ITEM 1 BUSINESS --------
PREFACE
Radiant Technology Corporation completed its fiscal 1999 year posting a significant loss. This follows four years of high earnings before any extraordinary items. Management attributes the loss to a significant reduction in revenue, increased costs associated with R&D and a $100,000 increase in marketing expense, an increase in reserves against inventory, and a major increase in reserves for accounts receivable due to a likely write off of a major account owed.
GENERAL:
Radiant Technology Corporation (RTC) was incorporated in California in 1972. Its initial public offering (IPO) was in 1979. The Company is engaged in the marketing, design, manufacture and service of highly precision thermal processing systems that are primarily used by manufacturers of microelectronic componentry. The Company's conveyorized (belt) ovens and furnaces are in worldwide demand to meet ever-changing process requirements in the semiconductor packaging, flat panel display, hybrid thick film firing, multichip module, photovoltaic (solar cell) and printed circuit board assembly industries.
To obtain financial growth and stability the Company concentrates on managing the following key elements of its business:
Technological Leadership: The Company is constantly in contact with its customers soliciting their input for both continued product improvement and new product development. The Company encourages customers anticipating new thermal processing requirements to contact it regarding their new opportunities and needs. This past year, this approach has been responsible for the development of three new products.
The Company's new products are: A conduction furnace for the wafer bump manufacturing step of the growing flip chip assembly market. RTC's new TriBelt(TM) tool incorporates three conveyor belts in series; one for each of the major stages of the wafer bump process. This design provides a more thermally reliable and cost effective process than other equipment being offered for the nitrogen-enhanced environment. It is complimentary to and augments the RTC hydrogen furnaces being offered to customers whose products require this method of production.
A new furnace extending the thermal processing range of RTC equipment from 1000(Degree)C higher to 1300(Degree)C in either a nitrogen or oxygenated environment. Until now customers who required higher temperature furnaces where required to look to other suppliers. Now they can stay with RTC as their preferred and primary vendor.
A furnace incorporating ultra-violet enhanced heating in conjunction with or separated from infrared heating. This was the result of the expression of a high degree of interest in the potential value of UV enhancement by solar cell industry. RTC has orders for three such systems from as many customers. The company expects to sell other units to the industry in the near future; and also finds requests from other customer areas interested in this new technology.
Customer Diversity: Customers from different facets of the electronics industry are sought and maintained. As demand for the various manufacturing elements in the electronics high technology industry shifts, RTC works to position itself to be ready to be immediately responsive to changing market emphasis.
Service: The Company concentrates on providing timely, high quality, responsiveness to its customer base. Most service concerns are handled by Phone, FAX or E-mail immediately. Customer Service Engineers, when needed, are dispatched within the day. Internationally, the Company retains Sales/Service representatives, factory trained, to provide the same level of dedication in placing the concerns and needs of the customer first. Modems are installed in customers equipment, making it possible to analyze and implement customer requests online from Company headquarters.
MARKETS AND PRODUCTS:
The nature and high intensity of the infrared heat produced in the Company's furnaces permits a high rate of heat absorption by the electronic parts processed through them, making them more adaptable to the exacting tolerances and high-speed heating requirements of certain industrial users. Since these ovens and furnaces can be brought up to operating temperatures in a shorter time span, operating at a faster conveyor belt speed, require less floor space and use less electric energy, operating costs are significantly lower than for conventional ovens and furnaces.
The Company's near infrared processing systems are principally in demand for the following applications:
SemiConductor Packaging: In recent years, flip chip packaging technology has gained widespread acceptance. The first process, called wafer bumping, involves a reflow solder process to form the solder balls on all of the input/output (I/O) pads on the wafer. Because of the extremely small geometries involved, in some instances this process is best accomplished in a hydrogen atmosphere. RTC offers a high temperature furnace for this application, equipped with the hydrogen package, providing a reflow process in a 100% hydrogen atmosphere. For a second process, called "chip joining", RTC offers both a near infrared or forced convection oven. RTC's D-series ovens are well suited for low temperature curing applications such as "under-fill" epoxy or curing epoxy glob tops for chip on board manufacturers.
For more traditional chip packaging technologies, RTC offers an AG-series furnace designed specifically for the silver-glass die attach process. A critical thermal profile is required to achieve the proper mechanical and thermal properties of the silver-glass material. Other packaging thermal processes such as final lid sealing (metal or glass) and lead frame embed or pin brazing are easily accomplished in RTC's furnaces.
Photovoltaics: For well over a decade, RTC has been the major supplier of sintering furnaces used by photocell manufacturers for firing metallized inks to form the front-side contacts and the back-side fields on the individual solar cells. The product ideally suited for sintering of the metallized inks is our C-series furnace. In recent years, existing RTC customers have been experimenting with using a modified version of our S-series furnace for phosphorus diffusion, which is the first thermal process in the manufacture of solar cells. An extremely precise thermal process is required for phosphorus diffusion as this step ultimately determines the cell's efficiency in generating power when exposed to sunlight.
Flat Panel Display: While the flat panel display market has been primarily in Japan, it is a relatively new market for US equipment manufacturers. RTC has developed, in close cooperation with a flat panel manufacturer, one of the first US built systems for processing large glass panels. The RTC furnace can handle glass panels up to 58 inches wide. In addition to the challenges of achieving uniform heating over the entire panel, there were unique mechanical challenges for handling the large glass panels while loading and unloading the furnace.
Printed Circuit Board: RTC offers both infrared and forced convection heating technology for printed circuit board assembly. These ovens are used for mass reflow soldering of surface mount components to a printed circuit assembly.
Hybrid Thick Film: Hybrid thick film technology involves the firing of various types of "inks" screen printed on ceramic substrates to form conductors and resistors. Precise thermal profiles are required to achieve the desired resistor value, or electrical properties of the conductors. RTC offers furnaces for firing thick film inks in air, and for firing thick film materials in a controlled, inert atmosphere having a low oxygen content.
Multichip Modules: Multichip module technology is an emerging packaging technology. All RTC products can be used in some combination to manufacture a multichip module (or package). RTC has developed an intelligent curing oven for just this purpose where integrated sensors, through feed back mechanisms, control the curing process in real-time.
All systems use PCs to provide appropriate man/machine interface with embedded microprocessors achieving precise control of thermal operations. Such functions as power, temperature, belt speed, process gas measurement, profiling, maintenance requirements, data logging, local and remote communications diagnostics and operation, and computer integrated manufacturing with SECS/GEM interface are available.
MARKETING, SALES AND CUSTOMERS
The Company sells its products throughout the world, primarily to organizations engaged in the manufacture of electronic components and assemblies. RTC maintains direct sales offices in the United States. Internationally the Company is represented through independent sales/service organizations. Note 1 to the Financial Statements depicts a breakdown of international sales.
Customers evaluate furnace vendors on their technological leadership resulting in high process yield of material produced. This primary benefit combined with high up time, low meantime between failure, MTBF, quick reliable service and spare parts response time combine to produce low cost of equipment ownership.
Two customers, AMD and AVX accounted for 18%, and 13%, respectively, of RTC's revenue in fiscal year 1999. In 1998, they were: AMD 18%, AstroPower 11% and Plasmaco 11%. AMD accounted for 35% of the Company's business in 1997.
The Company does not experience a seasonal demand for its product. Rather the demand for product, as above, is dependent on the demand for new manufacturing equipment.
BACKLOG
The Company regards as backlog all signed purchase orders received from customers for delivery at specified dates. At September 30, 1999, the backlog was $595,401 vs. $796,430 in 1998, and $1,830,640 in 1997. This backlog of orders will be completed over a two to three month period.
The Company's contracts include cancellation clauses, however the Company does not generally dispute a timely cancellation provided no significant costs have been incurred at the time of cancellation. The Company experienced a significant contract cancellation during the past fiscal year. This cancellation occurred after the Company had sustained significant cost expenditures. Although the Company is most certain it would prevail in a litigation, the Company must weigh the ultimate value of such action against costs of both money and management time, verses other priorities. This cancellation has caused a significant increase in reserve for accounts receivable.
RESEARCH AND DEVELOPMENT
Research and Development expenses are charged to specific product enhancement activities and new product development. RTC's expense of $282,766, 8.5% of revenue in FY 1999, represents an absolute increase of 13.4% in product development expenditures over the prior year. In this last year the Company invested heavily in the development of three new products, which it hopes will provide significant value to future years income. It is more ideal, theoretically, to have this many new products developed over a longer period of time. However, the opportunities of the market place dictated dedication to increased product development at this time. In 1998 $250,964 was expended vs. $254,461 in 1997. Sustaining engineering expenses, associated with standard product offerings, are chargeable against present contractual activities.
COMPETITION
The Company confronts competition from two primary domestic companies: BTU International, and Sierra-Therm. There are numerous other competitors both domestically and internationally.
The Company believes that it presently is one of the principal manufacturers of conveyorized, controlled atmosphere, variable speed, high temperature infrared furnaces used in the manufacture of precision, microelectronic circuitry for the semiconductor, solar cell, hybrid micro circuits and general electronic industries. The competitive environment in the market for ovens and furnaces is based on superior technology, design and delivery and ultimate cost of ownership over initial purchase price. The Company believes that its higher temperature near infrared products are more technologically advanced than that of the conventional products of its competitors. The Company has patents issued and pending covering the basic technology involved in the principal markets. See "Patents" below.
MATERIAL
The Company purchases raw materials, mechanical parts and electronic components. It manufactures most of its sheet metal and some mechanical and electronic components. Alternative sources of material exist for nearly all parts, components and materials. The Company has selected a single source supplier for much of its electronic componentry, due to high levels of quality and service. Should this favorable condition degenerate, an alternative supplier can be found but not without initial extra cost expenditures.
PATENTS
The Company owns a number of current patents on its products issued from 1983 to 1997. It also has patents pending. Its patents are the result of its creative energies and innovative technology. RTC believes that it must continually work to maintain technological leadership for its customer base. The Company further believes that patents may prove creativity and provide competitive hurdles. However, it is primarily attention to customer service with high quality products, produced in a timely manner, ultimately providing the customer with low cost of ownership that provides the Company its most competitive strength.
Three important patents relate to RTC's infrared furnace and oven products. Patent No. 4,477,718 for Infrared Furnaces with Controlled Environment is effective for seventeen years beginning October 16, 1984. Patent No. 4,517,448 for infrared Furnaces with Atmosphere Control Capability is effective for seventeen years beginning May 14, 1985. Patent No. 4,987,364 - A Furnace Assembly for Reflowing Solder is effective for seventeen years beginning March 5, 1991.
TRADEMARKS
The Company registered trademark No. 1425668, "RTC radiant technology corporation", with the United Stated patent and Trademark Office on January 20, 1987. The trademark is in force for twenty years. The Company registered trademark No. 1556707, "MEZZANINE", with the United States Patent and Trademark Office on September 19, 1989. The trademark is in force for twenty years.
EMPLOYEES
The Company employed 32 full-time individuals as of November 30, 1999.
WARRANTY
The Company warrants its ovens and furnaces against defects existing at the time of shipment for material and workmanship under normal use and service for a period of one year on parts, and for ninety days on labor after shipment to an original user. Under this warranty, the Company will provide, F.O.B. Anaheim, repair or replacement, at its own cost, any heating elements, SCR control packages, printed circuit boards, components, and conveyor speed controls (including digital readouts) which, within the warranty period, are proved to the satisfaction of the Company to have been defective.
GOVERNMENTAL REGULATIONS
The operations of the Company are subject to various federal and state laws and regulations. Management believes the Company is in substantial compliance with all applicable laws and regulations. The cost of compliance has not been a significant burden to the Company.
ITEM 2.
ITEM 2. PROPERTIES ----------
The Company executive offices and manufacturing facility are located in a quality industrial park where expansion may be possible.
The 25,000 square foot building is leased for 5 years with an option to renew for an additional 5 years. See Item #8, Notes to financial Statements, for more detail.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS -----------------
There are no legal proceedings pending at the time of this report.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth quarter of FY 1999.
PART II -------
ITEM 5.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTER --------------------------------------------------
The Company's common stock is quoted on the OTC Bulletin Board. The table below sets forth the representative high and low bid prices for the common stock during each calendar period indicated. The Quotations represent interdealer prices without adjustments for retail mark-ups, mark-downs or commissions and consequently do not necessarily reflect actual transactions.
Year Ended September 30 ------------ 1999 1998 HIGH LOW HIGH LOW ------------------ -------------- 1st Quarter................. $1.75 $.78125 .25 .25 2nd Quarter................. 1.03125 .53125 1.00 .25 3rd Quarter................. 1.125 .40625 1.875 .375 4th Quarter................. 1.01 .375 2.00 1.375
Holders of shares of Common Stock are entitled to receive such dividends, if any, as may be declared by the Board of Directors of the Company out of funds legally available therefore and, upon the liquidation, dissolution or winding up of the Company are entitled to share ratably in all net assets available for distribution to such shareholders. The Company has never paid any dividends. It is anticipated that all earnings, will be retained for development of working capital to grow the business of the Company and there is no present intention to declare dividends in the foreseeable future. See ITEM 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations".
SHAREHOLDERS OF RECORD: As of September 30, 1999, the number of record holders of the Company's Common Stock was 409.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA ------------------------
The following table summarizes certain selected financial data of the Company:
See Notes to Financial Statements
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS -------------------------------------------------
Cautionary Statement
This Annual Report contains statements relating to future results of the Company (including certain projections and business trends) that are "forward-looking statements" as defined in Section 27A of the Securities Act of 1933. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to economic and political changes in markets where the Company competes such as inflation rates, recession, and other external factors over which the Company has no control; domestic and foreign government spending, budgetary and trade policies; demand for and market acceptance of new and existing products; successful development of advanced technologies; timely completion of Year 2000 modifications by the Company, governments and our key suppliers and customers; and competitive product and pricing pressures as well as other risks and uncertainties, including but not limited to those detailed from time to time in the Company's Securities and Exchange Commission filings.
GENERAL
The Company pioneered the design and application of near infrared high temperature furnaces with the semiconductor manufacturing and electronics assembly markets. RTC products are now principally used by manufacturers of semiconductor packaging, solar cells, flat panel displays, printed circuit boards, hybrid thick film and multichip modules. New and inventive uses of the product line for other applications continue to be discovered.
RESULTS OF OPERATIONS
Net sales of $3,336,674 decreased $1,349,708 or 29% for the fiscal year ended September 30, 1999 as compared to net sales of $4,686,382 for fiscal 1998. Net sales of $4,686,382 fiscal 1998 increased $274,348 or 6% from the fiscal 1997 level of $4,412,024.
Fiscal 1999 was a financially disappointing year. The Company suffered a loss of $475,820 or (0.25) per share. The decrease in sales coupled with the discussion below regarding Cost of Sales resulted in the loss. The slowness in the early part of the year surrounding semiconductor equipment sales in general, coupled with no revenue generated from what is usually the emerging fruitful sales of Asia resulted in a bleak year for income. In the light of such events, management believed it best to increase both marketing and R&D expenditures as preparation for the time when the market turns around and may be interested in and or stimulated by new product offerings
Cost of Sales increased 3% due to lower volume. Selling and G & A costs increased $319,291 due primarily to as increase in reserve against accounts receivable. The doubtful A/R caused by a contract cancellation was in the amount of $191,000. Substantially all of the remaining increase in cost is the result increased marketing activity. Although this increased activity failed to bear fruit in FY 99, it is anticipated that the effort will be effective in the future.
Research and Development costs were increased both relatively and absolutely. These costs are primarily related to the design of three new products. These costs are essential to the Company's long term future, a future that can move very quickly in the high technology field.
Interest was booked as income rather than expense. Borrowing is reserved only for short-term requirements.
LIQUIDITY AND CAPITAL RESOURCES
During 1999, cash used in operations was $337,305., a decrease over 1998 cash generation of $600,186. The Company anticipates that it has sufficient cash to fund planned sales growth in 2000 without any long term borrowing. There may be occasional periods when short-term borrowing will be utilized, although little of this type of activity is foreseen.
Year 2000, Y2K, Readiness Disclosure
The Year 2000 issue, Y2K, is the result of older computer programs being written using two digits rather than four digits to define the applicable year. Computer equipment, software and other devices with embedded technology that are time-sensitive may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in the inability of business processes to function correctly in the year 2000 and could have serious adverse effects on companies and entities throughout the world.
RTC has addressed issues related to the impact of the Year 2000 in its products, internal computer systems that handle business and engineering processes, and suppliers. Upgrades to internal critical systems have been completed. All known users of RTC equipment that could experience Y2K anomalies have been contacted. Some have elected equipment up dates, some have not. All major suppliers have warranted Y2K compliance.
Notwithstanding this planned program to make a smooth transition, there can be no assurance that these estimates will prove to be accurate and actual results could differ materially from those currently anticipated. Moreover, the Company could be adversely impacted by the Year 2000 issues faced by customers, vendors, governments and financial service organizations with which the Company interacts.
The varying definitions of "compliance with Year 2000" and the products produced by the Company in the past may lead to claims whose impact on the Company is not currently estimable. The Company has product and general liability insurance policies, which provide coverage in the event of certain product failures. The Company has not purchased Year 2000 specific insurance because the cost is prohibitive and likely of little value. No assurance can be given that the aggregate cost of defending and resolving such claims will not financially adversely affect the Company.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ----------------------------------------------------------
Inapplicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------
The following are included in this 10-K as exhibits:
1. Report of Independent Certified Public Accountants 2. Balance Sheets as of September 30, 1999 and 1998. 3. Statements of Operations for the years ended September 30, 1999, 1998, 1997. 4. Statements of Stockholders' Equity for the years ended September 30, 1999, 1998, 1997. 5. Statements of Cash Flows for the years ended September 30, 1999, 1998, 1997. 6. Notes to Financial Statements.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------------------------------------------
None.
PART III --------
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT --------------------------------------------------
The response to this item is incorporated herein by reference to the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on April 19, 2000.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION ----------------------
The response to this item is incorporated herein by reference to the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on April 19, 2000.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT --------------------------------------------------------------
The response to this item is incorporated herein by reference to the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on April 19, 2000.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. -----------------------------------------------
The response to this item is incorporated herein by reference to the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on April 19, 2000.
PART IV -------
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K -------------------------------------------------------
(a) (1) Financial Statements
The following financial statements are included in this Form 10-K: Page No. -------- 1. Report of Independent Certified Public Accountants 16 2. Balance Sheets as of September 30, 1999 and 1998 17 3. Statements of Operations for the years ended September 30, 1999, 1998 and 1997 18 4. Statements of Stockholders' Equity for the years ended September 30, 1999, 1998 and 1997 19 5. Statements of Cash Flows for the years ended September 30, 1999, 1998 and 1997 20-21 6. Notes to Financial Statements 22-37 (2) Financial Statements Schedules None.
(3) Exhibits
Exhibit No. Description Page No. ----------- ----------- --------
3.1 Certificate of Restated Articles of Incorporation incorporated by reference to the Registration Statement of Form S-18 (Registration No. 2-72528-LA) filed on July 14, 1981.
3.1(a) Certificate of Amendment of Articles of Incorporation incorporated by reference to the Proxy Statement dated January 14, 1986.
3.1(b) Certificate of Amendment of Articles of Incorporation incorporated by reference to Annual Report on Form 10-K filed January 15, 1990.
3.2 Restated By-Laws incorporated by reference to the Registration Statement on Form s-18 (Registration No. 2-72528-LA) filed on July 14, 1981.
3.2(a) Amendment to Bylaws incorporated by reference to Annual Report on Form 10-K filed January 15, 1990.
4.1 Specimen Certificate of Common Stock incorporated by reference to the Registration Statement on Form S-18 (Registration No. 2-72528-LA) filed on July 14, 1981.
10.22(a) Amendment No. 1 to Employment Agreement effective as of November 7, 1991 by and between the Company and Lawrence R. McNamee incorporated by reference to Annual Report on Form 10-K filed January 15, 1990.
10.24 Form of Indemnity Agreement incorporated by reference to Annual Report of Form 10-K filed January 15, 1990.
(b) Reports on Form 8-K.
None.
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 this behalf by the undersigned, thereunto duly authorized.
Dated: January 12, 2000
RADIANT TECHNOLOGY CORPORATION
By: /s/ L. R. McNamee ---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons on behalf of the registrant in the capacities and on the dates indicated.
/s/ L. R. McNamee January 12, 2000 - ------------------------------------ Lawrence R. McNamee Chairman of the Board and a Director (Principal Financial Officer and Principal Executive Officer)
/s/ C. T. Richert January 12, 2000 - ------------------------------------ Carson T. Richert President and a Director
/s/ R. B. Thompson January 12, 2000 - ------------------------------------ Robert B. Thompson Director
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS --------------------------------------------------
The Board of Directors and Stockholders Radiant Technology Corporation
We have audited the accompanying balance sheets of Radiant Technology Corporation as of September 30, 1999 and 1998, and the related statements of operations, stockholders' equity and cash flows for each of the years in the three year period ended September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Radiant Technology Corporation as of September 30, 1999 and 1998 and the results of its operations and its cash flows for each of the three years in the period ended September 30, 1999 in conformity with generally accepted accounting principles.
/s/ CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California November 29, 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
RADIANT TECHNOLOGY CORPORATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
(continued)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
RADIANT TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
RADIANT TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ------------------------------------------------
Nature of Operations --------------------
Radiant Technology Corporation (the "Company") is engaged in the manufacturing and marketing of infrared conveyorized ovens and furnaces used primarily by the microelectronics manufacturing industry.
All of the Company's operations are located in California. Sales to entities located outside the United States are as follows:
COUNTRIES 1999 1998 1997 --------- ------------ ------------ ------------
European $ 640,511 $ 605,800 $ 819,600 Middle East 443,178 - - Pacific Rim 178,170 847,700 616,900 NAFTA 38,963 116,200 52,500 ------------ ------------ ------------- $ 1,300,822 $ 1,569,700 $ 1,489,000 ============ ============ =============
Revenue recognition -------------------
The Company recognizes revenue from product sales upon shipment or upon completion when the customer requests the unit to be held at the facility for later shipment.
Cash and cash equivalents -------------------------
For purposes of the statement of cash flows, cash equivalents include time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.
Accounts receivable -------------------
The allowance for doubtful accounts includes management's estimate of the amount expected to be lost on specific accounts and for losses on other unidentified accounts included in accounts receivable. In estimating the allowance component for unidentified losses, management relies on historical experience. The amounts the Company will ultimately realize could differ materially in the near term from the amounts assumed in arriving at the allowance for doubtful accounts in the accompanying financial statements.
Inventories -----------
Inventories include material, direct labor and manufacturing overhead and are reported at the lower of cost (determined on the first-in-first-out method) or market. Allowances for slow moving and obsolete inventory are based on management's estimate of the amount considered obsolete based on specific review of inventory items. In estimating the allowance, management relies on its knowledge of the industry as well as its current inventory levels.
RADIANT TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) - ------------------------------------------------------------
Equipment ---------
Equipment is stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets or over the lesser of the term of the lease or the estimated useful life for leasehold improvements.
Intangibles -----------
The cost of patents are being amortized using the straight line method over their estimated lives of five years. Amortization expense charged to operations in 1999, 1998 and 1997 was $8,716, $8,737, and $8,695, respectively.
Software development costs --------------------------
The Company capitalizes internal software development costs in accordance with Statement of Financial Accounting Standards No. 86. The capitalization of these costs begins when a product's technological feasibility has been established and ends when the product is available for general release to customers. The Company uses the working model approach to establish technological feasibility. Amortization is computed on an individual product group on the straight-line method over the estimated economic life of the product. Currently, the Company is using an estimated economic life of three years for all capitalized software costs. Amortization expense was $106,550, $63,330, and $45,363 for 1999, 1998, and 1997, respectively. Unamortized cost on capitalized software as of September 30, 1999 and 1998 was $153,237 and $181,332, respectively.
Customer deposits -----------------
The Company often requires a deposit from customers before commencing work on a furnace. It is the Company's policy to record the deposit as a receivable with a corresponding deferred liability at the time the sales order is written. When the deposit is received, the receivable is relieved.
Income taxes ------------
Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.
RADIANT TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) - ------------------------------------------------------------
Earnings per common share -------------------------
Earnings per common share is computed by dividing reported earnings by the weighted average number of common shares outstanding during the respective periods. Common stock equivalents were excluded from the computation of earnings per share in 1999 and 1997 because the effect of including such equivalents in the computation would have been anti-dilutive.
Fair value of financial instruments -----------------------------------
The fair value of financial instruments, consisting principally of short-term debt payable is based on interest rates available to the Company and comparison to quoted prices. The fair value of these financial instruments approximates carrying value.
Stock based compensation ------------------------
The Company accounts for compensation costs related to employee stock options and other forms of employee stock-based compensation plans in accordance with the requirements of Accounting Principles Board Opinion 25 ("APB 25"). APB 25 requires compensation costs for stock based compensation plans to be recognized based on the difference, if any, between the fair market value of the stock on the date of the grant and the option exercise price. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123 established a fair value-based method of accounting for compensation costs related to stock options and other forms of stock-based compensation plans. However, SFAS 123 allows an entity to continue to measure compensation costs using the principles of APB 25 if certain pro forma disclosures are made. The Company adopted the provisions of pro forma disclosure requirements of SFAS 123 in fiscal 1997. Options granted to non-employees are recognized at their estimated fair value at the date of grant.
Use of estimates ----------------
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Reclassifications -----------------
Certain items in the 1997 and 1998 financial statements have been reclassified to conform with the 1999 presentation.
RADIANT TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS
2. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS - ------------------------------------------------------------
The Company, from time to time, has cash deposits at financial institutions in amounts in excess of federally-insured limits. The Company believes that credit risk related to its cash deposits is limited due to the quality of the financial institutions.
The Company's customers are located in several geographic markets, primarily in the United States, Middle East, Europe and Pacific Rim countries and are concentrated within three industries. To minimize the risk of loss, the Company routinely assesses the financial strength of its customers, and may require a substantial downpayment prior to commencing machine production.
Net accounts receivable by geographic markets are as follows:
COUNTRIES 1999 1998 -------------------- ------------------ ------------------- European 51% 16% United States 28% 52% Middle East 21% - Pacific Rim - 16% NAFTA - 16% ------------------ ------------------- 100% 100% ================== ===================
During 1999, 1998 and 1997, the five largest customers represented 52, 53 and 63 percent of revenues, respectively. At September 30, 1999 and 1998 the five largest balances represented 72 and 66 percent, respectively, of total accounts receivable.
3. ACCOUNTS RECEIVABLE - -------------------------
1999 1998 ------------- ------------- Trade receivables $ 802,123 $ 603,277 Allowance for doubtful accounts (210,817) (37,500) ------------- -------------
$ 591,306 $ 565,777 ============= ==============
RADIANT TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS
3. ACCOUNTS RECEIVABLE (CONTINUED) - -------------------------------------
Activity relating to the allowance for doubtful accounts and sales returns is as follows:
4. INVENTORIES - -----------------
1999 1998 ------------- ------------- Raw materials $ 358,778 $ 461,931 Work in process 183,774 81,676 Finished goods 31,354 - ------------- -------------
573,906 543,607
Allowance for obsolescence inventories (140,000) (100,000) ------------- -------------
$ 433,906 $ 443,607 ============= =============
Activity relating to the allowance for obsolescence inventories is as follows:
RADIANT TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS
Depreciation and amortization expense for 1999, 1998, and 1997 was $186,295, $170,802, and $110,229, respectively.
6. SHORT-TERM DEBT - ---------------------
The Company's borrowings are at LIBOR plus 2 7/8 percent and due on demand.
7. ACCRUED EXPENSES - ----------------------
1999 1998 ------------- -------------
Payroll and related items $ 96,173 $ 78,916 Commissions 79,100 37,185 Warranties 40,000 40,000 Other 20,768 41,783 ------------- ------------- $ 236,041 $ 197,884 ============= =============
RADIANT TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES - -----------------------------------
Operating leases ----------------
In November 1996 the Company signed a five year lease on a building in Fullerton, California. Base monthly rent is $10,600 plus common area charges of approximately $3,400 per month. The Company also leases office equipment under operating leases expiring in various years through 2002. Minimum future lease payments under non-cancelable operating leases are:
Year ending September 30,
2000 175,968 2001 175,512 2002 71,524 --------------- $ 423,004 ===============
Rent expense for 1999, 1998 and 1997 was $172,228, $150,090, and $147,200, respectively.
Environmental matters ---------------------
The Company, like others in similar businesses, is subject to federal, state and local environmental laws and regulations. Although Company environmental policies and practices are designed to ensure compliance with these laws and regulations, future developments and increasingly stringent regulation could require the Company to make unforeseen environmental expenditures.
9. STOCKHOLDERS' EQUITY - --------------------------
Preferred stock --------------- At September 30, 1999 and 1998 there were 5,000,000 authorized shares of preferred stock, of which no shares were issued and outstanding.
Common stock ------------ The Company has authorized 24,000,000 shares of no par value common stock. At September 30, 1999 and 1998, 1,895,638 shares were issued and outstanding.
RADIANT TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS
9. STOCKHOLDERS' EQUITY (CONTINUED) - --------------------------------------
EMPLOYEE STOCK OPTIONS ----------------------
Incentive and non-statutory option plan ---------------------------------------
The Company adopted an incentive and non-statutory stock option plan which provides for granting options to key employees and officers. Under the plan, options up to 1,000,000 shares may be granted at a price not less than the fair market value of such shares on the date of the grant, and the maximum term of each option may not exceed ten years. With respect to any participant who owns stock possessing more than 10% of the voting rights of the Company's outstanding capital stock, the exercise price of any stock option must not be less than 110% of the fair market value on the date of the grant and the maximum term may not exceed five years. On January 22, 1998 and April 15, 1999 the Board authorized options to purchase 70,000 and 100,000 shares, respectively. Of these shares, 120,000 have been granted at an exercise price that was at or above the market price on the date of the grant. The options vest between January 5, 2000 and March 22, 2002 and expire three years from the vesting date.
Non-statutory director options ------------------------------
On September 30, 1996, the Company granted 20,000 non-statutory options to each of three outside board members. The options vested immediately and expire 50% at September 30, 2000 and 50% at September 30, 2001. The option price is $.48 per share, which was equal to the market price at the date of the grant.
Lawrence McNamee ----------------
On January 1, 1991, the Company and its chairman, Lawrence McNamee, executed a one year employment agreement wherein Mr. McNamee was granted six blocks of options totaling 275,350 options which amounted to 10% of the outstanding shares. The option price varied according to the date of the grant. The employment agreement provided that in the event the Company issued any additional (or repurchased existing) shares of common stock (excluding shares issued or issuable pursuant to Mr. McNamee's employment agreement), the number of options issued to Mr. McNamee should be automatically and proportionately adjusted as to preserve the ratio of ten percent of the outstanding common stock. Under certain conditions, Mr. McNamee may be issued additional options in the amount equal to five percent of the outstanding options and warrants excluding those belonging to Mr. McNamee. The exercise price of any additional options issued would be the fair market value of the stock on the date of grant. This adjustment provision of Mr. McNamee's employment agreement is referred to as the "Adjustment" clause. During the year ended September 30, 1996 Mr. McNamee was granted 167,723 options under this adjustment clause, while 248,715 of the original options expired. Option prices range from $.075 to $.375. In fiscal 1997, all of these options expired.
Mr. McNamee also holds options to acquire 346,666 shares at $.075 per share issued to him in lieu of salary in 1992. These options have no expiration date.
RADIANT TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS
9. STOCKHOLDERS' EQUITY (CONTINUED) - --------------------------------------
Stock options (continued) -------------------------
The following table summarizes shares under option, including options both under the Plan and outside the Plan, for the years ended September 30, 1999 and 1998:
The following information applies to employee options outstanding at September 30, 1999:
Weighted Average Weighted Remaining Average Range of Number of Contractual Exercise exercise prices Shares Life (Years) Price ---------------- ------------- ---------------- -------------- $0.0625 10,000 1 $0.06 $0.075 346,666 4 $0.08 $0.48 90,000 2 $0.48 $0.75 70,000 4 $0.75 $1.175 50,000 5 $1.175 ------------- -------------- 566,666 $0.32 ============= ==============
Statement of Financial Accounting Standards 123, "Accounting for Stock-Based Compensation", encourages but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion
RADIANT TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS
9. STOCKHOLDERS' EQUITY (CONTINUED) - --------------------------------------
Stock options (continued) -------------------------
25, "Accounting for Stock Issued to Employees", and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock.
Had compensation cost for the plan been determined based on the fair value of the options at the grant dates consistent with the method of SFAS 123, the Company's net income/(loss) and earnings/(loss) per share would have been:
1999 1998 ------------ ---------- Net income/(loss): As reported $ (475,820) $ 415,587 Pro forma $ (507,110) $ 377,821
Basic earnings per share: As reported $ (0.25) $ 0.22 Pro forma $ (0.27) $ 0.20
Diluted earnings per share: As reported $ (0.25) $ 0.18 Pro forma $ (0.27) $ 0.17
These pro forma amounts may not be representative of future disclosures because they do not take into effect pro forma compensation expense related to grants made before 1996. In addition, potential deferred tax benefits of approximately $12,500, $15,000, and $19,200 in 1999, 1998 and 1997, respectively, have not been reflected in the pro forma amounts due to the uncertainty of realizing any benefit. The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for 1999, 1998 and 1997:
Expected life (years) 4 Risk-free interest rate 6.00% Volatility 100% Expected dividends None
The weighted fair value of options granted during the years ended September 30, 1999 and 1998 for which the exercise price approximated the market price on the grant date was $.21 and $.58, respectively.
RADIANT TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS
10. INCOME TAXES - ------------------
Income tax expense (benefit) consisted of the following:
1999 1998 1997 ------------- ------------ --------------
Current tax expense $ - $51,000 $ 12,000 Deferred tax benefit - - (170,000) ------------- ------------ -------------- $ - $51,000 $(158,000) ============= ============ ==============
Income tax expense (benefit) differed from the amounts computed by applying the U.S. federal income tax rate of 34% to pretax income from continuing operations in 1999, 1998 and 1997 as a result of the following:
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at September 30, 1999 and 1998 are as follows:
1999 1998 ------------- -------------
Net operating loss carryforwards $ 516,000 $ 360,000 Allowance for slow moving inventories 56,000 34,000 Allowance for doubtful accounts 32,000 15,000 Other (1,000) (144,000) ------------- -------------
Deferred tax assets 603,000 265,000
Less valuation allowance (433,000) (95,000) ------------- -------------
Net deferred tax asset $ 170,000 $ 170,000 ============= =============
RADIANT TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS
10. INCOME TAXES (CONTINUED) - ------------------------------
During 1998 the Company reduced the valuation allowance to reflect the deferred tax assets utilized in fiscal 1998. The recognized deferred tax asset is based upon expected utilization of the net operating loss carryforwards and reversal of certain temporary differences. The ultimate realization of the deferred tax asset will require aggregate taxable income of approximately $1,486,000 in future years.
At September 30, 1999, the Company had net operating loss carryforwards for federal and state income tax purposes expiring as follows:
FEDERAL STATE ------------------------------------
2002 $ - $ 209,506 2007 433,811 - 2009 620,976 - 2014 431,356 - ------------------------------------
$ 1,486,143 $ 209,506 ====================================
Federal investment credit and other general business credit carryforwards total $35,600 and $105,500, respectively, and expire at various dates through 2003.
11. BASIC AND DILUTED EARNINGS/(LOSS) PER SHARE - -------------------------------------------------
The following tables illustrate the required disclosure of the reconciliation of the numerators and denominators of the basic and diluted earnings/(loss) per share computations.
RADIANT TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS
(1) Stock options were anti-dilutive for the years ended September 30, 1999 and 1997. See Note 10 for stock option activity.
12. EMPLOYEE BENEFIT PLAN - ---------------------------
The Company's 401(k) plan was re-activated during fiscal 1996. All employees are eligible as long as they are 21 years of age and have completed one year of employment. The plan provides for contributions by the Company in such amounts as management may determine. Contribution expense charged to operations in 1999 was $13,027. No expense was charged to operations in 1998 or 1997.