended December 31, 2001. In addition, capital expenditures were reduced to
$1.5 million for the year ended December 31, 2002 compared to $2.1 million
during the year ended December 31, 2001.

We derived net cash from financing activities of $824,000, $773,000,
and $10.2 million during the years ended December 31, 2002, 2001, and 2000,
respectively. During the year ended December 31, 2002, 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 net proceeds of $307,000 and $592,000 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 in fiscal 2000.

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We have a credit arrangement with a bank for up to $10
million, based upon 80% of eligible accounts receivable, as defined. The
amount of credit available to us under the credit agreement at
December 31, 2002 was $8 million. We pay a facility fee of 0.15%
for the committed portion of the arrangement whether or not any amounts are
actually drawn on the line of credit. At December 31, 2002 and
2001, we had no borrowings
against the line of credit.

The credit agreement expires on June 30, 2003 and prohibits mergers,
consolidations, acquisitions, transfers of assets, liens, loans and
investments in other entities and limits the use of proceeds, acquisitions
of assets, indebtedness and capital expenditures without the bank's
consent. To be eligible to draw funds under the line
of credit, the credit agreement
requires Singapore Technologies Pte Ltd, our controlling
stockholder beneficially owning approximately 65% of our outstanding
common stock, to maintain at least a 30%
ownership interest in the Company and contains certain financial covenants
requiring us to maintain specific levels of tangible net worth, earnings and other ratios. We were in material compliance with all
covenants at December 31, 2002.

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. Furthermore, failure to maintain
compliance with any of the covenants in our credit facility agreement
could cause us to lose the ability to draw down funds from the line
of credit if we are unable to obtain a waiver or renegotiate the
credit agreement. 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
this report.

Contractual Obligations and Commitments

We had the following contractual obligations and commitments outstanding as of
December 31, 2002:

|                                                                                   |  |                        |        |        |  |           |       |           |  |         |       |  |  |   |       |           |  |   |     | 
|---------------------------------------------------------------------------------- |  | ---------------------- | ------ | ------ |  | --------- | ----- | --------- |  | ------- | ----- |  |  | - | ----- | --------- |  | - | --- | 
|(in thousands)                                                                     |  | Payments due by period
|                                                                                   |  |                       
|Contractual                                                                        |  |                        |        |        |  | Less than |       |           |  |         |       |  |  |   |       | More than
|Obligations                                                                        |  | Total                  |        | 1 year |  | 1-3 years |       | 3-5 years |  | 5 years
|                                                                                   |  |                        |        |        |  |           |       |           |  |        
|Long-Term Debt                                                                     |  |                        |       |        |  |           |      |           |  |         |      |  |  |   |      |           |  |   |    | 
|Capital Lease Obligations *                                                        |  | $                      | 60     |        |  | $         | 40    |           |  | $       | 20    |  |  |   |      |           |  |   |    | 
|Operating Leases                                                                   |  | $                      | 7,836  |        |  | $         | 2,080 |           |  | $       | 3,427 |  |  | $ | 2,158 |           |  | $ | 171 | 
|Purchase Obligations                                                               |  | $                      | 2,345  |        |  | $         | 2,345 |           |  |         |      |  |  |   |      |           |  |   |    | 
|Other Long-Term
Liabilities Reflected on
the Registrants Balance
Sheet Under GAAP |  |                        | 501    |        |  |           | 501   |           |  |         |      |  |  |   |      |           |  |   |    | 
|                                                                                   |  |                        |        |        |  |           |       |           |  |         |       |  |  |   |       |           |  |   |     | 
|Total                                                                              |  | $                      | 10,742 |        |  | $         | 4,966 |           |  | $       | 3,447 |  |  | $ | 2,158 |           |  | $ | 171 | 
|                                                                                   |  |                        |        |        |  |           |       |           |  |         |       |  |  |   |       |           |  |   |     | 



---

|* |  | Total lease amounts are stated less interest with rates of 2.26% to 12.96%
calculated to be $2,597 for the life of the leases.
|- |  | ------------------------------------------------------------------------------------------------------------------------------

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.Goodwill represents the excess of costs over
fair value of assets of businesses acquired. Statement 141 required that
the purchase method of accounting be used for all business

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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 requires 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 also requires 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 SFAS No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets.

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 continued to be
amortized prior to the adoption of Statement 142.

Statement 141 required, upon adoption of Statement 142, that we
evaluate existing intangible assets and goodwill acquired in prior purchase
business combinations, and 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 were 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 were required to test the intangible asset for
impairment in accordance with the provisions of Statement 142 within the
first interim period.

The Company adopted Statement of Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible Assets on January 1, 2002, the
first day of fiscal 2002. Therefore, the amortization of goodwill, which was
approximately $449,000 for the year ended December 31, 2001, was suspended
effective on that date. The Company also performed its transitional impairment
analysis of goodwill as of January 1, 2002, as required by SFAS 142. This
analysis yielded an impairment charge of $4.3 million, recorded
in the fourth quarter 2002 as a cumulative effect of change in accounting principle. The
Company has no remaining goodwill on its balance sheet as of December 31, 2002.

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 was effective
for fiscal years beginning after December 15, 2001. The adoption of this
statement on January 1, 2002 did not have a material impact on the
Companys financial position, results of operations or liquidity.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. SFAS No. 145 amends existing guidance on reporting
gains and losses on the extinguishment of debt to prohibit the
classification of the gain or loss as extraordinary, as the use of such
extinguishments have become part of the risk management strategy of many
companies. SFAS No. 145 also amends SFAS No. 13 to require sale-leaseback
accounting for certain lease modifications that have economic effects
similar to sale-leaseback transactions. The provisions of the Statement
related to the rescission of Statement No. 4 is applied in fiscal years
beginning after May 15, 2002. The adoption of the provisions related to the
rescission of Statement No. 4 is not expected to have a material effect on the Companys
financial statements. Earlier application of these provisions is encouraged. The provisions of
the Statement related to Statement No. 13 were effective for transactions
occurring after May 15, 2002 and did not have a material effect on the
Companys financial statements.

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##### Table of Contents



In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity. The provisions of this Statement are
effective for exit or disposal activities that are initiated after December
31, 2002, with early application encouraged. The adoption of SFAS No. 146
is not expected to have a material effect on the Companys financial
statements.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness to Others, an interpretation
of FASB Statements No. 5, 57 and 107 and a rescission of FASB
Interpretation No. 34. This Interpretation elaborates on the disclosures to
be made by a guarantor in its interim and annual financial statements about
its obligations under guarantees issued. The Interpretation also clarifies
that a guarantor is required to recognize, at inception of a guarantee, a
liability for the fair value of the obligation undertaken. The initial
recognition and measurement provisions of the Interpretation are applicable
to guarantees issued or modified after December 31, 2002 and are not
expected to have a material effect on the Companys financial statements.
The disclosure requirements are effective for financial statements of
interim and annual periods ending after December 15, 2002. As of December
31, 2002 the Company had no guarantees which were required to be disclosed
under FIN 45.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, an amendment of FASB
Statement No. 123. This Statement amends FASB Statement No. 123, Accounting
for Stock-Based Compensation,to provide alternative methods of transition
for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement No. 123 to require prominent
disclosures in both annual and interim financial statements. Certain of the
disclosure modifications are required for fiscal years ending after
December 15, 2002 and are included in the notes to these consolidated
financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51.This
Interpretation addresses the consolidation by business enterprises of
variable interest entities as defined in the Interpretation. The
Interpretation applies immediately to variable interests in variable
interest entities created after January 31, 2003, and to variable interests
in variable interest entities obtained after January 31, 2003. For a
public entity with a variable interest in a variable interest entity
created before February 1, 2003, the Interpretation is applied to the
enterprise no later than the beginning of the first interim or annual
reporting period beginning after June 15, 2003. The application of this
Interpretation is not expected to have a material effect on the Companys
financial statements. The Interpretation requires certain disclosures in
financial statements issued after January 31, 2003 if it is reasonably
possible that the Company will consolidate or disclose information about
variable interest entities when the Interpretation becomes effective.

28



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|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, 2002, a change in interest rates of 1% would,
over a years period, have a potential pretax impact of $70,000 on our interest
earnings, which is immaterial to our consolidated financial statements.




Item 8. Financial Statements and Supplementary Data

Our consolidated financial statements as of December 31, 2002 and 2001 and
for each of the years in the three-year period ended December 31, 2002,
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.

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##### 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, 2002 and 2001, and the
related consolidated statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the years in the three-year
period ended December 31, 2002. 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,
2002 and 2001, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States
of America.

As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards SFAS No. 142, Goodwill and Other
Intangible Assets which changed the Companys method of accounting for
goodwill and other intangible assets effective January 1, 2002.



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

Phoenix, Arizona
March 7, 2003

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Radyne ComStream Inc.
 
Consolidated Balance Sheets

|                                                                 |                                                                                                                                                                     |                            |            |             |            |  |            |            |            | 
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------- | ----------- | ---------- |  | ---------- | ---------- | ---------- | 
|                                                                 |                                                                                                                                                                     | December 31,              
|                                                                 |                                                                                                                                                                     |                           
|Assets                                                           |                                                                                                                                                                     | 2002                       |            | 2001       
|                                                                 |                                                                                                                                                                     |                            |            |            
|Current assets:                                                  |                                                                                                                                                                     |                            |            |             |            |  |            |           
|                                                                 | Cash and cash equivalents                                                                                                                                           |                            | $          | 16,229,558  |            |  |            | 7,210,937  |           
|                                                                 | Accounts receivable  trade, net of allowance for doubtful
Accounts of $338,904, and $1,172,523, respectively                                                       |                            |            | 10,517,340  |            |  |            | 14,785,039 |           
|                                                                 | Inventories, net                                                                                                                                                    |                            |            | 10,654,601  |            |  |            | 17,825,073 |           
|                                                                 | Prepaid expenses and other assets                                                                                                                                   |                            |            | 567,352     |            |  |            | 795,396    |           
|                                                                 | Deferred tax assets                                                                                                                                                 |                            |            | 2,552,549   |            |  |            | 2,552,549  |           
|                                                                 |                                                                                                                                                                     |                            |            |             |            |  |            |           
|                                                                 |                                                                                                                                                                     | Total current assets       |            |             | 40,521,400 |  |            |            | 43,168,994 | 
|Property and equipment, net                                      |                                                                                                                                                                     |                            | 3,692,842  |             |            |  | 4,356,587  |           
|Other assets:                                                    |                                                                                                                                                                     |                            |            |             |            |  |            |           
|                                                                 | Purchased technology, net of accumulated amortization of $1,305,000
at December 31, 2001                                                                            |                            |            |            |            |  |            | 1,195,000  |           
|                                                                 | Goodwill, net of accumulated amortization of $892,044
at December 31, 2001                                                                                          |                            |            |            |            |  |            | 4,204,986  |           
|                                                                 | Deposits and other intangibles                                                                                                                                      |                            |            | 192,530     |            |  |            | 314,933    |           
|                                                                 |                                                                                                                                                                     |                            |            |             |            |  |            |           
|                                                                 |                                                                                                                                                                     | Total other assets         |            |             | 192,530    |  |            |            | 5,714,919  | 
|                                                                 |                                                                                                                                                                     |                            |            |             |            |  |            |           
|                                                                 |                                                                                                                                                                     | $                          | 44,406,772 |             |            |  | 53,240,500 |           
|                                                                 |                                                                                                                                                                     |                            |            |             |            |  |            |           
|Liabilities and Stockholders Equity                             |                                                                                                                                                                    
|Current liabilities:                                             |                                                                                                                                                                     |                            |            |             |            |  |            |           
|                                                                 | Current installments of obligations under capital leases                                                                                                            |                            | $          | 37,808      |            |  |            | 77,385     |           
|                                                                 | Accounts payable, trade                                                                                                                                             |                            |            | 1,880,207   |            |  |            | 2,472,486  |           
|                                                                 | Accrued expenses                                                                                                                                                    |                            |            | 3,899,676   |            |  |            | 3,979,084  |           
|                                                                 | Taxes payable                                                                                                                                                       |                            |            |            |            |  |            | 78,900     |           
|                                                                 | Customer advance payments                                                                                                                                           |                            |            | 707,398     |            |  |            | 601,836    |           
|                                                                 |                                                                                                                                                                     |                            |            |             |            |  |            |           
|                                                                 |                                                                                                                                                                     | Total current liabilities  |            |             | 6,525,089  |  |            |            | 7,209,691  | 
|Deferred rent                                                    |                                                                                                                                                                     |                            | 72,264     |             |            |  | 145,582    |           
|Obligations under capital leases, excluding current installments |                                                                                                                                                                     |                            | 19,861     |             |            |  | 36,195     |           
|Accrued stock option compensation                                |                                                                                                                                                                     |                            | 501,073    |             |            |  | 501,809    |           
|                                                                 |                                                                                                                                                                     |                            |            |             |            |  |            |           
|                                                                 |                                                                                                                                                                     | Total liabilities          |            |             | 7,118,287  |  |            |            | 7,893,277  | 
|                                                                 |                                                                                                                                                                     |                            |            |             |            |  |            |           
|Stockholders equity:                                            |                                                                                                                                                                     |                            |            |             |            |  |            |           
|                                                                 | Common stock; $.001 par value  authorized, 20,000,000 shares; issued and outstanding,
15,308,832 and 15,020,676 shares at December 31, 2002 and 2001, respectively |                            |            | 15,309      |            |  |            | 15,021     |           
|                                                                 | Additional paid-in capital                                                                                                                                          |                            |            | 50,921,603  |            |  |            | 50,022,868 |           
|                                                                 | Accumulated deficit                                                                                                                                                 |                            |            | (13,625,485 | )          |  |            | (4,671,746 | )         
|                                                                 | Accumulated other comprehensive income (loss)                                                                                                                       |                            |            | (22,942     | )          |  |            | (18,920    | )         
|                                                                 |                                                                                                                                                                     |                            |            |             |            |  |            |           
|                                                                 |                                                                                                                                                                     | Total stockholders equity |            |             | 37,288,485 |  |            |            | 45,347,223 | 
|                                                                 |                                                                                                                                                                     |                            |            |             |            |  |            |           
|Commitments and contingent liabilities
(note 7, 8, 13, and 17)   |                                                                                                                                                                     | $                          | 44,406,772 |             |            |  | 53,240,500 |           
|                                                                 |                                                                                                                                                                     |                            |            |             |            |  |            |           

See accompanying notes to consolidated financial statements.

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Radyne ComStream Inc.
 
Consolidated Statements of Operations

|                                                                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |            |            | 
|------------------------------------------------------------------------------------------- | ----------------------------------- | ------------------------ | ---------- | ------------------------ | ---------- | ---- | ---------- | ---------- | ---------- |  | ---------- | ---------- | ---------- | 
|                                                                                            |                                     |                          |            | Years ended December 31,
|                                                                                            |                                     |                          |            |                         
|                                                                                            |                                     |                          |            | 2002                     |            | 2001 |            | 2000      
|                                                                                            |                                     |                          |            |                          |            |      |            |           
|Net sales                                                                                   |                                     | $                        | 57,661,711 |                          |            |      | 68,470,929 |            |            |  | 70,107,080 |           
|Cost of sales                                                                               |                                     |                          | 38,040,715 |                          |            |      | 39,558,792 |            |            |  | 38,279,830 |           
|Inventory write down                                                                        |                                     |                          | 430,826    |                          |            |      |           |            |            |  |           |           
|                                                                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                                                            |                                     | Gross profit             |            |                          | 19,190,170 |      |            |            | 28,912,137 |  |            |            | 31,827,250 | 
|                                                                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Operating expenses:                                                                         |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                                                            | Selling, general and administrative |                          |            | 13,470,668               |            |      |            | 15,307,442 |            |  |            | 13,573,460 |           
|                                                                                            | Research and development            |                          |            | 8,665,128                |            |      |            | 10,811,459 |            |  |            | 9,316,633  |           
|                                                                                            | Asset impairment charge             |                          |            | 995,000                  |            |      |            |           |            |  |            |           |           
|                                                                                            | Restructuring charge                |                          |            | 1,101,889                |            |      |            |           |            |  |            |           |           
|                                                                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                                                            |                                     | Total operating expenses |            |                          | 24,232,685 |      |            |            | 26,118,901 |  |            |            | 22,890,093 | 
|                                                                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Earnings (loss) from operations                                                             |                                     |                          | (5,042,515 | )                        |            |      | 2,793,236  |            |            |  | 8,937,157  |           
|Other (income) expense:                                                                     |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                                                            | Interest expense                    |                          |            | 61,979                   |            |      |            | 54,186     |            |  |            | 491,717    |           
|                                                                                            | Other                               |                          |            | (236,133                 | )          |      |            | (522,527   | )          |  |            | (1,076,432 | )         
|                                                                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Earnings (loss) before income taxes and
cumulative effect of change in accounting
principle |                                     |                          | (4,868,361 | )                        |            |      | 3,261,577  |            |            |  | 9,521,872  |           
|Income taxes (benefit)                                                                      |                                     |                          | (195,827   | )                        |            |      | 1,326,048  |            |            |  | (2,918,735 | )         
|                                                                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Earnings (loss) before cumulative effect of change in
accounting principle                  |                                     |                          | (4,672,534 | )                        |            |      | 1,935,529  |            |            |  | 12,440,607 |           
|Cumulative effect of change in accounting principle                                         |                                     |                          | 4,281,205  |                          |            |      |           |            |            |  |           |           
|                                                                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                                                            |                                     | Net earnings (loss)      |            | $                        | (8,953,739 | )    |            |            | 1,935,529  |  |            |            | 12,440,607 | 
|                                                                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Basic net earnings per share:                                                               |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                                                            |                                     | Net earnings (loss)      |            | $                        | (0.59      | )    |            |            | 0.13       |  |            |            | 0.89       | 
|                                                                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Diluted net earnings per share:                                                             |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|                                                                                            |                                     | Net earnings (loss)      |            | $                        | (0.59      | )    |            |            | 0.13       |  |            |            | 0.81       | 
|                                                                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Weighted average number of common shares
outstanding  basic                                |                                     |                          | 15,180,379 |                          |            |      | 14,943,516 |            |            |  | 13,972,078 |           
|                                                                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |           
|Weighted average number of common shares
outstanding  diluted                              |                                     |                          | 15,180,379 |                          |            |      | 15,411,568 |            |            |  | 15,426,297 |           
|                                                                                            |                                     |                          |            |                          |            |      |            |            |            |  |            |           

See accompanying notes to consolidated financial statements.

32



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##### Table of Contents



Radyne ComStream Inc.
Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)
Years ended December 31, 2002, 2001 and 2000

|                                                              |                              |  |              |  |            |  |          |  |              |  |               |  |               |  |          |   |  |  |             |   |  |  |             |   |  |  |            |            |  
|------------------------------------------------------------- | ---------------------------- |  | ------------ |  | ---------- |  | -------- |  | ------------ |  | ------------- |  | ------------- |  | -------- | - |  |  | ----------- | - |  |  | ----------- | - |  |  | ---------- | ---------- | -
|                                                              |                              |  |              |  |            |  |          |  |              |  |               |  |               |  |          |   |  |  |             |   |  |  | Accumulated |   |  |  |           
|                                                              |                              |  | Common stock |  | Additional |  |          |  |              |  |               |  |               |  | other    |   |  |  |            
|                                                              |                              |  |              |  | paid-in    |  | Deferred |  | Accumulated  |  | comprehensive |  |               |  |         
|                                                              |                              |  | Shares       |  | Amount     |  | capital  |  | compensation |  | Deficit       |  | income (loss) |  | Total   
|                                                              |                              |  |              |  |            |  |          |  |              |  |               |  |               |  |         
|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 |           
|Exercise of stock options                                     |                              |  | 88,364       |  |            |  | 88       |  |              |  | 306,834       |  |               |  |         |   |  |  |            |   |  |  |            |   |  |  | 306,922    |           
|Issuance of common stock through Employee Stock Purchase Plan |                              |  | 199,792      |  |            |  | 200      |  |              |  | 591,901       |  |               |  |         |   |  |  |            |   |  |  |            |   |  |  | 592,101    |           
|                                                              | Comprehensive income (loss): |  |              |  |            |  |          |  |              |  |               |  |               |  |          |   |  |  |             |   |  |  |             |   |  |  |            |            |  
|Effects of exchange rate changes on cash and cash equivalents |                              |  |              |  |            |  |         |  |              |  |              |  |               |  |         |   |  |  |            |   |  |  | (4,022      | ) |  |  | (4,022     | )         
|Net earnings (loss)                                           |                              |  |              |  |            |  |         |  |              |  |              |  |               |  |         |   |  |  | (8,953,739  | ) |  |  |            |   |  |  | (8,953,739 | )         
|                                                              |                              |  |              |  |            |  |          |  |              |  |               |  |               |  |          |   |  |  |             |   |  |  |             |   |  |  |            |           
|                                                              | Comprehensive income (loss)  |  |              |  |            |  |          |  |              |  |               |  |               |  |          |   |  |  |             |   |  |  |             |   |  |  |            | (8,957,761 | )
|                                                              |                              |  |              |  |            |  |          |  |              |  |               |  |               |  |          |   |  |  |             |   |  |  |             |   |  |  |            |           
|Balances, December 31, 2002                                   |                              |  | 15,308,832   |  |            |  | 15,309   |  |              |  | 50,921,603    |  |               |  |         |   |  |  | (13,625,485 | ) |  |  | (22,942     | ) |  |  | 37,288,485 |           
|                                                              |                              |  |              |  |            |  |          |  |              |  |               |  |               |  |          |   |  |  |             |   |  |  |             |   |  |  |            |           

See accompanying notes to consolidated financial statements.

33



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##### Table of Contents



Radyne ComStream Inc.
 Consolidated Statements of Cash Flows

|                                                                      |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |             |            |            |  
|--------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ---------- | ------------------------ | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ----------- | ---------- | ---------- | -
|                                                                      |                                                                                                      |                                                     |                                                     |            | Years ended December 31,
|                                                                      |                                                                                                      |                                                     |                                                     |            |                         
|                                                                      |                                                                                                      |                                                     |                                                     |            | 2002                     |            | 2001       |            | 2000      
|                                                                      |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |           
|Cash flows from operating activities:                                 |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|                                                                      | Net earnings (loss)                                                                                  |                                                     | $                                                   | (8,953,739 | )                        |            |            | 1,935,529  |            |            |            | 12,440,607  |           
|                                                                      | Adjustments
to reconcile net earnings (loss) to net cash provided by (used in)
operating activities: |                                                     |                                                     |            |                          |            |            |            |            |            |            |             |           
|                                                                      |                                                                                                      | Asset impairment charge                             |                                                     |            | 995,000                  |            |            |            |           |            |            |             |           |           
|                                                                      |                                                                                                      | Cumulative effect of change in accounting principle |                                                     |            | 4,281,205                |            |            |            |           |            |            |             |           |           
|                                                                      |                                                                                                      | Loss on disposal of assets                          |                                                     |            |                         |            |            |            |           |            |            |             | 30,306     |           
|                                                                      |                                                                                                      | Deferred income taxes                               |                                                     |            |                         |            |            |            | 1,301,869  |            |            |             | (2,810,418 | )         
|                                                                      |                                                                                                      | Depreciation and amortization                       |                                                     |            | 2,500,929                |            |            |            | 3,575,253  |            |            |             | 2,330,894  |           
|                                                                      | Increase (decrease) in cash resulting from changes in:                                               |                                                     |                                                     |            |                          |            |            |            |            |            |            |             |           
|                                                                      |                                                                                                      | Accounts receivable, net                            |                                                     |            | 4,267,699                |            |            |            | (2,861,062 | )          |            |             | (2,096,621 | )         
|                                                                      |                                                                                                      | Inventories                                         |                                                     |            | 7,170,472                |            |            |            | (5,107,508 | )          |            |             | (2,874,353 | )         
|                                                                      |                                                                                                      | Prepaid expenses and other current assets           |                                                     |            | 228,044                  |            |            |            | (153,806   | )          |            |             | 258,350    |           
|                                                                      |                                                                                                      | Deposits and other intangibles                      |                                                     |            | (115,168                 | )          |            |            |           |            |            |             | 176,870    |           
|                                                                      |                                                                                                      | Accounts payable, trade                             |                                                     |            | (592,279                 | )          |            |            | 247,123    |            |            |             | (1,915,151 | )         
|                                                                      |                                                                                                      | Accrued expenses                                    |                                                     |            | (79,408                  | )          |            |            | (1,763,885 | )          |            |             | 135,229    |           
|                                                                      |                                                                                                      | Taxes payable                                       |                                                     |            | (78,900                  | )          |            |            | (201,100   | )          |            |             | (404,382   | )         
|                                                                      |                                                                                                      | Customer advance payments                           |                                                     |            | 105,562                  |            |            |            | (625,399   | )          |            |             | 647,017    |           
|                                                                      |                                                                                                      | Deferred rent                                       |                                                     |            | (73,318                  | )          |            |            | (32,608    | )          |            |             | 178,190    |           
|                                                                      |                                                                                                      | Accrued stock option compensation                   |                                                     |            | (736                     | )          |            |            | (3,604     | )          |            |             | (190,020   | )         
|                                                                      |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|                                                                      |                                                                                                      |                                                     | Net cash provided by (used in) operating activities |            |                          | 9,655,363  |            |            |            | (3,689,198 | )          |             |            | 5,906,518  |  
|                                                                      |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|Cash flows from investing activities:                                 |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|                                                                      | Capital expenditures                                                                                 |                                                     |                                                     | (1,471,558 | )                        |            |            | (2,100,472 | )          |            |            | (1,227,811  | )         
|                                                                      | Proceeds from disposal of assets                                                                     |                                                     |                                                     | 14,400     |                          |            |            | 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               |            |                          | (1,457,158 | )          |            |            | (6,098,415 | )          |             |            | (2,820,064 | )
|                                                                      |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|Cash flows from financing activities:                                 |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|                                                                      | Net borrowings from notes payable under line of credit                                               |                                                     |                                                     |           |                          |            |            |           |            |            |            | (12,920,000 | )         
|                                                                      | Net proceeds from sale of common stock                                                               |                                                     |                                                     |           |                          |            |            |           |            |            |            | 16,340,453  |           
|                                                                      | Net proceeds from sale of common stock to employees, net of costs                                    |                                                     |                                                     | 592,101    |                          |            |            | 463,361    |            |            |            | 391,974     |           
|                                                                      | Exercise of stock options                                                                            |                                                     |                                                     | 306,922    |                          |            |            | 309,706    |            |            |            | 1,071,848   |           
|                                                                      | Exercise of stock warrants                                                                           |                                                     |                                                     |           |                          |            |            |           |            |            |            | 5,394,051   |           
|                                                                      | Principal payments on capital lease obligations                                                      |                                                     |                                                     | (74,585    | )                        |            |            | (50,188    | )          |            |            | (67,849     | )         
|                                                                      |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|                                                                      |                                                                                                      |                                                     | Net cash provided by financing activities           |            |                          | 824,438    |            |            |            | 772,879    |            |             |            | 10,210,477 |  
|                                                                      |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|Net increase (decrease) in cash and cash equivalents                  |                                                                                                      |                                                     | 9,022,643                                           |            |                          |            | (9,014,734 | )          |            |            | 13,296,931 |            
|                                                                      | Effects of exchange rate changes on cash and cash equivalents                                        |                                                     |                                                     | (4,022     | )                        |            |            | (18,920    | )          |            |            |            |           
|Cash and cash equivalents, beginning of year                          |                                                                                                      |                                                     | 7,210,937                                           |            |                          |            | 16,244,591 |            |            |            | 2,947,660  |            
|                                                                      |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|Cash and cash equivalents, end of year                                |                                                                                                      | $                                                   | 16,229,558                                          |            |                          |            | 7,210,937  |            |            |            | 16,244,591 |            
|                                                                      |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|Supplemental disclosures of cash flow information:                    |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|                                                                      | Cash paid for interest                                                                               |                                                     | $                                                   | 61,979     |                          |            |            | 54,186     |            |            |            | 810,847     |           
|                                                                      |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|                                                                      | Cash paid for taxes                                                                                  |                                                     | $                                                   |           |                          |            |            | 201,100    |            |            |            | 475,036     |           
|                                                                      |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|Supplemental schedule of non-cash investing and financing activities: |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|                                                                      | Acquisition of equipment through capital lease                                                       |                                                     | $                                                   | 18,674     |                          |            |            |           |            |            |            |            |           
|                                                                      |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            
|                                                                      | 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   |           
|                                                                      |                                                                                                      |                                                     |                                                     |            |                          |            |            |            |            |            |            |            

See accompanying notes to consolidated financial statements.

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Radyne ComStream Inc.
Notes to Consolidated Financial Statements

(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, microwave and cable communication networks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | The Company operates primarily in North America in the satellite
communications industry. ComStream, the Companys San Diego manufacturing
facility, designs, 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
financial statements. STPL beneficially owned 9,676,800 shares of the
Companys common stock at December 31, 2002. These shares represent 63% of
the Companys voting shares outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | 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 was recorded as
goodwill, which was amortized on a straight-line basis over seven years,
until January 1, 2002, the date of adoption of SFAS 142. The results of
operations of the acquired operations have been included in the
accompanying statements of operations from the acquisition date.
|
| | 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   |                   |  |  | (0.12  | )
|                                  |  |                   |        |                   |  |  |        |  

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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
consisting of $1,200,000 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 was amortized on a straight-line basis over twelve years until
the adoption of SFAS No. 142 on January 1, 2002 at which time
amortization was suspended and new accounting rules took effect. 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 common 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 was amortized
using the straight-line method over the term of the agreements. As of
December 31, 2001, $270,833 of these costs had been amortized with the
remaining balance amortized in 2002.



| |                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, 2000
|                           |  |                  
|Net sales                  |  | $                 | 72,893 | 
|                           |  |                   |        | 
|Other income               |  | $                 | 1,076  | 
|                           |  |                   |        | 
|Total revenues             |  | $                 | 73,969 | 
|                           |  |                   |        | 
|Net earnings               |  | $                 | 10,841 | 
|                           |  |                   |        | 
|Basic earnings per share   |  | $                 | 0.78   | 
|                           |  |                   |        | 
|Diluted earnings per share |  | $                 | 0.70   | 
|                           |  |                   |        | 

(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

36



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

(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 original
maturities 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)  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.

(f)  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 term or estimated
useful lives of the assets.

(g)  Intangible Assets



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Goodwill represents the excess of costs over fair value of assets of
businesses acquired. The Company adopted the provisions of SFAS No.
142, Goodwill and Other IntangibleAssets, as of January 1, 2002.
Goodwill and intangible assets acquired in a purchase business
combination and determined to have an indefinite useful life are not
amortized, but instead tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. SFAS No. 142 also
requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance
with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived
Assets.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In connection with SFAS No. 142s transitional goodwill impairment
evaluation, the Statement required the Company to perform an
assessment of whether there was an indication that goodwill is
impaired as of the date of adoption. To accomplish this, the Company
was required to identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to
those reporting units as of January 1, 2002. The Company was required
to determine the fair value of each reporting unit and compare it to
the carrying amount for each. To the extent the carrying amount of a
reporting unit exceeded the fair value of the reporting unit, the
Company would be required to

37



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| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | perform the second step of the transitional impairment test, as this
is an indication that the reporting unit goodwill may be impaired.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The second step was required for two reporting units. In this step,
the Company compared the implied fair value of the reporting unit
goodwill with the carrying amount of the reporting unit goodwill, both
of which were measured as of the date of adoption. The implied fair
value of goodwill was determined by allocating the fair value of the
reporting unit to all of the assets (recognized and unrecognized) and
liabilities of the reporting unit in a manner similar to a purchase
price allocation, in accordance with SAS No. 141, Business
Combinations.The residual value after this allocation was the
implied fair value of the reporting unit goodwill. The implied fair
value of these reporting units did not exceed their carrying amounts
and the Company was required to recognize an impairment loss as
further discussed below.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company adopted Statement of Financial Accounting Standards No.
142 (SFAS 142), Goodwill and Other Intangible Assets on January 1,
2002, the first day of fiscal 2002. Therefore, the amortization of
goodwill, which was approximately $449,000 for the year ended
December 31, 2001, was suspended effective on that date. The Company
determined that it had three reporting units under its one operating
segment, largely due to the different profit margins and product base
among its reporting units. Two of the Companys
reporting units had recorded goodwill. The Company performed its
transitional impairment test on those two reporting units. A present
value technique was utilized in determining the fair value of each of
the Companys two reporting units that had goodwill. The discount
rate utilized in the present value calculation was 20%. The most
significant fundamental assumptions utilized in the discounted cash
flow were the cash flow to be generated, the life of the asset, the
stage of the product life cycle curve, and the inherent risks in
achieving the projected benefits of owning the asset. The forecasts
utilized in this analysis were updated during the second quarter of
2002 to reflect the worsening economic environment in the
telecommunications industry. The impairment analysis yielded an
impairment charge of $4.3 million, recorded in fourth quarter 2002 as
a cumulative effect of change in accounting principle. The Company has
no remaining goodwill on its balance sheet as of December 31, 2002.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Prior to the adoption of SFAS No. 142, goodwill was amortized on a
straight-line basis over the expected periods to be benefited,
generally 7 to 12 years, and assessed for recoverability by
determining whether the amortization of the goodwill balance over its
remaining life could be recovered through undiscounted future
operating cash flows of the acquired operations. All other intangible
assets were amortized on a straight-line basis from 3 to 8 years. The
amount of goodwill and other intangible assets were amortized on a
straight-line basis from 3 to 15 years. The amount of goodwill and
other intangible asset impairment, if any, was measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Companys average cost of funds.



| |                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of the date of adoption of SFAS No. 142, the Company had
unamortized goodwill with an of $4,204,986.
Had SFAS No. 142 been in effect for the years ended December 31, 2001
and 2000 the Companys net earnings would have been increased to the
following pro forma amounts:

|                                        |  |      |           |      |  |   |            | 
|--------------------------------------- |  | ---- | --------- | ---- |  | - | ---------- | 
|                                        |  | 2001 |           | 2000
|                                        |  |      |           |     
|Net earnings:                           |  |      |           |      |  |   |            | 
|As reported                             |  | $    | 1,935,000 |      |  | $ | 12,441,000 | 
|Pro forma                               |  | $    | 2,384,000 |      |  | $ | 12,634,000 | 
|Diluted earnings per share, as reported |  | $    | 0.13      |      |  | $ | 0.81       | 
|Diluted earnings per share, pro forma   |  | $    | 0.15      |      |  | $ | 0.82       | 

(h)  Purchased Technology



| |                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In connection with the acquisition of ComStream in 1998, value was
assigned to Purchased technology. Purchased technology was
amortized on a straight-line basis over the expected period to be
benefited of 6.25 years. The purchased technology was written-off
during 2002.

(i)  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.

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##### Table of Contents



(j)  Warranty Costs



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company provides limited warranties on certain of its products and
systems for periods generally not exceeding two years. Estimated
warranty costs for potential product liability and warranty claims
based on the Companys claim experience 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 liability is affected by product failure rates and material
usage and service delivery costs incurred in correcting 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.

(k)  Research and Development



| |                                                                        
| | -----------------------------------------------------------------------
| | The cost of research and development is charged to expense as
incurred.

(l)  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 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.

(m)  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 maintains allowances for doubtful accounts for estimating
losses resulting from the inability of its customers to make required
payments and such losses have not exceeded managements expectations.
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.



| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | Periodically during the year, the Company maintains cash in financial
institutions in excess of the amounts insured by the federal
government.

(n)  Net Earnings (Loss) Per Share



| |                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Basic earnings (loss) per share is computed by dividing earnings
available to stockholders by the weighted-average number of shares
outstanding for the period. Diluted earnings (loss) 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.

(o)  Fair Value of Financial Instruments



| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | The fair value of accounts receivable and accounts payable
approximates the carrying value due to the short-term nature of these
instruments.

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##### Table of Contents



(p)  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.



| |                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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:

|                            |  |             |  |           |            |                                 |             |      |           |      |            |   |            |  |           | 
|--------------------------- |  | ----------- |  | --------- | ---------- | ------------------------------- | ----------- | ---- | --------- | ---- | ---------- | - | ---------- |  | --------- | 
|                            |  |             |  |           |            | For the Year Ended December 31,
|                            |  |             |  |           |            |                                
|                            |  |             |  |           |            | 2002                            |             | 2001 |           | 2000
|                            |  |             |  |           |            |                                 |             |      |           |     
|Net earnings (loss)         |  | As reported |  | $         | (8,953,739 | )                               |             |      | 1,935,529 |      |            |   | 12,440,607 | 
|                            |  |             |  | Pro forma |            |                                 | (14,136,677 | )    |           |      | (4,229,052 | ) |            |  | 5,679,549 | 
|Earnings (loss) per share - |  |             |  |           |            |                                 |             |      |           |      |            |   |            | 
|Basic                       |  | As reported |  |           | (0.59      | )                               |             |      | 0.13      |      |            |   | 0.89       | 
|Basic                       |  | Pro forma   |  |           | (0.68      | )                               |             |      | (0.28     | )    |            |   | 0.41       | 
|Diluted                     |  | As Reported |  |           | (0.59      | )                               |             |      | 0.13      |      |            |   | 0.81       | 
|Diluted                     |  | Pro forma   |  |           | (0.68      | )                               |             |      | (0.27     | )    |            |   | 0.37       | 



| |                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 80 percent  184 percent, risk free interest rate of
4.25 percent  6 percent, and expected lives of five  seven 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 years ended December 31, 2002, 2001 and 2000 were $3.16, $6.53
and $10.65, respectively, using the Black-Scholes option-pricing model
and the assumptions listed above.

(q)  Segment Reporting



| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has only one operating business segment, the sale,
integration and installation of equipment for satellite, microwave and
cable communications and television networks.

(r)  Reclassifications



| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | Certain reclassifications have been made to the prior years
consolidated financial statement amounts to conform to the current
year presentation.

40



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##### Table of Contents



(3) Inventories

|                                                     |  |      |            |      |  |  |            | 
|---------------------------------------------------- |  | ---- | ---------- | ---- |  |  | ---------- | 
|Inventories consist of the following at December 31: |  | 2002 |            | 2001
|                                                     |  |      |            |     
|Raw materials and components                         |  | $    | 8,012,011  |      |  |  | 11,163,147 | 
|Work-in-process                                      |  |      | 1,836,969  |      |  |  | 4,228,708  | 
|Finished goods                                       |  |      | 805,621    |      |  |  | 2,433,218  | 
|                                                     |  |      |            |      |  |  |            | 
|                                                     |  | $    | 10,654,601 |      |  |  | 17,825,073 | 
|                                                     |  |      |            |      |  |  |            | 

(4) Property and Equipment

|                                                                |  |      |            |      |  |  |            |  
|--------------------------------------------------------------- |  | ---- | ---------- | ---- |  |  | ---------- | -
|Property and equipment
consist of the following at December 31: |  | 2002 |            | 2001
|                                                                |  |      |            |      | 
|Machinery and equipment                                         |  | $    | 5,889,176  |      |  |  | 5,473,370  |  
|Furniture and fixtures                                          |  |      | 4,009,972  |      |  |  | 3,659,236  |  
|Leasehold improvements                                          |  |      | 678,567    |      |  |  | 786,648    |  
|Demonstration Units                                             |  |      | 586,378    |      |  |  |           |  
|Computers and software                                          |  |      | 889,319    |      |  |  | 747,087    |  
|                                                                |  |      |            |      |  |  |            |  
|                                                                |  |      | 12,053,412 |      |  |  | 10,666,341 |  
|Less accumulated depreciation and amortization                  |  |      | (8,360,570 | )    |  |  | (6,309,754 | )
|                                                                |  |      |            |      |  |  |            |  
|Property and equipment, net                                     |  | $    | 3,692,842  |      |  |  | 4,356,587  |  
|                                                                |  |      |            |      |  |  |            |  

(5) Accrued Expenses

|                                                          |  |      |           |      |  |  |           | 
|--------------------------------------------------------- |  | ---- | --------- | ---- |  |  | --------- | 
|Accrued expenses consist
of the following at December 31: |  | 2002 |           | 2001
|                                                          |  |      |           |      | 
|Wages, vacation and related payroll taxes                 |  | $    | 966,223   |      |  |  | 1,299,951 | 
|Professional fees                                         |  |      | 212,855   |      |  |  | 243,224   | 
|Warranty reserve                                          |  |      | 968,818   |      |  |  | 1,255,670 | 
|Restructuring costs                                       |  |      | 644,960   |      |  |  |          | 
|Other                                                     |  |      | 1,106,820 |      |  |  | 1,180,239 | 
|                                                          |  |      |           |      |  |  |           | 
|Total accrued expenses                                    |  | $    | 3,899,676 |      |  |  | 3,979,084 | 
|                                                          |  |      |           |      |  |  |           | 

The following summarizes changes to restructuring related liabilities for the
year ended December 31, 2002:

|                           |                            |   |               |          |           |   |       |          |   |   |         |          |  
|-------------------------- | -------------------------- | - | ------------- | -------- | --------- | - | ----- | -------- | - | - | ------- | -------- | -
|                           |                            |   | Accrued Lease |          | Accrued   |   |       |          |  
|                           |                            |   | Exit Costs    |          | Severance |   | Total
|                           |                            |   |               |          |           |   |      
|Balance, December 31, 2001 |                            | $ |              |          |           | $ |      |          |   | $ |        |         
|                           | Accrual for new activities |   |               | 791,000  |           |   |       | 170,000  |   |   |         | 961,000  |  
|                           | Cash payments              |   |               | (146,040 | )         |   |       | (170,000 | ) |   |         | (316,040 | )
|                           |                            |   |               |          |           |   |       |          |   |   |         |         
|Balance, December 31, 2002 |                            | $ | 644,960       |          |           | $ |      |          |   | $ | 644,960 |         
|                           |                            |   |               |          |           |   |       |          |   |   |         |         

Lease exit costs will be paid over the lease term expiring in February
2005.

(6) Line of Credit

We have a credit arrangement with a bank for up to $10
million, based upon 80% of eligible accounts receivable, as defined. The
amount of credit available to us under the credit agreement at
December 31, 2002 was $8 million. We pay a facility fee of 0.15%
for the committed portion of the arrangement whether or not any amounts are
actually drawn on the line of credit. At December 31, 2002 and
2001, we had no borrowings
against the line of credit.

The credit agreement expires on June 30, 2003 and prohibits mergers,

41



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##### Table of Contents



consolidations, acquisitions, transfers of assets, liens, loans and
investments in other entities and limits the use of proceeds, acquisitions
of assets, indebtedness and capital expenditures. To be eligible to draw funds under the line
of credit, the credit agreement
requires Singapore Technologies Pte Ltd (STPL), our controlling
stockholder beneficially owning approximately 65% of our outstanding
common stock, to maintain at
least a 30%
ownership interest in the Company and contains certain financial covenants
requiring us to maintain specific levels of tangible net worth, earnings and other ratios. We were in material compliance with all covenants at December 31,
2002.

(7) Obligations Under Capital Leases



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company leases machinery and equipment under capital leases. The cost
and accumulated depreciation of the equipment was $252,440 and $151,073,
respectively, at December 31, 2002 and $328,984 and $158,624, respectively,
at December 31, 2001, 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. The reductions in
amounts of equipment under capital leases is due to leases which expired in
2002.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Payments on
capital lease obligations due after December 31, 2002 are as
follows:

|                                                              |  |   |        | 
|------------------------------------------------------------- |  | - | ------ | 
|2003                                                          |  | $ | 39,742 | 
|2004                                                          |  |   | 15,023 | 
|2005                                                          |  |   | 5,501  | 
|2006                                                          |  |   |       | 
|                                                              |  |   |        | 
|Total minimum lease payments                                  |  |   | 60,266 | 
|Less amount representing interest at rates of 2.26% to 12.96% |  |   | 2,597  | 
|                                                              |  |   |        | 
|Present value of minimum lease payments                       |  |   | 57,669 | 
|Less current installments                                     |  |   | 37,808 | 
|                                                              |  |   |        | 
|Capital lease obligations due after one year                  |  | $ | 19,861 | 
|                                                              |  |   |        | 

(8) Commitments



| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Rent expense was $1,778,557, $1,801,765 and $1,883,743 for the years ended
December 31, 2002, 2001, and 2000, respectively. Future minimum rentals
under leases after December 31, 2002 are as follows:

|                  |  |   |           | 
|----------------- |  | - | --------- | 
|2003              |  | $ | 2,080,645 | 
|2004              |  |   | 2,135,734 | 
|2005              |  |   | 1,290,856 | 
|2006              |  |   | 1,063,202 | 
|2007              |  |   | 1,094,901 | 
|Thereafter        |  |   | 170,633   | 
|                  |  |   |           | 
|Total commitments |  | $ | 7,835,971 | 
|                  |  |   |           | 



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



| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company generally has commitments with certain suppliers and
subcontract manufacturers to supply certain components and estimates its
non-cancelable obligations for these commitments to be approximately
$2,345,000 at December 31, 2002.

42



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##### Table of Contents



(9) Income Taxes



| |                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Income tax expense (benefit) amounted to $(195,827), $1,326,048 and
($2,918,735) for the years ended December 31, 2002, 2001 and 2000,
respectively. The actual tax expense (benefit) for these periods differs
from the expected tax expense for those periods as follows:

|                                      |       |   |                          |          |      |  |           |           |  |  |            |            |  
|------------------------------------- | ----- | - | ------------------------ | -------- | ---- |  | --------- | --------- |  |  | ---------- | ---------- | -
|                                      |       |   | Years ended December 31,
|                                      |       |   |                         
|                                      |       |   | 2002                     |          | 2001 |  | 2000     
|                                      |       |   |                          |          |      |  |          
|Computed expected tax expense       |       | $ | (3,110,822               | )        |      |  | 1,108,936 |           |  |  | 3,237,436  |           
|State tax expense                     |       |   | (26,402                  | )        |      |  | 357,554   |           |  |  | 476,094    |           
|Change in federal valuation allowance |       |   | 2,921,117                |          |      |  |          |           |  |  | (7,790,223 | )         
|Stock option exercises                |       |   |                         |          |      |  |          |           |  |  | 1,044,000  |           
|Extra territorial income exclusion    |       |   |                         |          |      |  | (269,739  | )         |  |  |           |           
|Research and development credits      |       |   |                         |          |      |  | (70,000   | )         |  |  |           |           
|Other adjustments                     |       |   | 20,280                   |          |      |  | 199,297   |           |  |  | 113,958    |           
|                                      |       |   |                          |          |      |  |           |           |  |  |            |           
|                                      | Total |   | $                        | (195,827 | )    |  |           | 1,326,048 |  |  |            | (2,918,735 | )
|                                      |       |   |                          |          |      |  |           |           |  |  |            |           



| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | The income tax benefit of $195,827 in 2002 results from the recovery of
income tax payments made in previous periods.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Components of
income tax expense (benefit) for 2002, 2001 and 2000 follows:

|      |         |       |   |          |          |          |  |            |            |   |  |            |            |  
|----- | ------- | ----- | - | -------- | -------- | -------- |  | ---------- | ---------- | - |  | ---------- | ---------- | -
|      |         |       |   | Current  |          | Deferred |  | Total     
|      |         |       |   |          |          |          |  |           
|2002: |         |       |   |          |          |          |  |            |            |   |  |           
|      | Federal |       | $ | (155,824 | )        |          |  |           |            |   |  | (155,824   | )         
|      | State   |       |   | (40,003  | )        |          |  |           |            |   |  | (40,003    | )         
|      |         |       |   |          |          |          |  |            |            |   |  |           
|      |         | Total |   | $        | (195,827 | )        |  |            |           |   |  |            | (195,827   | )
|      |         |       |   |          |          |          |  |            |            |   |  |           
|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 | )
|      |         |       |   |          |          |          |  |            |            |   |  |           

|                                                               |                                                           |      |           |             |   |  |           |            |  
|-------------------------------------------------------------- | --------------------------------------------------------- | ---- | --------- | ----------- | - |  | --------- | ---------- | -
|Deferred tax
assets consisted of the following at December 31: |                                                           | 2002 |           | 2001       
|                                                               |                                                           |      |           |            
|Deferred tax assets:                                           |                                                           |      |           |             |   |  |           |           
|                                                               | Cumulative tax effect of net operating loss carryforwards |      | $         | 7,940,778   |   |  |           | 6,504,004  |  
|                                                               | Tax credits                                               |      |           | 351,258     |   |  |           | 351,258    |  
|                                                               | Temporary differences                                     |      |           | 4,313,094   |   |  |           | 2,503,399  |  
|                                                               | Valuation allowance                                       |      |           | (10,052,581 | ) |  |           | (6,806,112 | )
|                                                               |                                                           |      |           |             |   |  |           |           
|                                                               |                                                           | $    | 2,552,549 |             |   |  | 2,552,549 |           
|                                                               |                                                           |      |           |             |   |  |           |           

43



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##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The net change in the total valuation allowance for the years ended
December 31, 2002 and 2001 was $3,246,469 and $0, respectively. At
December 31, 2002, the Company has net operating loss carryforwards of
approximately $20,195,000 expiring in various years through 2022, 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. However, due to the net
loss incurred in 2002 and the priority in which net operating loss
carryforwards are utilized, the Company provided a 100% valuation allowance
against the net deferred tax assets arising in 2002. 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 $4,332,000
for the quarter ended September 30, 2000.

(10) Significant Customers and Foreign and Domestic Sales



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | During 2002 and 2001, 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, 2002, 2001 and 2000:

|                   |  |                          |         |      |  |      |         |   |  |  |         |  
|------------------ |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                   |  | Years ended December 31,
|                   |  |                         
|                   |  | 2002                     |         | 2001 |  | 2000
|                   |  |                          |         |      |  |     
|Asia               |  |                          | 27      | %    |  |      | 20      | % |  |  | 25      | %
|Africa/Middle East |  |                          | 5       |      |  |      | 3       |   |  |  | 2       |  
|Latin America      |  |                          | 3       |      |  |      | 7       |   |  |  | 3       |  
|Europe             |  |                          | 11      |      |  |      | 15      |   |  |  | 13      |  
|Canada             |  |                          | 1       |      |  |      | 1       |   |  |  | 1       |  
|                   |  |                          |         |      |  |      |         |   |  |  |         |  
|Total foreign      |  |                          | 47      |      |  |      | 46      |   |  |  | 44      |  
|Domestic           |  |                          | 53      |      |  |      | 54      |   |  |  | 56      |  
|                   |  |                          |         |      |  |      |         |   |  |  |         |  
|                   |  |                          | 100     | %    |  |      | 100     | % |  |  | 100     | %
|                   |  |                          |         |      |  |      |         |   |  |  |         |  
|Foreign assets     |  | $                        | 319,000 |      |  |      | 388,000 |   |  |  | 372,000 |  
|                   |  |                          |         |      |  |      |         |   |  |  |         |  



| |                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has two primary product lines: 1) satellite modems and earth
stations (including services related to integration and installation of
this type of equipment), and 2) broadcast products. The sales of satellite
modems and earthstations accounted for approximately 63% of 2002, 73% of
2001 and 63.5% of 2000 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 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.

44



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##### Table of Contents



(12) Earnings (Loss) Per Share



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | A summary of the reconciliation from basic earnings (loss) per share to
diluted earnings (loss) per share follows:

|                                                              |                     |   |                          |       |      |  |            |      |  |  |            |      | 
|------------------------------------------------------------- | ------------------- | - | ------------------------ | ----- | ---- |  | ---------- | ---- |  |  | ---------- | ---- | 
|                                                              |                     |   | Years
ended December 31,
|                                                              |                     |   |                         
|                                                              |                     |   | 2002                     |       | 2001 |  | 2000      
|                                                              |                     |   |                          |       |      |  |           
|Earnings (loss) available to common stockholders              |                     | $ | (8,953,739               | )     |      |  | 1,935,529  |      |  |  | 12,440,607 |     
|                                                              |                     |   |                          |       |      |  |            |      |  |  |            |     
|Basic EPS-weighted average shares outstanding                 |                     |   | 15,180,379               |       |      |  | 14,943,516 |      |  |  | 13,972,078 |     
|                                                              |                     |   |                          |       |      |  |            |      |  |  |            |     
|Basic Earnings (loss) per share:                              |                     |   |                          |       |      |  |            |      |  |  |            |     
|                                                              | Net earnings        |   | $                        | (0.59 | )    |  |            | 0.13 |  |  |            | 0.89 | 
|                                                              |                     |   |                          |       |      |  |            |      |  |  |            |     
|Basic EPS-weighted average shares outstanding                 |                     |   | 15,180,379               |       |      |  | 14,943,516 |      |  |  | 13,972,078 |     
|Effect of dilutive securities                                 |                     |   |                         |       |      |  | 468,052    |      |  |  | 1,454,219  |     
|                                                              |                     |   |                          |       |      |  |            |      |  |  |            |     
|Dilutive EPS-weighted average shares outstanding              |                     |   | 15,180,379               |       |      |  | 15,411,568 |      |  |  | 15,426,297 |     
|                                                              |                     |   |                          |       |      |  |            |      |  |  |            |     
|Diluted Earnings (loss) per share:                            |                     |   |                          |       |      |  |            |      |  |  |            |     
|                                                              | Net earnings (loss) |   | $                        | (0.59 | )    |  |            | 0.13 |  |  |            | 0.81 | 
|                                                              |                     |   |                          |       |      |  |            |      |  |  |            |     
|Stock options not included in diluted EPS since
antidilutive  |                     |   | 3,322,461                |       |      |  | 1,692,527  |      |  |  | 1,452,997  |     
|                                                              |                     |   |                          |       |      |  |            |      |  |  |            |     
|Stock warrants not included in diluted EPS
since antidilutive |                     |   | 2,143,537                |       |      |  | 1,183,166  |      |  |  | 781,675    |     
|                                                              |                     |   |                          |       |      |  |            |      |  |  |            |     

(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 $266,881, $319,457 and $340,659 respectively, for
the years ended December 31, 2002, 2001 and 2000. Each participant may
elect to contribute any portion of his or her gross compensation up to the
maximum amount allowed by the Internal Revenue Service. During the years
ended December 31, 2002, 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. In
May 2002, the shareholders approved an amendment to the plan that increased
the shares available for issuance under the plan by 1,500,000 to 4,000,000
shares. 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, 2002, the Company had 2,288,635 options
outstanding under 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, of which
110,100 shares were used for a stock rights offering to employees in
1997. 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 2,071,942 options available to purchase shares of
common stock. At December 31, 2002, the Company had 1,019,412 options
outstanding under this plan.



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At December 31, 2002, the Company had a total of 3,308,047 options
outstanding at exercise prices ranging from $2.43 to $14.625 per share. Of
the total options, the Company had 285,785 options

45



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##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 $501,073 and
$501,809 at December 31, 2002 and 2001, respectively. A summary of the
aforementioned stock plan activity follows:

|                           |  |        |           |       |  |           |       | 
|-------------------------- |  | ------ | --------- | ----- |  | --------- | ----- | 
|                           |  |        |           |       |  | Weighted 
|                           |  |        |           |       |  | Average  
|                           |  |        |           |       |  | Price Per
|                           |  | Number |           | Share
|                           |  |        |           |      
|Balance,
December 31, 1999 |  |        | 1,535,206 |       |  | $         | 3.09  | 
|Granted                    |  |        | 1,626,465 |       |  |           | 12.27 | 
|Forfeited                  |  |        | (144,650  | )     |  |           | 6.58  | 
|Exercised                  |  |        | (338,755  | )     |  |           | 3.16  | 
|                           |  |        |           |       |  |           |       | 
|Balance,
December 31, 2000 |  |        | 2,678,266 |       |  |           | 8.48  | 
|Granted                    |  |        | 1,411,100 |       |  |           | 6.60  | 
|Forfeited                  |  |        | (434,814  | )     |  |           | 9.61  | 
|Exercised                  |  |        | (84,850   | )     |  |           | 4.23  | 
|                           |  |        |           |       |  |           |       | 
|Balance,
December 31, 2001 |  |        | 3,569,702 |       |  |           | 7.71  | 
|Granted                    |  |        | 432,000   |       |  |           | 4.27  | 
|Forfeited                  |  |        | (605,291  | )     |  |           | 8.17  | 
|Exercised                  |  |        | (88,364   | )     |  |           | 3.45  | 
|                           |  |        |           |       |  |           |       | 
|Balance,
December 31, 2002 |  |        | 3,308,047 |       |  | $         | 7.29  | 
|                           |  |        |           |       |  |           |       | 



| |                                                                 
| | ----------------------------------------------------------------
| | A summary of stock options granted at
December 31, 2002 follows:

|                 |  |                     |           |                     |  |           |  |             |       |           |  |  |           |  |  |   |       |  |  | 
|---------------- |  | ------------------- | --------- | ------------------- |  | --------- |  | ----------- | ----- | --------- |  |  | --------- |  |  | - | ----- |  |  | 
|                 |  | Options Outstanding |           | Options Exercisable
|                 |  |                     |           |                    
|                 |  |                     |           |                     |  | Weighted- |  |             |       |           |  |  |           |  |  |   |       | 
|                 |  | Number              |           | Average             |  | Weighted- |  | Number      |       | Weighted-
|                 |  | Outstanding         |           | Remaining           |  | Average   |  | Exercisable |       | Average  
|Range of         |  | at                  |           | Contractual         |  | Exercise  |  | at          |       | Exercise 
|Exercise Prices  |  | 12/31/02            |           | Life                |  | Price     |  | 12/31/02    |       | Price    
|                 |  |                     |           |                     |  |           |  |             |       |          
|$2.43 to   3.125 |  |                     | 696,687   |                     |  | 5 years   |  | $           | 2.75  |           |  |  | 678,312   |  |  | $ | 2.75  | 
|$3.25 to   4.25  |  |                     | 525,800   |                     |  | 8 years   |  |             | 4.08  |           |  |  | 275,175   |  |  |   | 3.92  | 
|$4.49 to   6.00  |  |                     | 455,125   |                     |  | 9 years   |  |             | 5.73  |           |  |  | 233,677   |  |  |   | 5.73  | 
|$6.50 to   7.406 |  |                     | 801,200   |                     |  | 8 years   |  |             | 6.90  |           |  |  | 493,173   |  |  |   | 6.88  | 
|$8.25 to 14.625  |  |                     | 829,235   |                     |  | 7 years   |  |             | 14.38 |           |  |  | 730,611   |  |  |   | 14.40 | 
|                 |  |                     |           |                     |  |           |  |             |       |           |  |  |           |  |  |   |       |  |  | 
|$2.43 to 14.625  |  |                     | 3,308,047 |                     |  | 7.5 years |  | $           | 7.29  |           |  |  | 2,410,948 |  |  | $ | 7.55  | 
|                 |  |                     |           |                     |  |           |  |             |       |           |  |  |           |  |  |   |       |  |  | 



| |                                                   
| | --------------------------------------------------
| | Non-Executive Employee Stock Option Exchange Offer



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On December 23, 2002, the Company offered to exchange certain
out of the money non-executive employee stock options. As a result of the
volatility in the stock market reflecting the current economic
climate, many employees held stock options with an exercise price
that significantly exceeded the market price of the Companys common
stock. Because the Company believed that these options were not
providing the appropriate level of performance incentives, it offered
a voluntary option exchange program allowing eligible employees to
cancel their current stock options with exercise prices ranging
between $6.00 and $8.25 and between $14.00 and $14.63 per share in
exchange for a lesser amount of new options that will be granted no
earlier than six months and one day after the options are accepted
for exchange and canceled by the Company. The participating employees are to
receive an amount of new options in accordance with the following exchange ratio schedule, subject to

46



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| |                                                                       
| | ----------------------------------------------------------------------
| | adjustments for any future stock splits, dividends and similar
events:

|                     |  |                                                                                    
|-------------------- |  | -----------------------------------------------------------------------------------
|Exercise Price Range |  | Exchange Ratio                                                                     
|                     |  |                                                                                    
|$6.00  $8.25        |  | 0.67 shares covered by a new option for every 1 share
covered by a cancelled option
|                    
|$14.00  $14.63      |  | 0.40 shares covered by a new option for every 1 share
covered by a cancelled option



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Executive officers, directors, and non-employees were not eligible for
this offer. Additionally, employees who received options within six
months and a day of the commencement of the exchange offer were not
permitted to participate. The offer expired on January 22, 2003. The
Company accepted for exchange, options to purchase an aggregate of
approximately 999,615 shares of the Companys common stock,
representing approximately 89% of the shares subject to options that
were eligible to be exchanged under the offer. Subject to
the terms and conditions of the offer, the Company will
grant new options to purchase 557,228 shares of common stock no earlier
than July 23, 2003.

(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, 2002, 1,000,000 shares are
authorized for issuance under the plan while 619,052 shares remain unissued
as of December 31, 2002.

(16) Related Party Transactions



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Sales to Agilis Communication Technologies Pte Ltd (Agilis), an affiliate
of ST, amounted to $ 96,655, $244,022 and $352,048 for the years ended
December 31, 2002, 2001 and 2000, respectively.

(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, which
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 for the years ended December 31, 2002, 2001 and 2000 follows:

47



---



##### Table of Contents



|                         |      |  |            |           |           |  |          |         |            |  |      |   |  |  |            |           |  |  |  |           | 
|------------------------ | ---- |  | ---------- | --------- | --------- |  | -------- | ------- | ---------- |  | ---- | - |  |  | ---------- | --------- |  |  |  | --------- | 
|                         |      |  | Balance at |           |           |  |          |         | Charged    |  |      |   |  |  | Balance at
|                         |      |  | Beginning  |           |           |  |          |         | to Other   |  |      |   |  |  | End of    
|                         |      |  | of Year    |           | Additions |  | Accounts |         | Deductions |  | Year
|                         |      |  |            |           |           |  |          |         |            |  |     
|Years ended December 31: |      |  |            |           |           |  |          |         |            |  |      |   |  |  |            |           |  |  |  |          
|                         | 2002 |  | $          | 1,172,523 |           |  |          | 434,818 |            |  |      |  |  |  |            | 1,268,437 |  |  |  | 338,904   | 
|                         |      |  |            |           |           |  |          |         |            |  |      |   |  |  |            |           |  |  |  |          
|                         | 2001 |  | $          | 1,014,813 |           |  |          | 339,037 |            |  |      |  |  |  |            | 181,327   |  |  |  | 1,172,523 | 
|                         |      |  |            |           |           |  |          |         |            |  |      |   |  |  |            |           |  |  |  |          
|                         | 2000 |  | $          | 791,746   |           |  |          | 293,033 |            |  |      |  |  |  |            | 69,966    |  |  |  | 1,014,813 | 
|                         |      |  |            |           |           |  |          |         |            |  |      |   |  |  |            |           |  |  |  |          

(19) Quarterly Financial Data  Unaudited



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | A summary of the quarterly data for the years
ended December 31, 2002 and
2001 follows (in thousands):

|      |                                   |  |              |        |               |  |              |        |               |  |       |        |   |  |  |        |   |  |  |        |  
|----- | --------------------------------- |  | ------------ | ------ | ------------- |  | ------------ | ------ | ------------- |  | ----- | ------ | - |  |  | ------ | - |  |  | ------ | -
|      |                                   |  | FirstQuarter |        | SecondQuarter |  | ThirdQuarter |        | FourthQuarter |  | Total
|      |                                   |  |              |        |               |  |              |        |               |  |      
|2002: |                                   |  |              |        |               |  |              |        |               |  |       |        |   |  |  |        |   |  |  |       
|      | Total revenues                    |  | $            | 15,194 |               |  |              | 15,909 |               |  |       | 12,841 |   |  |  | 13,718 |   |  |  | 57,662 |  
|      |                                   |  |              |        |               |  |              |        |               |  |       |        |   |  |  |        |   |  |  |       
|      | Gross profit                      |  | $            | 6,069  |               |  |              | 3,554  |               |  |       | 4,003  |   |  |  | 5,565  |   |  |  | 19,190 |  
|      |                                   |  |              |        |               |  |              |        |               |  |       |        |   |  |  |        |   |  |  |       
|      | Operating expenses                |  | $            | 6,398  |               |  |              | 5,699  |               |  |       | 6,912  |   |  |  | 5,224  |   |  |  | 24,233 |  
|      |                                   |  |              |        |               |  |              |        |               |  |       |        |   |  |  |        |   |  |  |       
|      | Earnings (loss) from operations   |  | $            | (329   | )             |  |              | (2,145 | )             |  |       | (2,909 | ) |  |  | 340    |   |  |  | (5,043 | )
|      |                                   |  |              |        |               |  |              |        |               |  |       |        |   |  |  |        |   |  |  |       
|      | Net earnings                      |  | $            | (304   | )             |  |              | (1,905 | )             |  |       | (2,895 | ) |  |  | (3,850 | ) |  |  | (8,954 | )
|      |                                   |  |              |        |               |  |              |        |               |  |       |        |   |  |  |        |   |  |  |       
|      | Basic earnings (loss) per share   |  | $            | (0.02  | )             |  |              | (0.13  | )             |  |       | (0.19  | ) |  |  | (0.25  | ) |  |  | (0.59  | )
|      |                                   |  |              |        |               |  |              |        |               |  |       |        |   |  |  |        |   |  |  |       
|      | Diluted earnings (loss) per share |  | $            | (0.02  | )             |  |              | (0.13  | )             |  |       | (0.19  | ) |  |  | (0.25  | ) |  |  | (0.59  | )
|      |                                   |  |              |        |               |  |              |        |               |  |       |        |   |  |  |        |   |  |  |       
|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 (loss) from operations   |  | $            | 1,076  |               |  |              | 487    |               |  |       | 615    |   |  |  | 615    |   |  |  | 2,793  |  
|      |                                   |  |              |        |               |  |              |        |               |  |       |        |   |  |  |        |   |  |  |       
|      | Net earnings                      |  | $            | 856    |               |  |              | 293    |               |  |       | 428    |   |  |  | 359    |   |  |  | 1,936  |  
|      |                                   |  |              |        |               |  |              |        |               |  |       |        |   |  |  |        |   |  |  |       
|      | Basic earnings (loss) per share   |  | $            | 0.06   |               |  |              | 0.02   |               |  |       | 0.03   |   |  |  | 0.03   |   |  |  | 0.13   |  
|      |                                   |  |              |        |               |  |              |        |               |  |       |        |   |  |  |        |   |  |  |       
|      | Diluted earnings (loss) per share |  | $            | 0.06   |               |  |              | 0.02   |               |  |       | 0.03   |   |  |  | 0.03   |   |  |  | 0.13   |  
|      |                                   |  |              |        |               |  |              |        |               |  |       |        |   |  |  |        |   |  |  |       






|Item 9. | Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
|------- | ------------------------------------------------------------------------------------

Not Applicable.

48



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##### Table of Contents






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 2003 Annual
Meeting of Stockholders (the 2003 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, 2002. The
Compensation Committee Report on Executive Compensation, The Report of the
Audit Committee and the Stock Price Performance Graph contained in the 2003
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 2003 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 2003 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 2003 Proxy Statement, which information is
incorporated in this Form 10-K by reference.

Disclosure with Respect to the Companys Equity Compensation Plans
as of December 31, 2002

The Company maintains the 1996 Employee Incentive Stock Option Plan (the 1996
Plan), the 2000 Long-Term Incentive Plan (the 2000 Plan) and the 1999
Employee Stock Purchase Plan (the ESPP), pursuant to which it may grant
equity awards to eligible persons.

The following table gives information about equity awards under the Companys
1996 Plan, the 2000 Plan and the ESPP.

|                                                           |  |                   |           |                   |     |                     |       |                     |  |                     |           | 
|---------------------------------------------------------- |  | ----------------- | --------- | ----------------- | --- | ------------------- | ----- | ------------------- |  | ------------------- | --------- | 
|                                                           |  | (a)               |           | (b)               |     | (c)                
|                                                           |  |                   |           |                   |     |                    
|                                                           |  |                   |           |                   |     |                     |       |                     |  | Number of          
|                                                           |  |                   |           |                   |     |                     |       |                     |  | securities         
|                                                           |  |                   |           |                   |     |                     |       |                     |  | remaining available
|                                                           |  | Number of         |           |                   |     |                     |       | for future issuance
|                                                           |  | securities to be  |           |                   |     |                     |       | under equity       
|                                                           |  | issued upon       |           | Weighted-average  |     | compensation plans 
|                                                           |  | exercise of       |           | exercise price of |     | (excluding         
|                                                           |  | outstanding       |           | outstanding       |     | securities         
|                                                           |  | options, warrants |           | options, warrants |     | reflected in column
|Plan category                                              |  | and rights        |           | and rights        |     | (a))               
|                                                           |  |                   |           |                   |     |                    
|Equity compensation
plans approved by
security holders
[1] |  |                   | 3,308,047 |                   |     | $                   | 7.294 |                     |  |                     | 2,583,206 | 
|Equity compensation
plans not approved
by security holders |  | None              |           |                   | N/A |                     |       | None               
|                                                           |  |                   |           |                   |     |                     |       |                     |  |                     |           | 
|Total                                                      |  |                   | 3,308,047 |                   |     | $                   | 7.294 |                     |  |                     | 2,583,206 | 
|                                                           |  |                   |           |                   |     |                     |       |                     |  |                     |           | 



---

|1 |  | Of the total options outstanding, 1,019,412 and 2,288,635 have been
granted under the 1996 Plan and the
|- |  | -------------------------------------------------------------------------------------------------------

49



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##### Table of Contents



|  |  | 2000 Plan, respectively.                                              
|- |  | ----------------------------------------------------------------------
| 
|2 |  | Of these shares, 619,052 remain available for purchase under the ESPP.




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 2003 Proxy Statement, which information is incorporated in
this Form 10-K by reference.




Item 14. Disclosures and Controls

We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our periodic reports filed
with the Securities and Exchange Commission is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
Commission and that such information is accumulated and communicated to our
management. In designing and evaluating the disclosure controls and
procedures, our management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

Based on their most recent evaluation, which was completed within 90 days of
the filing of this Annual Report on Form 10-K, our chief executive officer and
chief financial officer believe that our disclosure controls and procedures (as
defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as
amended) are effective. There were not any significant changes in internal
controls or in other factors that could significantly affect these internal
controls subsequent to the date of their most recent evaluation.

50



---



##### Table of Contents






PART IV






|Item 15. | 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, 2002 and 2001                                                                        
|
| | Consolidated Statements of Operations for the Years Ended December 31,
2002, 2001 and 2000                                          
|
| | Consolidated Statements of Stockholders Equity and Comprehensive Income
(Loss) for the Years Ended December 31, 2002, 2001 and 2000
|
| | Consolidated Statements of Cash Flows for the Years Ended December 31,
2002, 2001 and 2000                                          
|
| | 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) See Exhibit Index



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | (b) Registrant did not file any reports on Form 8-K during the period of
October 1 through December 31, 2002

51



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##### 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
(Principal Executive Officer)                    
|
| | By:                                                                                          | /s/ Richard P. Johnson
| |                                                                                             
| | Richard P. Johnson, Vice President and Chief Financial Officer
(Principal Financial Officer)
|
| | By:                                                                                          | /s/ Garry D. Kline    
| |                                                                                             
| | Garry D. Kline, Vice President and Corporate Controller
(Principal Accounting Officer)      

Dated: March 31, 2003

KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Robert C.
Fitting and Richard P. Johnson, his true and lawful attorney-in-fact and
agents, 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                                       |  | March 31, 2003
|                                          
|/s/ Robert C. Fitting

Robert C. Fitting   |  | Chief Executive Officer and Director                                     |  | March 31, 2003
|                                          
|/s/ Richard P. Johnson

Richard P. Johnson |  | Vice President and
Chief Financial Officer
(Principal Financial Officer) |  | March 31, 2003
|                                          
|/s/ Garry D. Kline

Garry D. Kline         |  | Vice President and Corporate
Controller
(Principal Accounting Officer)   |  | March 31, 2003
|                                          
|/s/ C.J. Waylan

C.J. Waylan               |  | Director                                                                 |  | March 31, 2003
|                                          
|/s/ Lee Yip Loi

Lee Yip Loi               |  | Director                                                                 |  | March 31, 2003
|                                          
|/s/ Dennis Elliott

Dennis Elliott         |  | Director                                                                 |  | March 31, 2003
|                                          
|/s/ Tang Kum Chuen

Tang Kum Chuen         |  | Director                                                                 |  | March 31, 2003

52



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##### Table of Contents



I, Robert C. Fitting, certify that:

1.     I have reviewed this annual report on Form 10-K of Radyne ComStream Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
functions):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
|
| | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 31, 2003
 
 
/s/ Robert C. Fitting



Robert C. Fitting, Chief Executive Officer
(Principal Executive Officer)

53



---



##### Table of Contents



I, Richard P. Johnson, certify that:

1.     I have reviewed this annual report on Form 10-K of Radyne ComStream Inc;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and                                                                                                  
|
| | c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
functions):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
|
| | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 31, 2003
 
 
/s/ Richard P. Johnson
Richard P. Johnson, Chief Financial Officer
(Principal Financial Officer)

54



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##### Table of Contents






EXHIBIT INDEX

|            |  |                                                                                                                       
|----------- |  | ----------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit                                                                                                               
|            |  |                                                                                                                       
|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(a) (6) |  | 2000 Long-Term Incentive Plan                                                                                         
|10.3(b) (7) |  | Amendment to 2000 Long-Term Incentive Plan                                                                            
|10.4(a)(8)  |  | Lease between ADI Communication Partners, L.P. and ComStream dated
April 23, 1997                                     
|10.4(b)(8)  |  | First Amendment to lease between ADI Communication Partners
L.P. and ComStream dated July 16, 1997                    
|10.4(c)(8)  |  | Second Amendment to Lease between Kilroy Realty, L.P. and
ComStream dated November 18, 1998                           
|10.5(9)     |  | Lease for facility in Phoenix, Arizona                                                                                
|10.6(10)    |  | Credit Agreement by and between the Registrant and Wells Fargo
HSBC Trade Bank, N.A.                                  
|10.7(11)    |  | Change of Control Agreement, dated as of March 20, 2002, by and
between Registrant and Robert C. Fitting              
|10.8(12)    |  | Change of Control Agreement, dated as of March 20, 2002, by and
between Registrant and Steven Eymann                  
|10.9(13)    |  | Change of Control Agreement, dated as of March 20, 2002, by and
between Registrant and Brian Duggan                   
|21.1*       |  | Subsidiaries of the Registrant                                                                                        
|23.1*       |  | Consent of KPMG LLP                                                                                                   
|99.1*       |  | Cautionary Statement Regarding Forward-Looking Statements and Risk Factors                                            
|99.2*       |  | Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States CodePrincipal Executive Officer
|99.3*       |  | Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States CodePrincipal Financial Officer



---

| | * |  | 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 to Exhibit 4.1 to Registrants
Registration Statement on Form S-8, dated and declared effective on
March 12, 1997 (File No. 333-23159).   
|
| | (4) |  | Incorporated by reference to Exhibit 4.1 to Registrants
Registration Statement on Form S-8, dated and declared effective on
November 18, 1998 (File No. 333-67469).
|
| | (5) |  | Incorporated by reference to Exhibit 4.1 to Registrants
Registration Statement on Form S-8, dated and declared effective on
November 5, 1999 (File No. 333-90383). 
|
| | (6) |  | Incorporated by reference to Exhibit 4.1 to Registrants
Registration Statement on Form S-8, dated and declared effective on
July 19, 2000 (File No. 333-41704)     
|
| | (7) |  | Incorporated by reference to Exhibit 4.1 to Registrants
Registration Statement on Form S-8, dated and declared effective on
May 29, 2002 (File No. 333-89316).     
|
| | (8) |  | Incorporated by reference from Registrants Registration
Statement on Form S-2, filed January 11, 1999 (File No. 333-70403).                                        

55



---



##### Table of Contents





| | (9)  |  | Incorporated by reference to Exhibit 10.3 to Registrants
Annual Report on Form 10-K for the year ended December 31, 1997, as
filed with the SEC on March 27, 1998 (File No. 000-11685). 
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (10) |  | Incorporated by reference to Exhibit 10.6 to Registrants
Annual Report on Form 10-K for the year ended December 31, 2001, as
filed with the SEC on April 1, 2002 (File No. 000-11685).  
|
| | (11) |  | Incorporated by reference to Exhibit 10.1 to Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002,
as filed with the SEC on May 15, 2002 (File No. 000-11685).
|
| | (12) |  | Incorporated by reference to Exhibit 10.2 to Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002,
as filed with the SEC on May 15, 2002 (File No. 000-11685).
|
| | (13) |  | Incorporated by reference to Exhibit 10.3 to Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002,
as filed with the SEC on May 15, 2002 (File No. 000-11685).

56