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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   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, 2004
Or o
    
    Transition Report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from                     to 
  
 Radyne ComStream Inc.  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 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 R No £ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. £ 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 R No £ The aggregate market value of the common stock held by non-affiliates of the registrant was
approximately $108 million computed by reference to the closing price of the stock on the Nasdaq
National Market on June 30, 2004, the last trading day of the registrants most recently completed
second fiscal quarter. 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 8, 2005 was 16,623,221. DOCUMENTS INCORPORATED BY REFERENCE Items 10, 11, 12, 13 and 14 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
8, 2005 at 2 p.m. in the Phoenix office.




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TABLE OF CONTENTS  Part IItem 1. BusinessItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataReport of Independent Registered Public Accounting FirmItem 9. Changes in and Disagreements With Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Director and Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accounting Fees and ServicesPART IVItem 15. Exhibits and Financial Statement SchedulesSIGNATURESEXHIBIT INDEXEX-10.11EX-10.12EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-99.1    Table of Contents  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 the following discussion include, but are not
limited to, (i) continued growth in demand for satellite system ground-based equipment and
satellite-delivered communications services, (ii) continued global deregulation and privatization
of telecommunications carriers, (iii) continued growth in worldwide demand for Internet over
Satellite connectivity and communications serves in general,
(iv) expectations for continued growth and improvement in gross
margin associated with product introductions, (v) our ability to
complete the Xicom acquisition and integrate the operations, products
and personnel of Xicom with the Company, (vi) an increase in total foreign
sales, and (vii) sufficient cash reserves and cash from operations to fund planned future operations
and capital requirements through the end of 2005. Forward-looking statements involve risks, uncertainties and other factors, which may cause our
actual results, performance or achievements to be materially different from those expressed or
implied by such forward-looking statements. Factors that could affect our results and cause them
to materially differ from those contained in the forward-looking statements include:  
    availability of future taxable income to be able to realize the deferred tax assets;
    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;
    decreasing or stagnant market demand and industry and general economic or business conditions;
    availability, cost and terms of capital;
    our level of success in effectuating our strategic plan;
    our ability to successfully integrate acquisitions;
    adequacy of our inventory, receivables and other reserves;
    the effects that acts of international terrorism may have on our ability to ship products abroad;
    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 the Company is currently unable to identify or quantify, but may arise or become known 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. 2




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Part I 
 Item 1. Business Overview Radyne ComStream (the Company) designs, manufactures, integrates, installs and sells capital
equipment used in the ground-based portion of satellite communication systems and cable
communications networks to receive and transmit data, telephone, television, video and
telephone-over-Internet. Our products are used in applications for telephone, data, video and audio
broadcast communications, private and corporate data networks, Internet applications, and digital
television for cable and network broadcast. We design, manufacture, integrate, install and sell
capital equipment used for upgrading existing analog point-to-point microwave radios to handle
digital signals. We design, manufacture, integrate, install and sell capital equipment for High
Definition Television (HDTV) and other digital encoding and transmission. The Company is
headquartered in Phoenix, Arizona and has manufacturing facilities in Phoenix and in San Diego,
California. Additionally, the Company has sales offices in Boca Raton, Florida, Singapore,
Beijing, Jakarta, London and Amsterdam. The Company also contracts with representatives that
provide sales and/or service centers in Rio de Janeiro and Bangalore. Through our network of international sales and service offices, agents and sales
representatives, we serve customers in over 90 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:  
    HDTV Encoders and Decoders for a Major American Television Network for use during their
coverage of the National Basketball Association.
    Satellite modems used as the backbone for major new US Department of Defense communications systems
    Complete satellite and microwave television network for Alabama Public Television.
    Supplied complete satellite backhaul systems for a GSM mobile phone provider in China.
    Satellite modems for the US Department of Defense in support of their domestic and international communications needs.
    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.
    High-Speed DVB Modulators for Hughes Direct to PC Network and Hughes DirecTV.
    Selected by PanAmSat, Intelsat and ChinaSat for the deployment of IP over satellite solutions.
    Major expansion of U.S. Government Satellite Monitoring Network. On March 3, 2005, Radyne ComStream announced its intention to acquire Xicom Technology Inc
(Xicom). Xicom is a leading provider of satellite and microwave power amplifiers and other RF
products. The combination of Xicoms amplifier products and RF technologies with Radynes line of
satellite modems and other satellite communications equipment will make the Company a full line
supplier of satellite electronic systems. The acquisition brings an increased customer base for
both companies products as well as the potential of offering complete system solutions. Xicoms Solid State Power Amplifiers (SSPAs), Traveling Wave Tube Amplifiers (TWTAs), and
Klystron Power Amplifiers (KPAs) are used in commercial and military satellite communications
terminals throughout the world. Xicom High Power Amplifiers (HPAs) provide power levels vital to
satellite communications in fixed, SNG, flyaway, mobile, shipboard, and airborne platforms. Xicom
will operate as a subsidiary of Radyne from its current facilities. 3




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Industry Overview Satellite technology has been established as a key element in the worldwide infrastructure of
communications systems. Satellites enable communications service where there is no suitable
alternative available or to supplement existing inadequate service. 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 new opportunities 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 underserved
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.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, the segment of the industry within
which the Company operates, 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 converter, redundancy switches and voice, data, and/or video network
interface equipment. Earth stations provide a communications link to the end user either directly
or through land-based networks. Digital Encoding of TV Signals.Digital encoding of TV signals through the use of our encoders
converts analog standard and high-definition television (SDTV & HDTV) signals from cameras or other
sources to digital to preserve the quality eternally and to compress the signals so they can be
transmitted over much smaller bandwidths. Conversion of Existing Analog Point-to-point Radios.Conversion of existing analog
point-to-point radios can be converted to handle digital signals for digital TV, telephone, and
Internet backhaul through the use of our microwave modems. Industry Growth We believe that demand for satellite system ground-based equipment has been and will continue
to be driven by:  
    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 from abroad will
continue to be a major emphasis.
    Worldwide demand for communications services, including data communications, high-speed
digital television/HDTV and corporate Intranets. 4




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
    The cost-effectiveness of satellite communications for many applications, such as
digital television delivery, distance learning and IP over satellite.
    Technological advancements and capital equipment upgrades that broaden applications and
increase the capacity in satellite networks.
    Lack of global ground-based infrastructure to support increased demand for Broadband
and Internet applications and services.
    There are thousands of analog point-to-point microwave radios in operation that are
candidates for upgrade to digital to handle digital TV, telephone, and Internet traffic. We expect that digital television encoding and decoding product demand will be driven by the
following factors:  
    Continued demand from end-consumers for additional HDTV content for
increasingly-affordable HD television sets.
    Requests from TV distributors (e.g., cable systems and direct satellite broadcasters)
to provide additional HDTV channels in order to attract new customers.
    Ongoing efforts by broadcasters to meet Federal Communication Commission (FCC)
mandates to convert existing analog signals to digital. 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. Because of current concerns with international terrorism, the militaries of many countries
have increased requirements for communications as their forces are spread around the world in such
places as Afghanistan and Iraq. The U.S. Governments needs, such as maintaining communications
with embassies, and the U.S. militarys worldwide Command and Control requirements, continue to
drive more demand for satellite communications. 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
significant distances separate population concentrations, 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 complex bandwidth efficient modulation schemes, turbo
error correcting codes, 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 5




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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.
    All areas within a satellite beam receive the same level of service, making it highly
attractive in rough terrain or underdeveloped regions.
    Satellite earth stations can be deployed much more rapidly to offer international
services for third world countries and, additionally, for military deployment. 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 HDTV digital video is a recently developed technology that provides significant new
market opportunities. The development of digital compression technology eternally preserves the
quality of TV signals and allows the transmission of television signals via satellite,
point-to-point or fiber 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:  
    Increased compression allows broadcasters to increase their channel offering with
existing allocated spectrum
    New HDTV content provides new opportunities for additional network and local
programming choices along with related revenue opportunities
    Satellites provide television broadcasters with an efficient and economical method to
distribute their programming to cable service providers and direct broadcast satellite
operators. 6




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
    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 a viable alternative to the physical distribution of
feature length films and special media events.
    Television is distributed to affiliate stations from broadcasters through the use of
point-to-point analog microwave radios that are candidates for upgrade with our microwave
modem equipment. This option provides a solution at a much lower cost than replacing the
analog radio with a digital radio. 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. Government and Military Satellites allow the military to have instant secure communications when deploying rapidly to
troubled parts of the world and further support the infrastructure necessary for military tactical
deployments. The United States government provides a significant market opportunity for satellite equipment
manufacturers as 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
sizable customer that is likely to provide consistent business. Strategy Our business goals are to expand market share in our ground-based satellite systems business
and improve profitability. We expect to achieve these goals through the following strategies: Capitalize On Our Existing Technology Leadership.We believe that the global satellite
communications services and equipment market and the digital television market present a number of
attractive opportunities to apply our advanced technologies and capabilities. We plan to develop
new products and enhance existing products by leveraging our technology to capture a share of these
growth opportunities. 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. 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 digital television, Internet communications, rural 7




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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. Continued Emphasis on Operational Efficiency and Financial Performance.We have historically
maintained a strong emphasis on operation efficiency and financial performance. We believe that
continued focus on our operational efficiencies is essential to future financial success while
continuing to grow our business. As part of this continued emphasis, we plan to devote significant
time and resources to key components of our business, such as our manufacturing processes, design
systems and customer relationships. 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. The Xicom acquisition should enable
us to achieve all of these objectives. Products and Services We offer the following product families:  
    Satellite modems and earth stations.
    Digital Standard Definition Television (SDTV) and High Definition Television (HDTV) encoders
    Internet via satellite terminal equipment
    Frequency converters.
    Data, audio, and video broadcast equipment.
    Cable and microwave modems.
    If the Xicom acquisition is completed, we will also offer a complete line of power amplifiers. 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. During 2003, we introduced a major addition to our satellite modem line, the Turbo Forward Error
Correction Code. 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 large, worldwide installed base of customers the opportunity to improve their
performance at a significant operational cost saving. Our earth stations commonly consist of several components, including a satellite modem, a
frequency converter, a transceiver, a transmitter, redundancy switches 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. 8




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Standard and High Definition Digital TV Encoders We offer a complete product line of SDTV and HDTV encoders for professional applications. This
year we introduced a new SDTV encoder (SE-4000) and HDTV encoder (HE-4000). Both models featured
the latest in MPEG-2 video encoding capability and audio compression. The HE-4000 features a
monitor screen on its faceplate  the first encoder ever to do so  which enables the technician
to monitor actual unit performance in real time. Our encoders are used throughout the world to
provide distribution, contribution and broadcast services. Encoders are used in satellite, cable
and terrestrial applications. Many U.S. 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. 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 Internet service providers, corporations, educational institutions and government agencies. Frequency Converters We currently market a variety of converters used to transmit and receive signals over satellites
in the commercial satellite frequency ranges of C-Band, Ka-Band, and Ku-Band. 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. Cable and Microwave Modems Our cable modems are used primarily in the distribution of digital video for use by cable
television distributors and in HDTV. 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 are used with point-to-point microwave
radios 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 newsgathering trucks. Power Amplifiers Xicoms Solid State Power Amplifiers (SSPAs), Traveling Wave Tube Amplifiers (TWTAs), and
Klystron Power Amplifiers (KPAs) are used in commercial and military satellite communications
terminals throughout the world. Xicom High Power Amplifiers (HPAs) provide power levels vital to
satellite communications in fixed, SNG, flyaway, mobile, shipboard, and airborne platforms. 9




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Design, Integration and Installation of Turnkey Communications Systems Our Armer subsidiary designs, integrates and tests 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. In addition, we sell support
services to existing and new customers. 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. 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 $5.3 million for the year ended December 31,
2004, $6.3 million for the year ended December 31, 2003 and $8.7 million for the year ended
December 31, 2002. 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 operations to fund our research
into products for Internet over Satellite links, SDTV and 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
Phoenix, San Diego, Boca Raton, Singapore, Beijing, Jakarta, London and Amsterdam. Our direct
sales force consists of 18 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, agents and systems integrators sell our products, supported by our sales and
marketing personnel. We participate in approximately five to seven 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 that also includes customer service and support staff that
support customers and agents and provide installation supervision, if needed. In certain instances,
we use third-party companies to install and maintain our products at customer sites. Customers Our customers generally include national and international telecommunications providers
(including radio and television stations), digital television users (including broadcast and cable
networks), Internet service providers, financial information providers, systems integrators, banks
and other corporate entities and the U.S. government. 10




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During the years ended December 31, 2004, 2003 and 2002, no single customer represented more
than 10% of our net sales. Because of the nature of our business, we anticipate that any customer
who could potentially represent 10% or more of our total revenue will vary from period to period
depending upon the placement of significant orders by a particular customer or customers in any
given year. Our direct sales into principal foreign markets for the periods indicated consisted of the
following percentages of total sales. Years ended December 31,Region
    
    2004
    
    
    2003
    
    
    2002Asia
    
    
    21
    %
    
    
    21
    %
    
    
    27
    %Africa/Middle East
    
    
    10
    %
    
    
    8
    %
    
    
    5
    %Latin America
    
    
    2
    %
    
    
    2
    %
    
    
    3
    %Europe
    

    
    13
    %
    
    
    16
    %
    
    
    11
    %Canada
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %Total Foreign Sales
    
    
    47
    %
    
    
    48
    %
    
    
    47
    %
 In addition to the above sales, we
believe that 30% to 50% of our domestic sales are for
products which ultimately are installed in foreign countries. We believe that foreign sales will
continue to make up a major portion 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 major competitors in the
satellite communications field. These include large
companies, such as Comtech EFData Corp. and Viasat both of which have
significantly larger and more diversified operations and greater financial, marketing, human and
other resources than we possess. We compete with a similar situation in our broadcast video
products. Our principal competitors include Tandberg Television and Harmonic, Inc. Again, both
companies are larger and command greater financial resources than we do. We compete by concentrating our sales efforts in the international market and emphasizing our
product features, quality and 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 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 average
over 20 years 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 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 acquired from subcontractors. We obtain the
remainder of our products, completely assembled and tested, from subcontractors. 11




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##### Table of Contents



Although we believe that we maintain adequate stock to minimize the procurement lead-time for
certain components, our products use a number of specialized 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 interruptions in production while we develop
alternative procurement sources. We maintain an inventory of certain chips, components and
subassemblies to limit the exposure for such an interruption. We believe that there are a number of
alternative suppliers capable of providing replacements for the types of chips, customized
components and subassemblies used in production. 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 assists in increasing the acceptance of our products. As of December 31, 2004
the Companys ISO 9001 certifications remain in effect. 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 certain 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. 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, 2004, we had 173 full-time employees, including 5 executive officers, 83
manufacturing and operations personnel, 40 research and development and 45 selling, general and
administration personnel. These figures include employees who are based outside the United States.
Our employees are not represented by a labor union. We believe that our relationships with our
employees are satisfactory and in good standing. Available Information Our website is http://www.radn.com. We make available, free of charge through links 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
(the Commission). Any materials we file with the Commission may be read and copied at the
Commissions Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. Information
concerning the operation of the Commissions Public Reference Room may be obtained by calling the
Commission at 1-800-SEC-0330. The Commission also maintains a website at http://www.sec.gov at
which you can view and download copies of reports, proxy and information statements and other
information filed electronically through the Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. Information contained on our website is not a part of this report. 
 Item 2. Properties We currently occupy approximately 40,000 square feet of building space in Phoenix, Arizona,
and 26,000 square feet in our San Diego, California facility. In addition we lease 16,000 square
feet in Chandler, Arizona. 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 for a five year renewal. The lease for our San Diego
facility expires in June 2010 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 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 12




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##### Table of Contents



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. 13




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##### Table of Contents



PART II 
 Item 5. Market for
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Common Stock Our
common stock is quoted on the Nasdaq National Market under the symbol RADN. 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
    
    
    Low2003:First Quarter
    
    $
    2.78
    
    
    $
    2.14Second Quarter
    
    
    2.45
    
    
    
    1.95Third Quarter
    
    
    4.44
    
    
    
    2.10Fourth Quarter
    
    
    8.50
    
    
    
    4.122004:First Quarter
    
    $
    12.90
    
    
    $
    7.18Second Quarter
    
    
    10.34
    
    
    
    7.77Third Quarter
    
    
    7.95
    
    
    
    6.53Fourth Quarter
    
    
    7.90
    
    
    
    7.03
 Holders of Record As of February 22, 2005, we had approximately 300 holders of record of our common stock. We
estimate that we have another 5,400 holders of our common stock in street name. 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. Unregistered Sales of Equity Securities and Use of Proceeds On February 19, 2004, Stetsys Pte. Ltd. and Stetsys US, Inc. entered into definitive purchase
agreements to sell their unregistered shares of common stock in the Company, an aggregate of
9,676,800 shares, to approximately 40 institutional investors in a private transaction. The
purchase price of the common stock was $9.25 per share. The shares sold in the transaction were
subject to securities law restrictions on their subsequent resale. However, the Company
subsequently registered the shares for resale. The Company did not receive any proceeds from this
transaction. Warrants After
December 31, 2004 but prior to the expiration date of
February 7,
2005, 310,571 of our redeemable common stock purchase warrants were
exercised. We received proceeds of $2,717,000 related to the
exercises and have issued 310,571 shares of our common stock to the former holders of the
redeemable warrants. The remaining 1,832,966 unexercised warrants
expired on February 7, 2005. 14




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##### Table of Contents



Issuer Purchases of Equity Securities On June 4, 2004, the Board of Directors authorized management to purchase up to $10 million of
the Companys outstanding common stock. As of December 31, 2004, the Company has purchased 402,600
shares under the program at a total cost of $2,791,000. This program expires on June 3, 2005 and
was the only repurchase program outstanding at December 31, 2004. The following chart provides
detailed information on the program: Maximum number (orTotal number of
    
    
    approximate dollarshares purchased as
    
    
    value) of shares thatTotal number
    
    
    Average
    
    
    part of a publicly
    
    
    may yet be purchasedof shares
    
    
    price paid
    
    
    announced plan or
    
    
    under the plan orPeriod
    
    purchased
    
    
    per share
    
    
    program
    
    
    programJuly 1-31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,000,000August 1-31, 2004
    
    
    341,100
    
    
    $
    6.89
    
    
    
    341,100
    
    
    $
    7,650,000September 1-30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,650,000341,100
    
    
    $
    6.89
    
    
    
    341,100Beginning dollar
value available to
repurchase shares
as of October 1,
2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,650,000October 1-31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,650,000November 1-30, 2004
    
    
    61,500
    
    
    $
    7.18
    
    
    
    61,500
    
    
    $
    7,209,000December 1-31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,209,00061,500
    
    
    $
    7.18
    
    
    
    61,500Total 2004 Purchases
    
    
    402,600
    
    
    $
    6.93
    
    
    
    402,600
 Equity Compensation Plans See
Part III, Item 12. 15




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##### Table of Contents



Item 6. Selected Financial Data The following selected consolidated statement of operations data for the years ended December
31, 2004, 2003, 2002, 2001 and 2000, and the selected consolidated balance sheet data at those
dates, are derived from our consolidated financial statements and notes thereto audited by an
independent registered public accounting firm, 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 per share data)2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000CONSOLIDATED STATEMENT OF OPERATIONS DATA:Net sales
    
    $
    56,578
    
    
    $
    57,991
    
    
    $
    57,662
    
    
    $
    68,471
    
    
    $
    70,107Cost of sales
    
    
    26,435
    
    
    
    31,640
    
    
    
    38,041
    
    
    
    39,559
    
    
    
    38,280Inventory write-down
    
    
    
    
    
    
    
    
    
    
    431
    
    
    
    
    
    
    
    Gross profit
    
    
    30,143
    
    
    
    26,351
    
    
    
    19,190
    
    
    
    28,912
    
    
    
    31,827Selling, general and administrative
    
    
    15,420
    
    
    
    13,559
    
    
    
    13,471
    
    
    
    15,307
    
    
    
    13,573Research and development
    
    
    5,330
    
    
    
    6,294
    
    
    
    8,665
    
    
    
    10,812
    
    
    
    9,317Asset impairment charge(1)
    
    
    
    
    
    
    
    
    

    
    995
    
    
    
    
    
    
    
    Restructuring charge
    
    
    
    
    
    
    
    
    
    
    1,102
    
    
    
    
    
    
    
    Total operating expenses
    
    
    20,750
    
    
    
    19,853
    
    
    
    24,233
    
    
    
    26,119
    
    
    
    22,890Earnings (loss) from operations
    
    
    9,393
    
    
    
    6,498
    
    
    
    (5,043
    )
    
    
    2,793
    
    
    
    8,937Interest expense
    
    
    29
    
    
    
    28
    
    
    
    62
    
    
    
    54
    
    
    
    492Interest and other income
    
    
    (492
    )
    
    
    (254
    )
    
    
    (236
    )
    
    
    (523
    )
    
    
    (1,077
    )Earnings (loss) before income taxes
and cumulative effect of change in accounting principle
    
    
    9,856
    
    
    
    6,724
    
    
    
    (4,869
    )
    
    
    3,262
    
    
    
    9,522Income taxes (benefit)
    
    
    (3,644
    )
    
    
    2,599
    
    
    
    (196
    )
    
    
    1,326
    
    
    
    (2,919
    )Earnings (loss) before cumulative
effect of change in accounting principle
    
    
    13,500
    
    
    
    4,125
    
    
    
    (4,673
    )
    
    
    1,936
    
    
    
    12,441Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    4,281
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    13,500
    
    
    $
    4,125
    
    
    $
    (8,954
    )
    
    $
    1,936
    
    
    $
    12,441Earnings (loss) per share:Basic
    
    $
    0.83
    
    
    $
    0.27
    
    
    $
    (0.59
    )
    
    $
    0.13
    
    
    $
    0.89Diluted
    
    $
    0.79
    
    
    $
    0.26
    
    
    $
    (0.59
    )
    
    $
    0.13
    
    
    $
    0.81Weighted average number of common shares outstandingBasic
    
    
    16,357
    
    
    
    15,488
    
    
    
    15,180
    
    
    
    14,944
    
    
    
    13,972Diluted
    
    
    17,136
    
    
    
    15,718
    
    
    
    15,180
    
    
    
    15,412
    
    
    
    15,426
 December 31,(in thousands)2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000CONSOLIDATED BALANCE SHEET DATA:Cash and cash equivalents
    
    $
    39,300
    
    
    $
    30,130
    
    
    $
    16,230
    
    
    $
    7,211
    
    
    $
    16,245Working capital
    
    
    53,432
    
    
    
    41,642
    
    
    
    34,252
    
    
    
    36,187
    
    
    
    34,037Total assets
    
    
    65,416
    
    
    
    50,609
    
    
    
    44,407
    
    
    
    53,241
    
    
    
    51,844Long-term obligations
    
    
    430
    
    
    
    475
    
    
    
    849
    
    
    
    912
    
    
    
    948Total liabilities
    
    
    7,222
    
    
    
    6,991
    
    
    
    7,118
    
    
    
    7,893
    
    
    
    10,030Stockholders equity
    
    
    58,194
    
    
    
    43,618
    
    
    
    37,288
    
    
    
    45,347
    
    
    
    41,814
    16




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations Overview 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 90
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. We reported revenues of $56.6 million, $58.0 million and $57.7 million for the years ended
December 31, 2004, 2003 and 2002, respectively. The decline in revenues is due, in part, to the
Companys decision to withdraw from bidding on service business jobs and focus on our higher margin
products. In addition, our customers trend had been to reduce capital expenditures to the most
urgent needs. We believe the urgency for these companies to begin expending funds for new capital
equipment will increase in the near term as older products fail and as newer product technologies
improve the operating efficiencies of the users, saving them money over use of their older
technologies. We also believe that continued demand for capital equipment in the HDTV industry
will drive demand for the Companys products. We have recently introduced new products with the latest technologies that can help our
customers reduce their operational costs while increasing their capacity to deliver services. The
products have lowered cost of manufacture compared to the products that they replace which results
in increased gross margins. On March 3, 2005, Radyne ComStream announced its intention to acquire Xicom Technology Inc.
Xicom is a leading provider of satellite and microwave power amplifiers and other RF products. The
combination of Xicoms amplifier products and RF technologies with Radynes line of satellite
modems and other satellite communications equipment would make the Company a full line supplier of
satellite electronic systems. The acquisition brings an increased customer base for both
companies products as well as the potential of offering complete system solutions. We believe
that there is additional opportunity to create new products based on the combined technology of
Radyne ComStreams existing products and Xicoms offering.
Further, this acquisition, if completed should result
in greater sales relative to fixed costs which should, in turn, increase the Companys operating
leverage or profitability. 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 at the San Diego facility 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 $431,000 was charged to cost of sales and the balance was charged to
restructuring charge. This amount included $170,000 in severance costs. During the year ended
December 31, 2002, we paid all charges except for $645,000 in lease exit costs. During the years
ended December 31, 2004 and 2003, $340,000 and $238,000 in lease exit costs were paid and the
remaining $67,000 was paid in January and February 2005. At December 31, 2004, our workforce consisted of 173 full time employees, which is reduced
from 183 and 205 at December 31, 2003 and 2002. 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 consolidated financial
statements. Such estimates and assumptions also affect the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including
those related to bad debts, inventories, 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. 17




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##### Table of Contents



Management believes the Companys most critical accounting policies and estimates used in the
preparation of its consolidated financial statements relate to:  
    Revenue Recognition.Revenues from product sales are recognized upon the actual
shipment of product and transfer of the risk of ownership from us, or our contract
manufacturers, to our customers in accordance with SEC Staff Bulletins No. 104 Revenue
Recognitionand No. 101, Revenue Recognition in Financial Statements,as amended. We do
not sell through distributors and we do not use consignment resellers as a method of
selling our products. Revenue from services principally consists of sales related to
services for installation and integration of satellite earth stations and video and
microwave hub stations and are recognized at the time the services are performed. We
consider products and services as separate units of accounting under EITF 00-21, Revenue
Arrangements with Multiple Deliverables. Revenue is allocated to the separate units of
accounting based on their relative fair values.
    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 Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, (SFAS 142) 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 evaluated 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
2002 as a cumulative effect of change in accounting principle. We have no remaining
goodwill on our balance sheet as of December 31, 2004 and 2003. Assuming it is completed,
we anticipate that the Xicom acquisition will result in goodwill. In that event, we will
apply the provisions of SFAS 142.
    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 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, 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
to utilize the recorded value. 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 18




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##### Table of Contents



to the valuation allowance for deferred tax assets would result in an income tax benefit in
the period such determination was made. Results of Operations Sales: Net sales generally consist of sales of products, net of returns and allowances. Our sales
have come predominantly from satellite modems, video signal encoders, point-to-point modems,
Internet over satellite systems and systems integrations and installations. The following tables
summarize the year-over-year comparison of our revenue for the periods indicated: 2004 vs. 2003  Years ended December 31,(in thousands)2004
    
    
    2003
    
    
    Change
    
    
    %Sales
    
    $
    56,578
    
    
    $
    57,991
    
    
    $
    (1,413
    )
    
    
    (2%) For the year 2004, sales decreased $1.4 million, or 2% from the prior year 2003. This decrease
was primarily due to a reduction in sales from our systems
integrations and installation service which accounted for a decrease of $1.7 million in sales from 2003 to 2004. The decision was made

due to the very competitive nature of this portion of the market and the relative low benefit we
believe we received for being in the business. This resulted in lower sales, but higher margins, as
we concentrated on delivery of our core products and development of new higher margin products.
Based on orders received during the last quarter, management believes that continued growth in
shipments of these newly introduced products will result in recovery of sales in the future. 2003 vs. 2002  Years ended December 31,(in thousands)2003
    
    
    2002
    
    
    Change
    
    
    %Sales
    
    $
    57,991
    
    
    $
    57,662
    
    
    $
    329
    
    
    
    1% Our net sales increased 1% to $58.0 million during the year ended December 31, 2003 from $57.7
million during the year ended December 31, 2002. This increase is primarily attributable to
improved market conditions for our core products (and offset by a reduction of sales in our systems
integration and installation products) and strengthening of the economy as a whole during the last
half of the year ended December 31, 2003 compared to the same period in 2002. While revenues did
not increase dramatically from year to year, the first three months of 2003 was depressed, in terms
of sales, resulting in our lowest volume of quarterly sales in four years. Sales during the last
three quarters of the year continuously improved and, in total, the last nine-months of the year
increased by 10% over the prior years last nine months. Cost of sales: Cost of sales generally consists of costs associated with components, outsourced manufacturing
and in-house labor associated with assembly, testing, packaging, shipping and quality assurance,
depreciation of manufacturing equipment and indirect manufacturing costs. Gross profit is the
difference between net sales and cost of sales. Gross margin is gross profit stated as a percentage
of net sales. The following tables summarize the year-over-year comparison of our cost of sales,
gross profit and gross margin for the periods indicated: 2004 vs. 2003  Years ended December 31,(in thousands)2004
    
    
    2003
    
    
    Change
    
    
    %Cost of Sales
    
    $
    26,435
    
    
    $
    31,640
    
    
    $
    (5,205
    )
    
    
    (16%)Gross Profit
    
    $
    30,143
    
    
    $
    26,351
    
    
    $
    3,792
    
    
    
    14%Gross Margin %
    
    
    53
    
    
    
    45
    
    
    
    8
    
    
    
    18%


19



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##### Table of Contents



During 2004, gross profit was $30.1 million, a 14% increase from 2003 due primarily to a
change in our product and service mix in 2004 as compared to 2003. These lower costs resulted from
the previously mentioned decision to withdraw from bidding on

installation and integration jobs and low margin products during the second quarter of 2004
and to concentrate on our core products, which produce higher margins and the introduction of new
products with reduced costs to manufacture. Gross margins increased to 53% of net sales for 2004
compared to 45% in 2003. Gross margins for the year benefited from a larger portion of our total
sales being made up of our new higher margin products as compared to 2003, primarily from our new
satellite modems that replaced the sales of our lower margin system integration services.
Management believes that the Company may not be able to continue to increase gross margins in the
future due to increased competition and larger customer orders. 2003 vs. 2002  Years ended December 31,(in thousands)2003
    
    
    2002
    
    
    Change
    
    
    %Cost of Sales
    
    $
    31,640
    
    
    $
    38,041
    
    
    $
    (6,401
    )
    
    
    (17%)Gross Profit
    
    
    26,351
    
    
    
    19,190
    
    
    
    7,161
    
    
    
    37%Gross Margin %
    
    
    45
    
    
    
    33
    
    
    
    12
    
    
    
    37%


During 2003, gross profit was $26.4 million, a 37% increase from 2002 primarily due to a
change in our product and services mix. Our service and installation business, which provides
lower gross margins relative to certain products such as satellite modems, decreased to 8% of sales
for the year ended December 31, 2003 from 12% in the prior year. Sales from services typically
produce margins in the 20% to 30% range compared to the satellite modem products that produce
margins in the 45% to 55% range. Our newest products enable us to sell software upgrades over a
satellite link or via email. These upgrades are made through the use of a CDRom or PCM-CIA card
that can be installed into the product after the initial sale. These upgrades can increase our
sales by up to 100% of the hardware sales price without significant increases in costs. This
should help sustain improved margins during the years to come, especially after we have an
established base of product deployed in the field.

Selling, General, and Administrative Costs:

Sales and marketing expenses consist of salaries, commissions for marketing and support
personnel, and travel. Executives and administrative expenses consist primarily of salaries and
other personnel-related expenses of our finance, human resources, information systems, and other
administrative personnel as well as facilities, professional fees, depreciation and amortization
and related expenses. The following tables summarize the year-over-year comparison of our selling,
general and administrative expenses for the periods indicated:

2004 vs. 2003



Years ended December 31,(in thousands)2004
    
    
    2003
    
    
    Change
    
    
    %Selling, general &
administrative
    
    $
    15,420
    
    
    $
    13,559
    
    
    $
    1,861
    
    
    
    14%


Selling, general and administrative expenses, for 2004, were 14% higher than the same period
in 2003, due mainly to the following increases: management incentive plan  $1.1 million,
professional fees related to compliance with the provisions of the Sarbanes-Oxley Act of 2002,
Section 404 (SOX 404) compliance  $664,000, and commissions  $548,000. These increases were
partially offset by a reduction in costs as follows: acquisition costs  $385,000, a reduction in
personnel  $352,000, and amortization expense  $216,000. Except for sales commissions and
performance-based management incentives, most of our selling, general and administrative expenses
are fixed and do not change when sales fluctuate. Like other public companies, our expenses
related to ongoing compliance with SOX 404 are uncertain.

2003 vs. 2002



Years ended December 31,(in thousands)2003
    
    
    2002
    
    
    Change
    
    
    %Selling, general &
administrative
    
    $
    13,559
    
    
    $
    13,471
    
    
    $
    88
    
    
    
    1%


20



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##### Table of Contents



Selling, general and administrative costs increased to $13.6 million, or 23% of net
sales, during the year ended December 31, 2003 from $13.5 million, or 23% of sales, for the year
ended December 31, 2002. Expenses attributable to our aborted tender offer for Wegener
Corporation amounted to approximately $385,000 during the second quarter of the year. Before these
expenses, selling, general and administrative costs decreased slightly from the prior year. Research and Development: Research and development expenses consist primarily of salaries and personnel-related costs,
development material and other product development expense. The following tables summarize the
year-over-year comparison of our research and development expenses for the periods indicated: 2004 vs. 2003  Years ended December 31,(in thousands)2004
    
    
    2003
    
    
    Change
    
    
    %Research & development
    
    $
    5,330
    
    
    $
    6,294
    
    
    $
    (964
    )
    
    
    (15%) Research and development expenses decreased 15% in 2004. The decrease was due to a reduction
of personnel and reduced overhead expenses. We remain committed to invest in our future through
technological advances and efforts to improve our older product lines for improve
manufacturability and lower costs. Our research and development personnel concentrate on technology
for the satellite and microwave communications, telecommunications, and cable television
industries, as well as the Tiernan product lines, which target the digital television broadcast
industry. We expect that research and development expenses will increase in the coming year as the
Company expands the development and introduction of new products. 2003 vs. 2002  Years Ended December 31,(in thousands)2003
    
    
    2002
    
    
    Change
    
    
    %Research & development
    
    $
    6,294
    
    
    $
    8,665
    
    
    $
    (2,371
    )
    
    
    (27%) Research and development expenses decreased to $6.3 million, or 11% of net sales during the
year ended December 31, 2003 from $8.7 million, or 15% of
net sales, during the year ended December 31, 2002. Research and development costs decreased during the year ended December 31, 2003 by
approximately $2.4 million, as we benefited from the cost savings initiatives put into place in
2002. Interest Expense: Interest expense was $29,000 and $28,000 for the years ended December 31, 2004 and 2003
respectively as compared to $62,000 for the year ended December 31, 2002. The reduction in
interest expense is due to lower capitalized lease obligations in 2004 and 2003 as compared to
2002. Interest and Other Income: Other income increased to $492,000 in the year ended December 31, 2004 from $254,000 in the
year ended December 31, 2003 and $236,000 during the year ended December 31, 2002. Other income is
comprised primarily of interest income, which increased as a result of higher average interest
rates during 2004 as compared to 2003 and 2002. In addition, we maintained a higher average cash
balance during 2004 and 2003 as compared to 2002. We keep our cash in money market accounts and
short term AAA rated investments maturing in seven to twenty-eight day increments. We expect that
interest income will decline in the coming year as the Company uses available cash to pursue the
Xicom and other acquisitions, repurchase stock and invest in other business opportunities. See Liquidity and Capital Resources below. Income Taxes (Benefit): We
recorded an income tax benefit during the year ended
December 31, 2004 of $3.6 million compared to income tax
expense of $2.6 million in the year ended December 31,
2003. We recorded an income tax benefit of $196,000 in 2002 due to a
tax refund. During the year ended December 31, 2004, the Company
reduced the valuation allowance related to the deferred tax assets by
$7,337,000 based on management's belief that it is more likely than
not the deferred tax assets will be realized through the generation
of future taxable income. Of this net reduction in the valuation
allowance, approximately $7,030,000 was recorded as a reduction  of
income tax expense, approximately $772,000 was recorded as an
increase to additional paid-in capital and approximately $465,000 was
recorded as an increase in deferred tax assets. In addition to the
$772,000 increase in additional paid-in capital for the release of
the valuation allowance related to the tax benefits of stock option
exercises in prior years, additional paid-in capital was increased
for the tax benefit of stock option exercises during the year ended
December 31, 2004 in the amount of approximately $1,063,000 for
a total increase of approximately $1,835,000. As of December 31,
2004, the Company has total deferred tax assets of $8,209,000 with a
corresponding valuation allowance of $2,546,000. The valuation
allowance applies to the deferred tax assets related to net operating
loss carryforwards which management believes are limited as to
utilization under Internal Revenue Service Code Section 382. The
company generated taxable income in each of the four quarters of
2004, the last three quarters of 2003 and projects future taxable
income to be able to use the net deferred tax assets. Management
believes that past profitable performance and the forecast of future
profits supports the recognition of the deferred tax assets and the
reduction of the valuation allowance. 21




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##### Table of Contents



Ultimate realization of any or all of the deferred tax assets is not assured due to
significant uncertainties associated with estimates of future taxable income during the
carryforward periods and is subject to change depending on the tax laws in effect in the years in
which the carryforwards are used. Management will continue to evaluate the recoverability of the
deferred tax assets and will adjust the valuation allowance recorded against the deferred tax
assets accordingly.

Net Earnings:

Net earnings are the result of reducing gross profit by operating expenses, interest expense,
income taxes and increasing for other interest income and income tax benefits. The following tables
summarize our net earnings and the earnings available to each fully diluted share of our common
stock:

2004 vs. 2003



Years ended December 31,(in thousands)2004
    
    
    2003
    
    
    Change
    
    
    %Net earnings
    
    $
    13,500
    
    
    $
    4,125
    
    
    $
    9,375
    
    
    
    227%Earnings per diluted share
    
    $
    0.79
    
    
    $
    0.26
    
    
    $
    0.53
    
    
    
    203%


Net earnings were $13.5 million, or $0.79 per share on a fully diluted basis, for the year
ended December 31, 2004, compared to earnings of $4.1 million, or $0.26 per share on a fully
diluted basis, for the year ended 2003. Net earnings were higher in part due to the $3.6 million
tax benefit we received in 2004 (versus a $2.6 million tax expense in 2003) and the $3.8 million
increase in gross profit as discussed above. These factors were partially offset by an increase in
selling, general and administrative expense, also discussed above. Going forward, the Company does
not expect to maintain this level of profitability due to the one-time nature of the tax benefit we
recognized in 2004.

2003 vs. 2002



Years ended December 31,(in thousands)2003
    
    
    2002
    
    
    Change
    
    
    %Net earnings (loss)
    
    $
    4,125
    
    
    $
    (8,954
    )
    
    $
    13,079
    
    
    
    n/aEarnings per diluted share
    
    $
    0.26
    
    
    $
    (0.59
    )
    
    $
    0.85
    
    
    
    n/a


Net earnings were $4.1 million, or $0.26 per share on a diluted basis, for the year ended
December 31, 2003, compared to a loss of $(9.0) million, or $(0.59) per share on a diluted basis,
for the year ended 2002. The increase in net earnings is primarily due to the increase in gross
profit and reduction in operating expenses as discussed above.

Bookings and Backlog:

Bookings consist of orders taken while backlog is the total of these orders not yet shipped at
the end of the period. The following tables summarize our Bookings (orders taken) and Backlog
(orders to be shipped in future periods).



Years ended December 31,(in thousands)2004
    
    
    2003
    
    
    Change
    
    
    %Bookings
    
    $
    57,871
    
    
    $
    51,900
    
    
    $
    5,971
    
    
    
    12%Ending Backlog
    
    $
    9,585
    
    
    $
    8,000
    
    
    $
    1,585
    
    
    
    20%


22



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##### Table of Contents



During 2004, bookings increased 12% compared to 2003. This increase was mostly a result of
higher fourth quarter bookings of $20.8 million compared to $15.6 million in 2003. The increase in
backlog is due to the higher fourth quarter bookings, much of which remained in backlog at the end
of the year. Our backlog consists of orders 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. Although the Companys backlog increased at year due to record orders in the fourth
quarter, we believe that the trend towards increased receiving and shipping orders in the same
quarter will continue as customers continue to order our products on an as needed basis and we
offer improved delivery times.  Years ended December 31,(in thousands)2003
    
    
    2002
    
    
    Change
    
    
    %Bookings
    
    $
    51,900
    
    
    $
    56,000
    
    
    $
    (4,100
    )
    
    
    (7%)Ending Backlog
    
    $
    8,000
    
    
    $
    13,400
    
    
    $
    (5,400
    )
    
    
    (40%) New orders booked decreased 7% to $51.9 million for the year ended December 31, 2003 from
$56.0 million for the year ended December 31, 2002. We believe this trend was due to the
reluctance of our customers to place long term capital equipment orders in the aftermath of the
economic downturn of the last few years. Our backlog was $8.0 million as of December 31, 2003 a
decrease of 40% from the $13.4 million in backlog as of December 31, 2002. We believe that this
reduction was a result of our customers desires to reduce their inventory levels, shorten cycle
times for filling orders and to keep their capital equipment orders to a minimum. Liquidity and Capital Resources The Company had cash and cash equivalents totaling $39.3 million at December 31, 2004 compared
to $30.1 million at December 31, 2003, an increase of $9.2 million. The primary factors in the
increase were cash provided by operations of $10.6 million, the issuance of common stock through
the exercise of stock options of $1.6 million and the sale of common stock to employees of
$460,000. These were partially offset by the repurchase of the Companys common stock for $2.8
million and capital expenditures of $822,000. Working capital increased 28% to $53.4 million at
December 31, 2004 from $41.6 million at December 31, 2003. Operating Activities: During 2004, net cash provided by operating activities was $10.6 million as compared to $12.1
million for 2003. Net cash provided by operating activities for 2004 resulted primarily from $13.5
million of net earnings, depreciation and amortization of $1.2 million, a tax benefit on stock
option exercises of $1.8 million and an increase of $1.6 million in accrued expenses. These were
partially offset by increases in deferred tax assets of $5.7 million and increases in asset
accounts of $1.0 million (including accounts receivable, inventory and prepaid expenses and other
current assets). Cash was further reduced by a decrease in customer advance payments of $728,000
and a decrease in accounts payable $615,000. During 2003, net cash provided by operating activities was $12.1 million. Net cash provided by
operating activities resulted primarily from $4.1 million of net earnings, deferred income taxes of
$2.6 million, a decrease in inventories of $2.9 million and depreciation and amortization of $1.9
million. These were partially offset by decreases in accrued expenses of $387,000 and accrued stock
option compensation of $296,000. During 2002, net cash provided by operating activities was $9.7 million. Net cash provided by
operating activities resulted primarily from a decrease of $7.2 million in inventories, a change in
accounting principle of $4.3 million, a decrease in accounts receivable of $3.8 million, and $2.5
million of depreciation and amortization. These were partially offset by a loss of $9.0 million, a
decrease in accounts payable of $592,000 and an increase in other assets of $115,000. Investing Activities: Investing activities included capital expenditures of $822,000, $521,000 and $1,471,000 for
the years ended December 31, 2004, 2003 and 2002. These were funded through cash provided by
operating activities. The Company received $148,000, $121,000 and $14,000 for the years ended
December 31, 2004, 2003 and 2002 for proceeds from disposal of assets. Although, the Company does
not have any material commitments for capital expenditures planned during the next twelve months,
the Company has entered into a definitive agreement to acquire Xicom
Technology Inc. which will
require investment of $46 million of cash and $2.0 million of 23




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##### Table of Contents



stock. This cash amount includes approximately $39 million as part of the purchase
consideration and approximately $5 million to retire existing Xicom debt. Financing Activities: During 2004, net cash used in financing activities was $773,000, while net cash was provided
by financing activities of $2.1 million and $825,000 for years ended December 31, 2003 and 2002.
During 2004, the Company used $2.8 million of cash to repurchase shares of its common stock. Cash
generated by financing activities included the issuance of common stock through the exercise of
stock options of $1.6 million, $1.9 million and $306,000 in the years ended December 31, 2004, 2003
and 2002. The sale of common stock to employees provided cash of $460,000, $316,000 and $592,000
for years ended December 31, 2004, 2003 and 2002. Principal payments on capital lease obligations
amounted to $14,000, $38,000 and $73,000 for the years ended December 31, 2004, 2003, and 2002. The
Company had no long-term debt outstanding at December 31, 2004, 2003 or 2002. Stockholders equity
was $58.2 million, $43.6 million and $37.3 million for the years ended December 31, 2004, 2003 and
2002. We
received proceeds of $2,717,000 related to the exercises of 310,571 of
our redeemable common stock purchase warrants between
December 31, 2004 and the expiration date of February 7,
2005. The remaining 1,832,966 unexercised warrants expired on
February 7, 2005. The Company maintains a credit arrangement with a bank for up to $9 million, based upon 80% of
eligible accounts receivable, as defined. The amount of credit available to us under the credit
agreement at December 31, 2004 was approximately $7 million. We paid approximately $35,000 for a
facility fee and bank costs for a two year commitment on the arrangement, whether or not any
amounts are actually drawn on the line of credit. At December 31, 2004 and 2003, we had no
borrowings against the line of credit. The credit agreement expires on May 1, 2006 and limits or
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 us to maintain specific levels of tangible net worth, earnings and other
ratios. We were in compliance with all covenants at December 31, 2004. The credit agreement
specifies an interest rate between LIBOR plus 150 basis points and prime rate minus 50 basis points
depending on terms and other conditions. We are currently negotiating changes to our credit arrangement to facilitate the Xicom
acquisition. We anticipate that these negotiations will result in an larger credit facility with
terms and conditions similar to those described above. In addition, we anticipate that we will
draw $5 million to finance the Xicom acquisition at the time of acquisition close. We believe that cash and cash equivalents on hand and anticipated future cash receipts will be
sufficient to meet our obligations as they become due for the next twelve months. However, a
decrease in our sales or demand for our products or services would likely affect our working
capital amounts. As part of our business strategy, we occasionally evaluate potential acquisitions
of businesses, products and technologies. Accordingly, a portion of our available cash may be used
at any time for the acquisition of complementary products or businesses. These potential
transactions may require substantial capital resources, which, in turn, may require us to seek
additional debt or equity financing. There are no assurances that we will be able to consummate any
of these transactions. For more detailed information, see our Risk Factors contained in Exhibit
99.1 to this report. Contractual Obligations and Commitments We had the following contractual obligations and commitments outstanding as of December 31,
2004: Payments due by periodContractual Obligations and Commitments
    
    
    
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More than(in thousands)
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsOperating leases
    
    $
    5,704
    
    
    $
    1,364
    
    
    $
    2,686
    
    
    $
    1,455
    
    
    $
    199Purchase obligations
    
    $
    5,029
    
    
    
    5,029
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    146
    
    
    
    
    
    
    
    146
    
    
    
    
    
    
    
    Total
    
    $
    10,879
    
    
    $
    6,393
    
    
    $
    2,832
    
    
    $
    1,455
    
    
    $
    199
 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. We do not expect that inflation will materially affect
our business within the next year. Recent Accounting Pronouncements 24




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##### Table of Contents



In November 2004, the FASB issued Statement No. 151, Inventory Costs(SFAS 151). SFAS 151
requires that abnormal amounts of idle facility expense, freight, handling costs, and spoilage, be
charged to expense in the period they are incurred rather than capitalized as a component of
inventory costs. SFAS 151 is effective for inventory costs incurred in fiscal periods beginning
after June 15, 2005. The adoption of this standard may result in higher expenses in periods where
production levels are lower than normal ranges of production. We currently believe that the
adoption of SFAS 151 will not have a material impact on our consolidated financial statements. In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 123R, Share-Based Payment(SFAS 123R). SFAS 123R is a revision
of SFAS 123 and supersedes APB 25. Among other items, SFAS 123R eliminates the use of APB 25 and
the intrinsic value method of accounting, and requires companies to recognize the cost of employee
services received in exchange for awards of equity instruments, based on the grant date fair value
of those awards, in the financial statements. The effective date of SFAS 123R is the first
reporting period beginning after June 15, 2005, which is third quarter 2005 for calendar year
companies, although early adoption is allowed. SFAS 123R permits companies to adopt its
requirements using either a modified prospective method, or a modified retrospective method.
Under the modified prospective method, compensation cost is recognized in the financial
statements beginning with the effective date, based on the requirements of SFAS 123R for all
share-based payments granted after that date, and based on the requirements of SFAS 123 for all
unvested awards granted prior to the effective date of SFAS 123R. Under the modified
retrospective method, the requirements are the same as under the modified prospective method,
but also permits entities to restate financial statements of previous periods based on pro forma
disclosures made in accordance with SFAS 123. The Company currently utilizes a standard option-pricing model (i.e., Black-Scholes) to measure the
fair value of stock options granted to employees. While SFAS 123R permits entities to continue to
use such a model, the standard also permits the use of a lattice model. The Company has not yet
determined which model it will use to measure the fair value of employee stock options upon the
adoption of SFAS 123R. SFAS 123R also requires that the benefits associated with the tax deductions in excess of
recognized compensation cost be reported as a financing cash flow, rather than as an operating cash
flow as required under current literature. This requirement will reduce net operating cash flows
and increase net financing cash flows in periods after the effective date. These future amounts
cannot be estimated, because they depend on, among other things, when employees exercise stock
options. The Company currently expects to adopt SFAS 123R effective July 1, 2005; however, the Company has
not yet determined which of the aforementioned adoption methods it will use. Subject to a complete
review of the requirements of SFAS 123R, based on stock options granted to employees through
December 31, 2004, and stock options expected to be granted during 2005, the Company expects that
the adoption of SFAS 123R on July 1, 2005, will reduce both third quarter 2005 and fourth quarter
2005 net earnings and net earnings per share. 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to certain market risks in the ordinary course of our business. These risks
include changes in interest rates, introduction of competitive products, our ability to satisfy our
customers technological requirements and the availability of raw materials from our vendors. In
addition, our international operations are subject to risks related to differing economic
conditions, changes in political climate, differing tax structures and other regulations and
restrictions. We are exposed to market risk on our financial instruments from changes in interest rates. As
of December 31, 2004, a change in interest rates of 10% over a years period would not have a
material impact on our interest earnings. We do not use financial instruments for trading purposes
or to manage interest rate risk. The Company does not have any derivative financial instruments. 
 Item 8. Financial Statements and Supplementary Data Our consolidated financial statements as of December 31, 2004 and 2003 and for each of the
years in the three-year period ended December 31, 2004, together with related notes and the report
of KPMG LLP, an independent registered public accounting firm, are on the following pages. Other
required financial information is more fully described in
Part IV, Item 15 below. 25




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##### Table of Contents



Report of Independent Registered Public Accounting Firm 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) as of December 31, 2004 and 2003, 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, 2004. 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 the standards of the Public Company Accounting Oversight
Board (United States). 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 referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the years in the three-year period
ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of December 31, 2004, based on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated March 11, 2005 expressed an unqualified opinion on managements assessment of, and the
effective operation of, internal control over financial reporting. /s/ KPMG LLP Phoenix, Arizona
March 11, 2005 26




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##### Table of Contents



Radyne ComStream Inc.
Consolidated Balance Sheets
December 31, 2004 and 2003
(in thousands, except share data) December 31,2004
    
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    39,300
    
    
    $
    30,130Accounts receivable  trade, net of allowance for doubtful accounts of $350, and
$489, respectively
    
    
    9,728
    
    
    
    9,780Inventories
    
    
    8,132
    
    
    
    7,766Deferred tax assets
    
    
    2,218
    
    
    
    Prepaid expenses and other assets
    
    
    846
    
    
    
    482Total current assets
    
    
    60,224
    
    
    
    48,158Deferred tax assets, net
    
    
    3,445
    
    
    
    Property and equipment, net
    
    
    1,593
    
    
    
    2,269Other assets
    
    
    154
    
    
    
    182$
    65,416
    
    
    $
    50,609Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    1,566
    
    
    $
    2,181Accrued expenses
    
    
    4,835
    
    
    
    3,273Income taxes payable
    
    
    242
    
    
    
    185Customer advance payments
    
    
    149
    
    
    
    877Total current liabilities
    
    
    6,792
    
    
    
    6,516Long-term obligations
    
    
    284
    
    
    
    270Accrued stock option compensation
    
    
    146
    
    
    
    205Total liabilities
    
    
    7,222
    
    
    
    6,991Commitments, contingent liabilities and subsequent events (notes 7, 12, 16 and 18)Stockholders equity:
    
    
    
    
    
    
    Common stock; $.001 par value  authorized, 50,000,000 shares; issued and outstanding,
16,232,999 and 16,130,913 shares at December 31, 2004 and 2003, respectively
    
    
    16
    
    
    
    16Additional paid-in capital
    
    
    54,414
    
    
    
    53,102Retained earnings (accumulated deficit)
    
    
    3,764
    
    
    
    (9,500
    )Total stockholders equity
    
    
    58,194
    
    
    
    43,618$
    65,416
    
    
    $
    50,609
 See accompanying notes to consolidated financial statements. 27




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Radyne ComStream Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2004, 2003 and 2002
(in thousands, except per share data) Years ended December 31,2004
    
    
    2003
    
    
    2002Net sales
    
    $
    56,578
    
    
    $
    57,991
    
    
    $
    57,662Cost of sales
    
    
    26,435
    
    
    
    31,640
    
    
    
    38,041Inventory write down
    
    
    
    
    
    
    
    
    
    
    431Gross profit
    
    
    30,143
    
    
    
    26,351
    
    
    
    19,190Operating expenses:Selling, general and administrative
    
    
    15,420
    
    
    
    13,559
    
    
    
    13,471Research and development
    
    
    5,330
    
    
    
    6,294
    
    
    
    8,665Asset impairment charge
    
    
    
    
    
    
    
    
    
    
    995Restructuring charge
    
    
    
    
    
    
    
    
    
    
    1,102Total operating expenses
    
    
    20,750
    
    
    
    19,853
    
    
    
    24,233Earnings (loss) from operations
    
    
    9,393
    
    
    
    6,498
    
    
    
    (5,043
    )Other (income) expense:Interest expense
    
    
    29
    
    
    
    28
    
    
    
    62Interest and other income
    
    
    (492
    )
    
    
    (254
    )
    
    
    (236
    )Earnings (loss) before income taxes and cumulative effect of change
in accounting principle
    
    
    9,856
    
    
    
    6,724
    
    
    
    (4,869
    )Income taxes (benefit)
    
    
    (3,644
    )
    
    
    2,599
    
    
    
    (196
    )Earnings (loss) before cumulative effect of change in accounting
principle
    
    
    13,500
    
    
    
    4,125
    
    
    
    (4,673
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    4,281Net earnings (loss)
    
    $
    13,500
    
    
    $
    4,125
    
    
    $
    (8,954
    )Earnings (loss) per share:Basic
    
    $
    0.83
    
    
    $
    0.27
    
    
    $
    (0.59
    )Diluted
    
    $
    0.79
    
    
    $
    0.26
    
    
    $
    (0.59
    )Weighted average number of common shares outstanding:Basic
    
    
    16,357
    
    
    
    15,488
    
    
    
    15,180Diluted
    
    
    17,136
    
    
    
    15,718
    
    
    
    15,180
 See accompanying notes to consolidated financial statements. 28




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Radyne ComStream Inc.
Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss)
Years ended December 31, 2004, 2003 and 2002
(in thousands) Additional
    
    
    Retained earnings
    
    
    AccumulatedCommon stock


    
    
    Paid-in
    
    
    (accumulated
    
    
    other comprehensiveShares
    
    
    Amount
    
    
    capital
    
    
    deficit)
    
    
    income (loss)
    
    
    TotalBalances, December 31, 2001
    
    
    15,021
    
    
    $
    15
    
    
    $
    50,022
    
    
    $
    (4,671
    )
    
    $
    (19
    )
    
    $
    45,347Exercise of stock options
    
    
    88
    
    
    
    
    
    
    
    307
    
    
    
    
    
    
    
    
    
    
    
    307Issuance of common stock through
Employee Stock Purchase Plan
    
    
    200
    
    
    
    
    
    
    
    592
    
    
    
    
    
    
    
    
    
    
    
    592Comprehensive income (loss):Foreign translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )Net earnings (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,954
    )
    
    
    
    
    
    
    (8,954
    )Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,958
    )Balances, December 31, 2002
    
    
    15,309
    
    
    
    15
    
    
    
    50,921
    
    
    
    (13,625
    )
    

    
    (23
    )
    
    
    37,288Exercise of stock options
    
    
    642
    
    
    
    1
    
    
    
    1,865
    
    
    
    
    
    
    
    
    
    
    
    1,866Issuance of common stock through
Employee Stock Purchase Plan
    
    
    180
    
    
    
    
    
    
    
    316
    
    
    
    
    
    
    
    
    
    
    
    316Comprehensive income:Foreign translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    23Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,125
    
    
    
    
    
    
    
    4,125Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,148Balances, December 31, 2003
    
    
    16,131
    
    
    
    16
    
    
    
    53,102
    
    
    
    (9,500
    )
    
    
    
    
    
    
    43,618Exercise of stock options
    
    
    435
    
    
    
    
    
    
    
    1,572
    
    
    
    
    
    
    
    
    
    
    
    1,572Issuance of common stock through
Employee Stock Purchase Plan
    
    
    70
    
    
    
    
    
    
    
    460
    
    
    
    
    
    
    
    
    
    
    
    460Common stock repurchased
    
    
    (403
    )
    
    
    
    
    
    
    (2,555
    )
    
    
    (236
    )
    
    
    
    
    
    
    (2,791
    )Tax benefit related to stock options
    
    
    
    
    
    
    
    
    
    
    1,835
    
    
    
    
    
    
    
    
    
    
    
    1,835Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,500
    
    
    
    
    
    
    
    13,500Balances, December 31, 2004
    
    
    16,233
    
    
    $
    16
    
    
    $
    54,414
    
    
    $
    3,764
    
    
    $
    
    
    
    $
    58,194
 See accompanying notes to consolidated financial statements. 29




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##### Table of Contents



Radyne ComStream Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2004, 2003 and 2002
(in thousands) Years ended December 31,2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net earnings (loss)
    
    $
    13,500
    
    
    $
    4,125
    
    
    $
    (8,954
    )Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:Asset impairment charge
    
    
    135
    
    
    
    
    
    
    
    995Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    4,281Provision for bad debt
    
    
    318
    
    
    
    398
    
    
    
    434Deferred income taxes
    
    
    (5,663
    )
    
    
    2,553
    
    
    
    Gain on disposal of assets
    
    
    (23
    )
    
    
    (21
    )
    
    
    Depreciation and amortization
    
    
    1,246
    
    
    
    1,853
    
    
    
    2,501Tax benefit from disqualifying dispositions
    
    
    1,835
    
    
    
    
    
    
    
    Increase (decrease) in cash resulting from changes in:Accounts receivable
    
    
    (266
    )
    
    
    339
    
    
    
    3,833Inventories
    
    
    (366
    )
    
    
    2,889
    
    
    
    7,170Prepaid expenses and other current assets
    
    
    (364
    )
    
    

    85
    
    
    
    228Other assets
    
    
    20
    
    
    
    2
    
    
    
    (115
    )Accounts payable
    
    
    (615
    )
    
    
    300
    
    
    
    (592
    )Accrued expenses
    
    
    1,571
    
    
    
    (387
    )
    
    
    (79
    )Income taxes payable
    
    
    57
    
    
    
    185
    
    
    
    (79
    )Customer advance payments
    
    
    (728
    )
    
    
    170
    
    
    
    106Long-term obligations
    
    
    19
    
    
    
    (61
    )
    
    
    (73
    )Accrued stock option compensation
    
    
    (59
    )
    
    
    (296
    )
    
    
    (1
    )Net cash provided by operating activities
    
    
    10,617
    
    
    
    12,134
    
    
    
    9,655Cash flows from investing activities:Capital expenditures
    
    
    (822
    )
    
    
    (521
    )
    
    
    (1,471
    )Proceeds from sales of property and equipment
    
    
    148
    
    
    
    121
    
    
    
    14Net cash used in investing activities
    
    
    (674
    )
    
    
    (400
    )
    
    
    (1,457
    )Cash flows from financing activities:Repurchase of common stock
    
    
    (2,791
    )
    
    
    
    
    
    
    Net proceeds from sale of common stock to employees
    
    
    460
    
    
    
    316
    
    
    
    592Exercise of stock options
    
    
    1,572
    
    
    
    1,866
    
    
    
    306Principal payments on capital lease obligations
    
    
    (14
    )
    
    
    (38
    )
    
    
    (73
    )Net cash (used in) provided by financing activities
    
    
    (773
    )
    
    
    2,144
    
    
    
    825Net increase in cash and cash equivalents
    
    
    9,170
    
    
    
    13,878
    
    
    
    9,023Effects of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    23
    
    
    
    (4
    )Cash and cash equivalents, beginning of year
    
    
    30,130
    
    
    
    16,229
    
    
    
    7,210Cash and cash equivalents, end of year
    
    $
    39,300
    
    
    $
    30,130
    
    
    $
    16,229Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    29
    
    
    $
    28
    
    
    $
    61Cash paid for taxes
    
    $
    125
    
    
    $
    
    
    
    $
    Supplemental schedule of non-cash investing and financing activities:Acquisition of equipment through capital lease
    
    $
    
    
    
    $
    
    
    
    $
    19
 See accompanying notes to consolidated financial statements. 30




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##### Table of Contents



Radyne ComStream Inc.
Notes to the Consolidated Financial Statements
For the year ended December 31, 2004, 2003 and 2002 (1) Organization and Acquisition 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. (the Company). 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. STPL beneficially owned 9,676,800 shares of the Companys common stock at
December 31, 2003. These shares represented 60% of the Companys voting shares outstanding as
of December 31, 2003. On February 19, 2004 STPL sold all 9,676,800 shares in a private
transaction (see Note 10). The Company is headquartered in Phoenix, Arizona and has manufacturing facilities in Phoenix
and in San Diego, California. Additionally, the Company has sales offices in Boca Raton,
Florida, Singapore, Beijing, Jakarta, London and Amsterdam. The Company also contracts with
representatives that provide sales and/or service centers in Rio de Janeiro and Bangalore. The
Company designs, manufactures, and sells products, systems and software used for the
transmission and reception of data, voice, internet protocol and video over satellite,
microwave and cable communication networks. The Company operates primarily in North America in the satellite communications industry. The
Phoenix facility designs and manufactures satellite and point-to-point modems and allied
equipment. The San Diego facility designs and manufactures audio and video encoders, satellite
modems and Internet over satellite hardware. The Company sells and distributes its products
under the Radyne ComStream, ComStream and Tiernan brands. (2) Summary of Significant Accounting Policies (a) Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make a number of
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements. Such
estimates and assumptions affect the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions
based upon historical experience and various other factors and circumstances. The Company
believes that its 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 and short term AAA investments with original
maturities of 90 days or less to be cash equivalents. (d) Accounts Receivable Accounts receivable consist of trade receivables from customers. The Company maintains an
allowance for doubtful accounts for estimated losses resulting from the inability of the
Companys customers to make required payments. The allowance is assessed on a regular basis
by management and is based upon managements periodic review of the collectibility of the
receivables with respect to historical experience. If 31




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##### Table of Contents



the financial condition of the Companys customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required. (e) Revenue Recognition The Company recognizes revenue when products have been shipped to the customer, an agreement
with the customer has been executed, transfer of title and acceptance has occurred, pricing is
fixed and collectibility is probable. Revenue from services is recognized when the related
services have been performed. We consider products and services as separate units of accounting
under EITF 00-21, Revenue Arrangements with Multiple Deliverables. Revenue is allocated to the
separate units of accounting based on their relative fair values. (f) Inventories Inventories, consisting of satellite modems and related products, are valued at the lower of
cost (first-in, first-out) or market. The Company writes down its inventory for estimated
obsolescence or unmarketable inventory equal to the difference between the cost of inventory
and the estimated market value based on assumptions about future demand and market conditions. (g) Property and Equipment Property and equipment are stated at cost. Equipment held under capital leases is stated at the
present value of future minimum lease payments. Expenditures for repairs and maintenance are
charged to operations as incurred, and improvements, which extend the useful lives of the
assets, are capitalized. Depreciation is computed using the straight-line method over the
estimated useful lives as follows: machinery and equipment three to seven years; furniture and
fixtures two to seven years; demonstration units two to three years and computers and software
three to fine 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. (h) Intangible Assets Goodwill represents the excess of costs over fair value of assets of businesses acquired. The
Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets(SFAS 142) 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 142. SFAS 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 Statement of Financial Accounting
Standards No. 144, Accounting for Impairment or Disposal of Long-Lived Assets(SFAS 144). 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 2002 as a cumulative effect of
change in accounting principle. We have no remaining goodwill on our balance sheet as of
December 31, 2004 and 2003. (i) 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. Purchased technology of $995,000 was written-off during
2002 because the Company discontinued use of the technology. (j) Impairment of Long-Lived Assets The Company reviews long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amounts of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. 32




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(k) 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. (l) Research and Development The cost of research and development is charged to expense as incurred. (m) Income Taxes The Company accounts for income taxes under the asset and liability method. Deferred tax assets
and liabilities are recognized for the future consequences attributed to differences between
the consolidated financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Differences between income for financial and tax reporting purposes
arise primarily from amortization of certain intangible assets and accruals for warranty
reserves and compensated absences. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected 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. The Company evaluates the recoverability of the deferred tax assets and records a valuation
allowance to reduce its deferred tax assets to an amount for which realization is more likely
than not. 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 valuation allowance for deferred tax assets would
result in an income tax benefit in the period such determination was made. (n) Concentration of Credit Risk Financial instruments, which potentially subject the Company to concentrations of credit risk,
are principally accounts receivable. The Company maintains ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains allowances for doubtful accounts for the estimated 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 the Companys 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. (o) 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. 33




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(p) 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. (q) Employee Stock Options The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees(APB 25) and related interpretations in accounting for its employee
stock options and to adopt the disclosure only alternative treatment under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation(SFAS 123).
Under SFAS 123, deferred compensation is recorded for the fair value of the stock on the date
of the option grant. The deferred compensation is amortized over the vesting period of the
option. The Company applies APB 25 in accounting for its employee stock options. Had the Company
determined compensation cost based on the fair value at the grant date for its stock options
under SFAS 123, the Companys net earnings (loss) and net earnings (loss) per share would have
been reduced to the pro forma amounts indicated below: For the Year Ended December 31,(in thousands)2004
    
    
    2003
    
    
    2002Net earnings (loss):As reported
    
    $
    13,500
    
    
    $
    4,125
    
    
    $
    (8,954
    )Fair value of stock options
    
    
    1,508
    
    
    
    726
    
    
    
    5,183Pro forma
    
    $
    11,992
    
    
    $
    3,399
    
    
    $
    (14,137
    )Earnings (loss) per share:Basic  as reported
    
    $
    0.83
    
    
    $
    0.27
    
    
    $
    (0.59
    )Basic  pro forma
    
    $
    0.73
    
    
    $
    0.22
    
    
    $
    (0.93
    )Diluted  as reported
    
    $
    0.79
    
    
    $
    0.26
    
    
    $
    (0.59
    )Diluted  pro forma
    
    $
    0.70
    
    
    $
    0.22
    
    
    $
    (0.93
    )
 The fair value of options granted under the stock option plans 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 49 percent  95 percent, risk free interest rate of 3.00 percent  4.25
percent, and expected lives of five  seven years. The per share weighted average fair value of
stock options granted under the Plan for the years ended December 31, 2004, 2003 and 2002 were
$4.75, $1.65 and $3.16 respectively, using the Black-Scholes option-pricing model and the
assumptions listed above. In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 123R, Share-Based Payment(SFAS 123R). SFAS 123R is a revision of SFAS
123 and supersedes APB 25. Among other items, SFAS 123R eliminates the use of APB 25 and the
intrinsic value method of accounting, and requires companies to recognize the cost of employee
services received in exchange for awards of equity instruments, based on the grant date fair
value of those awards, in the financial statements. The effective date of SFAS 123R is the
first reporting period beginning after June 15, 2005, which is third quarter 2005 for calendar
year companies, although early adoption is allowed. SFAS 123R permits companies to adopt its
requirements using either a modified prospective method, or a modified retrospective
method. Under the modified prospective method, compensation cost is recognized in the
financial statements beginning with the effective date, based on the requirements of SFAS 123R
for all share-based payments granted after that date, and based on the requirements of SFAS 123
for all unvested awards granted prior to the effective date of SFAS 123R. Under the modified
retrospective method, the requirements are the same as under the modified prospective
method, but also permits entities to restate financial statements of previous periods based on
pro forma disclosures made in accordance with SFAS 123. The Company currently utilizes a standard option-pricing model (i.e., Black-Scholes) to measure
the fair value of stock options granted to employees. While SFAS 123R permits entities to
continue to use such a model, the 34




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standard also permits the use of a lattice model. The Company has not yet determined which
model it will use to measure the fair value of employee stock options upon the adoption of SFAS
123R. SFAS 123R also requires that the benefits associated with the tax deductions in excess of
recognized compensation cost be reported as a financing cash flow, rather than as an operating
cash flow as required under current literature. This requirement will reduce net operating cash
flows and increase net financing cash flows in periods after the effective date. These future
amounts cannot be estimated, because they depend on, among other things, when employees
exercise stock options. The Company currently expects to adopt SFAS 123R effective July 1, 2005; however, the Company
has not yet determined which of the aforementioned adoption methods it will use. Subject to a
complete review of the requirements of SFAS 123R, based on stock options granted to employees
through December 31, 2004, and stock options expected to be granted during 2005, the Company
expects that the adoption of SFAS 123R on July 1, 2005, will reduce both third quarter 2005 and
fourth quarter 2005 net earnings and net earnings per share. (r) Segment Reporting The Company has utilized the management approach as defined by Statement of Financial
Accounting Standards No. 131 Disclosures about Segments of an Enterprise and Related
Information(SFAS 131) to determine if the Company has reportable operating segments. Based on
this evaluation, the Company has determined that it has only one operating business segment,
the sale, integration and installation of equipment for satellite, microwave and cable
communications and television networks. (s) Reclassifications Certain reclassifications have been made to the prior years consolidated financial statements
to conform to the current year presentation. (3) Inventories December 31,2004
    
    
    2003(in thousands)Inventories consist of the following:Raw materials and components
    
    $
    5,659
    
    
    $
    6,261Work-in-process
    
    
    1,501
    
    
    
    1,137Finished goods
    
    
    972
    
    
    
    368$
    8,132
    
    
    $
    7,766
 (4) Property and Equipment December 31,2004
    
    
    2003(in thousands)Property and equipment consist of the following:Machinery and equipment
    
    $
    4,498
    
    
    $
    6,020Furniture and fixtures
    
    
    1,463
    
    
    
    4,053Leasehold improvements
    
    
    491
    
    
    
    645Demonstration units
    
    
    1,113
    
    
    
    674Computers and software
    
    
    795
    
    
    
    9238,360
    
    
    
    12,315Less accumulated depreciation and amortization
    
    
    (6,767
    )
    
    
    (10,046
    )$
    1,593
    
    
    $
    2,269
 35




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##### Table of Contents



(5) Accrued Expenses Accrued expenses consist of the following:December 31,2004
    
    
    2003(in thousands)Wages, vacation and related payroll taxes
    
    $
    2,351
    
    
    $
    1,025Professional fees
    
    
    354
    
    
    
    220Warranty reserve
    
    
    955
    
    
    
    857Restructuring costs
    
    
    67
    
    
    
    407Commissions
    
    
    489
    
    
    
    386Deferred rent
    
    
    265
    
    
    
    181Other
    
    
    354
    
    
    
    197$
    4,835
    
    
    $
    3,273
 The following summarizes changes to restructuring related liabilities for the year ended
December 31, 2004 and 2003: Accrued LeaseExit CostsBalance, December 31, 2002
    
    $
    645Cash payments
    
    
    (238
    )Balance, December 31, 2003
    
    $
    407Cash payments
    
    
    (340
    )Balance, December 31, 2004
    
    $
    67
 During the third quarter of 2002, the Company 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 its 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 at the San Diego
facility as a result of these cost cutting measures. This effort resulted in a charge to the
Companys operating expenses of approximately $1.5 million; of which $431,000 was charged to
cost of sales and the balance was charged to restructuring charge. This amount included
$170,000 in severance costs. During the year ended December 31, 2002, the Company paid all
charges except for $645,000 in lease exit costs. During the years ended December 31, 2004 and
2003, $340,000 and $238,000 in lease exit costs were paid and the remaining $67,000 was paid in
January and February 2005. (6) Line of Credit The Company maintains a credit arrangement with a bank for up to $9 million, based upon 80% of
eligible accounts receivable, as defined. The amount of credit available to us under the credit
agreement at December 31, 2004 was approximately $7 million. We paid approximately $35,000 for
a facility fee and bank costs for a two year commitment on the arrangement, whether or not any
amounts are actually drawn on the line of credit. At December 31, 2004 and 2003, we had no
borrowings against the line of credit. The credit agreement expires on May 1, 2006 and limits
or 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 us to maintain specific levels of
tangible net worth, earnings and other ratios. We were in compliance with all covenants at
December 31, 2004. The credit agreement specifies an interest rate between LIBOR plus 150 basis
points and prime rate minus 50 basis points depending on terms and other conditions. 36




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(7) Commitments Amounts paid under rental agreements were $1,856,000, $1,860,000, and $1,779,000 for the years
ended December 31, 2004, 2003 and 2002, respectively. Future minimum rentals under leases after
December 31, 2004 are as follows: 2005
    
    $
    1,3642006
    
    
    1,3162007
    
    
    1,3702008
    
    
    1,1282009
    
    
    327Thereafter
    
    
    199Total commitments
    
    $
    5,704
 The Company currently subleases a portion of its Phoenix facility to the University of Phoenix
Online. Rent expense was offset by $283,000, $275,000 and $267,000 for the years ended December
31, 2004, 2003 and 2002 for rent payments received through this sublease. Future minimum
rentals under leases after December 31, 2004 have not been reduced by minimum sublease rentals
of $291,000, $299,000 and $255,000 for the years ended December 31, 2005, 2006 and 2007,
respectively. This sublease agreement expires in 2007. As part of the Armer acquisition, we leased facilities in Chandler, Arizona consisting of
16,000 square feet costing approximately $16,000 per month and expiring in 2008. The Armer
operations were consolidated into our Phoenix facility in 2004 and we are currently seeking to
vacate those premises with the assumption of the lease by a sub-tenant. 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 $5,029,000 at December 31, 2004, which is anticipated to be paid in 2005. (8) Income Taxes Income tax expense (benefit) amounted to $(3,644,000), $2,599,000, and $(196,000) for the years
ended December 31, 2004, 2003 and 2002, respectively. The actual tax expense (benefit) for
these periods differs from the Federal statutory tax expense for those periods as follows: Years ended December 31,2004
    
    
    2003
    
    
    2002(in thousands)Computed Federal statutory tax expense
    
    $
    3,351
    
    
    $
    2,286
    
    
    $
    (1,655
    )State tax expense (benefit)
    
    
    (335
    )
    
    
    207
    
    
    
    (27
    )Change in federal valuation allowance
    
    
    (6,396
    )
    
    
    1,282
    
    
    
    1,466Extra territorial income exclusion
    
    
    (456
    )
    
    
    (1,128
    )
    
    
    Other adjustments
    
    
    192
    
    
    
    (48
    )
    
    
    20Total
    
    $
    (3,644
    )
    
    $
    2,599
    
    
    $
    (196
    )
 37




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##### Table of Contents



Components of income tax expense (benefit) for 2004, 2003 and 2002 follow: Current
    
    
    Deferred
    
    
    Total(in thousands)2004:Federal
    
    $
    1,942
    
    
    $
    (5,080
    )
    
    $
    (3,138
    )State
    
    
    77

    
    
    
    (583
    )
    
    
    (506
    )Total
    
    $
    2,019
    
    
    $
    (5,663
    )
    
    $
    (3,644
    )2003:Federal
    
    $
    (10
    )
    
    $
    2,296
    
    
    $
    2,286State
    
    
    56
    
    
    
    257
    
    
    
    313Total
    
    $
    46
    
    
    $
    2,553
    
    
    $
    2,5992002:Federal
    
    $
    (156
    )
    
    $
    
    
    
    $
    (156
    )State
    
    
    (40
    )
    
    
    
    
    
    
    (40
    )Total
    
    $
    (196
    )
    
    $
    
    
    
    $
    (196
    )
 2004
    
    
    2003(in thousands)Deferred tax assets consisted of the following at December 31:Cumulative tax effect of net operating loss carryforwards
    
    $
    6,037
    
    
    $
    6,966Tax credits
    
    
    502
    
    
    
    389Reserves and accruals
    
    
    1,113
    
    
    
    1,584Depreciation
    
    
    (4
    )
    
    
    319Amortization of goodwill and intangibles
    
    
    561
    
    
    
    625Valuation allowance
    
    
    (2,546
    )
    
    
    (9,883
    )$
    5,663
    
    
    $
    
 During the year ended December 31, 2004, the Company reduced the valuation allowance related to
the deferred tax assets to record such asset at the amount management believes is more likely
than not to be realized through the generation of future taxable income. The net change in the
total valuation allowance for the years ended December 31, 2004 and 2003 was approximately
$7,337,000 and $1,301,000, respectively. Of the decrease in the
valuation allowance during the year ended December 31, 2004
approximately $7,030,000 was recorded as a reduction of income tax
expense, approximately $772,000 was recorded as an increase to
additional paid-in capital and approximately $465,000 was recorded as
an increase in deferred tax assets. In addition to the approximate
$772,000 increase in additional paid-in capital for the release of
the valuation allowance related to the tax benefits of stock option
exercises in prior years, additional paid-in capital was increased
for the tax benefit of stock option exercises during the year ended
December 31, 2004 in the amount of approximately $1,063,000 for
a total increase of approximately $1,835,000. At December 31,
2004, the Company has net operating loss carryforwards of
approximately $16,807,000 expiring in various years from 2018 through
2022, and federal alternative minimum tax credits of approximately
$449,000 which do not expire, and state credits of approximately
$53,000 which expire in 2008. These net operating losses and federal
and state tax credits are available for utilization against taxable
income/taxes payable of future periods, if any. As of December 31, 2004, the Company has total net deferred tax assets of $8,209,000 with a
corresponding valuation allowance of $2,546,000. The valuation allowance relates to net
operating loss carryforwards which management believes are limited as
to utilization under Internal Revenue
Service Code Section 382. The Company generated taxable income in each of the four quarters of
2004, the last three quarters of 2003 and projects future taxable income to be sufficient to
utilize the net deferred tax assets. Management believes that past profitable performance and
the forecast of future profits supports the recognition of the deferred tax assets and the
reduction of the valuation allowance. Ultimate realization of any or all of the deferred tax assets is not assured due to significant
uncertainties associated with estimates of future taxable income during the carryforward
periods and is subject to change depending on the tax laws in effect in the years in which the
carryforwards are used. Management will continue to evaluate the recoverability of the
deferred tax assets and will adjust the valuation allowance recorded against the deferred tax
assets accordingly. The Company has representative sales offices in foreign countries, some of which the United
States does not have tax treaties with. This could potentially subject the Company to taxation
in those countries. While management believes the Company does not have any tax liability in
these jurisdictions, the Company has accrued for potential tax exposure in the event we could be
deemed subject to taxation and may not prevail in an
audit by these taxing authorities. Such potential tax exposure and related accrued liabilities are
not material to the Companys consolidated financial statements. 38




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(9) Significant Customers and Foreign and Domestic Sales No customer represented greater than 10% of net sales during any of the years ended December
31, 2004, 2003 or 2002. The Companys sales in principal foreign and domestic markets as a percentage of total sales
for the years ended December 31, 2004, 2003 and 2002 follow: Years ended December 31,2004
    
    
    2003
    
    
    2002Asia
    
    
    21
    %
    
    
    21
    %
    
    
    27
    %Africa/Middle East
    
    
    10
    %
    
    
    8
    %
    
    
    5
    %Latin America
    
    
    2
    %
    
    
    2
    %
    
    
    3
    %Europe
    
    
    13
    %
    
    
    16
    %
    
    
    11
    %Canada
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %Total Foreign sales
    
    
    47
    %
    
    
    48
    %
    
    
    47
    %Domestic
    
    
    53
    %
    
    
    52
    %
    
    
    53
    %100
    %
    
    
    100
    %
    
    
    100
    %Foreign assets
    
    $
    
    
    
    $
    
    
    
    $
    319,000
 In 2003, the Company transferred all of the assets of the ComStream UK Ltd. entity to the
San Diego operating facility. Prior to 2003, the Company maintained the subsidiary entity
under the registration of the United Kingdom. In 2003, it was decided that the original
reasons to establish the legal entity in the UK no longer existed. Therefore, effective
January 1, 2003 the legal entity was dissolved. The Company maintains a sales office in the
UK which is a branch of Radyne ComStream Inc. (10) Stockholders Equity On June 4, 2004, the Board of Directors authorized management to purchase up to $10 million
of the Companys outstanding common stock. As of December 31, 2004, the Company has
purchased 402,600 shares under the program at a total cost of $2,791,000 which has been
recorded as a reduction to additional paid-in capital of $2,555,000 and a reduction to
retained earnings of $236,000. This program expires on June 3, 2005 and was the only
repurchase program outstanding at December 31, 2004. On February 19, 2004, Stetsys Pte. Ltd. and Stetsys US, Inc. entered into definitive
purchase agreements to sell their shares of common stock in the Company, an aggregate of
9,676,800 shares, to approximately 40 institutional investors in a private transaction. The
purchase price of the common stock was $9.25 per share. The shares sold in the transaction
will be subject to securities law restrictions on their subsequent resale. However, the
Company has registered the shares for resale. The Company has not received any proceeds
from this transaction. 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 was 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 were issued until February 7, 2005. Commencing
February 7, 2001, the Company could 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 (see Note 18). The Company has the authority to issue ten million shares of preferred stock, par value
$0.001 per share. At December 31, 2004 and 2003 no preferred shares were issued or
outstanding. (11) Earnings (Loss) Per Share 39




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##### Table of Contents



A reconciliation of the numerators and the denominators of the basic and diluted per share
computations and a description and amount of potentially dilutive securities follow: Years Ended December 31,2004
    
    
    2003
    
    
    2002(in thousands, except per share amounts)Numerator:Net earnings (loss)
    
    $
    13,500
    
    
    $
    4,125
    
    
    $
    (8,954
    )Denominator:Weighted average common shares for basic
earnings per share
    
    
    16,357
    
    
    
    15,488
    
    
    
    15,180Net effect of dilutive stock options and
warrants
    
    
    779
    
    
    
    230
    
    
    
    Weighted average common shares for diluted
earnings per share
    
    
    17,136
    
    
    
    15,718
    
    
    
    15,180Basic earnings (loss) per share:Net earnings (loss) per basic share
    
    $
    0.83
    
    
    $
    0.27
    
    
    $
    (0.59
    )Diluted earnings (loss) per share:Net earnings (loss) per diluted share
    
    $
    0.79
    
    
    $
    0.26
    
    
    $
    (0.59
    )Options and warrants excluded from earnings
(loss) per share due to anti-dilution:Stock options with exercise price greater than the
average market price
    
    
    485
    
    
    
    1,648
    
    
    
    3,322Common stock warrants with $8.75 exercise price
    
    
    2,144
    
    
    
    2,144
    
    
    
    2,144
 (12) Employee Benefit Plan The Company has a qualified contributory 401(k) plan that covers all employees who have
attained the age of 18 and are employed at the enrollment date. The Company provided
contributions of $194,000, $184,000 and $267,000 respectively, for the years ended December
31, 2004, 2003 and 2002. 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, 2004, 2003 and 2002, the Company matched 50% of each employee
contribution to the plan up to a maximum annual match of $2,000. (13) 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, 2004, the Company had
2,186,739 options outstanding under this plan and 1,179,888 options available for future
issuance. 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, 2004, the Company had 436,823 options outstanding
under this plan and 392,094 options available for future issuance. At December 31, 2004, the Company had a total of 2,623,562 options outstanding at exercise
prices ranging from $2.25 to $14.63 per share. Of the total options, the Company had 84,636
options outstanding at an exercise price of $2.50 per share that carry the right to a cash
bonus of $1.719 per purchased share, payable upon exercise. The stock option compensation
accrual related to the bonus is $146,000 and
$205,000 at December 31, 2004 and 2003, respectively. A summary of the aforementioned stock
plan activity follows: 40




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##### Table of Contents



WeightedAveragePrice PerNumber
    
    
    ShareBalance, December 31, 2001
    
    
    3,569,702
    
    
    $
    7.71Granted
    
    
    432,000
    
    
    
    4.27Forfeited
    
    
    (605,291
    )
    
    
    8.17Exercised
    
    
    (88,364
    )
    
    
    3.45Balance, December 31, 2002
    
    
    3,308,047
    
    
    $
    7.29Granted
    
    
    1,167,429
    
    
    
    3.61Cancelled
    
    
    (999,615
    )
    
    
    9.90Forfeited
    
    
    (230,304
    )
    
    
    4.21Exercised
    
    
    (642,101
    )
    
    
    2.92Balance, December 31, 2003
    
    
    2,603,456
    
    
    $
    5.99Granted
    
    
    495,450
    
    
    
    7.16Forfeited
    
    
    (40,788
    )
    
    
    5.19Exercised
    
    
    (434,556
    )
    
    $
    3.64Balance, December 31, 2004
    
    
    2,623,562
    
    
    $
    6.62
 A summary of stock options outstanding at December 31, 2004 follows: Options Outstanding
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Number
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    AverageRange of Exercise Prices
    
    Outstanding
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise Price$2.25 to $3.50
    
    
    484,474
    
    
    5.1 years
    
    $
    2.66
    
    
    
    470,599
    
    
    $
    2.67$3.51 to $4.75
    
    
    292,512
    
    
    6.7 years
    
    
    4.14
    
    
    
    229,387
    
    
    
    4.11$4.76 to $6.25
    
    
    657,384
    
    
    8.4 years
    
    
    5.39
    
    
    
    406,892
    
    
    
    5.50$6.26 to $7.50
    
    
    697,072
    
    
    8.1 years
    
    
    6.77
    
    
    
    436,641
    
    
    
    6.83$7.51 to $8.75
    
    
    7,000
    
    
    7.5 years
    
    
    8.10
    
    
    
    4,750
    
    
    
    8.19$8.76 to $10.00
    
    
    95,750
    
    
    9.4 years
    
    
    9.12
    
    
    
    23,750
    
    
    
    9.12$10.01 to $14.63
    
    
    389,370
    
    
    5.5 years
    
    
    14.55
    
    
    
    389,370
    
    
    
    14.552,623,562
    
    
    7.1 years
    
    $
    6.62
    
    
    
    1,961,389
    
    
    $
    6.80
 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 would be granted no earlier than six months and one day after the options were
accepted for exchange and canceled by the Company. The participating employees were to
receive an amount of new options in accordance with the following exchange ratio schedule,
subject to 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, 41




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##### Table of Contents



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
granted new options to purchase 496,429 shares of common stock on July 23, 2003 at an
exercise price of $2.26. (14) Employee Stock Purchase Plan On June 15, 1999, the Companys 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 the Companys 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. There were 1,000,000 shares
authorized for issuance under the plan. As of December 31, 2004, 369,412 shares remain
unissued under the plan. (15) Related Party Transactions Sales to Agilis Communication Technologies Pte Ltd (Agilis), an affiliate of ST, amounted to
$20,000, $0 and $97,000 for the years ended December 31, 2004, 2003 and 2002, respectively. (16) 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. (17) Supplemental Financial Information A summary of additions and deductions related to the allowance for doubtful accounts for the
years ended December 31, 2004, 2003 and 2002 follows: Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atBeginning
    
    
    
    
    
    
    
    
    
    
    End ofof Year
    
    
    Additions
    
    
    Deductions
    
    
    Year(in thousands)Years ended December 31:2004
    
    $
    489
    
    
    
    318
    
    
    
    457
    
    
    $
    3502003
    
    $
    339
    
    
    
    398
    
    
    
    248
    
    
    $
    4892002
    
    $
    1,173
    
    
    
    434
    
    
    
    1,268
    
    
    $
    339
 (18) Subsequent Events After December 31, 2004 but prior to the expiration date of February 7, 2005, 310,571 of the
Companys redeemable warrants were exercised. The Company received proceeds of $2,717,000
related to the exercises and have issued 310,571 shares of our common stock to the former
holders of the redeemable warrants. The remaining 1,832,966 unexercised warrants expired on
February 7, 2005. On March 3, 2005, the Company announced that it intended to acquire Xicom Technology, Inc for
approximately $41 million of cash and stock. The transaction has been approved by the Board
of Directors of both companies and is expected to close during the second quarter of 2005.
Closing is subject to completion of a satisfactory pre-closing audit, receipt and approval of
complete disclosure schedules, and customary closing conditions. On March 3, 2005, the Board of Directors approved the Management Incentive Plan for 2005.
Under the plan, officers and certain other key employees of the Company will be paid a bonus
if the Company achieves specified before-tax profit performance objectives during 2005.
Bonuses will not be paid if the Companys 42




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##### Table of Contents



before-tax profitability fails to achieve specified levels. The Management Incentive Plan
calls for the payments at a higher rate for amounts in excess of budgeted objectives. (19) Quarterly Financial Data  Unaudited A summary of the quarterly data for the years ended December 31, 2004 and 2003 follows: First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Total(in thousands, except per share amounts)2004:Total revenues
    
    $
    15,073
    
    
    $
    12,020
    
    
    $
    12,707
    
    
    $
    16,778
    
    
    $
    56,578Gross profit
    
    
    7,980
    
    
    
    6,049
    
    
    
    6,574
    
    
    
    9,540
    
    
    
    30,143Operating expenses
    
    
    4,705
    
    
    
    4,720
    
    
    
    4,934
    
    
    
    6,391
    
    
    
    20,750Earnings from operations
    
    
    3,274
    
    
    
    1,329
    
    
    
    1,640
    
    
    
    3,150
    
    
    
    9,393Net earnings
    
    
    3,135
    
    
    
    1,323
    
    
    
    6,065
    
    
    
    2,977
    
    
    
    13,500Basic earnings per share (1)
    
    
    0.19
    
    
    
    0.08
    
    
    
    0.37
    
    
    
    0.18
    
    
    
    0.83Diluted earnings per share (1)
    
    
    0.18
    
    
    
    0.08
    
    
    
    0.36
    
    
    
    0.18
    
    
    
    0.792003:Total revenues
    
    $
    10,880
    
    
    $
    14,792
    
    
    $
    15,791
    
    
    $
    16,528
    
    
    $
    57,991Gross profit
    
    
    3,666
    
    
    
    6,632
    
    
    
    7,135
    
    
    
    8,918
    
    
    
    26,351Operating expenses
    
    
    5,168
    
    
    
    5,313
    
    
    
    4,532
    
    
    
    4,840
    
    
    
    19,853Earnings (loss) from operations
    
    
    (1,503
    )
    
    
    1,318
    
    
    
    2,605
    
    
    
    4,078
    
    
    
    6,498Net earnings (loss)
    
    
    (1,448
    )
    
    
    1,372
    
    
    
    1,624
    
    
    
    2,577
    
    
    
    4,125Basic earnings (loss) per share
    
    
    (0.09
    )
    
    
    0.09
    
    
    
    0.11
    
    
    
    0.16
    
    
    
    0.27Diluted earnings (loss) per share
    
    
    (0.09
    )
    
    
    0.09
    
    
    
    0.10
    
    
    
    0.16
    
    
    
    0.26
   (1)
    
    Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share does not equal
the total computed for the year due to stock transactions that occurred. 
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None 
 Item 9A. Controls and Procedures Based on their evaluation as of December 31, 2004, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended) were
sufficiently effective to ensure that the information required to be disclosed by us in this
Annual Report on Form 10-K was recorded, processed, summarized and reported within the time
periods specified in the SECs rules and instructions for Form 10-K. There were no
significant changes in our internal controls over financial reporting during our most
recently completed quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting, or there factors that could
significantly affect these controls subsequent to the date of their evaluation, and there
were no corrective actions taken with regard to significant deficiencies or material
weaknesses in our controls. Managements Annual Report on Internal Control over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined by rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934. The Companys internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. The Companys internal control over financial reporting
includes those policies and procedures that:  i.
    pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect transactions and
dispositions of the assets of the Company; 43




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##### Table of Contents



ii.
    provide reasonable assurance that the
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being
made only in accordance with the authorizations of management and
directors of the Company; andiii.
    provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or
disposition of the Companys assets that could have a material effect
of the financial statements. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may
deteriorate. Management assessed the effectiveness of the Companys internal control over
financial reporting as of December 31, 2004. In making this assessment, our management used
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment of those criteria, management believes that the Company maintained
effective internal control over financial reporting as of December 31, 2004. KPMG LLP, the independent registered public accounting firm that audited the consolidated
financial statements of the Company included in this Annual Report on Form 10-K, has issued a
report on managements assessment of the effectiveness of the Companys internal control over
financial reporting as of December 31, 2004. The report is included below. 44




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##### Table of Contents



Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders
Radyne ComStream Inc.: We have audited managements assessment, included in the accompanying Managements Report on
Internal Control over Financial Reporting, that Radyne ComStream Inc. (the Company) maintained
effective internal control over financial reporting as of December 31, 2004, based on criteria
established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Companys management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that the Company maintained effective internal control over
financial reporting as of December 31, 2004 is fairly stated, in all material respects, based on
criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2004,
based on COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of the Company and subsidiaries as of
December 31, 2004 and 2003, 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, 2004, and our report dated March 11, 2005 expressed an unqualified
opinion on those consolidated financial statements. /s/ KPMG LLP Phoenix, Arizona
March 11, 2005 
 Item 9B. Other Information None 45




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##### Table of Contents



PART III 
 Item 10. Directors and Executive Officers of the Registrant Information regarding directors and executive officers of the Company is set forth under the
captions Board of Directors and Executive Officers and Compensation in the Companys
Proxy Statement relating to its 2005 Annual Meeting of Stockholders (the 2005 Proxy
Statement), which will be filed with the Commission within 120 days after the end of the
Companys fiscal year ended December 31, 2004, and such information is incorporated by
reference in this Form 10-K. The Compensation Committee Report on Executive Compensation,
The Report of the Audit Committee and the Stock Price Performance Graph contained in the
2005 Proxy Statement are not incorporated by reference in this Form 10-K. The Company has adopted a code of ethics that applies to all directors, officers and
employees of the Company, including the Chief Executive Officer, Chief Financial Officer,
Chief Operating Officer and Chief Technical Officer. A copy of the Companys Code of Ethics
will be mailed, at no charge, upon request submitted to Linda Dyvig, Investor Relations,
Radyne ComStream Inc, 3138 East Elwood St., Phoenix, Arizona 85034. If the Company makes any
amendment to, or grants any waivers of, a provision of the code of ethics that applies to its
principal executive officer, principal financial officer, principal accounting officer or
controller where such amendment or waiver is required to be disclosed under applicable SEC
rules, the Company intends to disclose such amendment or waiver and the reasons therefore on
its Internet website at www.radn.com. 
 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 2005 Proxy
Statement, which information is incorporated in this Form 10-K by reference. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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
2005 Proxy Statement, which information is incorporated in this Form 10-K by reference. 46




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##### Table of Contents



Disclosure with Respect to the Companys Equity Compensation Plans
as of December 31, 2004 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. Number ofsecuritiesremaining availableNumber of
    
    
    
    
    
    
    for future issuancesecurities to be
    
    
    
    
    
    
    under equityissued upon
    
    
    Weighted-average
    
    
    compensation plansexercise of
    
    
    exercise price of
    
    
    (excludingoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected in columnPlan category
    
    and rights
    
    
    and rights
    
    
    (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved by
security holders [1]
    
    
    2,623,562
    
    
    $
    6.62
    
    
    
    1,941,394
    [2]Equity compensation plans not approved
by security holders
    
    None
    
    
    
    N/A
    
    
    NoneTotal
    
    
    2,623,562
    
    
    $
    6.62
    
    
    
    1,941,394
   1
    
    Of the total options outstanding, 436,823 and 2,186,739 have been granted under the 1996 Plan
and the 2000 Plan, respectively.2
    
    Of these shares, 369,412 remain available for purchase under the ESPP. 47




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##### Table of Contents



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 2005 Proxy
Statement, which information is incorporated in this Form 10-K by reference. 
 Item 14. Principal Accounting Fees and Services Information regarding the Companys principal accounting fees and services is set forth under
the caption Principal Accounting Fees and Services in the 2005 Proxy Statement, which information
is incorporated in this Form 10-K by reference. 
 PART IV 
 Item 15. Exhibits and Financial Statement Schedules (a)     (1) Financial Statements: The following consolidated financial statements of Radyne ComStream Inc. and subsidiaries are
included in Part II, Item 8 above: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2004 and 2003 Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002 Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) for the Years
Ended December 31, 2004, 2003 and 2002 Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002 Notes to Consolidated Financial Statements (2) Financial Statement Schedules: There are no financial statement schedules filed as part of this annual report, since the
required information is included in the consolidated financial statements, including the notes
thereto, or the circumstances requiring inclusion of such schedules are not present. (3) Exhibits: See Exhibit Index   48




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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. FittingRobert C. Fitting, Chief Executive Officer(Principal Executive Officer) By:
    /s/ Malcolm C. PersenMalcolm C. Persen, Vice President, Secretary and Chief Financial Officer(Principal Financial Officer) Dated: March 11, 2005 KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints, jointly and severally, Robert C. Fitting and Malcolm C. Persen, 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/ C.J. Waylan

C.J. Waylan
    
    Chairman of the Board of Directors
    
    March 11, 2005/s/ Robert C. Fitting

Robert C. Fitting
    
    Chief Executive Officer and Director
    
    March 11, 2005/s/ Malcolm C. Persen

Malcolm C. Persen
    
    Vice President, Secretary and Chief Financial
Officer (Principal Financial Officer)
    
    March 11, 2005/s/ Lee Yip Loi

Lee Yip Loi
    
    Director
    
    March 11, 2005/s/ Dennis Elliott

Dennis Elliott
    
    Director
    
    March 11, 2005/s/ Michael A. Smith

Michael A. Smith
    
    Director
    
    March 11, 2005
 49




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##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Exhibit3.1 (1)
    
    Restated Certificate of Incorporation3.2 (2)
    
    By-Laws, as amended and restated10.1(a) (3)
    
    ***1996 Incentive Stock Option Plan10.1(b) (4)
    
    ***Amendment to 1996 Incentive Stock Option Plan10.2 (5)
    
    ***1999 Employee Stock Purchase Plan10.3(a) (6)
    
    ***2000 Long-Term Incentive Plan10.3(b) (7)
    
    ***Amendment to 2000 Long-Term Incentive Plan10.4(a) (8)
    
    Lease between ADI Communication Partners, L.P. and ComStream dated April 23, 199710.4(b) (8)
    
    First Amendment to lease between ADI Communication Partners L.P. and ComStream
dated July 16, 199710.4(c) (8)
    
    Second Amendment to Lease between Kilroy Realty, L.P. and ComStream dated
November 18, 199810.5 (9)
    
    Lease for facility in Phoenix, Arizona10.6 (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. Fitting10.8 (12)
    
    ***Change of Control Agreement, dated as of March 20, 2002, by and between
Registrant and Steven Eymann10.9(13)
    
    ***Change of Control Agreement, dated as of March 20, 2002, by and between
Registrant and Brian Duggan10.10(14)
    
    ***Employment Agreement, dated as of November 1, 2003 by and between Registrant
and Robert C. Fitting10.10 (15)
    
    ***Change of Control Agreement, dated May 13, 2004, by and between Registrant
and Malcolm C. Persen10.11*
    
    ***Employment Agreement by and between Registrant and Malcolm C. Persen dated as
of March 9, 200510.12*
    
    Agreement and Plan of Merger, dated March 2, 2005, by and among Radyne ComStream
Inc., Xicom Acquisition Inc., Xicom Technology Inc., the Xicom Shareholders (as
defined therein) and Walt Wood, solely in his capacity as the Shareholders
Representative.21.1*

    
    Subsidiaries of the Registrant23.1*
    
    Consent of KPMG LLP24.1*
    
    Power of Attorney (see signature page)31.1*
    
    Certification of the Principal Executive Officer Pursuant to Rule 13-14(a) Under
the Securities Exchange Act of 193431.2*
    
    Certification of the Principal Financial Officer pursuant to Rule 13-14(a) Under
the Securities Exchange Act of 193432.1**
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 200299.1*
    
    Cautionary Statement Regarding Forward-Looking Statements and Risk Factors
   *
    
    Filed herewith.**
    
    Furnished herewith.***
    
    Indicates management compensatory contract, plan or arrangement.
    
    Certain Confidential Information contained in this Exhibit was omitted by means of redacting
a portion of the text and replacing it with an asterisk. This Exhibit has been filed
separately with the Secretary of the Securities and Exchange Commission without the redaction
pursuant to Confidential Treatment Request under Rule 24b-2 of the Securities Exchange Act of
1934.(1)
    
    Incorporated by reference from exhibit 3.1 to Registrants description of capital stock
on Form 8-A12G, filed on July 13, 2000.(2)
    
    Incorporated by reference from exhibit 3.2 to Registrants description of capital stock
on Form 8-A12G, filed on July 13, 2000.




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##### Table of Contents



(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).(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).(14)

    
    Incorporated by reference to Exhibit 10.1 to Registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2003, as filed with the SEC on November 14, 2003 (File
No. 000-11685).(15)

    
    Incorporated by reference to Exhibit 10.1 to Registrants Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004 as filed with the SEC on August 11, 2004 (File No.
000-11685).