** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

**(Mark One)**

|                                                  |                                                                                          |   |
|-------------------------------------------------------|-----------------------------------------------------------------------------------------------|--------|
| ý                                                | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|                                                  |                                                                                          |   |
| **For the quarterly period ended September 30, 2001** |
|                                                  |                                                                                          |   |
| **or**                                                |
|                                                  |                                                                                          |   |
| **o**                                                 | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

**Forthe transition period from                                         to                                       ****.**

**CommissionFile Number:  0-26524**

 

**MACKIE DESIGNSINC.**

(Exact name ofregistrant as specified in its charter)

| **Washington**                                                                      |   | **91-1432133**                        |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State  or other jurisdiction of incorporation or organization)                     |   | (I.R.S.  Employer Identification No.) |
|                                                                                |   |                                  |
| **16220 Wood-Red Road, N.E., Woodinville, Washington**                              |   | **98072**                             |
| (Address  of principal executive offices)                                           |   | (Zip  Code)                           |
|                                                                                |   |                                  |
| **(425) 487-4333**                                                                  |
| (Registrant's  telephone number, including area code)                               |
|                                                                                |   |                                  |
|                                                                                |   |                                  |
| (Former  name, former address and former fiscal year, if changed since last report) |

 

                Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes  ý  No  o

APPLICABLEONLY TO CORPORATE ISSUERS:

                Indicate thenumber of shares outstanding of each of the issuer's classes of common stock,as of the latest practicable date.

 

| Common Stock, no par value |   | 12,418,890                   |
|----------------------------|--------|------------------------------|
| Class                      |   | Number of Shares Outstanding |
|                       |   | (as of November 1, 2001)     |

 

**MACKIEDESIGNS INC.**

 

**FORM10-Q**

**Forthe quarter ended September 30, 2001**

 

 

**INDEX**

 

**PART I.  FINANCIAL INFORMATION**

 

Item 1.        FinancialStatements (Unaudited)

 

Condensed consolidated balance sheets –September 30, 2001 and December 31, 2000

 

Condensed consolidated statements ofoperations – Three and Nine months ended September 30, 2001 and 2000

 

Condensed consolidated statements of cash flows– Nine months ended September 30, 2001 and 2000

 

Notes to condensed consolidated financialstatements

 

Item 2.        Management'sDiscussion and Analysis of Financial Condition and Results of Operations

 

Item 3.        Quantitativeand Qualitative Disclosures About Market Risk

 

 

 

**PART II.  OTHER INFORMATION**

 

Item 1.        LegalProceedings

 

Item 2.        Changes inSecurities

 

Item 3.        DefaultsUpon Senior Securities

 

Item 4.        Submissionof Matters to a Vote of Security Holders

 

Item 5.        OtherInformation

 

Item 6.        Exhibitsand Reports on Form 8-K

 

 

**SIGNATURES**

 

**EXHIBITS**

 

**PART I. FINANCIAL INFORMATION**

**Item 1. Financial Statements**

 

**MACKIEDESIGNS INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

 

*In thousands, except pershare data*

 
|                                               |   | **September 30,  2001** |       | **December 31,  2000** |       |
|----------------------------------------------------|--------|-------------------------|------------|------------------------|------------|
| **ASSETS**                                         |   |                    |       |                   |       |
| Current assets:                                    |   |                    | ** ** |                   | ** ** |
| Cash and cash equivalents                          |   | $                       | 3,776      |                   | $          | 3,838 |   |
| Available-for-sale securities                      |   | —                  |       | 509                    |       |
| Accounts receivable, net                           |   | 38,511                  |       | 39,085                 |       |
| Inventories                                        |   | 53,334                  |       | 63,471                 |       |
| Prepaid expenses and other current assets          |   | 1,818                   |       | 1,514                  |       |
| Refundable income taxes                            |   | 576                     |       | —                 |       |
| Deferred income taxes                              |   | 3,722                   |       | 3,148                  |       |
| Total current assets                               |   | 101,737                 |       | 111,565                |       |
|                                               |   |                    |       |                   |       |
| Property, plant and equipment, net                 |   | 26,264                  |       | 23,568                 |       |
| Intangible assets, net                             |   | 27,641                  |       | 24,419                 |       |
| Bonds                                              |   | 3,865                   |       | 3,891                  |       |
| Other assets, net                                  |   | 1,264                   |       | 1,755                  |       |
|                                               |   |                    |       |                   |       |
| Total assets                                       |   | $                       | 160,771    |                   | $          | 165,198 |   |
|                                               |   |                    |       |                   |       |
| **LIABILITIES AND SHAREHOLDERS' EQUITY**           |   |                    |       |                   |       |
| Current liabilities:                               |   |                    | ** ** |                   | ** ** |
| Short-term borrowings                              |   | $                       | 31,330     |                   | $          | 31,281 |   |
| Accounts payable                                   |   | 23,650                  |       | 21,912                 |       |
| Accrued expenses                                   |   | 11,012                  |       | 10,503                 |       |
| Income taxes payable                               |   | —                  |       | 706                    |       |
| Long-term debt callable under covenant  provisions |   | 27,423                  |       | —                 |       |
| Current portion of long-term debt                  |   | 702                     |       | 5,025                  |       |
| Total current liabilities                          |   | 94,117                  |       | 69,427                 |       |
|                                               |   |                    |       |                   |       |
| Long-term debt, excluding current portion          |   | 6,098                   |       | 29,971                 |       |
| Other long-term liabilities                        |   | 3,673                   |       | 3,932                  |       |
| Deferred income taxes                              |   | 3,869                   |       | 4,098                  |       |
|                                               |   |                    |       |                   |       |
| Total liabilities                                  |   | $                       | 107,757    |                   | $          | 107,428 |   |
|                                               |   |                    |       |                   |       |
| Shareholders' equity:                              |   |                    |       |                   |       |
| Common stock                                       |   | 28,431                  |       | 27,720                 |       |
| Retained earnings                                  |   | 27,216                  |       | 31,885                 |       |
| Accumulated other comprehensive loss               |   | (2,633                  | )          | (1,835                 | )          |
| Total shareholders' equity                         |   | 53,014                  |       | 57,770                 |       |
|                                               |   |                    |       |                   |       |
| Total liabilities and shareholders' equity         |   | $                       | 160,771    |                   | $          | 165,198 |   |

 

*See accompanying Notes to Condensed Consolidated Financial Statements*

 

**MACKIEDESIGNS INC.**

###### **CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

 

*In thousands, except pershare data*

 
|                                                                                                |   | **Three months ended  September 30,** |   | **Nine months ended  September 30,** |   |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                                                                                |   | **2001**                              |   | **2000**                             |   | **2001** |   | **2000** |   |
| Net sales                                                                                           |   | $                                     | 48,431 |                                 | $      | 51,434 |   | $ | 159,684 |   | $ | 153,482 |   |
| Cost of goods sold                                                                                  |   | 36,918                                |   | 33,884                               |   | 112,269 |   | 98,463 |   |
| Gross profit                                                                                        |   | 11,513                                |   | 17,550                               |   | 47,415 |   | 55,019 |   |
|                                                                                                |   |                                  |   |                                 |   |   |   |   |   |
| Operating expenses:                                                                                 |   |                                  |   |                                 |   |   |   |   |   |
| Selling, general and administrative                                                                 |   | 12,346                                |   | 12,096                               |   | 39,458 |   | 35,562 |   |
| Research and development                                                                            |   | 2,936                                 |   | 2,033                                |   | 9,185 |   | 6,746 |   |
| Total operating expenses                                                                            |   | 15,282                                |   | 14,129                               |   | 48,643 |   | 42,308 |   |
| Operating income (loss)                                                                             |   | (3,769                                | )      | 3,421                                |   | (1,228 | ) | 12,711 |   |
|                                                                                                |   |                                  |   |                                 |   |   |   |   |   |
| Interest income                                                                                     |   | 71                                    |   | 98                                   |   | 274 |   | 441 |   |
| Interest expense                                                                                    |   | (1,185                                | )      | (1,238                               | )      | (4,036 | ) | (2,990 | ) |
| Other income (expense), net                                                                         |   | 325                                   |   | (830                                 | )      | (568 | ) | (867 | ) |
| Income (loss) before income taxes                                                                   |   | (4,558                                | )      | 1,451                                |   | (5,558 | ) | 9,295 |   |
|                                                                                                |   |                                  |   |                                 |   |   |   |   |   |
| Income tax expense (benefit)                                                                        |   | (723                                  | )      | 526                                  |   | (889 | ) | 3,705 |   |
|                                                                                                |   |                                  |   |                                 |   |   |   |   |   |
| Net income (loss)                                                                                   |   | $                                     | (3,835 | )                                    | $      | 925 |   | $ | (4,669 | ) | $ | 5,590 |   |
|                                                                                                |   |                                  |   |                                 |   |   |   |   |   |
|                                                                                                |   |                                  |   |                                 |   |   |   |   |   |
| Net income (loss) per share:                                                                        |   |                                  |   |                                 |   |   |   |   |   |
| Basic                                                                                               |   | $                                     | (0.31  | )                                    | $      | 0.08 |   | $ | (0.38 | ) | $ | 0.46 |   |
| Diluted                                                                                             |   | $                                     | (0.31  | )                                    | $      | 0.07 |   | $ | (0.38 | ) | $ | 0.44 |   |
|                                                                                                |   |                                  |   |                                 |   |   |   |   |   |
| Weighted average common and potential  common shares used in computing net income (loss) per share: |   |                                  |   |                                 |   |   |   |   |   |
| Basic                                                                                               |   | 12,399                                |   | 12,230                               |   | 12,382 |   | 12,157 |   |
| Diluted                                                                                             |   | 12,399                                |   | 13,101                               |   | 12,382 |   | 12,780 |   |

 

*See accompanying Notes to Condensed Consolidated Financial Statements.*

 

**MACKIEDESIGNS INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(Unaudited)**

 

*In thousands, except pershare data*

 
|                                                                                      |   | **Nine months ended  September 30,** |       |
|-------------------------------------------------------------------------------------------|--------|--------------------------------------|------------|
|                                                                                      |   | **2001**                             |       | **2000** |   |
| **Operating activities**                                                                  |   |                                 | ** ** |   | ** ** |
| Net income (loss)                                                                         |   | $                                    | (4,669     | ) | $ | 5,590 |   |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities: |   |                                 |       |   |   |
| Depreciation and amortization                                                             |   | 6,118                                |       | 5,643 |   |
| Deferred stock compensation                                                               |   | 702                                  |       | 299 |   |
| Deferred income taxes                                                                     |   | (1,169                               | )          | (842 | ) |
| Changes in operating assets and  liabilities:                                             |   |                                 |       |   |   |
| Accounts receivable                                                                       |   | 183                                  |       | (5,771 | ) |
| Inventory                                                                                 |   | 9,735                                |       | (17,871 | ) |
| Prepaid expenses and other current assets                                                 |   | (291                                 | )          | 442 |   |
| Other assets                                                                              |   | 219                                  |       | 851 |   |
| Accounts payable and accrued expenses                                                     |   | 2,680                                |       | 5,709 |   |
| Income taxes payable                                                                      |   | (1,247                               | )          | 405 |   |
| Other long term liabilities                                                               |   | (97                                  | )          | 661 |   |
| Cash provided by (used in) operating  activities                                          |   | 12,164                               |       | (4,884 | ) |
|                                                                                      |   |                                 |       |   |   |
| **Investing activities**                                                                  |   |                                 |       |   |   |
| Acquisition of business, net of cash  acquired                                            |   | (4,187                               | )          | (19,895 | ) |
| Purchases of available-for-sale securities                                                |   | —                               |       | (2,358 | ) |
| Proceeds from sales of available-for-sale  securities                                     |   | 515                                  |       | — |   |
| Proceeds from maturities of  available-for-sale securities                                |   | —                               |       | 7,703 |   |
| Purchases of property, plant and equipment                                                |   | (7,256                               | )          | (4,620 | ) |
| Cash used by investing activities                                                         |   | (10,928                              | )          | (19,170 | ) |
|                                                                                      |   |                                 |       |   |   |
| **Financing activities**                                                                  |   |                                 |       |   |   |
| Proceeds from long-term debt                                                              |   | 2,281                                |       | 18,135 |   |
| Payments on long-term debt                                                                |   | (3,099                               | )          | (4,995 | ) |
| Net short-term borrowings                                                                 |   | 431                                  |       | 9,852 |   |
| Proceeds from the exercise of stock options                                               |   | —                               |       | 1,469 |   |
| Cash provided by (used in) financing  activities                                          |   | (387                                 | )          | 24,461 |   |
|                                                                                      |   |                                 |       |   |   |
| Effect of exchange rate changes on cash                                                   |   | (911                                 | )          | (930 | ) |
|                                                                                      |   |                                 |       |   |   |
| Decrease in cash and cash equivalents                                                     |   | (62                                  | )          | (523 | ) |
|                                                                                      |   |                                 |       |   |   |
| Cash and cash equivalents at beginning of  period                                         |   | 3,838                                |       | 4,629 |   |
|                                                                                      |   |                                 |       |   |   |
| Cash and cash equivalents at end of period                                                |   | $                                    | 3,776      |   | $ | 4,106 |   |
|                                                                                      |   |                                 |       |   |   |
| **Supplemental disclosures**                                                              |   |                                 |       |   |   |
| Cash paid for income taxes                                                                |   | $                                    | 1,116      |   | $ | 3,476 |   |
| Cash paid for interest                                                                    |   | $                                    | 3,181      |   | $ | 2,614 |   |

 

*See accompanying Notes to Condensed Consolidated Financial Statements.*

 

**MACKIEDESIGNS INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

**September30, 2001**

**(Unaudited)**

*In thousands, except pershare data*

**1.   Basis of Presentation**

 

The accompanying unaudited condensedconsolidated financial statements have been prepared by Mackie Designs Inc.(the "Company") in accordance with generally accepted accountingprinciples for interim financial statements and with the instructions to Form10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosuresrequired by generally accepted accounting principles for complete financialstatements.  In the opinion of theCompany's management, all adjustments, consisting of normal recurring items, necessaryfor a fair presentation have been included. The results of operations for interim periods are not necessarilyindicative of future financial results. For further information, refer to the consolidated financial statementsand footnotes thereto for the year ended December 31, 2000 included in theCompany's Form 10-K filed with the Securities and Exchange Commission.  Certain amounts reported in previous periodshave been reclassified to conform to the 2001 presentation.

 

In September 1998, the Financial AccountingStandards Board issued SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities.”  SFAS No. 133, as amended, requires that allderivative instruments be recorded on the balance sheet at their fairvalue.  Changes in the fair value of derivatives are recorded each periodin current earnings or other comprehensive income, depending on whether aderivative is designated as part of a hedge transaction and, if it is, the typeof hedge transaction.  This statement, as amended, became effective forthe Company on January 1, 2001.  The adoption of SFAS No. 133 did not havean impact on the Company’s consolidated financial position or results ofoperations.

The Company uses derivative financial instruments(specifically, forward exchange contracts) in managing its foreign currencyexchange risk.  Forward exchangecontracts are used to achieve hedges of firm commitments that subject theCompany to transaction risk. Such commitments include accounts receivable fromsubsidiaries of the Company denominated in Euros. The terms of these forwardexchange contracts are generally two months or less and are entered into at themarket rate prevailing at the time the receivables are established.  Hedge accounting is not employed as the typeof transaction being hedged is specifically excluded as an eligible transactionunder SFAS No. 133.  Credit relatedlosses from the Company's forward exchange contracts could occur if theCompany's foreign subsidiaries default on their trade payable obligations withthe Company.  The Company has notexperienced and does not expect to experience any significant defaults by itsforeign subsidiaries.

In July 2001, the FASB issued Statement No. 141,Business Combinations, and Statement No. 142, Goodwill and Other IntangibleAssets.  Statement 141 requires that allbusiness combinations be accounted for under a single method – the purchasemethod.  Use of the pooling-of-interestsmethod is no longer permitted. Statement 141 requires that the purchase method be used for businesscombinations initiated after June 30, 2001. Statement 142 requires that goodwill no longer be amortized to earnings,but instead be reviewed for impairment. The amortization of goodwill ceases upon adoption of the Statement,which will be adopted by the Company on January 1, 2002.  Because of the extensive effort needed tocomply with adopting statements 141 and 142, it is not practicable toreasonably estimate the impact of adopting these Statements on the Company’sfinancial statements at the date of this report, including whether anytransitional impairment losses will be required to be recognized as thecumulative effect of a change in accounting principle.  As of September 30, 2001 the Company had$27.6 million in goodwill and intangible assets and related amortization forthe nine-month period then ended was $1.4 million.

 

**2.  Acquisition**

 

In April 2001, the Company acquired 100% ofthe capital stock of Sydec N.V. (“Sydec”). Based in Belgium, Sydec is a developer of products and services in thearea of embedded electronics & software, networking, digital signalprocessing and Windowsä95/98/NT/2000 driver applications.  Theacquisition was accounted for under the purchase method of accounting.  The aggregate purchase price, plus relatedacquisition costs, was approximately $4.4 million.  The excess of the purchase price over the fair value of nettangible assets acquired approximating $4.6 million, is included in intangibleassets.  A total of $1.0 million of thepurchase consideration was specifically allocated to developed technology.  The remaining $3.6 million is goodwill.  Goodwill is being amortized on thestraight-line method over 10 years, while the developed technology is beingamortized on the straight-line method over 5 years.  The results of Sydec have been included in the Company’sconsolidated results of operations from the date of acquisition.

 

The following table presents unaudited proforma consolidated financial information for the nine-month periods endedSeptember 30, 2001 and 2000 as if the acquisition of Sydec had occurred onJanuary 1 of those years:

 
| *In  thousands, except per share data* |   | **Nine  months ended September 30,** |    |
|----------------------------------------|--------|--------------------------------------|---------|
|                                   |   | **2001**                             |    | **2000** |   |
|                                   |   |                                 |    |   |   |
| Revenue                                |   | $                                    | 160,055 |   | $ | 154,526 |   |
| Net income (loss)                      |   | $                                    | (5,046  | ) | $ | 4,828 |   |
| Diluted income (loss) per share        |   | $                                    | (0.41   | ) | $ | 0.37 |   |

 

The unaudited pro forma financial information is presented forinformational purposes only and is not necessarily indicative of the operatingresults that would have occurred had the acquisition taken place on the basisassumed above.  In addition, the proforma results are not intended to be a projection of the future results and donot reflect any synergies that might have been achieved from the combinedoperations.

 

 

**3.   Inventories**

 

Inventories consisted of the following:

 
|            |   | **September 30,  2001** |   | **December 31,  2000** |   |
|-----------------|--------|-------------------------|--------|------------------------|--------|
|            |   |                    |   |                   |   |
| Raw materials   |   | $                       | 23,279 |                   | $      | 31,579 |   |
| Work in process |   | 4,581                   |   | 4,831                  |   |
| Finished goods  |   | 25,474                  |   | 27,061                 |   |
|            |   | $                       | 53,334 |                   | $      | 63,471 |   |

 

 

**4.   Intangible assets**

 

Intangibleassets consist of the following:

 
|                          |   | **September 30,  2001** |   | **December 31,  2000** |   |
|-------------------------------|--------|-------------------------|--------|------------------------|--------|
|                          |   |                    |   |                   |   |
| Goodwill                      |   | $                       | 21,579 |                   | $      | 17,974 |   |
| Developed technology          |   | 6,225                   |   | 5,200                  |   |
| Assembled workforce           |   | 1,660                   |   | 1,660                  |   |
| Trademark                     |   | 1,380                   |   | 1,380                  |   |
|                          |   | 30,844                  |   | 26,214                 |   |
| Less accumulated amortization |   | 3,203                   |   | 1,795                  |   |
|                          |   | $                       | 27,641 |                   | $      | 24,419 |   |

 

**5.   Financing**

 

The Company has aU.S. based revolving note related to the acquisitions of Mackie Designs (Italy)S.p.A. (“Mackie Italy”) andEastern Acoustic Works, Inc. (“EAW”). At September 30, 2001 there was $27.4 million outstanding on thisnote.  Of this balance, $6.0 million isscheduled for payment within twelve months of the balance sheet date.  This credit agreement requires the Companyto maintain certain financial ratios and tangible net worth.  The agreement also provides, among othermatters, restrictions on additional financing, dividends, mergers,acquisitions, and an annual capital expenditure limit of $10.0 million.

 

At September 30,2001, the Company was out of compliance with one of its financialcovenants.  The Company was previouslyout of compliance at June 30, 2001 but restructured the financial covenantswith its U.S. lender effective August 30, 2001.  This restructuring resulted in slightly higher interest rates inaddition to certain loan amendment fees. The Company is in negotiations with its U.S. lender to obtain a waiverfor the September 30, 2001 non-compliance and/or a restructuring of thecovenants.  If the lender does not waivethis failure to comply and/or restructure the covenants, it could declare anevent of default, which would allow the lender to accelerate payment of allamounts due under the U.S. based revolving note and line of credit.  The balances outstanding on the revolvingnote and the line of credit at September 30, 2001 were $27.4 million and $11.4million, respectively.  Thisnoncompliance may also result in higher interest costs and/or otherrestructuring fees.  The Company ishighly leveraged and would be unable to pay the accelerated amounts that wouldbecome immediately payable if a default is declared.  As a result of this non-compliance, the entire U.S. basedrevolving note as of September 30, 2001 ($27.4 million) that is potentially duewithin one year, continues to be classified as a current liability in thebalance sheet under the caption, “Long-term debt callable under covenantprovisions”.

 

 

**6.   Net Income (Loss) per Share**

 

Basic net income (loss) per share is based onthe weighted-average number of common shares outstanding for the period.Diluted net income (loss) per share includes the effect of potential dilutivecommon shares outstanding, consisting of stock options using the treasury stockmethod.  The denominators of the dilutednet income (loss) per share calculations exclude the effect of unexercisedstock options representing the potential rights to 4.6 million and 0.1 millionshares for the third quarters of 2001 and 2000, respectively, as well as 4.6million and 0.8 million shares for the first nine months of 2001 and 2000,respectively, as including the effect would be antidilutive.  The following schedule represents areconciliation of the numerators and denominators of basic and diluted netincome (loss) per share calculations.

 
|                                                                                     |   | **Three months ended  September 30,** |   | **Nine months ended  September 30,** |   |
|------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                                                                     |   | **2001**                              |   | **2000**                             |   | **2001** |   | **2000** |   |
| Numerator:                                                                               |   |                                  |   |                                 |   |   |   |   |   |
| Numerator for basic and diluted net income  (loss) per share - net income (loss)         |   | $                                     | (3,835 | )                                    | $      | 925 |   | $ | (4,669 | ) | $ | 5,590 |   |
|                                                                                     |   |                                  |   |                                 |   |   |   |   |   |
| Denominator:                                                                             |   |                                  |   |                                 |   |   |   |   |   |
| Denominator for basic net income (loss) per  share – weighted average common shares |   | 12,399                                |   | 12,230                               |   | 12,382 |   | 12,157 |   |
|                                                                                     |   |                                  |   |                                 |   |   |   |   |   |
| Effect of dilutive stock options                                                         |   | —                                |   | 871                                  |   | — |   | 623 |   |
|                                                                                     |   |                                  |   |                                 |   |   |   |   |   |
| Denominator for diluted net income (loss)  per share                                     |   | 12,399                                |   | 13,101                               |   | 12,382 |   | 12,780 |   |
|                                                                                     |   |                                  |   |                                 |   |   |   |   |   |
| Basic net income (loss) per share                                                        |   | $                                     | (0.31  | )                                    | $      | 0.08 |   | $ | (0.38 | ) | $ | 0.46 |   |
|                                                                                     |   |                                  |   |                                 |   |   |   |   |   |
| Diluted net income (loss) per share                                                      |   | $                                     | (0.31  | )                                    | $      | 0.07 |   | $ | (0.38 | ) | $ | 0.44 |   |

 

**7.   Comprehensive Income (Loss)**

 

Comprehensive income(loss) for the three and nine month periods ended September 30, 2001 and 2000,is detailed below:

 
|                                     |   | **Three months ended  September 30,** |   | **Nine months ended  September 30,** |   |
|------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                     |   | **2001**                              |   | **2000**                             |   | **2001** |   | **2000** |   |
| Net income (loss)                        |   | $                                     | (3,835 | )                                    | $      | 925 |   | $ | (4,669 | ) | $ | 5,590 |   |
| Other comprehensive income (loss):       |   |                                  |   |                                 |   |   |   |   |   |
| Foreign currency translation adjustments |   | 668                                   |   | (891                                 | )      | (798 | ) | (1,710 | ) |
|                                     |   |                                  |   |                                 |   |   |   |   |   |
| Comprehensive income (loss)              |   | $                                     | (3,167 | )                                    | $      | 34 |   | $ | (5,467 | ) | $ | 3,880 |   |

 

 

**8.   Segment Information**

 

The Companyidentifies its business segments based on management responsibility using acombination of products and geographic factors.  The Company has three reportable segments:  Mackie Designs Inc. (“Mackie”), its Italiansubsidiary, Mackie Italy, and its U.S. subsidiary, EAW.  The Mackie segment offers audio mixers and otherprofessional audio equipment.  The MackieItaly segment offers loudspeakers, loudspeaker components and Mackie productofferings.  The EAW segment offers loudspeakerstargeted at the mid to high-end of the installed and touring sound markets. A summary of key financial data by segment is as follows:

 
|                                        |   | **Mackie** |       | **MackieItaly** |       | **EAW** |       | **Elimination of  intercompany amounts** |       | **Total** |       |
|---------------------------------------------|--------|------------|------------|-----------------|------------|---------|------------|------------------------------------------|------------|-----------|------------|
|                                        |   |       |       |            |       |    |       |                                     |       |      |       |
| **Three  months ended September 30, 2001:** |   |       | ** ** |            | ** ** |    | ** ** |                                     | ** ** |      | ** ** |
| Net sales, to external  customers           |   | $          | 25,253     |            | $          | 14,751  |       | $                                        | 8,427      |      | $          | — |   | $ | 48,431 |   |
| Net sales, intersegment                     |   | 1,960      |       | 5,151           |       | 1,706   |       | (8,817                                   | )          | —    |       |
| Operating income (loss)                     |   | (1,294     | )          | (2,533          | )          | 12      |       | 46                                       |       | (3,769    | )          |
| Total assets                                |   | 121,514    |       | 79,978          |       | 35,558  |       | (76,279                                  | )          | 160,771   |       |
|                                        |   |       |       |            |       |    |       |                                     |       |      |       |
| **Three  months ended September 30, 2000:** |   |       | ** ** |            | ** ** |    | ** ** |                                     | ** ** |      | ** ** |
| Net sales, to external  customers           |   | $          | 27,376     |            | $          | 14,540  |       | $                                        | 9,518      |      | $          | — |   | $ | 51,434 |   |
| Net sales, intersegment                     |   | 2,874      |       | 2,343           |       | 666     |       | (5,883                                   | )          | —    |       |
| Operating income (loss)                     |   | 3,435      |       | 468             |       | (23     | )          | (459                                     | )          | 3,421     |       |
| Total assets                                |   | 114,679    |       | 76,025          |       | 6,461   |       | (32,801                                  | )          | 164,364   |       |
|                                        |   |       |       |            |       |    |       |                                     |       |      |       |
| **Nine  months ended September 30, 2001:**  |   |       | ** ** |            | ** ** |    | ** ** |                                     | ** ** |      | ** ** |
| Net sales, to external  customers           |   | $          | 82,371     |            | $          | 51,565  |       | $                                        | 25,748     |      | $          | — |   | $ | 159,684 |   |
| Net sales, intersegment                     |   | 10,986     |       | 17,538          |       | 6,380   |       | (34,904                                  | )          | —    |       |
| Operating income (loss)                     |   | 437        |       | (2,593          | )          | 364     |       | 564                                      |       | (1,228    | )          |
|                                        |   |       |       |            |       |    |       |                                     |       |      |       |
| **Nine  months ended September 30, 2000:**  |   |       | ** ** |            | ** ** |    | ** ** |                                     | ** ** |      | ** ** |
| Net sales, to external  customers           |   | $          | 82,427     |            | $          | 49,864  |       | $                                        | 21,191     |      | $          | — |   | $ | 153,482 |   |
| Net sales, intersegment                     |   | 9,941      |       | 7,686           |       | 1,233   |       | (18,860                                  | )          | —    |       |
| Operating income (loss)                     |   | 10,852     |       | 3,562           |       | (159    | )          | (1,544                                   | )          | 12,711    |       |

 

The net assets offoreign operations of the Company were approximately $9.7 million at September30, 2001.

 

**Item 2.  Management's Discussion and Analysis of Financial Condition and Resultsof Operations**

 

**General**

 

The followinginformation contains “forward-looking statements” within the meaning of thePrivate Securities Litigation Reform Act of 1995 (the “Act”).  Forward-looking statements include, withoutlimitation, any statement that may predict, forecast, indicate, or imply futureresults, performance, or achievements, and may contain the words “believe,”“anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,”“will likely result,” or words or phrases of similar meaning.  Forward-looking statements involve risks anduncertainties, which may cause actual results to differ materially from theforward-looking statements.

 

The followingdiscussions, including but not limited to, the sections entitled"Management's Discussion and Analysis of Financial Condition and Resultsof Operations" and “Quantitative and Qualitative Disclosures About MarketRisk” describe some, but not all, of the factors that could cause the actualresults to differ materially from the forward-looking statements.  These factors include, among others, thefollowing: international, national and local general economic and marketconditions; the terrorist attacks of September 11, 2001 and its aftermath; thesize and growth of the professional audio equipment market; competition withother marketers, distributors and sellers of professional audio equipment; theCompany's ability to develop and introduce new products; the Company's abilityto sustain, manage or forecast its growth and inventories; the Company'sability to integrate the operations of companies acquired; the Company'sability to secure and protect trademarks, patents, and other intellectualproperty; the performance and reliability of the Company's products; customerservice; the loss of significant customers or suppliers; dependence ondistributors; management of increased costs of freight and transportation; theCompany's ability to meet delivery deadlines; general risks associated withdoing business in foreign countries, including, without limitation, importduties, tariffs, foreign currency fluctuations, and political and economicinstability; changes in U.S. and foreign government regulations; the Company’sability to attract and retain qualified employees; liability and other claimsasserted against the Company; and other factors referenced or incorporated byreference in this report and other reports filed with the Securities andExchange Commission.

The risks includedabove are not exhaustive. The Company operates in a very competitiveenvironment and new risk factors may emerge from time to time. Managementcannot predict all such risk factors, nor can it assess the impact of all suchrisk factors on the Company's business or the extent to which any factor, orcombination of factors, may cause actual results to differ materially fromthose contained in any forward-looking statements. Given these risks anduncertainties, investors should not place undue reliance on forward-lookingstatements as a prediction of actual results.

 

The Company'sgross margins are affected by its international sales.  Typically, gross margins from productsexported by Mackie are lower than those sold in the U.S. due to discountsoffered to its international distributors. Mackie Italy does not offer discounts to its distributors.  The discounts offered by Mackie are givenbecause the international distributors typically incur certain expenses,including technical support, product service and in-country advertising thatthe Company normally incurs for domestic sales.

 

The Company will continueto introduce new products and product revisions as it has in the past.  Some anticipated new products will requirethe implementation of manufacturing practices for which the Company is notfamiliar.  This could result in lowermargins as the Company becomes more familiar with new manufacturing procedures.

 

# **Results of Operations**

 

***Quarter EndedSeptember 30, 2001 as Compared with Quarter Ended September 30, 2000***

 

Net salesdecreased 5.8% to $48.4 million in the thirdquarter of 2001 from $51.4 million in the third quarter of 2000.  The decline was caused by lower sales in the8·Bus, mixer, and power amplifier marketsof $6.0 million due to the slowdown of the global economy and an unfavorableforeign exchange effect of $0.6 million. These declines were partially offset by $3.9 million in sales related tonew product offerings in the speaker product families.  Sales outside the U.S. decreased to 40.4% of the Company’stotal net sales in the third quarter of 2001 from 44.7% in the third quarter of 2000 largely due to theunfavorable foreign exchange impact noted above.

 

Gross margindecreased to 23.8% in the third quarter of 2001 from 34.1% in the third quarter of 2000. Thisdecline was primarily due to a partial shift in product mix from higher margincompact mixer and digital products to lower margin speaker products along witha general increase in material and labor costs across multiple product lines.  The lower sales volume also had an effect asthe Company had lower absorption of fixed factory overhead costs in the currentquarter.  Gross margin was also reducedby increased freight accommodations and sales discounts, as well as, anunfavorable foreign currency exchange effect. Gross profit decreased to $11.5 million in the third quarter of 2001from $17.6 million in the corresponding period of 2000 for the same reasonsaffecting net sales and gross margin noted above.

 

Selling, general and administrative expenseincreased slightly to $12.3million in the third quarter of 2001 from $12.1 million in the corresponding period of2000.  As a percentage of net sales,selling, general and administrative expensesincreased to 25.5% in the third quarter of 2001 from 23.5% in thecorresponding period in 2000.  Theincrease in the percentage is primarily attributable to the decline in sales inrelation to the relatively fixed nature of selling, general and administrativeexpense.

 

Research and development (R&D) expenseincreased to $2.9million in the third quarter of 2001 from $2.0 million in the corresponding period of2000.  This $0.9 million increase wasprimarily due to the inclusion of Sydec with R&D expense of $0.5 in thethird quarter of 2001.  As a percentageof net sales, these expenses increasedto 6.1% in the third quarter of 2001 from 4.0% in thecorresponding period of 2000 primarily due to the inclusion of Sydec, which isprincipally an R&D operation.

Both interestincome and interest expense were unchanged in the third quarter of 2001compared to the third quarter of 2000 at $0.1 million and $1.2 million,respectively.

 

Income tax benefit for the third quarter of2001 was $0.7 million representingan overall effective tax benefit of 15.9% compared to income tax of $0.5 million and an effective tax rate of36.3% for the same period of 2000, respectively.  Fluctuations in the rate are primarilyattributable to foreign operations.

 

 

***Nine Months EndedSeptember 30, 2001 as Compared with Nine Months Ended September 30, 2000***

 

Net sales increased4.0% to $159.7 million in the first nine months of 2001 from $153.5 million in the first nine months of 2000.  Of the $6.2 million increase, $10.2 millionwas due to the inclusion of a full nine months of EAW in 2001 compared to sixmonths for 2000.  New product offeringsin the digital and speaker product families accounted for an additional $14.2million of the growth.  These increaseswere partially offset by lower sales in the compact mixer and power amplifiermarkets of $13.8 million, an unfavorable foreign exchange effect of $2.5million and lower revenue in the last three months of the period due to theslowdown of the global economy.  Salesoutside the U.S. decreased to 41.9%of the Company’s total net sales in the first nine months of 2001 from 48.0% in the first nine monthsof 2000.  The decline in the percentagewas due to the unfavorable foreign exchange impact noted above as well as theinclusion of a full nine months of EAW sales, which are primarily U.S. based in2001 compared to six months in 2000.

 

Gross margindecreased to 29.7% in the first nine months of 2001 from 35.8% in the first nine months of 2000.  This decline was primarily due to a partialshift in product mix from higher margin compact mixer products to lower marginspeaker products along with a general increase in material and labor costsacross multiple product lines.  Grossmargin was also reduced by increased freight accommodations and salesdiscounts, as well as an unfavorable foreign currency exchange effect.  These declines were partially offset byincreased sales in the high-margin digital product market.  Gross profit decreased to $47.4 million inthe first nine months of 2001 from $55.0 million in the corresponding period of2000 for the same reasons affecting net sales and gross margin noted above.

 

Selling, general and administrative expenseincreased to $39.5million in the first nine months of 2001 from $35.6 million in the corresponding period of2000.  Of the $3.9 million increase,$2.9 million was due to the inclusion of nine months of EAW costs in 2001compared to six months in 2000.  Costsrelated to increased headcount and the non-capitalized portion of the Oracleimplementation made up the remainder of the increase.  The Company is implementing an Oracle based software systemacross its worldwide operations. These costs were partially offset by a $0.7million favorable impact of foreign exchange. As a percentage of net sales,selling, general and administrative expensesincreased to 24.7% in the first nine months of 2001 from 23.2% inthe corresponding period in 2000.  Thisincrease is primarily due to incremental headcount costs associated with thebuild-up of corporate infrastructure that began during the second half 2000 aswell as non-capitalized costs related to the Oracle implementation.

 

Research and development (R&D) expenseincreased to $9.2million in the first nine months of 2001 from $6.7 million in the corresponding period of2000.  Of this $2.4 million increase,$0.6 million was due to the inclusion of nine months of EAW costs in 2001compared to six months in 2000.  Theinclusion of Sydec in the second quarter of 2001 resulted in $0.9 million ofthe increase.  As a percentage of netsales, these expenses increased to5.8% in the first nine months of 2001 from 4.4% in thecorresponding period of 2000 due largely to the inclusion of Sydec, which isprincipally an R&D operation.

 

Interest incomedecreased slightly to $0.3million in the first nine months of 2001 compared with $0.4 million in the first nine months of2000.  Interest expense increased to $4.0 million in thefirst nine months of 2001 from $3.0million in the corresponding period of 2000. The increase was primarily attributable to the increase in borrowingsdue to the acquisitions of EAW and Sydec and to higher levels of short-termborrowing.

Income tax benefitfor the first nine months of 2001 was $0.9 million representing an overalleffective tax benefit of 16.0% compared to income tax of $3.7 million and an effective tax rate of 39.9%for the same period of 2000, respectively. Fluctuations in the rate are primarily attributable to foreignoperations.

# ** **

 

# **Liquidity and Capital Resources**

 

During the first ninemonths of 2001, the Company's operating activities provided $12.2 million in cash.  Net cash provided by operating activitieswas primarily attributable to a decrease in inventory andan increase in accounts payable and accrued expenses offset partially by a netloss and a decrease in income taxes payable. The downward trend in inventory is due to the continued efforts by theCompany to reduce its inventory levels. Net cash used by investing activities totaled $10.9 million in the first nine months of2001, due primarily to the purchaseof Sydec and the acquisition of property, plant and equipment. The large increase in property, plant and equipment acquisitions overthe corresponding period in 2000 relates primarily to the capitalization ofelements of the Company’s Oracle software implementation and improvements toits computer and communications infrastructure.  Net cash used by financing activities in the firstnine months of 2001 was $0.4million due to payments on long-term debt offset partially by net proceeds fromshort-term and long-term borrowings.

 

The Company’s lineof credit agreement provides up to $15.0 million of short-term borrowingsubject to certain limitations.  Thisline of credit is secured by all of the Company's U.S. based assets.  At September 30, 2001 there was $11.4million outstanding on the line of credit, as well as a $1.5 million guaranteeon debt of Mackie Italy, leaving an available balance on the line of $2.1million.  This credit facility expiresApril 30, 2002.  While managementexpects renewal of this facility in the ordinary course of business, it too issubject to the covenant issues described below.

 

The Company alsohas a U.S. based revolving note related to the acquisitions of Mackie Italy andEAW.  This note, which is secured by allof the Company’s U.S. based assets, bears interest at the bank’s prime rate, orat a specified LIBOR rate plus a specified margin, whichever the Companychooses.  At September 30, 2001 therewas $27.4 million outstanding on this note. Of this balance, $6.0 million is scheduled for payment within twelvemonths of the balance sheet date.

 

Under the terms ofthe U.S. credit agreements, the Company must maintain certain financial ratiosand tangible net worth.  The agreements also provide,among other matters, restrictions on additional financing, dividends, mergers,acquisitions, and an annual capital expenditure limit of $10.0 million.  At September 30, 2001, the Company was outof compliance with one of its financial covenants.  The Company was previously out of compliance at June 30, 2001 butrestructured the financial covenants with its U.S. lender effective August 30,2001.  This restructuring resulted inslightly higher interest rates in addition to certain loan amendment fees.  The Company is in negotiations with its U.S.lender to obtain a waiver for the September 30, 2001 non-compliance and/or arestructuring of the covenants.  If thelender does not waive this failure to comply and/or restructure the covenants,it could declare an event of default, which would allow the lender toaccelerate payment of all amounts due under the U.S. based revolving note andline of credit.  The balancesoutstanding on the revolving note and the line of credit at September 30, 2001were $27.4 million and $11.4 million, respectively.  This noncompliance may also result in higher interest costsand/or other restructuring fees.  TheCompany is highly leveraged and would be unable to pay the accelerated amountsthat would become immediately payable if a default is declared.  As a result of this non-compliance, theentire U.S. based revolving note as of September 30, 2001 ($27.4 million) thatis potentially due within one year, continues to be classified as a currentliability in the balance sheet under the caption, “Long-term debt callableunder covenant provisions”.

 

The Company istaking various cost control measures including layoffs, salary reductions,office closures and capital expenditure reductions in order to bring theCompany into compliance with the covenants in the future.  As part of the waiver negotiations with itsU.S. lender, the Company is pursuing a restructuring of the existing creditagreements.  The Company is alsoevaluating a variety of alternative financing sources as part of an ongoingplan to enhance its capital structure.

Mackie Italy alsohas agreements with several banks in Italy that provide short-term creditfacilities totaling approximately $25.2 million.  At September 30, 2001, there was approximately $18.1 million outstanding under thesefacilities.  The majority of thesecredit facilities are secured by Mackie Italy’s receivables.  Interest rates on these credit facilitiesrange from 4.8% to 13.5%.

 

Provided theCompany restructures and/or obtains a waiver with respect to its U.S. baseddebt, it believes that its existing cash, cash equivalents and credit facilitieswill be sufficient to provide adequate working capital to fund operations overthe next twelve months. However, there can be no assurance that the Companywill receive a waiver, restructure its debt or not be required to seek otherfinancing or that such financing, if required, will be available on termssatisfactory to the Company.  It is theCompany’s belief that a waiver and/or restructuring of the covenants willoccur; however, if the debt is called and the Company is unable to obtainalternate financing, it may have to modify its current operations, liquidateassets or take other measures to continue normal operations.

 

 

# **Euro Conversion**

 

European business systems arebeing forced to handle currencies in a new way with the introduction of the Euro.  Mackie Italy’s computer system does notsupport the Euro, and reprogramming the system is not an economically viableoption.  Although the date for mandatoryEuro compliance is January 1, 2002, the existing system can be utilized untilthe fourth quarter of 2001.  The Companyacquired an Oracle based software system and the related computer hardware torun a single system for worldwide operations in 2000.  This system will be Euro compliant and implementation proceduresrelated to the system began during the third quarter of 2000.  The system is currently operating at theCompany’s EAW division and is scheduled to go live at the other sites duringthe fourth quarter of 2001.  The cost ofthis system is preliminarily estimated to be in the range of $8.0 to $10.0million dollars.

 

 

# **New Accounting Pronouncements**

 

In September 1998, theFinancial Accounting Standards Board issued SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities.”  SFAS No. 133, as amended,requires that all derivative instruments be recorded on the balance sheet attheir fair value.  Changes in the fair value of derivatives are recordedeach period in current earnings or other comprehensive income, depending onwhether a derivative is designated as part of a hedge transaction and, if itis, the type of hedge transaction.  This statement, as amended, becameeffective for the Company on January 1, 2001.  The adoption of SFAS No.133 did not have an impact on the Company’s consolidated financial position orresults of operations.

 

The Company uses derivativefinancial instruments (specifically, forward exchange contracts) in managingits foreign currency exchange risk. Forward exchange contracts are used to achieve hedges of firmcommitments that subject the Company to transaction risk. Such commitmentsinclude accounts receivable from subsidiaries of the Company denominated inEuros. The terms of these forward exchange contracts are generally two monthsor less and are entered into at the market rate prevailing at the time thereceivables are established.  Hedgeaccounting is not employed as the type of transaction being hedged isspecifically excluded as an eligible transaction under SFAS No. 133.  Credit related losses from the Company'sforward exchange contracts could occur if the Company's foreign subsidiariesdefault on their trade payable obligations with the Company.  The Company has not experienced and does notexpect to experience any significant defaults by its foreign subsidiaries.

In July 2001, the FASB issuedStatement No. 141, Business Combinations, and Statement No. 142, Goodwill andOther Intangible Assets.  Statement 141requires that all business combinations be accounted for under a single method– the purchase method.  Use of thepooling-of-interests method is no longer permitted.  Statement 141 requires that the purchase method be used forbusiness combinations initiated after June 30, 2001.  Statement 142 requires that goodwill no longer be amortized toearnings, but instead be reviewed for impairment.  The amortization of goodwill ceases upon adoption of theStatement, which will be adopted by the Company on January 1, 2002.  Because of the extensive effort needed to complywith adopting statements 141 and 142, it is not practicable to reasonably estimatethe impact of adopting these Statements on the Company’s financial statementsat the date of this report, including whether any transitional impairmentlosses will be required to be recognized as the cumulative effect of a changein accounting principle.  As ofSeptember 30, 2001 the Company had $27.6 million in goodwill and intangibleassets and related amortization for the nine-month period then ended of $1.4million.

 

 

**Item 3.  Quantitative and Qualitative Disclosures About Market Risk**

 

##### ***Interest Rate Risk***

 

The Company is exposed to interest rate risk.The Company’s interest income and expense are most sensitive to changes in thegeneral level of U.S. and European interest rates.  In this regard, changes in U.S. and European interest ratesaffect the interest earned on the Company’s cash equivalents as well asinterest paid on debt.

 

At September 30,2001, the Company had cash and cash equivalents, and bonds of $7.6 million and short-termborrowings of $59.5million, all subject to variable short-term interest rates.  A hypothetical change in the interest rateof 10% (for example from 8% to 8.8%) for the nine month period ended September30, 2001 would have increased interest expense by $0.4 million.

 

##### ***Foreign Currency Risk***

 

The Companyoperates foreign subsidiaries in Canada,Italy, the United Kingdom, Germany, France, the Netherlands, China, Belgium,and the Czech Republic.  The Company’sbusiness and financial condition are, therefore, sensitive to currency exchangerates or any other restrictions imposed on foreign currencies.  Sales and expenses incurred by foreignsubsidiaries are denominated in the subsidiary’s local currency and translatedinto U.S. Dollar amounts at average rates during the period.  The Company has a significant natural hedge inthe form of Italian based manufacturing and European based operating, interestand tax expenses.

The Company uses derivative financial instruments(specifically, forward exchange contracts) in managing its foreign currencyexchange risk.  Forward exchangecontracts are used to achieve hedges of firm commitments that subject theCompany to transaction risk. Such commitments include accounts receivable fromsubsidiaries of the Company denominated in Euros. The terms of these forwardexchange contracts are generally two months or less and are entered into at themarket rate prevailing at the time the receivables are established.  Hedge accounting is not employed as the typeof transaction being hedged is specifically excluded as an eligible transactionunder SFAS No. 133.  Credit relatedlosses from the Company's forward exchange contracts could occur if theCompany's foreign subsidiaries default on their trade payable obligations withthe Company.  The Company has notexperienced and does not expect to experience any significant defaults by itsforeign subsidiaries.

Foreign exchangerate sensitivity analysis can be quantified by estimating the impact on theCompany's earnings as a result of hypothetical changes in the value of the U.S.Dollar, the Company's functional currency, relative to the other currencies inwhich the Company transacts business. All other things being equal, an average 10% increase in the value ofthe U.S. Dollar, throughout the nine month period ended September 30, 2001,would not have had a material effect on the Company’s results of operations forthe nine month period.

 

**PART II.  OTHER INFORMATION**

 

**Item 1.   Legal Proceedings**

 

The Company is involved in various legalproceedings and claims that arise in the ordinary course of business.  Management currently believes that thesematters will not have a material adverse impact on the Company’s financialposition, liquidity or results of operations.

 

 

**Item 2.  Changes in Securities**

 

None.

 

**Item 3.  Defaults upon Senior Securities**

 

None.

 

**Item 4.  Submission of Matters to a Vote of Security Holders**

 

None.

 

**Item 5.  Other Information**

 

None.

# ** **

# **Item 6.   Exhibits and Reports on Form 8-K**

 

(a)   Reportson Form 8-K

The Company filed one report on Form 8-Kduring the third quarter of 2001 dated August 31, 2001 and filed on September19, 2001 relating to the restructuring of the Company’s debt covenants with itsU.S. based lender.

 

**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 

 
|                           |   | **Mackie Designs Inc.**                                                   |
|--------------------------------|--------|---------------------------------------------------------------------------|
|                           |   | (Registrant)                                                              |
|                           |   |                                                                      |
| Dated:  November 13, 2001 | By:    | /s/ William  A. Garrard                                                   |
|                           |   | William A.  Garrard*Vice  President, Finance and Chief Financial Officer* |
|                           |   | (Principal  Financial and Accounting Officer)                             |