**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, 2002**                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                    |   |   |
| **or**                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                    |   |   |
| **o**                                                                                                                                                                                                                                                                                                                                                                   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                                                                    |   |   |
| **For the transition period from                            to                              ** |

 

**CommissionFile Number:  0-26524**

 

**MACKIE DESIGNS INC.**

(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)      |

 

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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 ý    No o

 

 

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock, as of the latest practicabledate.

 

| Common Stock, no par value |   | 12,555,622                   |
|----------------------------|--------|------------------------------|
| Class                      |   | Number of Shares Outstanding |
|                       |   | (as of September 30, 2002)   |

 

 

----

 

**MACKIEDESIGNS INC.**

 

**FORM10-Q**

**Forthe quarter ended September 30, 2002**

 

 

**INDEX**

 
| **PART I.  FINANCIAL INFORMATION** |
|-----------------------------------------|
|                                    |   |
| Item 1.                                 | Financial Statements (Unaudited) |
|                                    |   |
|                                    | Condensed Consolidated Balance Sheets |
|                                    |   |
|                                    | Condensed Consolidated Statements of  Operations |
|                                    |   |
|                                    | Condensed Consolidated Statements of Cash  Flows |
|                                    |   |
|                                    | Condensed Consolidated Statements of  Shareholders’ Equity and Comprehensive Income (Loss) |
|                                    |   |
|                                    | Notes to Condensed Consolidated Financial  Statements |
|                                    |   |
| Item 2.                                 | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |
|                                    |   |
| Item 3.                                 | Quantitative and Qualitative Disclosures About Market Risk |
|                                    |   |
| Item 4.                                 | Controls and Procedures |
|                                    |   |
|                                    |   |
| **PART  II.  OTHER INFORMATION**   |
|                                    |   |
| Item 1.                                 | Legal  Proceedings |
|                                    |   |
| Item 2.                                 | Changes  in Securities |
|                                    |   |
| Item 3.                                 | Defaults  Upon Senior Securities |
|                                    |   |
| Item 4.                                 | Submission  of Matters to a Vote of Security Holders |
|                                    |   |
| Item 5.                                 | Other  Information |
|                                    |   |
| Item 6.                                 | Exhibits  and Reports on Form 8-K |
|                                    |   |
|                                    |   |
| **SIGNATURES**                          |
|                                    |   |
| **CERTIFICATIONS**                      |

 

2

----

 

**PART I.****  FINANCIAL INFORMATION**

** **

**Item1.  FinancialStatements**

 

**MACKIEDESIGNS INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

*In thousands*

 
|                                                                                          |   | **September  30,  2002** |       | **December  31,  2001** |       |
|-----------------------------------------------------------------------------------------------|--------|--------------------------|------------|-------------------------|------------|
| **ASSETS**                                                                                    |   |                     |       |                    |       |
| Current assets:                                                                               |   |                     | ** ** |                    | ** ** |
| Cash and cash equivalents                                                                     |   | $                        | 3,495      |                    | $          | 2,095 |   |
| Accounts receivable, less allowance for  doubtful accounts of $2,874 and $1,349, respectively |   | 35,742                   |       | 35,092                  |       |
| Income taxes receivable                                                                       |   | 2,531                    |       | 1,305                   |       |
| Inventories                                                                                   |   | 60,504                   |       | 51,507                  |       |
| Prepaid expenses and other current assets                                                     |   | 5,670                    |       | 2,157                   |       |
| Deferred income taxes                                                                         |   | 5,099                    |       | 5,315                   |       |
| Total current assets                                                                          |   | 113,041                  |       | 97,471                  |       |
|                                                                                          |   |                     |       |                    |       |
| Property, plant and equipment, net                                                            |   | 23,873                   |       | 25,671                  |       |
| Goodwill, net                                                                                 |   | 20,535                   |       | 19,360                  |       |
| Intangible assets, net                                                                        |   | 6,532                    |       | 6,854                   |       |
| Other assets, net                                                                             |   | 1,236                    |       | 4,608                   |       |
|                                                                                          |   |                     |       |                    |       |
| Total assets                                                                                  |   | $                        | 165,217    |                    | $          | 153,964 |   |
|                                                                                          |   |                     |       |                    |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                 |   |                     |       |                    |       |
| Current liabilities:                                                                          |   |                     | ** ** |                    | ** ** |
| Short-term borrowings                                                                         |   | $                        | 45,516     |                    | $          | 35,395 |   |
| Accounts payable                                                                              |   | 25,855                   |       | 22,859                  |       |
| Accrued liabilities                                                                           |   | 10,626                   |       | 11,009                  |       |
| Income taxes payable                                                                          |   | 1,244                    |       | 968                     |       |
| Long-term debt callable under covenant  provisions                                            |   | 14,232                   |       | —                  |       |
| Current portion of long-term debt                                                             |   | 5,885                    |       | 3,874                   |       |
| Total current liabilities                                                                     |   | 103,358                  |       | 74,105                  |       |
|                                                                                          |   |                     |       |                    |       |
| Long-term debt, excluding current portion                                                     |   | 2,020                    |       | 19,401                  |       |
| Employee and other liabilities                                                                |   | 4,216                    |       | 3,768                   |       |
| Deferred income taxes                                                                         |   | 2,895                    |       | 3,880                   |       |
| Total liabilities                                                                             |   | 112,489                  |       | 101,154                 |       |
|                                                                                          |   |                     |       |                    |       |
| Commitments and contingencies                                                                 |   | —                   |       | —                  |       |
|                                                                                          |   |                     |       |                    |       |
| Shareholders’ equity:                                                                    |   |                     |       |                    |       |
| Common stock                                                                                  |   | 29,333                   |       | 28,691                  |       |
| Retained earnings                                                                             |   | 24,024                   |       | 26,556                  |       |
| Accumulated other comprehensive loss                                                          |   | (629                     | )          | (2,437                  | )          |
| Total shareholders’ equity                                                               |   | 52,728                   |       | 52,810                  |       |
|                                                                                          |   |                     |       |                    |       |
| Total liabilities and shareholders’ equity                                               |   | $                        | 165,217    |                    | $          | 153,964 |   |

 

*See accompanying Notes to Condensed Consolidated Financial Statements.*

 

3

----

 

**MACKIEDESIGNS INC.**

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

**(Unaudited)**

 

*Inthousands, except per share data*

 
|                                |   | **Three  months ended  September 30,** |   | **Nine  months ended  September 30,** |   |
|-------------------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                                |   | **2002**                               |   | **2001**                              |   | **2002** |   | **2001** |   |
|                                |   |                                   |   |                                  |   |   |   |   |   |
| Net sales                           |   | $                                      | 46,404 |                                  | $      | 48,431 |   | $ | 144,321 |   | $ | 159,684 |   |
| Cost of goods sold                  |   | 32,987                                 |   | 36,918                                |   | 99,720 |   | 112,269 |   |
| Gross profit                        |   | 13,417                                 |   | 11,513                                |   | 44,601 |   | 47,415 |   |
|                                |   |                                   |   |                                  |   |   |   |   |   |
| Operating expenses:                 |   |                                   |   |                                  |   |   |   |   |   |
| Selling, general and administrative |   | 13,776                                 |   | 12,346                                |   | 39,176 |   | 39,458 |   |
| Research and development            |   | 2,665                                  |   | 2,936                                 |   | 8,166 |   | 9,185 |   |
| Total operating expenses            |   | 16,441                                 |   | 15,282                                |   | 47,342 |   | 48,643 |   |
| Operating loss                      |   | (3,024                                 | )      | (3,769                                | )      | (2,741 | ) | (1,228 | ) |
|                                |   |                                   |   |                                  |   |   |   |   |   |
| Other income (expense):             |   |                                   |   |                                  |   |   |   |   |   |
| Interest income                     |   | 90                                     |   | 71                                    |   | 280 |   | 274 |   |
| Interest expense                    |   | (891                                   | )      | (1,185                                | )      | (3,041 | ) | (4,036 | ) |
| Other                               |   | 8                                      |   | 325                                   |   | 286 |   | (568 | ) |
|                                |   | (793                                   | )      | (789                                  | )      | (2,475 | ) | (4,330 | ) |
|                                |   |                                   |   |                                  |   |   |   |   |   |
| Loss before income taxes            |   | (3,817                                 | )      | (4,558                                | )      | (5,216 | ) | (5,558 | ) |
|                                |   |                                   |   |                                  |   |   |   |   |   |
| Income tax benefit                  |   | (2,883                                 | )      | (723                                  | )      | (2,684 | ) | (889 | ) |
|                                |   |                                   |   |                                  |   |   |   |   |   |
| Net loss                            |   | $                                      | (934   | )                                     | $      | (3,835 | ) | $ | (2,532 | ) | $ | (4,669 | ) |
|                                |   |                                   |   |                                  |   |   |   |   |   |
| Net loss per share                  |   | $                                      | (0.07  | )                                     | $      | (0.31 | ) | $ | (0.20 | ) | $ | (0.38 | ) |

 

*See accompanying Notes to Condensed Consolidated Financial Statements.*

 

4

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**MACKIEDESIGNS INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(Unaudited)**

 

*In thousands*

 
|                                                                                       |   | **Nine  months ended  September 30,** |       |
|--------------------------------------------------------------------------------------------|--------|---------------------------------------|------------|
|                                                                                       |   | **2002**                              |       | **2001** |   |
|                                                                                       |   |                                  |       |   |   |
| **Operating activities**                                                                   |   |                                  | ** ** |   | ** ** |
| Net loss                                                                                   |   | $                                     | (2,532     | ) | $ | (4,669 | ) |
| Adjustments to reconcile net loss to net  cash provided by (used in) operating activities: |   |                                  |       |   |   |
| Depreciation and amortization                                                              |   | 5,506                                 |       | 6,118 |   |
| Deferred stock compensation                                                                |   | 641                                   |       | 702 |   |
| Deferred income taxes                                                                      |   | (315                                  | )          | (1,169 | ) |
| Changes in operating assets and  liabilities:                                              |   |                                  |       |   |   |
| Accounts receivable                                                                        |   | 997                                   |       | 183 |   |
| Inventories                                                                                |   | (6,644                                | )          | 9,735 |   |
| Prepaid expenses and other current assets                                                  |   | 12                                    |       | (291 | ) |
| Other assets                                                                               |   | (247                                  | )          | 219 |   |
| Accounts payable and accrued expenses                                                      |   | 2,113                                 |       | 392 |   |
| Income taxes receivable and payable                                                        |   | (1,064                                | )          | (1,247 | ) |
| Other long term liabilities                                                                |   | 52                                    |       | (97 | ) |
| Cash provided by (used in) operating  activities                                           |   | (1,481                                | )          | 9,876 |   |
|                                                                                       |   |                                  |       |   |   |
| **Investing activities**                                                                   |   |                                  | ** ** |   | ** ** |
| Acquisition of business, net of cash  acquired                                             |   | —                                |       | (1,899 | ) |
| Proceeds from sales of available-for-sale  securities                                      |   | —                                |       | 515 |   |
| Purchases of property, plant and equipment                                                 |   | (2,317                                | )          | (7,256 | ) |
| Cash used in investing activities                                                          |   | (2,317                                | )          | (8,640 | ) |
|                                                                                       |   |                                  |       |   |   |
| **Financing activities**                                                                   |   |                                  |       |   |   |
| Proceeds from long-term debt                                                               |   | —                                |       | 2,281 |   |
| Payments on long-term debt                                                                 |   | (1,918                                | )          | (3,099 | ) |
| Net proceeds of short-term borrowings                                                      |   | 8,074                                 |       | 431 |   |
| Payments on debt from acquisition of  business                                             |   | (1,193                                | )          | — |   |
| Net proceeds from exercise of stock options                                                |   | 1                                     |       | — |   |
| Cash provided by (used in) financing  activities                                           |   | 4,964                                 |       | (387 | ) |
|                                                                                       |   |                                  |       |   |   |
| Effect of exchange rate changes on cash                                                    |   | 234                                   |       | (911 | ) |
|                                                                                       |   |                                  |       |   |   |
| Increase (decrease) in cash and cash  equivalents                                          |   | 1,400                                 |       | (62 | ) |
|                                                                                       |   |                                  |       |   |   |
| Cash and cash equivalents at beginning of  period                                          |   | 2,095                                 |       | 3,838 |   |
|                                                                                       |   |                                  |       |   |   |
| Cash and cash equivalents at end of period                                                 |   | $                                     | 3,495      |   | $ | 3,776 |   |

 

*See accompanying Notes to Condensed Consolidated Financial Statements.*

 

5

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**MACKIE DESIGNS INC.**

**CONDENSED CONSOLIDATED STATEMENTS OFSHAREHOLDERS’ EQUITY****ANDCOMPREHENSIVE INCOME (LOSS)**

###### **Nine months ended September 30, 2002**

**(Unaudited)**

 

*In thousands*

 
|                                                 |   |              |   |       |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income (Loss)** |   | **Total** |   |
|------------------------------------------------------|--------|-------------------|--------|------------|--------|------------------------|--------|------------------------------------------------------|--------|-----------|--------|
|                                                 |   |              |   |       |   |                   |   |                                                 |
|                                                 |   | **Common  Stock** |   |       |   |                   |
|                                                 |   | **Shares**        |   | **Amount** |   |                   |   |                                                 |
|                                                 |   |              |   |       |   |                   |   |                                                 |   |      |   |
| Balance at December 31, 2001                         |   | 12,424            |   | $          | 28,691 |                   | $      | 26,556                                               |   | $         | (2,437 | ) | $ | 52,810 |   |
| Exercise of stock options                            |   | 132               |   | 1          |   | —                 |   | —                                               |   | 1         |   |
| Amortization of deferred stock compensation          |   | —            |   | 641        |   | —                 |   | —                                               |   | 641       |   |
| Net loss                                             |   | —            |   | —     |   | (2,532                 | )      | —                                               |   | —    |   |
| Foreign currency translation adjustment,  net of tax |   | —            |   | —     |   | —                 |   | 1,808                                                |   | —    |   |
| Comprehensive loss                                   |   | —            |   | —     |   | —                 |   | —                                               |   | (724      | )      |
|                                                 |   |              |   |       |   |                   |   |                                                 |   |      |   |
| Balance at September 30, 2002                        |   | 12,556            |   | $          | 29,333 |                   | $      | 24,024                                               |   | $         | (629   | ) | $ | 52,728 |   |

 

*See accompanying Notes to Condensed Consolidated Financial Statements.*

 

6

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**MACKIEDESIGNS INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS****September 30, 2002**

**(Unaudited)**

 

**1.  Basis of Presentation**

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared by Mackie Designs Inc. in accordance with accounting principlesgenerally accepted in the United States of America for interim financialstatements and include the accounts of Mackie Designs Inc. and itssubsidiaries, all of which are wholly-owned. They do not include all of theinformation and disclosures required by generally accepted accountingprinciples for complete financial statements and should be read in conjunctionwith the financial statements included in our Annual Report on Form 10-K forthe year ended December 31, 2001. In our opinion, all normal recurringadjustments necessary for the fair presentation of the results of the interimperiods are reflected herein. Operating results for the nine-month period endedSeptember 30, 2002, are not necessarily indicative of future financial results.

 

**2.  Net Loss Per Share**

 

The followingtable sets forth the computation of net loss per share for the three-month andnine-month periods ended September 30, 2002 and 2001. Stock options representing 4,143,000 shares in the three-month andnine-month periods ended September 30, 2002 and 4,646,000 shares in thethree-month and nine-month periods ended September 30, 2001, were excluded fromthe calculation of diluted per share amounts because they are antidilutive.

 
|                                                               |   | **Three  months ended  September 30,**      |   | **Nine  months ended  September 30,** |   |
|--------------------------------------------------------------------|--------|---------------------------------------------|--------|---------------------------------------|--------|
|                                                               |   | **2002**                                    |   | **2001**                              |   | **2002** |   | **2001** |   |
|                                                               |   | ***(in thousands, except per share data)*** |   |
| Numerator:                                                         |   |                                        |   |                                  |   |   |   |   |   |
| Net loss                                                           |   | $                                           | (934   | )                                     | $      | (3,835 | ) | $ | (2,532 | ) | $ | (4,669 | ) |
|                                                               |   |                                        |   |                                  |   |   |   |   |   |
| Denominator:                                                       |   |                                        |   |                                  |   |   |   |   |   |
| Denominator for net loss per share –  weighted average shares |   | 12,528                                      |   | 12,399                                |   | 12,466 |   | 12,382 |   |
|                                                               |   |                                        |   |                                  |   |   |   |   |   |
| Net loss per share                                                 |   | $                                           | (0.07  | )                                     | $      | (0.31 | ) | $ | (0.20 | ) | $ | (0.38 | ) |

 

7

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**3. Comprehensive Loss**

 

Comprehensiveloss for the three-month and nine-month periods ended September 30, 2002 and2001, is detailed below.

 
|                                     |   | **Three  months ended  September 30,** |   | **Nine  months ended  September 30,** |   |
|------------------------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                                     |   | **2002**                               |   | **2001**                              |   | **2002** |   | **2001** |   |
|                                     |   | ***(in thousands)***                   |   |
|                                     |   |                                   |   |                                  |   |   |   |   |   |
| Net loss                                 |   | $                                      | (934   | )                                     | $      | (3,835 | ) | $ | (2,532 | ) | $ | (4,669 | ) |
| Other comprehensive income (loss):       |   |                                   |   |                                  |   |   |   |   |   |
| Foreign currency translation adjustments |   | (185                                   | )      | 668                                   |   | 1,808 |   | (798 | ) |
|                                     |   |                                   |   |                                  |   |   |   |   |   |
| Comprehensive loss                       |   | $                                      | (1,119 | )                                     | $      | (3,167 | ) | $ | (724 | ) | $ | (5,467 | ) |

 

**4.  Inventories**

 

Inventoriesconsisted of the following:

 
|            |   | **September  30,  2002** |   | **December  31,  2001** |   |
|-----------------|--------|--------------------------|--------|-------------------------|--------|
|            |   | ***(in thousands)***     |   |
| Raw materials   |   | $                        | 25,952 |                    | $      | 17,506 |   |
| Work in process |   | 5,393                    |   | 4,073                   |   |
| Finished goods  |   | 29,159                   |   | 29,928                  |   |
|            |   | $                        | 60,504 |                    | $      | 51,507 |   |

 

**5.  Goodwilland Intangible Assets**

 

Goodwilltotals $20.5 million at  September 30,2002 of which approximately $6.2 million results from our acquisition of MackieDesigns (Italy) S.p.A. (Mackie Italy) in 1998, $3.4 million from the 2001acquisition of Mackie Designs Engineering Services BVBA in Belgium (MackieBelgium) and $10.9 from our North American acquisitions, primarily EasternAcoustic Works, Inc. (EAW), in 2000.

 

Intangibleassets consist of the following:

 
|                           |   | **September 30,  2002** |   | **December 31,  2001** |   |
|--------------------------------|--------|-------------------------|--------|------------------------|--------|
|                           |   | ***(in thousands)***    |   |
| Developed  technology          |   | $                       | 6,306  |                   | $      | 6,200 |   |
| Trademark                      |   | 1,380                   |   | 1,380                  |   |
|                           |   | 7,686                   |   | 7,580                  |   |
| Less  accumulated amortization |   | 1,154                   |   | 726                    |   |
|                           |   | $                       | 6,532  |                   | $      | 6,854 |   |

 

8

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In June 2001,the Financial Accounting Standards Board issued FAS No. 141, “BusinessCombinations” and FAS No. 142, “Goodwill and Other Intangible Assets,” whichsupercede Accounting Principles Board Opinion No. 17, “Intangible Assets.” FASNo.141 requires that all business combinations be accounted for under thepurchase method. The statement also specifies criteria for recognizing andreporting intangible assets apart from goodwill; however, assembled workforcemust be recognized and reported in goodwill. FAS 142 requires the use of anon-amortization approach to account for purchased goodwill and intangibleshaving an indefinite life. Under a non-amortization approach, goodwill andcertain intangible assets are no longer amortized into results of operations,but instead are reviewed for impairment and written down and charged to resultsof operations only in the periods in which the recorded value of goodwill andcertain intangibles is more than fair value.

 

We adopted FAS142 on January 1, 2002. Accordingly, we reclassified an assembled workforceintangible asset with an unamortized balance of $1.1 million and a relateddeferred tax liability of $383,000 to goodwill on January 1, 2002. We have alsoreviewed the useful lives of our identifiable intangible assets and determinedthat the original estimated lives remain appropriate. FAS 142 prescribes atwo-phase process for impairment testing of goodwill and the timing oftransitional impairment steps. The first phase identifies indications ofimpairment; while the second phase (if necessary), measures the impairment. Wehave completed step one of the transitional impairment test, and believe that atransitional impairment loss associated with our European segment will berequired to be recognized as the cumulative effect of a change in accountingprinciple as of January 1, 2002. The second phase is required to be completedby December 31, 2002 and will measure the impairment. Additionally, an annualimpairment review will be completed during the fourth quarter of 2002.

 

EffectiveJanuary 1, 2002, we ceased amortization of goodwill. Prior to 2002, weamortized goodwill associated with our acquisitions over 10 - 20 years usingthe straight-line method. Identifiable intangibles are currently amortized,using the straight-line method, over 5 years for Mackie Belgium and 20 yearsfor other acquisitions.

 

Expected future amortization expense related to identifiable intangibleassets for the next five fiscal years is as follows:

 
|                           |   | ***(in thousands)*** |   |
|--------------------------------|--------|----------------------|--------|
| October 1 to December 31, 2002 |   | $                    | 133    |   |
| Year ending December 31, 2003  |   | 532                  |   |
| Year ending December 31, 2004  |   | 532                  |   |
| Year ending December 31, 2005  |   | 532                  |   |
| Year ending December 31, 2006  |   | 381                  |   |
|                                |        |                      |        |  |

 

9

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Summarized below are the effects on net loss and net loss per share, ifwe had followed the amortization provisions of FAS 142 for the three-month andnine-month periods ended September 30, 2001.

 
|                                                              |   | **Three  months  ended  September 30, 2001** |   | **Nine  months  ended  September 30, 2001** |   |
|-------------------------------------------------------------------|--------|----------------------------------------------|--------|---------------------------------------------|--------|
|                                                              |   | ***(in thousands, except  per share data)*** |   |
| Net  loss:                                                        |   |                                         |   |                                        |   |
| As reported                                                       |   | $                                            | (3,835 | )                                           | $      | (4,669 | ) |
| Add: goodwill and assembled workforce  amortization, net of taxes |   | 378                                          |   | 1,047                                       |   |
| Adjusted net loss                                                 |   | $                                            | (3,457 | )                                           | $      | (3,622 | ) |
|                                                              |   |                                         |   |                                        |   |
| Net  loss per share:                                              |   |                                         |   |                                        |   |
| As reported                                                       |   | $                                            | (0.31  | )                                           | $      | (0.38 | ) |
| Add: goodwill and assembled workforce  amortization, net of taxes |   | 0.03                                         |   | 0.09                                        |   |
| Adjusted net loss per share                                       |   | $                                            | (0.28  | )                                           | $      | (0.29 | ) |

 

Net income (loss) and income (loss) per share for the years endedDecember 31, 2001, 2000 and 1999 adjusted to exclude goodwill amortizationexpense are as follows:

 
|                                                              |   | **2001**                                     |   | **2000** |   | **1999** |   |
|-------------------------------------------------------------------|--------|----------------------------------------------|--------|----------|--------|----------|--------|
|                                                              |   | ***(in thousands, except  per share data)*** |   |
| Net  income (loss):                                               |   |                                         |   |     |   |     |   |
| As reported                                                       |   | $                                            | (5,329 | )        | $      | 6,226    |   | $ | 3,257 |   |
| Add: goodwill and assembled workforce  amortization, net of taxes |   | 1,431                                        |   | 966      |   | 442      |   |
| Adjusted net income (loss)                                        |   | $                                            | (3,898 | )        | $      | 7,192    |   | $ | 3,699 |   |
|                                                              |   |                                         |   |     |   |     |   |
| Basic net income (loss) per share:                                |   |                                         |   |     |   |     |   |
| As reported                                                       |   | $                                            | (0.43  | )        | $      | 0.51     |   | $ | 0.27 |   |
| Add: goodwill and assembled workforce  amortization, net of taxes |   | 0.12                                         |   | 0.08     |   | 0.03     |   |
| Adjusted basic net income (loss) per share                        |   | $                                            | (0.31  | )        | $      | 0.59     |   | $ | 0.30 |   |
|                                                              |   |                                         |   |     |   |     |   |
| Diluted net income (loss) per share:                              |   |                                         |   |     |   |     |   |
| As reported                                                       |   | $                                            | (0.43  | )        | $      | 0.49     |   | $ | 0.27 |   |
| Add: goodwill and assembled workforce  amortization, net of taxes |   | 0.12                                         |   | 0.07     |   | 0.03     |   |
| Adjusted diluted net income (loss) per  share                     |   | $                                            | (0.31  | )        | $      | 0.56     |   | $ | 0.30 |   |

 

10

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**6.  Financing**

 

We have acredit agreement with a U.S. bank covering a revolving bank line of credit andtwo term loans. Under the terms of this agreement, we must maintain certainfinancial ratios and tangible net worth. The agreement also provides, amongother matters, restrictions on additional financing, dividends, mergers,acquisitions, and an annual capital expenditure limit. The line of credit andterm loans are secured by all U.S. based assets including, but not limited to,accounts receivable, inventory, fixed assets, intangibles and patents.

 

The revolvingbank line of credit provides up to $25.0 million of short-term borrowingsubject to certain limitations. This line of credit also provides a guaranteeof approximately $1.8 million of certain of our debt in Italy. At September 30,2002 there was $20.6 million outstanding on the line of credit andapproximately $2.6 million available. The renewal date for the line of creditis April 2003.

 

There are twoterm loans. The Term Loan A principal balance is $5.6 million at September 30,2002 payable at $100,000 per month plus interest at the bank’s prime rate or atLIBOR plus a specified margin. The principal amount of Term Loan B is $8.6million at September 30, 2002. Interest on this loan is payable monthly and iscalculated at the bank’s prime rate plus a specified margin. A principalrepayment due in 2003 is calculated based upon our 2002 earnings beforeinterest, taxes, depreciation and amortization, less cash taxes paid, certaincapital expenditures and debt repayments. This amount is due in two equalpayments in February and July 2003. The renewal date for the term loans isSeptember 2003.

 

At September30, 2002, we were out of compliance with certain of our financial covenants. Wewere out of compliance with certain of these covenants in 2001 and the firstquarter of 2002 but were able to restructure the covenants and receive waiversfor these violations. The lender can declare an event of default, which wouldallow it to accelerate payment of all amounts due under the credit agreement.Additionally, this non-compliance may result in higher interest costs and/orother fees. We are highly leveraged and would be unable to pay the acceleratedamounts that would become immediately due and payable if a default is declared.As a result of this non-compliance, the total of Term Loans A and B isclassified as a current liability under the caption, “Long-term debt callableunder covenant provisions.”

 

We have takenvarious actions to ensure our ongoing ability to cover scheduled debt servicingpayments. In the third and fourth quarters of 2001 we laid off some of ourpersonnel and closed certain facilities. There have been additional headcountreductions in the third quarter of 2002 and we expect more to be incurred inthe remainder of the year. Throughout 2002, we have maintained close controlsover capital expenditures. Finally, we are pursuing a variety of alternativefinancing sources, including loan restructuring, possible equity investmentand/or divestiture of certain operating assets.

 

If managementcontrols over spending are successful and costs of sales and overhead costs reducedto levels consistent with our sales, we believe that our cash and availablecredit facilities, along with cash generated from operations will be sufficientto provide working capital to fund operations over the next twelve months.Although there is no assurance, additional credit facilities may be availablefrom our existing lender or from other sources.

 

**7.  Segments and Geographic Information**

 

Businesssegments were previously identified using primarily geographic factors. Therehave been continuing changes within the structure of our internal reportingthat have caused the composition of these segments to change. As a result, wenow have one segment. Major operations outside the U.S. include manufacturingfacilities in Italy, and sales and support offices in Germany, Italy, theUnited Kingdom and France. The factory in Italy as well as third-partyfacilities in China produce certain products that are comparable to thoseproduced in U.S. factories. Other functional operations are consolidated acrossthe organization.

 

11

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**8.  Contingencies**

 

In April 2000,we acquired 100% of the capital stock of Eastern Acoustic Works, Inc. (EAW). Wehave subrogated claims asserted against us from insurance companies who paidclaims made by EAW’s landlord and other tenants in the building who wereaffected by a fire started by a loaned employee in a portion of the buildingoccupied by EAW in 1996. The range of potential loss ranges from $2.1 millionto $2.9 million. The Massachusetts Superior Court has set a date for trial inJuly 2003. We believe that these losses are not attributable to us underMassachusetts’ law and are vigorously defending the litigation. The claims ofthe other tenants have been covered by EAW’s insurance carrier. The ultimateresolution of this matter is not known at this time.  No provision has been made in our consolidated financialstatements related to these claims.

 

We are alsoinvolved in various legal proceedings and claims that arise in the ordinarycourse of business. We currently believe that these matters will not have amaterial adverse impact on our financial position, liquidity or results ofoperations.

 

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**Item2.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

 

*The following discussion and analysis shouldbe read in conjunction with our financial statements included in our AnnualReport on Form 10-K for the year ended December 31, 2001. This discussioncontains certain “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995 that involve risks and uncertaintieswhich may cause actual results to differ materially from the forward-lookingstatements. Forward-looking statements include, without limitation, anystatement that may predict, forecast, indicate, or imply future results,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.*

 

*Our actual results could differ materiallyfrom those discussed here. We undertake no obligation to publicly release anyrevisions to these forward-looking statements that may be required to reflectevents or circumstances after the date hereof or to reflect the occurrence ofunanticipated events.*

 

**General**

 

We develop,manufacture and sell high-quality, affordable digital and analog audio mixers,speakers, amplifiers and other professional audio equipment on a worldwidebasis. Our products are used by professional musicians, sound installationcontractors and broadcast professionals both in sound recordings, livepresentations systems and installed sound systems. We distribute our productsprimarily through retail dealers, mail order outlets and installed soundcontractors.

 

In April 2001,we acquired Mackie Designs Engineering Services BVBA in Belgium (MackieBelgium), formerly known as Sydec, for approximately $4.4 million. MackieBelgium is a developer of products and services in the area of embeddedelectronics and software, networking, digital signal processing and Windows TMdriver applications. The transaction was accounted for as a purchase businesscombination. Operations after April 2001 include the results of operations forMackie Belgium.

 

**CriticalAccounting Policies and Estimates**

 

We believe our policy on valuing inventory, including market valueadjustments, is our most critical accounting policy. Inventories are stated atthe lower of standard cost, which approximates actual cost on a first-in,first-out method, or market. Included in our inventories balance aredemonstration products used by our sales representatives and marketingdepartment including finished goods that have been shipped to customers forevaluation. Market value adjustments are recorded for obsolete material,slow-moving product, service and demonstration products. We make judgmentsregarding the carrying value of our inventory based upon current marketconditions. These conditions may change depending upon competitive productintroductions, customer demand and other factors. If the market for ourpreviously released products changes, we may be required to write down the costof our inventory.

 

We assess theimpairment of long-lived assets and enterprise goodwill in the fourth quarterof the year and whenever events or changes in circumstances indicate that thecarrying value may not be recoverable. Significant judgment is required inassessing factors which might trigger impairment including significantunderperformance relative to expected operating results, significant changes inour use of the assets or the strategy for our overall business, and significantnegative industry or economic trends. We believe that a transitional impairmentloss on our enterprise goodwill will be required to be recognized as thecumulative effect of a change in accounting principle as of January 1, 2002.This will be recorded in the fourth quarter. In addition, we assess the usefullives of our long-lived assets and intangible assets which also requiresjudgment to determine what factors are present that would indicate a change inthose useful lives.

 

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**Resultsof Operations**

 

Net salesduring the third quarter of 2002 were $46.4 million, a decrease of 4% from$48.4 million in the comparable quarter of 2001. Net sales for the nine monthsended September 30, 2002 were $144.3 million, a decrease of 10% from $159.7million during the nine months ended September 30, 2001. The decrease in bothperiods is primarily due to lower sales volumes in both the U.S. and Europeresulting from the continuing general economic slowdown. A price increaseimplemented for certain products during the first quarter slightly offset thedecrease for the nine-month period.

 

Gross marginwas $13.4 million or 29% of net sales for the quarter ended September 30, 2002compared to $11.5 million or 24% of net sales for the same period in 2001. Forthe nine months ended September 30, 2002, gross profit was $44.6 million or 31%of net sales compared to $47.4 million or 30% of net sales for the same periodin 2001. The increase in gross margin percentage for the quarter relates inpart to greater sales of certain products that are manufactured in athird-party, offshore facility. At the end of 2001, we began to transition themanufacture of certain of our product lines to offshore facilities and arecontinuing this transfer in 2002. Additionally, the lower gross margins in boththe three-month and nine-month periods ended September 30, 2001 reflect certaininventory adjustments in our Italian operation which were incurred in the thirdquarter of 2001. Gross margin for the quarter ended September 30, 2002 waslower than in previous quarters of 2002 due to excess capacity created in ourItalian factory as a result of the scheduled summer shutdown and in theWoodinville factory due both to sluggish sales and to the ongoing transition ofproduct mentioned above.  Additionallyin the third quarter of 2002 we recorded an inventory adjustment ofapproximately $550,000 associated with the discontinuation of one of our olderproduct lines.

 

Selling,general and administrative expenses were $13.8 million or 30% of net sales forthe third quarter of 2002 compared to $12.3 million or 25% for the thirdquarter of 2001. During the nine months ended September 30, 2002, sellinggeneral and administrative expenses were $39.2 million or 27% of net salescompared to $39.4 million or 25% of net sales for the same period of 2001.  The change in the third quarter of 2002 hasseveral components. First, we increased our allowance for doubtful accountsreceivable by approximately $1.0 million during the quarter. The largestportion of this related to the bankruptcy filing of one of our largest U.S.customers. We expect that the bankruptcy of this retail customer andliquidation of its inventory may depress sales in the fourth quarter, but notby a significant amount, as end-user demand should not be affected. Second, weincurred certain professional fees during the quarter relating to certain taxservices performed during the quarter. The tax benefits associated with thiswork are included as an element of our income tax benefit. Finally, the threemonths and nine months ended September 30, 2001 included amortization ofgoodwill that totaled $406,000 and $1,132,000, respectively. FAS 142, whichrequires that assets with indefinite lives are no longer amortized but aretested at least annually for impairment, was adopted January 1, 2002.

 

Research anddevelopment expenses were $2.7 million for the third quarter of 2002 comparedto $2.9 million for the comparable quarter of 2001. During the nine monthsended September 30, 2002, we incurred research and development expenses of $8.2million compared to $9.2 million for the same period in 2001. As a percentageof sales, research and development expense has remained constant at 6%. Thedecrease in absolute dollars resulted from certain headcount reductions in theU.S. in the last half of 2001 offset in part by the operations of MackieBelgium which was acquired in April 2001.

 

Net otherexpense was $793,000 for the third quarter of 2002 as compared to $789,000 inthe third quarter of 2001. For the nine months ended September 30, 2002 otherexpense was $2.5 million compared to $4.3 million for the comparable period of2001. Included in this amount is interest expense which decreased to $900,000in the third quarter of 2002 from $1.2 million in the corresponding period of2001. Interest expense for the nine months ended September 30, 2002 decreasedto $3.0 million from $4.0 million in the comparable period of 2001.The decreaserelates to lower interest rates in 2002 versus 2001. Additionally, we haveother income in the three-month and nine-month periods ended September 30, 2002relating to foreign exchange transaction gains. The three-month and nine-monthperiods of 2001

 

14

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show $325,000 income and$568,000 expense, respectively also relating to foreign exchangetransactions.  The 2002 gains are due tothe increase in the value of the Euro as compared to the U.S. dollar.

 

Income taxbenefit for the third quarter of 2002 was $2.9 million compared to a benefit of$723,000 for the same period of 2001. Income tax benefit for the nine monthsended September 30, 2002 was $2.7 million compared to a benefit of $889,000 forthe nine months ended September 30, 2001. The benefit for the third quarter of2002 is comprised of several factors. We have estimated benefits to be receivedor taxes to be paid in various tax jurisdictions for the full year and havecalculated an effective tax benefit rate for the year of 28% to be recorded onthe loss to date. Additionally in the quarter we have recorded approximately$1.2 million of tax benefit associated with tax filings made in the U.S. whichincrease tax savings associated with foreign activities.

 

**Liquidityand Capital Resources**

 

Cash used inoperating activities was $1.5 million for the nine months ended September 30,2002. In the comparable period of 2001, cash provided by operations was $9.9million. Net cash used in operating activities in 2002 was primarilyattributable to the net loss and increases in inventories, offset by increasesin accounts payable and accrued expenses. The primary reason for the growth ininventories is lower than anticipated sales. In 2001, cash was providedprimarily by a decrease in inventories.

 

Cash used ininvesting activities was $2.3 million for the first nine months of 2002 and$8.6 million for the first nine months of 2001. The cash flows used ininvesting activities in 2002 included purchases of property, plant andequipment of $2.3 million, while purchases of property, plant and equipment for2001 were $7.3 million. Payments for the acquisition of Mackie Belgium arescheduled from the closing of the transaction in April 2001 through December2002. Payments made under this schedule of $1.9 million in 2001 are reflectedas acquisition of business in the Condensed Consolidated Statements of CashFlows.

 

Cash provided by financing activities duringthe nine months ended September 30, 2002 was $5.0 million. $8.1 million in 2002represents net proceeds from short-term borrowings; repayments of long-termdebt were $1.9 million. Continuing payments in 2002 for the acquisition ofMackie Belgium total $1.2 million. In the comparable period of 2001, cash flowsused in financing activities included net proceeds from short-term borrowingsas well as proceeds from long-term debt, offset by payments on long-term debt.

 

We have acredit agreement with a U.S. bank covering a revolving bank line of credit andtwo term loans. Under the terms of this agreement, we must maintain certainfinancial ratios and tangible net worth. The agreement also provides, amongother matters, restrictions on additional financing, dividends, mergers,acquisitions, and an annual capital expenditure limit. The line of credit andterm loans are secured by all U.S. based assets including, but not limited to,accounts receivable, inventory, fixed assets, intangibles and patents.Additionally, we have agreements with several banks in Italy that provideshort-term credit facilities totaling approximately $27.1 million, subject tocertain limitations. These limitations reduced the actual availability toapproximately $24.4 million. At September 30, 2002, there was $24.4 millionoutstanding on these facilities.

 

Our U.S. bankline of credit provides up to $25.0 million of short-term borrowing subject tocertain limitations. This line of credit also provides a guarantee ofapproximately $1.8 million of certain of our debt in Italy. At September 30,2002 there was $20.6 million outstanding on the line of credit andapproximately $2.6 million available. The renewal date for the line of creditis April 2003.

 

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There are twoU.S. term loans. The Term Loan A principal balance is $5.6 million at September30, 2002 payable at $100,000 per month plus interest at the bank’s prime rateor at LIBOR plus a specified margin. The principal amount of Term Loan B is$8.6 million at September 30, 2002. Interest on this loan is payable monthlyand is calculated at the bank’s prime rate plus a specified margin. A principalrepayment due in 2003 is calculated based upon our 2002 earnings beforeinterest, taxes, depreciation and amortization, less cash taxes paid, certaincapital expenditures and debt repayments. This amount is due in two equalpayments in February and July 2003. The renewal date for the term loans isSeptember 2003. There are other bank term loans and notes in Italy totaling$7.8 million at September 30, 2002. Specific assets of Mackie Italy securecertain of these loans. Of this Italian debt, approximately $5.9 million is duewithin the next twelve months, the majority of which is secured by zero couponbonds which have a maturity date consistent with the debt payment due date.

 

At September30, 2002, we were out of compliance with certain of the financial covenants ofour credit agreement with the U.S. bank. We were out of compliance with certainof these covenants in 2001 and the first quarter of 2002 but were able torestructure the covenants and receive waivers for these violations. The lendercan declare an event of default, which would allow it to accelerate payment ofall amounts due under the credit agreement. Additionally, this non-compliancemay result in higher interest costs and/or other fees. We are highly leveragedand would be unable to pay the accelerated amounts that would becomeimmediately due and payable if a default is declared. As a result of thisnon-compliance, the total of Term Loans A and B is classified as a currentliability under the caption, “Long-term debt callable under covenantprovisions.”

 

We have takenvarious actions to ensure our ongoing ability to cover scheduled debt servicingpayments. In the third and fourth quarters of 2001 we laid off some of ourpersonnel and closed certain facilities. There have been additional headcountreductions in the third quarter of 2002 and we expect more to be incurred inthe remainder of the year. Throughout 2002, we have maintained close controlsover capital expenditures. Finally, we are pursuing a variety of alternativefinancing sources, including loan restructuring, possible equity investmentand/or divestiture of certain operating assets.

 

If managementcontrols over spending are successful and costs of sales and overhead costsreduced to levels consistent with our sales, we believe that our cash andavailable credit facilities, along with cash generated from operations will besufficient to provide working capital to fund operations over the next twelvemonths. Although there is no assurance, additional credit facilities may be availablefrom our existing lender or from other sources.

 

**NewAccounting Pronouncements**

 

In July 2002,the Financial Accounting Standards Board issued FAS No. 146, “Accounting forCosts Associated with Exit or Disposal Activities,” which addresses financial accountingand reporting for costs associated with exit or disposal activities. FAS No.146 nullifies EITF Issue No. 94-3, “Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including CertainCosts Incurred in a Restructuring).” The principal difference between FAS No.146 and Issue No. 94-3 relates to the recognition of a liability for a costassociated with an exit or disposal activity. FAS No. 146 requires that aliability be recognized for those costs only when the liability is incurred,that is, when it meets the definition of a liability in the FASB’s conceptualframework. In contrast, under Issue No. 94-3, a company recognized a liabilityfor an exit cost when it committed to an exit plan. FAS No. 146 alsoestablishes fair value as the objective for initial measurement of liabilitiesrelated to exit or disposal activities. The Statement is effective for exit ordisposal activities that are initiated after December 31, 2002 although earlierapplication is encouraged.

 

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In April 2002,the FASB issued FAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64,Amendment of FASB Statement 13, and Technical Corrections.” FAS 145 rescindsand amends certain previous standards related primarily to debt and leases. Themost substantive amendment requires sales-leaseback accounting for certainlease modifications that have economic effects that are similar tosales-leaseback transactions. The provisions of FAS No. 145 related to therescission of FAS No. 4 are effective for financial statements issued forfiscal years beginning after May 15, 2002 and will become effective for Mackiecommencing in 2003. The provisions of FAS No. 145 related to the amendment of FASNo. 13 shall be effective for transactions occurring after May 15, 2002. Allother provisions of FAS No. 145 are effective for financial statements issuedon or after May 15, 2002. This accounting pronouncement is not expected to havea significant impact on our financial position or results of operations.

 

**Item 3. Quantitative and QualitativeDisclosures About Market Risk**

 

We are exposedto various market risks, including changes in foreign currency rates andinterest rates. We may enter into various derivative transactions to managecertain of these exposures; however we did not have any derivative financialinstruments as of September 30, 2002.

 

At September30, 2002, we had variable rate debt of approximately $66.6 million provided byU.S. and Italian banks. As such, changes in U.S. and European interest ratesaffect interest paid on debt and we are exposed to interest rate risk. In thenine months ended September 30, 2002, an increase in the average interest rateof 10%, i.e. from 6% to 6.6%, would have resulted in an approximately $288,000increase in net loss before income taxes. The fair value of the variable ratedebt approximates the carrying amount on the consolidated balance sheet atSeptember 30, 2002.

 

The assets andliabilities of our non-U.S. subsidiaries, have functional currencies other thanthe U.S. Dollar, and are translated into U.S. Dollars at exchange rates ineffect at the balance sheet date.  Thesesubsidiaries are primarily located in western Europe, the functional currencyof which is the Euro. Income and expense items are translated at the averageexchange rates prevailing during the period. Additionally, a portion of salesfrom our U.S. entity is denominated in other than the U.S. Dollar. A 10%decrease in the value of the U.S. Dollar compared to the functional currenciesof our non-U.S. subsidiaries, throughout the nine months ended September 30,2002, would have resulted in an approximately $976,000 increase in net lossbefore income taxes.

 

**Item 4. Controls and Procedures**

 

The ChiefExecutive Officer and the Chief Financial Officer have reviewed, as of a datewithin 90 days of the date of filing of this Quarterly Report, the disclosurecontrols and procedures pursuant to Exchange Act Rules 13a-14(c) and 15d-14(c).Based on that evaluation, such officers have concluded that, as of theevaluation date, the disclosure controls and procedures are effective inalerting them on a timely basis to material information relating to the Company(including its consolidated subsidiaries) required to be included in thisQuarterly Report. There have been no significant changes in the internalcontrols, or in other factors that could significantly affect such internalcontrols.

 

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**PART II.****  OTHER INFORMATION**

 

**Item 1.**  **Legal Proceedings**

 

We havesubrogated claims asserted against us from insurance companies who paid claimsmade by EAW’s landlord and other tenants in the building who were affected by afire started by a loaned employee in a portion of the building occupied by EAWin 1996. The range of potential loss ranges from $2.1 million to $2.9 million.The Massachusetts Superior Court has set a date for trial in July 2003. Webelieve that these losses are not attributable to us under Massachusetts’ lawand are vigorously defending the litigation. The claims of the other tenantshave been covered by EAW’s insurance carrier. The ultimate resolution of thismatter is not known at this time.  Noprovision has been made in our consolidated financial statements related tothese claims.

 

We are alsoinvolved in various legal proceedings and claims that arise in the ordinarycourse of business. We currently believe that these matters will not have amaterial adverse impact on our financial position, liquidity or results ofoperations.

 

**Item2.****  Changes inSecurities**

 

None.

 

**Item3.****  Defaults uponSenior Securities**

 

None.

 

**Item4.****  Submission ofMatters to a Vote of Security Holder**

 

None.

 

**Item5.****Other Information**

 

None.

 

**Item 6.****  Exhibits andReports on Form 8-K**

 

(a)          Exhibits

 

3.2                     RestatedBylaws, as amended August 30, 2002.

 

99.1               Certificationof Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

99.2               Certificationof Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

(b)         Reportson Form 8-K

 

The Companyfiled three reports on Form 8-K during the third quarter of 2002. The reportdated September 3, 2002 announced the appointment of Gregory W. Riker asChairman of the Board of Directors. The report dated September 6, 2002announced the appointment of Paul Gallo and Kenneth A. Williams as directorsand the resignations of C. Marcus Sorenson and David M. Tully as directors. Thereport dated September 9, 2002 announced the appointment of Jon W. Gacek asdirector and Chairman of the Audit Committee.

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|                           |   | **Mackie Designs Inc.**                                                                              |   |
|--------------------------------|--------|------------------------------------------------------------------------------------------------------|--------|
|                           |   | (Registrant)                                                                                         |
|                           |   |                                                                                                 |
|                           |   |
| Dated:  November 14, 2002 | By:    |    /s/ James T. Engen                                                                      |   |
|                           |   | James T.  Engen                                                                                      |
|                           |   | *President, Chief Executive Officer and  Director*                                                   |
|                           |   |
| Dated:  November 14, 2002 | By:    |    /s/ William A. Garrard                                                                  |   |
|                           |   | William A.  Garrard                                                                                  |
|                           |   | *Vice President, Finance and Chief  Financial Officer (Principal Financial  and Accounting Officer)* |
|                                |        |                                                                                                      |        |  |  |  |

 

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**CERTIFICATION****OF PRINCIPAL EXECUTIVE OFFICER**

 

 

I, James T. Engen, certify that:

 

(1)          I have reviewed this quarterly report on Form 10-Q of Mackie DesignsInc;

 

(2)          Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

(3)          Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

(4)          Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a.               designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b.              evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c.               presented inthis quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

(5)          Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a.               allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b.              any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

(6)          Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Dated:  November 14, 2002 | By:    |    /s/ James T. Engen         |   |
|--------------------------------|--------|-----------------------------------------|--------|
|                           |   | James T.  Engen                         |
|                           |   | *President and Chief Executive Officer* |
|                                |        |                                         |        |  |

 

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**CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER**

 

I, William A. Garrard, hereby certify that:

 

(1)          I have reviewed this quarterly report on Form 10-Q of Mackie DesignsInc;

 

(2)          Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

(3)          Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

(4)          Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a.               designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b.              evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c.               presented inthis quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

(5)          Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalent function):

 

a.               allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b.              any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

(6)          Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Dated:  November 14, 2002 | By:    |    /s/ William A. Garrard                                                                  |   |
|--------------------------------|--------|------------------------------------------------------------------------------------------------------|--------|
|                           |   | William A.  Garrard                                                                                  |
|                           |   | *Vice President, Finance and Chief  Financial Officer (Principal Financial  and Accounting Officer)* |
|                                |        |                                                                                                      |        |  |

 

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