VARL
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The Company produces seven major product lines:
1. Signal Processing components for industrial, military and
aerospace (Military/Aerospace Signal Processing, or MSP).
2. Signal Source components, primarily wide-band VCOs, for
industrial, military and aerospace (Military/Aerospace Signal
Source, or MSS).
3. Special Assemblies that combine MSP and MSS components
(Military/Aerospace Special Assemblies, or MSA).
4. Commercial Signal Source components including PLLs and narrow-
band VCOs (Commercial Signal Source, or CSS).
5. Commercial Signal Processing components, including
optoelectronic components and subassemblies used in magnetic and
fiberoptic products for CATV applications (Commercial Signal
Processing, or CSP).
6. Subscriber product components used in hand-held telephone sets,
pagers and other consumer-oriented products (Subscriber Signal
Source, or SSS).
7. Commercial Special Assemblies (CSA).
In the first nine months of 1999, the composition of sales revenue was 8%
MSP, 9% MSS, less than 1% MSA, 70% CSS, 6% CSP, 5% SSS and 1% CSA. In the
first nine months of 1998, the composition of sales revenue was 12% MSP,
30% MSS, 0% MSA, 51% CSS, 7 % CSP, 0% SSS and 0% CSA.
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Cost of goods sold, as a percent of sales revenues, was 47% and 46%,
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margins are anticipated to decrease as the subscriber
products sales increase, because of the lower, competitive pricing of
these high volume products, while earnings are expected to be stable or
improve from these types of sales.
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Sales commissions, a significant
component of selling expenses, increase ratably with the increase of sales
revenues, which increased 37% and 32% in the periods, respectively.
Additional increases in the periods reflect increased travel, personnel
expenses and other selling expenses.
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General and administrative expenses increased approximately $114,000, or
23%, for the three months ended September 30, 1999 as compared to the
three months ended September 30, 1998.
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Increases to G&A primarily reflect higher management
compensation, increased shareholder relations expense and other similar
expenses.
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Total backlog of unfilled firm customer orders ("backlog") at September
30, 1999 was $13.9 million compared with $14.2 million at September 30,
1998. Backlog at December 31, 1998 was $18.1 million
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On March 4, 1997, the Company entered into an agreement to sell up to 75
units of debentures and warrants. The units consisted of an aggregate of
$7,500,000 in convertible debentures and 750,000 non-redeemable warrants
to purchase common stock at a price of $9.50 per share. All of the
debentures plus accrued interest were converted into common stock during
1997. 8,000 of these warrants were exercised during the current quarter.
As of September 30, 1999, 93,000 of the warrants had been exercised and
657,000 warrants remained outstanding.
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Stock Option Plan
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The Company has reserved 3,270,000 shares of its common stock for issuance
upon exercise of rights and options under the stock option plan.
Typically, rights and options have been granted subject to a vesting
schedule, vesting at the rate of 20 percent per year, becoming fully
vested upon the change of control of the Company, and expiring 10 years
from the date of issuance. Certain options granted to senior management
are fully vested upon issuance.
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Share Outstanding at the end of the Sept/1999 Q:
5,460,000
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Remaining outstanding Warrants represent a 12 percent dilution of EPS.
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5 year projected growth for the industry 29.7 percent
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EPS for DEC 99 year 60 cents
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EPS for DEC 00 year: 70 cents
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