RESULTS OF OPERATIONS
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
1998 1997
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Net Sales........................................... $ 11,726,719 $ 8,171,612
Cost of Sales....................................... 9,602,301 6,869,003
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Gross Profit............................... 2,124,418 1,302,609
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Operating expenses:
Engineering, research and development 3,171,359 823,406
Selling 1,998,915 1,609,600
Administration 2,082,741 1,543,824
Amortization:
Goodwill and intangibles........................ 156,496 156,496
Noncompete agreement............................ 75,000 75,000
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Total operating expenses............................ 7,484,511 4,208,326
Operating loss...................................... ($5,360,093) (2,905,658)
Other income (expense):
Interest expense, net........................... ( 72,790) ( 15,218)
Other income.................................... 609 7,902
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Net loss............................................ ($5,432,274) ($2,912,974)
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Dividend on 8% Convertible Redeemable Preferred Stock
(81,975) (64,087)
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Net loss applicable to common shares................ ($5,514,249) ($2,977,061)
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Net loss per common share $ (1.04) $ (0.65)
Weighted average number of
common shares outstanding 5,321,188 4,584,347
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Net Sales for the year ended December 31, 1998 were $11,726,719 which reflects a
43% increase from net sales for the year ended December 31, 1997. This increase
is directly related to the sale of the first two ACT transmitters (one
incorporating the new ARS design) and two updated design VHF transmitters. Each
of these sales occurred in the last 4 months of the year. For the past few years
the industry has postponed any significant transmission equipment expenditures
pending a clear plan for the emergence of Digital Television. In early 1998 the
final channel allocations were defined. Without these allocations, the Company
believes that broadcasters were unable to specifically define their transmitter
requirements and thus the entire transmitter manufacturing industry was set
back. Accordingly, in order to generate sales volume and to obtain a portion of
the available business in 1998 in an increasingly competitive market, the
Company's margin on sales, on an operating basis, before non-recurring charges
(detailed below), remained low at 25.4% in 1998 as compared to 15.94% in 1997
(see "Liquidity and Capital Resources" below). After non-recurring charges,
margin on sales in 1998 was 18.11%. Further delaying the purchase of Digital
transmitters is the limited availability of Digital ready televisions, limiting
the customer base of the broadcaster. In addition, there is very little
programming available for the broadcaster at this time. To date, the broadcaster
is being asked to purchase transmission equipment to service a small, limited
digital market, and to replace his existing, aging analog transmission
equipment. Management believes these factors represent a significant demand for
its products in the future. Further hampering the Company's growth in 1998 was a
serious reduction in industry wide capital expenditures resulting from the
global economic and currency crisis experienced during the year.
The company experienced non-recurring charges to profit amounting to
$3,219,124. These charges are detailed below:
o $856,092 inventory write-off resulting from technical changes relating to
new product designs, cost overruns in the manufacture of new design VHF
transmitters and the elimination of the MMDS product line. This amount was
recorded as additional cost of sales.
o $2,298.032 of research and development expenses relating to the shipment
and successful installation of the first two ACT (ARS) transmitters. Both
shipments occurred in the last four months of the year.
o $65,000 charge to administration expense. In 1998, the Company issued
options to purchase 25,000 shares of common stock at an exercise price of
$3.50 to a consultant for services. The options expire on June 5, 2008 and
were valued at $65,000 at the time of issuance. This amount was recorded
as additional paid in capital and as an administration expense.
Before non-recurring charges, the Company experienced an overall increase in
operating expenses from 1997 to 1998. The Company believes these expense levels
were needed to maintain its position in the marketplace. Engineering expense,
net of non-recurring charges, remained fairly constant at $873,327 during 1998
versus $823,406 in 1997. Selling expense increased by 24.1% to $1,998,915 mainly
due to increased commissions and advertising due to increased sales volume.
During the period, administration expenses increase by 30.7%, exclusive of
non-recurring charges, primarily due to a financial consulting agreement.
Amortization expense remained constant at $231,496.
Interest expense increased from $15,218 to $72,790 due to the increased
utilization of the line of credit during 1998. |
