Purchases by intelligence agencies of the United States government have historically accounted for almost all of the Company's revenues, and most of the Company's business is conducted under contracts that include United States government security requirements. While the Company believes its current customers offer significant additional sales growth opportunities and, accordingly, directs much of its marketing and research and development (R&D) resources toward these customers, in recent years the Company has attempted to broaden its customer base to include new customers in both the military and commercial markets. The efforts have been successful with revenue contributions having grown from 0.3% of revenues in fiscal 1993 to 2.9% of revenues in fiscal 1995 for the Company's Commercial Telecommunications Division, and from 2.0% of revenues in fiscal 1993 to 3.9% of revenues in fiscal 1995 for the Company's Military Reconnaissance Division. (See Management's Discussion and Analysis of Financial Condition and Results of Operations.)
In recent years, accurate and comprehensive information regarding foreign affairs and developments has become increasingly important to the United States government. The reduction of United States military tactical forces overseas, coupled with political instability in certain regions such as the Middle East, Eastern Europe, Africa and South America, has heightened the United States government's need to be able to monitor overseas activities. In order to obtain information about activities within foreign countries, the United States government gathers and analyzes telecommunication signals emanating from those countries.
The Company devotes significant resources toward understanding the United States government's signal reconnaissance goals, capabilities and perceived future needs. The Company obtains information about these signal reconnaissance needs through frequent marketing contact between its employees and technical and contracting officials of the United States government. The Company believes that it has much more marketing contact with customers and potential customers than is customary among its competitors. In addition, the Company invests in R&D which it anticipates will enable it to develop signal reconnaissance equipment that meets these needs. The Company believes that it invests a greater percentage of its revenues in R&D than is typical among its competitors. (See "Research and Development.")
Traditionally, the United States government has addressed its signal reconnaissance needs with custom signal processing solutions which tend to be both expensive and have long delivery times. These factors, combined with budgetary constraints, have caused many agencies to search for more flexible and cost-effective signal reconnaissance solutions that can be deployed promptly. The Company's signal reconnaissance products can be used, with or without further modification, to satisfy requirements of a variety of customers. The Company believes that custom equipment generally cannot be as readily deployed in as wide a variety of circumstances as the Company's products. The Company designs its products to use advanced circuitry and highly integrated components, including Company-designed application specific integrated circuits (ASICs). This enables the Company to offer products that are smaller, consume less power and cost customers less when multiple units are built than equipment of similar functionality that use fewer advanced designs and materials.
Commercial applications of the Company's technology and equipment include digital video processing (for example, HDTV or interactive TV), sophisticated processing of cellular radio signals to enhance the economic value of cellular networks, cellular radio fraud detection, and a variety of test equipment for the new technologies in wireless communications. In this new market area, the Company intends to license its technology to a strategic partnering company and, to a smaller degree, the Company may develop the entire commercial product.
The Company believes its employees are its most valuable resource.
As part of its efforts to obtain information, the United States government gathers and analyzes telecommunication signals emanating from foreign countries. In recent years, the use of established telecommunication technologies has increased throughout the world and new telecommunication technologies, supplementing rather than replacing prior technologies, have been developed and commercialized. These trends have led to a significant increase in the overall volume of information communicated and an increase in the density of signals transmitted throughout the radio frequency spectrum. This increase can be seen through the proliferation of facsimile, cellular, and digital signal telecommunications equipment in the last decade, resulting in a significant increase in the amount of information being communicated. These trends have required the development of signal reconnaissance equipment capable of collecting and processing an increased volume of signals as well as new types of signals.
Traditionally, organizations within the United States government have satisfied their signal reconnaissance needs by first identifying their specific requirements and then contracting with government contractors to provide equipment. Contractors typically designed and built custom signal processing systems optimized to satisfy the particular needs of various agencies. Development of custom systems usually required many years of effort and involved great expense. The time required to develop these systems often meant that when a system was delivered, it did not address new telecommunications technologies that had evolved during the development process. These factors, combined with growing budgetary constraints, have caused many agencies to search for more flexible and cost-effective signal reconnaissance solutions that can be deployed promptly.
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