10-K 1 k1093002final.txt 10K - 9-30-2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Fiscal Year ended Commission File Number September 30, 2002 0 - 10125 Radiant Technology Corporation ------------------------------ (Exact name of the registrant as specified in its charter) California 95-2800355 ---------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) identification number) 1335 South Acacia Avenue, Fullerton, California 92831 ----------------------------------------------------- (Address of principal executive offices)(Zip code) Registrant Telephone Number, including area code: (714) 991-0200 Securities registered pursuant to section 12 (b) of the act: None Securities registered pursuant to section 12 (g) of the Act: Common stock, without 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 _X__ No _____ The aggregate market value of the voting stock held by non-affiliates of the registrant was $ 321,193 as of December 2, 2002. Applicable only to registrants involved in bankruptcy proceedings during the preceding five years: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by section 12, 13, or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ___ No ___ Not applicable X The number of shares of the registrant's common stock, no par value, outstanding as of November 30, 2002 was 2,081,678. 1 Documents incorporated by reference. Part III Items 10 through 13 of this Form 10-K are incorporated by reference to the registrant's definitive proxy statement for the Annual Meeting of Shareholders held on April 22, 2002. 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. PART 1 ------ ITEM 1 BUSINESS -------- Radiant Technology Corporation (RTC) was incorporated in California in 1972. The 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 ovens and furnaces are distributed worldwide to meet ever-changing process requirements. To obtain financial growth and stability we concentrate on managing the following key elements of its business: Technological Leadership: We are constantly in contact with our customers soliciting their input for both continued product improvement and new product development. We encourage customers anticipating new thermal processing requirements to contact us regarding their new opportunities and needs. Customer Diversity: Customers from different facets of the electronics and photovoltaic industries 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: We concentrate on providing timeliness, high quality, and responsiveness to our 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, we retain Sales/Service representatives, factory trained, to provide the same level of dedication in placing the concerns and needs of the customer first. MARKETS AND PRODUCTS: The nature and high intensity of the infrared heat produced in our furnaces permits a high rate of heat absorption by the electronic parts processed through the furnaces, making them more adaptable to the exacting tolerances and high-speed heating requirements of certain industrial users. Infrared heating affords many advantages, including the furnace's ability to achieve operating temperatures in a shorter time span, operate at a faster conveyor belt speed, require less floor space, and use less electric energy, all of which result in significantly lower operating costs than for conventional ovens and furnaces. In addition to infrared heating furnaces, RTC also offers products based on convection and conduction heating technology. Convection heating utilizes a preheated gas such as clean dry air or nitrogen directed to a conveyor belt by means of gas amplifiers. The impingement of this heated gas with the product is the primary method of heat transfer. RTC's products utilizing conduction heating is based on heating a very dense conveyor belt to transfer energy to the processed product. 2 MARKETING, SALES AND CUSTOMERS Our products are sold throughout the world, primarily to organizations engaged in the microelectronics or photovoltaic manufacturing. 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 tend to evaluate furnace vendors for technological leadership that results in high process yields for material produced. This primary benefit combined with high RTC up time, low meantime between failure (MTBF), quick reliable service and spare parts response combine to produce low cost of equipment ownership for our customers. In 2002 the largest customer accounted for 16% of total revenues. Two customers accounted for 31% and 11% of RTC's revenue, respectively, in fiscal year 2001. In 2000, the largest customer was - 17% of total revenue. The Company does not experience a seasonal demand for its product. Rather the demand for RTC furnaces tends to follow the demand for new manufacturing equipment in the economy. BACKLOG We regard as backlog all signed purchase orders received from customers for delivery at specified dates. At September 30, 2002, the backlog was $619,344 vs. $808,484 in 2001, and $3,203,427 in 2000. This backlog of orders will be completed over a three to five month period. There can be no assurance that backlog will be replicated or increased or translated into higher revenues in the future. The success of our business depends on a multitude of factors that are out of our control. RESEARCH AND DEVELOPMENT Research and Development expenses are charged to specific product enhancement activities and new product development. Research and Development expenses were $377,324, $260,330 and $230,599, in fiscal 2002, 2001 and 2000, respectively, which represents primarily the development of new products, which it hopes will provide significant value to future years income. COMPETITION We confront competition from two primary domestic companies: BTU International, and Sierra-Therm. There are numerous other competitors both domestically and internationally. We believe that we are 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 microelectronic industries. The competitive environment in the market for ovens and furnaces is based on superior technology, design and delivery and ultimate cost of ownership beyond 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. 3 MATERIAL We purchase raw materials, mechanical parts and electronic components. The Company manufactures a portion of its sheet metal and some mechanical and electronic components. Alternative sources of material exist for nearly all parts, components and materials. We have selected a single source supplier for much of our electronic componentry, due to high levels of quality and service. Should this favorable condition degenerate, an alternative supplier can be found but not without extra initial expenditures. PATENTS RTC owns a number of current patents on its products also has patents pending. The Company's 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. We further believe that patents may provide technological hurdles to competition. However, it is primarily our attention to customer service with high quality products, produced in a timely manner, ultimately providing the customer with low cost of ownership that provide us our greatest competitive strength. TRADEMARKS We have 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. Numerous other Trademarks are in force relating to specific equipment or processes exclusive to RTC. EMPLOYEES We employed 37 full-time individuals as of October 31, 2002. WARRANTY We warrant our 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 labor after shipment to an original user. Under this warranty, the Company provides, components 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. PROPERTIES ---------- Our 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 two options to renew at 3 year intervals. See Note 7 to the financial Statements, for more detail. 4 ITEM 3. LEGAL PROCEEDINGS ----------------- There are no legal proceedings pending at the time of this report. 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 2002. PART II ------- 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, ------------- 2002 2001 HIGH LOW HIGH LOW ---- --- ---- --- 1st Quarter $ 0.270 $ 0.270 $ 1.031 $ 0.375 2nd Quarter 1.250 1.250 2.500 0.375 3rd Quarter 1.100 1.100 1.750 0.350 4th Quarter 0.260 0.260 1.120 1.120 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, 2002, the number of record holders of the Company's Common Stock was 400. 5 ITEM 6. SELECTED FINANCIAL DATA ----------------------- The following table summarizes certain selected financial data of the Company: Operating Data (in thousands) except for per share information Year Ended September 30, ------------------------ 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- Net Sales $ 3,762 $ 5,069 $ 4,717 $ 3,337 $ 4,686 Income (Loss) From Continuing (786) (157) 288 476 416 Total Assets 4,128 2,967 4,551 4,061 4,063 Long-Term Debt -- -- -- -- -- Per Share Information Income (Loss) From Continuing (0.38) (0.08) 0.13 (0.25) 0.18 Operations Cash Dividends per Common Share $ -- $ -- $ -- $ -- $ -- See Notes to Financial Statements 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; 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 We 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. 6 RESULTS OF OPERATIONS Revenues were $3.8 million, $5.1 million and $4.7 million in fiscal years 2002, 2001 and 2000 respectively, representing a decrease of 26% from 2001 to 2002 and an increase of 7% from 2000 to 2001. The decrease in fiscal year 2002 was primarily attributable to the slowing world economies and the sharp decline in capital spending by manufacturers of semiconductor and industrial products. Cost of sales consists of costs related to the purchase of raw materials, assembled and subcontracted parts, services provided by third party suppliers, as well as costs arising from in house manufacturing support operations and the costs to run it. Cost of sales, as a percentage of revenues, was 75.9%, 73.4% and 65.4% for fiscal years 2002, 2001 and 2000 respectively. The lower revenue in 2002, due to the weak market demand, is the primary reason for the increase in cost of sales ratio from 2001 to 2002. RTC continues to use the latest technology available in an effort to reduce both cost of revenues (and the maintenance of optimal inventory levels) and operating expenses, and ultimately an increase overall company profits. Research and development expense expressed as a percentage of revenues was 10.0%, 5.1% and 4.9% in fiscal years 2002, 2001 and 2000 respectively. These reflect costs related to the design of the Waver Bump products, new product development and product enhancements for existing standard products. These costs are essential to the Company's long term future, a future that can move very quickly in the high technology field. Selling, general and administrative expenses represented 32.0%, 23.8%, and 20.0% of total revenues in fiscal years 2002, 2001 and 2000 respectively. The increase in 2002 was attributed to the lower revenue as well as increased marketing, and administrative salary levels, temporary help in administrative functions and sharply higher costs for liability and workmen's compensation insurance. Interest income, net of interest expense, for fiscal year 2002 was approximately 0.3% of revenues compared to 1.0% and 0.8% in fiscal years 2001 and 2000 respectively. LIQUIDITY AND CAPITAL RESOURCES Our consolidated cash decreased from $1,118,630 at September 30, 2001 to $2,069,784 at September 30, 2002. The increase of $951,154 is attributable to a short term loan of $1,916,000. Net cash used by operating activities of $(931,910) compared to cash from operating activities of $202,613 in the prior year. Management believes that the expected revenues from operations of RTC may not be sufficient to provide adequate cash to fund anticipated working capital and other cash needs. Short term borrowing or a revolving credit line will be employed to fund working capital and other cash needs. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- Inapplicable. 7 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, 2002 and 2001. 3. Statements of Operations for the years ended September 30, 2002, 2001, 2000. 4. Statements of Stockholders' Equity for the years ended September 30, 2002, 2001, 2000. 5. Statements of Cash Flows for the years ended September 30, 2002, 2001, 2000. 6. Notes to Financial Statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None. PART III -------- 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 7, 2003 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 7, 2003. 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 7, 2003. 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 7, 2003. 8 PART IV ------- 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. 15 2. Balance Sheets as of September 30, 2002 and 2001. 16 3. Statements of Operations for the years ended September 17 30, 2002, 2001 and 2000. 4. Statements of Stockholders' Equity for the years ended 18 September 30, 2002, 2001 and 2000. 5. Statements of Cash Flows for the years ended September 19-20 30, 2002, 2001 and 2000 6. Notes to Financial Statements 21-33 (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 Statementon Form S-18 (Registration No. 2-72528-LA) filed on July 14, 1981. 9 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. 10 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 13, 2003 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 13, 2003 --------------------------------- Lawrence R. McNamee Chairman of the Board and a Director (Principal Financial Officer and Principal Executive Officer) /s/ C. T. Richert January 13, 2003 --------------------------------- Carson T. Richert Executive Vice President and a Director /s/ R. B. Thompson January 13, 2003 --------------------------------- Robert B. Thompson Director 11 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, 2002 and 2001, and the related statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended September 30, 2002. 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 auditing standards generally accepted in the United States. 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, 2002 and 2001 and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2002 in conformity accounting principles generally accepted in the United States. CACCIAMATTA ACCOUNTANCY CORPORATION Irvine, California December 13, 2002 12 RADIANT TECHNOLOGY CORPORATION Balance Sheets SEPTEMBER 30, ------------- 2002 2001 --------------- --------------- ASSETS Current Assets: Cash and equivalents $ 2,069,784 $ 1,118,630 Accounts receivable 449,162 407,814 Inventories 980,362 845,823 Prepaid expenses 31,841 53,467 Deferred taxes 263,500 283,500 ------- ------- Total Current Assets 3,794,649 2,709,234 Property and equipment 321,873 252,243 Other assets 11,670 5,035 ------ ----- Total Assets $ 4,128,192 $ 2,966,512 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short term debt $ 1,916,000 $ -- Accounts payable 364,341 274,582 Accrued expenses 199,439 216,080 Customer deposits 159,509 200,663 ------- ------- Total Liabilities 2,639,289 691,325 --------- ------- Commitments & Contingencies -- -- Stockholders' Equity Common stock, no par value 1,167,608 1,167,608 Retained earnings 321,295 1,107,579 ------- --------- Total Stockholders' Equity 1,488,903 2,275,187 --------- --------- Total Liabilities & Stockholders' Equity $ 4,128,192 $ 2,966,512 ============ ============ The accompanying notes are an integral part of these financial statements 13 RADIANT TECHNOLOGY CORPORATION Statements of Operations Year Ended September 30, ------------------------ 2002 2001 2000 ---- ---- ---- Net sales $3,761,802 $5,069,280 $4,717,316 Cost of sales 2,855,428 3,723,291 3,086,122 --------- --------- --------- Gross profit 906,374 1,345,989 1,631,194 ------- --------- --------- Operating expenses: Selling, general and administrative 1,204,095 1,182,813 944,293 Research and development 377,324 352,211 230,599 Depreciation and amortization 121,291 133,884 193,113 ------- ------- ------- Total operating expenses 1,702,710 1,668,908 1,368,005 --------- --------- --------- Income/(loss) from operations (796,336) (322,919) 263,189 Interest income, net 10,852 52,209 37,540 ------ ------ ------ Income/(loss) before provision/ (785,484) (270,710) 300,729 (benefit) for income taxes Provision (benefit) for income taxes 800 (113,500) 13,000 --- -------- ------ Net income/ (loss) $ (786,284) $ (157,210) $ 287,729 ========== ========== ========== Basic earnings (loss) per share $ (0.38) $ (0.08) $ 0.15 ========== ========== ========== Diluted earnings (loss) per share $ (0.38) $ (0.08) $ 0.13 ========== ========== ========== Basic number of common shares 2,081,678 2,040,445 1,901,594 outstanding ========== ========== ========== Diluted number of common shares 2,081,678 2,040,445 2,188,764 outstanding ========== ========== ========== 14 RADIANT TECHNOLOGY CORPORATION Statements of Stockholders' Equity Years Ended September 30, 2000, 2001 and 2002 Common Stock Total ------------ Retained Stockholders' Shares Amount Earnings Equity ------ ------ -------- ------ Balance, September 30, 1999 1,895,678 $ 1,153,108 $ 977,060 $2,130,168 Net Income 287,729 287,729 Exercise of Options 11,000 1,375 1,375 ------ ----- ----- ----- Balance, September 30, 2000 1,906,678 1,154,483 1,264,789 2,419,272 Net Loss (157,210) (157,210) Exercise of Options 175,000 13,125 13,125 ------- ------ ----- ------ Balance, September 30, 2001 2,081,678 1,167,608 1,107,579 2,275,187 Net Loss (786,284) (786,284) -------- -------- -------- -------- Balance, September 30, 2002 2,081,678 $ 1,167,608 $ 321,295 $1,488,903 ========= =========== ========= ========== 15 RADIANT TECHNOLOGY CORPORATION Statements of Cash Flows Year Ended September 30, ------------------------ 2002 2001 2000 ---- ---- ---- Cash flows from Operating activities: Net income/ (loss) $ (786,284) $ (157,210) $ 287,729 Adjustments to reconcile net income/ (loss) to net cash provided by operating activities: Bad debt expense 6,000 -- Depreciation and amortization 121,291 133,884 193,113 Inventory obsolescence 101,000 26,000 40,000 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (47,348) 1,436,604 (1,253,112) Inventory 235,539) (182,690) (305,227) Prepaid expenses 21,645 406 -- Other assets -- 7,260 Deferred taxes 19,981 (113,519) -- Increase/(decrease) in: Accounts payable 89,759 (135,582) 221,041 Accrued expenses (16,641) (38,674) 18,713 Income taxes payable -- -- 13,000 Customer deposits (41,154) (766,606) 948,522 ------- -------- ------- Net cash provided by/ (used in) (767,290) 202,613 171,039 -------- ------- ------- operating activities Cash flows from investing activities: Capital expenditures (197,556) (125,491) (28,933) -------- -------- ------- Cash flows from financing activities: Issuance of common stock -- 13,125 1,375 Short term debt 1,916,000 -- 500,000 Repayment on short term debt -- (500,000) (1,500,000) -------- -------- ---------- Net cash provided by financing 1,916,000 (486,875) (998,625) --------- -------- -------- activities Net increase (decrease) in cash and 951,154 (409,753) (856,519) equivalents Cash and equivalents, beginning of year 1,118,630 1,528,383 2,384,902 --------- --------- --------- Cash and equivalents, end of year $2,069,784 $1,118,630 $1,528,383 ========== ========== ========== Supplemental disclosure of cash flow information and non-cash investing and financing activities: 2002 2001 2000 ---- ---- ---- Cash paid during the year for: Interest $ 475 $ -- $ 429 Income Taxes $ 800 $ 8,070 $ -- 16 RADIANT TECHNOLOGY CORPORATION Notes to financial statements 28 September 30, 2002 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 2002 2001 2000 ------------------- ----------- ----------- ----------- European $ 355,819 $1,047,596 $ 966,723 Asia 1,952,357 549,073 316,235 Other International 486,585 377,243 126,666 ----------- ----------- ----------- Total International Sales $2,794,761 $1,973,912 $1,409,624 =========== =========== =========== 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. 17 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 2002, 2001 and 2000 was $1,423, $11,939, and $8,712, respectively. Research and Development ------------------------ Research and development has been expensed as incurred. Research and development expenses were $377,324; $352,211 and $230,599 in fiscal 2002, 2001, and 200, 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 $31,001, $31,001 and $77,213 for 2002, 2001, and 2000, 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. 18 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 2002 and 2001 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"). The Company has adopted the provisions of pro forma disclosure requirements of Statement of Financial Accounting Standards 123, Accounting for Stock-Based Compensation. 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 2000 and 2001 financial statements have been reclassified to conform with the 2002 presentation. 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. 19 RADIANT TECHNOLOGY CORPORATION Notes to financial statements 3. Accounts receivable (continued) ------------------------------- Net accounts receivable by geographic markets are as follows: Countries 2002 2001 2000 ------------------- --------- --------- --------- United States 27% 48% 73% European 1% 9% 14% Asia 70% 26% - Other International 2% 17% 13% --------- ---------- --------- 100% 100% 100% ========= ========== ========= During 2002, 2001 and 2000, the five largest customers represented 49, 65, and 51 percent of revenues, respectively. At September 30, 2002 and 2001 the five largest balances represented 89 and 70 percent, respectively, of total accounts receivable. 2002 2001 2000 ---------- ---------- ---------- Trades Receivables $ 460,162 $ 412,814 $1,849,418 Allowance for Doubtful Accounts (11,000) (5,000) (5,000) ---------- ---------- ---------- $ 449,162 $ 407,814 $1,844,418 ========== ========== ========== Activity relating to the allowance for doubtful accounts and sales returns is as follows: 2002 2001 2000 ---------- ---------- ---------- Balance at beginning of year $ 5,000 $ 5,000 $ 210,817 Provision 6,000 490 -- Recoveries (Write offs) -- (490) (205,817) ---------- ---------- ---------- Balance at end of year $ 11,000 $ 5,000 $ 5,000 ========== ========== ========== 20 RADIANT TECHNOLOGY CORPORATION Notes to financial statements 4. Inventories 2002 2001 ------------ ------------ Raw Material $ 400,050 $ 471,882 Work in Process 660,413 313,090 Finished Goods 176,899 216,851 ------------ ------------ Total Inventories 1,237,362 1,001,823 Allowance for Slow Moving Inventory (257,000) (156,000) ------------ ------------ Net Inventories $ 980,362 $ 845,823 ============ ============ Activity relating to the allowance for obsolescence is as follows: 2002 2001 2000 ---------- ---------- ---------- Balance at beginning of year $ 156,000 $ 130,000 $ 140,000 Provision 101,000 56,000 40,000 Write Offs -- (30,000) (50,000) ---------- ---------- ---------- Balance at end of year $ 257,000 $ 156,000 $ 130,000 ========== ========== ========== 5. Property and Equipment ---------------------- Life in Years 2002 2001 ---------- ---------- ---------- Machinery & equipment 3 - 7 $ 483,573 $ 327,011 Office furniture & equipment 7 181,890 176,996 Leasehold improvements 5 67,934 67,934 Vehicles 5 15,050 15,050 Computer software 3 345,500 475,145 ---------- ---------- Property & equipment 1,093,947 1,062,136 Less accumulated depreciation (772,074) (795,676) ---------- ---------- Net property & equipment $ 321,873 $ 266,460 ========== ========== Depreciation expense for 2002, 2001, and 2000 was $119,868, $133,884, and $193,113, respectively. 21 RADIANT TECHNOLOGY CORPORATION Notes to financial statements 6. Accrued expenses ---------------- 2002 2001 ------------ ------------ Payroll and Related Items $ 146,510 $ 126,785 Commissions 20,366 39,682 Warranties 30,000 30,000 Other 2,563 19,613 ------------ ------------ Total accrued expenses $ 199,439 $ 216,080 ============ ============ 7. Commitments and contingencies ----------------------------- Operating leases ---------------- In October 8, 2001 the Company signed a five year addendum to the lease on a building in Fullerton, California, expiring on February 28, 2007. Base monthly rent is $11,395 plus common area charges of approximately $2,649 per month. The Company also leases office equipment under operating leases expiring in January, 2002. Minimum future lease payments under non-cancelable operating leases are: Year ending September 30, 2003 $142,410 2004 $144,902 2005 $149,175 2006 $62,898 Rent expense for 2002, 2001 and 2000 was $170,079, $146,112, and $168,650, respectively. Short Term Debt --------------- The Company received a short term advance on September 20, 2002 in the amount of $1,916,000 from a financial institution. The advance is to be repaid within 10 days and the borrowing rate is less than 5% annual rate of interest. 8. 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. 22 RADIANT TECHNOLOGY CORPORATION Notes to financial statements 9. Stockholders' equity -------------------- Preferred stock ---------------- At September 30, 2002 and 2000 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, 2002 and 2001, 2,081,678 shares were issued and outstanding. 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, April 15, 1999, January 2, 2001 and as of September 30, 2002 the Board authorized options to purchase 70,000, 100,000, 55,000 and 220,000 shares, respectively. These shares were granted at an exercise price that was at or above the market price on the date of the grant. The options vest on various dates in 2000, 2001, 2002, 2003 and 2004 and expire three years from the vesting date. As of September 30, 2002 519,666 of these options remained outstanding. Non-statutory director options ------------------------------ As of September 30, 2002, the Company granted 20,000 non-statutory options to each of three outside board members. The options vested immediately and expire July 18, 2005 The option price is $.45 per share, which was greater than the market price at the date of the grant. At September 30, 2002, all of these options remain outstanding. Lawrence McNamee ---------------- Mr. McNamee held options to acquire 346,666 shares at $.075 per share issued to him in lieu of salary in 1992; 175,000 of these options were exercised in 2001, resulting in options for 171,666 shares outstanding at September 30, 2002. These options have no expiration date. 23 RADIANT TECHNOLOGY CORPORATION Notes to financial statements 9. Stockholders' equity (continued) -------------------------------- The following table summarizes the activities under the Plan and outside the Plan:

~~Year~~Weighted ~~Ended~~Number ~~September~~Number ~~30,~~of Price Average of Shares Shares Per Share Exercise Price Exercisable --------- ---- ~~2001 2000 HIGH LOW HIGH LOW~~ ---- ----- -------------- ----------- ~~1st~~September ~~Quarter~~30, $2000 1499,666 $.~~031~~075 - $0.75 $0.~~375~~23 459,666 ======== Granted 55,000 $0.05 1$0.2553 Exercised (175,000) $0.07 $0.~~437~~075 ~~2nd~~Cancelled ~~Quarter~~(65,000) 2$.5048 ~~.375~~- 4$0.0075 $0.~~656~~55 ~~3rd~~--------- ~~Quarter~~------------ 1------ September 30, 2001 314,666 $.075 - $0.75 $0.3530 1229,666 ======== Granted 260,000 $0.3745 $0.~~625~~45 ~~4th~~Cancelled ~~Quarter~~(77,000) 1$.1248 1- $0.12525 1$0.0051 --------- ------------- ----- September 30, 2002 497,666 $.~~625~~075 - $0.75 $0.40 315,166 ======== ============= ======== ========

The following information applies to employee options outstanding at September 30, 2002: Weighted Average Weighted Remaining Average Range of Number of Contractual Exercise exercise prices Shares Life (Years) Price --------------- ------------- ---------- ---------- $0.075 171,666 No Expiration $0.075 $0.45 - $0.48 280,000 1.83 $0.450 $0.525 8,000 0.04 $0.525 $0.750 36,000 0.02 $0.750 24 RADIANT TECHNOLOGY CORPORATION Notes to financial statements 9. Stockholders' equity (continued) -------------------------------- Stock options (continued) ------------------------- 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: 2002 2001 2000 ---------- ---------- ---------- Net Income / (Loss) As Reported $ (786,284) $ (157,210) $ 287,729 Pro Forma $ (830,582) $ (169,952) $ 284,444 Basic earnings per share: As Reported $ (0.38) $ (0.08) $ 0.15 Pro Forma $ (0.40) $ 0.08 $ 0.15 Diluted earnings per share: As Reported $ (0.38) $ (0.08) $ 0.13 Pro Forma $ (0.40) $ (0.08) $ 0.13 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 2000, 1999 and 1998 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 2002, 2001, and 2000: 2002 2001 ------------ ------------ Expected Life (years) 3.5 4.0 Risk-free interest rate 4.00% 6.00% Volatility 100% 100% Expected dividends None None The weighted fair value of options granted during the years ended September 30 2002, 2001 and 2000 for which the exercise price approximated the market price on the grant date was $.33, $.525 and $.21, respectively. 25 RADIANT TECHNOLOGY CORPORATION Notes to financial statements 10. Income taxes ------------ Income tax expense (benefit) consisted of the following: -------------------------------------------------------- 2002 2001 2000 ---------- ---------- ---------- Current tax $ 800 $ -- $ 13,000 Deferred tax -- (113,500) -- ---------- ---------- ---------- Net income tax expense (benefit) $ 800 $ (113,500) $ 13,000 ========== ========== ========== 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 2002, 2001 and 2000 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, 2002 and 2001 are as follows: 2002 2001 ------------ ------------ Net operating loss carryforwards $ 629,000 $ 441,000 Allowance for slow moving inventories 103,000 52,000 Allowance for doubtful accounts 4,000 2,000 ------------ ------------ Deferred tax assets $ 736,000 $ 495,000 Less valuation allowance (472,500) (325,000) ------------ ------------ Net deferred tax asset $ 263,500 $ 170,000 ============ ============ 26 RADIANT TECHNOLOGY CORPORATION Notes to financial statements 10. Income taxes (continued) ------------------------ The recognized deferred tax asset is based upon expected utilization of the net operating loss carryforwards and reversal of certain temporary differences. At September 30, 2002, the Company had net operating loss carryforwards for federal and state income tax purposes expiring as follows: Federal State ------------ ------------ 2007 $ 247,175 $ -- 2009 620,976 2011 100,000 2014 167,361 2015 198,790 2016 786,000 ------------ ------------ $ 2,020,302 $ 100,000 ============ ============ 11. 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 2000 was $12,474. No expense was charged to operations in 2002 and 2001. 27 RADIANT TECHNOLOGY CORPORATION Notes to financial statements 12. 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.

~~Operating~~2002 ~~Data~~2001 ~~(in~~2000 ~~thousands) except per share Year Ended September 30,____________ information~~ ----------- ----------- -------------~~------------------------~~ ~~2001~~Basic ~~2000~~earnings ~~1999~~(loss) ~~1998~~per ~~1997~~share: ~~----~~Numerator ~~---- ---- ---- ----~~ Net ~~Sales~~Income (Loss) ($5786,~~069~~284) ($4157,~~717~~210) $3287,~~337~~729 $4=========== =========== ============= Denominator Basic weighted average number of common shares outstanding during the period 2,~~686~~081,678 $42,~~412~~040,445 ~~Income~~1,901,594 =========== =========== ============= Basic net income (~~Loss~~loss) ~~From~~per ~~Continuing~~share ~~Operations~~($0.38) (~~157~~$0.08) ~~287~~$0.15 =========== =========== ============= Diluted earnings (~~476~~loss) ~~416~~per ~~592~~share: ~~Total~~Denominator ~~Assets~~Basic weighted average number of common shares used in basic earnings per share 2,~~967 4~~081,~~551~~678 42,~~061~~040,445 41,~~063~~901,594 4Effect of Diluted Securities Stock options (1) 287,~~102~~170 ~~Long~~-~~term~~---------- ~~debt~~----------- 0------------- 0Weighted 0number 0of 0common ~~Per~~shares ~~Share~~and ~~Information:~~diluted ~~Income~~potential ~~(Loss)~~common ~~From~~stock ~~Continuing~~used ~~Operations~~in ~~(.08)~~diluted ~~.15~~earnings ~~(.25)~~per ~~.22~~share ~~.32~~2,081,678 ~~Cash~~2,040,445 ~~Dividends~~2,188,764 ~~per~~=========== ~~Common~~=========== ~~Share~~============= -Diluted -earnings -(loss) -per ~~See~~share ~~Notes~~($0.38) to($0.08) ~~Financial~~$0.13 ~~Statements~~=========== =========== =============

1. Stock options were anti-dilutive for the years ended September 30, 2002 and 2001. See Note 9 for stock option activity 28

The following financial statements are included in this Form 10-K: Page No. 1. Report of Independent Certified Public Accountants. 15 2. Balance Sheets as of September 30, 2001 and 2000. 16 3. Statements of Operations for the years ended September 30, 2001, 2000, and 1999. 17 4. Statements of Stockholders' Equity for the years ended September 30, 2001, 2000 and 1999. 18 5. Statements of Cash Flows for the years ended September 30, 2001, 2000, and 1999. 19-20 6. Notes to Financial Statements 21-33 (2) Financial Statements Schedules None. (3) Exhibits

ASSETS Current assets: Cash and equivalents ............................ $ 1,118,630 $ 1,528,383 Accounts receivable ............................. 407,814 1,844,418 Inventories ..................................... 845,823 689,133 Prepaid expenses ................................ 53,467 42,411 Deferred taxes .................................. 283,500 170,000 ------- ------- Total current assets ........................... 2,709,234 4,274,345 Property and equipment ............................ 252,243 265,671 Patents ........................................... 5,035 11,443 ----- ------ $ 2,966, $ 4,551,459 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt ................................. $ -- $ 500,000 Accounts payable ................................ 274,582 410,164 Accrued expenses ................................ 216,080 254,754 Customer deposits ............................... 200,663 967,269 ------- ------- Total current liabilities ..................... 691,325 2,132,187 ------- --------- Stockholders' equity: Preferred stock ................................. -- -- Capital stock ................................... 1,167,608 1,154,483 Retained earnings ............................... 1,107,579 1,264,789 --------- --------- Total stockholders' equity .................... 2,275,187 2,419,272 --------- --------- $ 2,966,512 $ 4,551,459 =========== ===========

Net sales $5,069,280 $4,717,316 $3,336,674 Cost of Sales 3,820,550 3,086,122 2,283,801 --------- --------- --------- Gross profit 1,248,730 1,631,194 1,052,873 --------- --------- --------- Operating expenses: Selling, general and administrative 1,206,277 954,525 1,290,047 Engineering, research and development 365,372 413,480 282,766 ------- ------- ------- Total operating expenses 1,571,649 1,368,005 1,572,813 --------- --------- --------- Income/(loss) from operations (322,919) 263,189 (519,940) Interest income, net 52,209 37,540 44,120 ------ ------ ------ Income/(loss) before provision for income taxes (270,710) 300,729 (475,820) Provision (benefit) for income taxes (113,500) 13,000 -- -------- ------ ------ Net income/(loss) $(157,210) $287,729 $(475,820) ========= ======== ========= Basic earnings per share: Net income/(loss) $ (0.08) $ 0.15 (0.25) ========= ======== ===== Diluted earnings per share: Net income/(loss) $ (0.08) $ 0.13 $ (0.25) ========= ======== ======== Basic number of common shares outstanding: 2,040,445 1,901,594 1,895,678 ========= ========= ========= Diluted number of common shares outstanding: 2,040,445 2,188,764 1,895,678 ========= ========= =========

Total Capital Stock Retained Stockholders' ------------- Shares Amount Earnings Equity ------ ------ -------- ------ Balance, September 30, 1998 $1,895,678 $1,153,108 $1,452,880 $2,605,988 Net loss .............. - - (475,820) (475,820) ---------- ----------- ----------- ----------- Balance, September 30, 1999 1,895,678 153,108 977,060 2,130,168 Exercise of options ... 11,000 1,375 - 1,375 Net income ............ - - 287,729 287,729 ---------- ---------- ----------- ----------- Balance, September 30, 2000 1,906,678 1,154,483 1,264,789 2,419,272 ---------- ---------- ----------- ----------- Exercise of options ... 175,000 13,125 - 13,125 Net income (loss) ..... - - (157,210) (157,210) ---------- ----------- ----------- ----------- Balance, September 30, 2001 $2,081,678 $1,167,608 $1,107,579 $2,275,187 =========== ========== ========== ===========

Year Ended September 30, ------------------------ 2001 2000 1999 ---- ---- ---- Cash flows from operating activities: Net income/ (loss) $ (157,210) $ 287,729 $(475,820) Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Bad debt expense - - 183,807 Depreciation and amortization 133,884 193,113 195,011 Inventory obsolescence 26,000 40,000 40,000 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 1,436,604 (1,253,112) (209,336) Inventory (182,690) (305,227) (30,299) Deferred taxes (113,519) - - Other assets 406 7,260 (14,549) Increase (decrease) in: Accounts payable (135,582) 221,041 115,083 Accrued expenses (38,674) 18,713 38,157 Income taxes payable - 13,000 (38,640) Customer deposits (766,606) 948,522 (140,719) -------- ------- -------- Net cash provided by/(used in) operating activities 202,613 171,039 (337,305) ------- ------- -------- Cash flows from investing activities: Capital expenditures (125,491) (28,933) (105,718) -------- ------- -------- Cash flows from financing activities: Issuance of common stock 13,125 1,375 - Borrowing on short-term debt - 500,000 500,000 Repayment on short-term debt (500,000) (1,500,000) - -------- ---------- ---------- Net cash provided by (used in) financing activities (486,875) (998,625) 500,000 -------- -------- ------- Net increase in cash and equivalents (409,753) (856,519) 56,977 Cash and equivalents, beginning of year 1,528,383 2,384,902 2,327,925 --------- --------- --------- Cash and equivalents, end of year $1,118,630 $1,528,383 $ 2,384,902 ========== ========== =============

2001 2000 1999 ---- ---- ---- Cash paid during the year for: Interest ............... $ - $ 429 $ 4,614 Income taxes ............ $ $ - $ 34,286

European $1,047,596 $ 966,723 $ 640,511 Asia 549,073 316,235 178,170 Other international 377,243 126,666 482,161 $1,973,912 $1,409,624 $1,300,842

Countries 2001 2000 --------- ---- ---- United States ...... 48% 73% Asia .............. 26% - European .......... 9% 14% Other International 17% 13% -- -- 100% 100% === ===

2001 2000 ----------- ----------- Trade receivables ............ $ 412,814 $ 1,849,418 Allowance for doubtful accounts (5,000) (5,000) ------ ------ $ 407,814 $ 1,844,418 =========== ===========

2001 2000 1999 ---- ---- ---- Balance at beginning of year $ 5,000 $ 210,817 $ 37,500 Provision (490) -- 183,807 Recoveries (Write offs) 490 (205,817) (10,490) --- -------- ------- Balance at end of year $ 490 $(205,817) $ 210,817 ======= ========= =========

2001 2000 ---- ---- Raw materials $ 471,882 $ 384,727 Work in process 313,090 313,357 Finished goods 216,851 121,049 ------- ------- 1,001,823 819,133 Allowance for obsolescence (156,000) (130,000) -------- -------- $ 845,823 $ 689,133 ========= =========

2001 2000 1999 ---- ---- ---- Balance at beginning of year $ 130,000 $ 140,000 $ 100,000 Provision 56,000 40,000 40,000 Write offs (30,000) (50,000) -- ------- ------- ------- Balance at end of year $ 156,000 $ 130,000 $ 140,000 ========== ========== ==========

Machinery and equipment 7 $ 419,685 $ 387,530 Office furniture and equipment 7 70,105 68,847 Leasehold improvements 5 67,934 67,934 Vehicles 5 15,050 15,050 Capitalized computer software 3 475,145 405,542 ------- ------- 1,047,919 944,902 Less: accumulated depreciatio (795,676) (679,231) -------- -------- $ 252,243 $ 265,671 =========== ==========

2001 2000 ---- ---- Payroll and related items $ 126,785 $ 109,499 Commissions 39,682 89,959 Warranties 30,000 40,000 Other 19,613 15,296 ------ ------ $ 216,080 $ 254,754 ========= =========

Weighted Number Number of Price Average of Shares Shares Per Share Exercise price Exercisable ------ --------- -------------- ----------- September 30, 1999 595,666 $.0625 - 1.175 $0.32 446,666 ------- ------ ----- ----- ------- Exercised (11,000) $.0625 - 0.75 $0.13 Canceled (85,000) $.48 - 1.175 $0.94 ------- ---- ----- ----- September 30, 2000 499,666 $.075 - 0.75 $0.23 459,666 ------- ----- ---- ----- ------- Granted 55,000 $0.525 $0.525 Exercised (175,000) $0.075 $0.075 Canceled (65,000) $.48 - 0.75 $0.55 ------- ---- ---- ----- September 30, 2001 314,666 $.075-.75 $0.30 229,666 ======= ===== === ===== =======

Weighted Average Weighted Remaining Average Range of Number of Contractual Exercise exercise price Shares Life (Years) Price -------------- ------ ------------ ----- $0.075 171,666 N/A $0.075 $0.48 50,000 2.5 $0.48 $0.525 55,000 3.6 $0.525 $0.75 38,000 1.25 $0.75 ----- ------ ---- ----- 314,666 $0.30 ======= =====

2001 2000 1999 ---- ---- ---- Net income/(loss): As reported $ (157,210) $ 287,729 $ (475,820) Pro forma $ (169,952) $ 284,444 $ (507,110) Basic earnings per share: As reported $ (0.8) $ 0.15 $ (0.25) Pro forma $ (0.8) $ 0.15 $ (0.27) Diluted earnings per share: As reported $ (0.8) $ 0.13 $ (0.25) Pro forma $ (0.8) $ 0.13 $ (0.27)

2001 2000 1999 ---- ---- ---- Current tax expense $ - $ 13,000 $ - Deferred tax benefit (113,500) - - --------- --------- --------- Net income tax expense $(113,500) $ 13,000 $ - ========= ======== ========

2001 2000 1999 ---- ---- ---- Continuing operations: Federal expected tax expense (benefit) $ (87,768) $ 102,000 $(167,000) State expected tax expense (benefit) (25,732) 28,000 (48,000) Inventory allowance 12,000 (4,000) (40,000) Accounts receivable allowance - (76,000) (42,000) ------- ------- ------- Depreciation timing differences 20,000 33,000 20,000 Deferred tax valuation allowance (32,000) - 277,000 Use of NOL carryforwards - federal - (64,000) - Use of NOL carryforwards - state - (6,000) - ------ ------ ------ $(113,500) $ 13,000 $ - ========= ========= =======

2001 2000 ---- ---- Net operating loss carryforwards $ 514,000 $ 441,000 Allowance for slow moving inventories 72,000 60,000 Allowance for doubtful accounts 2,000 2,000 Other - - ------ ------ Deferred tax assets 588,000 503,000 Less valuation allowance (304,500) (333,000) -------- -------- Net deferred tax asset $ 283,500 $ 170,000 ========= =========

Federal State ------- ----- 2007 $ 247,175 $ - 2009 620,976 - 2011 - 121,000 2014 167,361 2021 220,000 - ------- ------- $1,255,512 $ 121,000 ========== =========

2001 2000 1999 ---- ---- ---- Basic earnings/(loss) per share: Numerator Net income/(loss) $ (157,210) $ 287,729 $ (475,820) =========== =========== =========== Denominator Basic weighted average number of common shares outstanding during the period 2,040,445 1,901,594 1,895,678 ========= ========= ========= Basic net income/(loss) per share $ (0.08) $ 0.15 $ (0.25) =========== =========== =========== Diluted earnings/(loss) per share: Denominator Weighted average number of common shares used in basic earnings per share 2,040,445 1,901,594 1,895,678 Effect of dilutive securities: Stock options (1) -- 287,170 -- Weighted number of common shares and dilutive potential common stock used in diluted earnings per share 2,040,445 2,188,764 1,895,678 ========= ========= ========= Diluted earnings/(loss) per share $ (0.08) $ (0.25) $ 0.18 =========== =========== ===========

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