** **

**U.S. SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**Form 10-QSB**

 

**(Mark one)**

**ý****QUARTERLY REPORTUNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**    ****Forthe quarterly period ended March 31, 2001**

** **

**o****TRANSITION REPORTUNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT**

** **

** **

**Commission file number**

**0-24886**

 

 

**ACRODYNE COMMUNICATIONS, INC.**

(Exact name of small business issuer as specified in itscharter)

 

| **Delaware**                                |   | **11-3067564**      |
|---------------------------------------------|--------|---------------------|
| (State or other jurisdiction of             |   | (I.R.S. Employer    |
| incorporation or organization)              |   | Identification No.) |
|                                        |   |                |
| **10706 Beaver Dam  Road**                  |   |                |
| **Cockeysville, MD**                        |   | **21030**           |
| (Address of principal executive  offices)   |   | (Zip Code)          |
|                                        |   |                |
| Issuer's telephone number: **410-568-1629** |   |                |

 

 

Checkwhether the issuer (1) has filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes   o  No   ý

 

Statethe number of shares outstanding of each of the issuer's classes of commonequity, as of the latest practicable date: 7,409,608 shares of common stockof Acrodyne Communications, Inc. were outstanding on November 16, 2001.

 

 

 

 

**ACRODYNE COMMUNICATIONS, INC.**

 

INDEX

 

 
| PART I.  FINANCIAL INFORMATION:            |                                                                                                   |
|-------------------------------------------------|--------------------------------------------------------------------------------------------------------|
|                                            |                                                                                                   |   |
|                                            | Item 1.  Financial Statements                                                                     |   |
|                                            |                                                                                                   |   |
|                                            | Consolidated Balance Sheets  at March 31, 2001 (unaudited) and December 31, 2000                       |   |
|                                            |                                                                                                   |   |
|                                            | Consolidated  Statements of Operations for the Three Months Ended March 31, 2001 and 2000  (unaudited) |   |
|                                            |                                                                                                   |   |
|                                            | Consolidated  Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000  (unaudited) |   |
|                                            |                                                                                                   |   |
|                                            | Notes to  Consolidated Financial Statements (unaudited)                                                |   |
|                                            |                                                                                                   |   |
|                                            | Item  2.  Management's Discussion and  Analysis of Financial Condition and Results of Operations  |   |
|                                            |                                                                                                   |   |
| PART II.  OTHER INFORMATION, AS APPLICABLE |                                                                                                   |
|                                            |                                                                                                   |   |
|                                            | Item 6.  Exhibits and Reports on Form 8-K                                                              |   |
|                                            |                                                                                                   |   |
| SIGNATURES                                      |                                                                                                   |
|                                            |                                                                                                   |   |

 

 

**Acrodyne Communications, Inc.**

**Consolidated Balance Sheets**

 
|                                                                                                                                                                                                        |   | **March 31,**   |      | **December 31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|-----------|------------------|--------|
|                                                                                                                                                                                                        |   | **2001**        |      | **2000**         |   |
|                                                                                                                                                                                                        |   | **(unaudited)** |      | **(audited)**    |   |
| **Assets**                                                                                                                                                                                                  |   |            |      |             |   |
| Current assets:                                                                                                                                                                                             |   |            |      |             |   |
| Cash and cash equivalents                                                                                                                                                                                   |   | $               | 556,283   |             | $      | 86,959 |   |
| Accounts receivable, net of allowance for doubtful accounts  of $389,000 at both March 31, 2001 and December 31, 2000, respectively                                                                         |   | 444,762         |      | 944,225          |   |
| Inventories                                                                                                                                                                                                 |   | 1,706,859       |      | 2,286,887        |   |
| Prepaid expenses and deposits                                                                                                                                                                               |   | 9,580           |      | 58,555           |   |
| Other current assets                                                                                                                                                                                        |   | 582,440         |      | 500,524          |   |
| Total current assets                                                                                                                                                                                        |   | 3,299,924       |      | 3,877,150        |   |
|                                                                                                                                                                                                        |   |            |      |             |   |
| Property, plant and equipment, net                                                                                                                                                                          |   | 4,071,011       |      | 4,150,926        |   |
| License agreement, net of amortization                                                                                                                                                                      |   | 1,200,000       |      | 1,275,000        |   |
| Total assets                                                                                                                                                                                                |   | $               | 8,570,935 |             | $      | 9,303,076 |   |
|                                                                                                                                                                                                        |   |            |      |             |   |
| **Liabilities and Stockholders’ Equity (Deficiency)**                                                                                                                                                  |   |            |      |             |   |
| Current liabilities:                                                                                                                                                                                        |   |            |      |             |   |
| Borrowings under Line of Credit                                                                                                                                                                             |   | $               | 2,500,000 |             | $      | 1,158,753 |   |
| Subordinated debenture with Sinclair Broadcast Group, Inc                                                                                                                                                   |   | 2,000,000       |      | 2,000,000        |   |
| Current portion of capital lease obligation                                                                                                                                                                 |   | 114,679         |      | 9,494            |   |
| Accounts payable                                                                                                                                                                                            |   | 1,709,374       |      | 1,737,230        |   |
| Accrued expenses                                                                                                                                                                                            |   | 1,714,715       |      | 1,420,094        |   |
| Customer advances                                                                                                                                                                                           |   | 4,580,940       |      | 4,723,430        |   |
|                                                                                                                                                                                                        |   |            |      |             |   |
| Deferred revenue                                                                                                                                                                                            |   | 1,459,753       |      | 2,290,085        |   |
| Other current liability                                                                                                                                                                                     |   | 300,000         |      | 651,000          |   |
| Total current liabilities                                                                                                                                                                                   |   | 14,379,461      |      | 13,990,086       |   |
|                                                                                                                                                                                                        |   |            |      |             |   |
| Capital lease obligation                                                                                                                                                                                    |   | 3,765,403       |      | 3,776.948        |   |
| License fee payable                                                                                                                                                                                         |   | 1,200,000       |      | 1,200,000        |   |
| Non-compete liability                                                                                                                                                                                       |   | 845,912         |      | 845,912          |   |
| Total liabilities                                                                                                                                                                                           |   | 20,190,776      |      | 19,812,946       |   |
|                                                                                                                                                                                                        |   |            |      |             |   |
| Stockholders’ equity (deficiency):                                                                                                                                                                     |   |            |      |             |   |
| Preferred stock, par value $1.00; 1,000,000 shares  authorized, 8% Convertible Redeemable Preferred Stock, 6500 shares issued and  outstanding on March  31, 2001 and  December 31, 2000, respectively |   | 6,500           |      | 6,500            |   |
| Common stock, par value $.01; 30,000,000 shares authorized,  6,981,161 shares issued and outstanding on March 31, 2001 and December 31,  2000, respectively                                                 |   | 69,812          |      | 69,812           |   |
| Additional paid-in capital                                                                                                                                                                                  |   | 21,496,778      |      | 21,496,778       |   |
| Additional paid-in capital – warrants                                                                                                                                                                  |   | 336,000         |      | 0                |   |
| Accumulated deficit                                                                                                                                                                                         |   | (33,528,931     | )         | (32,082,960      | )      |
| Total stockholders’ equity (deficiency)                                                                                                                                                                |   | (11,619,841     | )         | (10,509,870      | )      |
|                                                                                                                                                                                                        |   |            |      |             |   |
| Total liabilities and stockholders’ equity                                                                                                                                                             |   | $               | 8,570,935 |             | $      | 9,303,076 |   |

 

 See notes toconsolidated financial statements

 

 

**Acrodyne Communications, Inc.**

**Consolidated Statements of Operations**

**(Unaudited)**

 

 
|                                                           |   | **Three Months Ended March 31,** |      |
|----------------------------------------------------------------|--------|----------------------------------|-----------|
|                                                           |   | **2001**                         |      | **2000** |   |
|                                                           |   |                             |      |   |   |
| Net Sales                                                      |   | $                                | 2,226,178 |   | $ | 2,029,362 |   |
| Cost of Sales                                                  |   | 1,983,391                        |      | 2,217,213 |   |
| Gross Profit                                                   |   | 242,787                          |      | (187,851 | ) |
|                                                           |   |                             |      |   |   |
|                                                           |   |                             |      |   |   |
| Operating Expenses:                                            |   |                             |      |   |   |
| Engineering                                                    |   | 576,923                          |      | 175,609 |   |
| Selling                                                        |   | 262,332                          |      | 279,252 |   |
| Administration                                                 |   | 724,503                          |      | 645,006 |   |
| Amortization                                                   |   | 75,000                           |      | 57,874 |   |
| Total operating expenses                                       |   | 1,638,758                        |      | 1,157,741 |   |
|                                                           |   |                             |      |   |   |
| Operating loss                                                 |   | (1,395,971                       | )         | (1,345,592 | ) |
|                                                           |   |                             |      |   |   |
| Other income (expense)                                         |   |                             |      |   |   |
| Interest expense, net                                          |   | (213,475                         | )         | (111,872 | ) |
| Other income, net                                              |   | 177,503                          |      | -0- |   |
| Total other income (expense)                                   |   | (35,972                          | )         | (111,872 | ) |
|                                                           |   |                             |      |   |   |
| Net loss                                                       |   | (1,431,943                       | )         | (1,457,464 | ) |
|                                                           |   |                             |      |   |   |
| Dividend on 8% Convertible Redeemable Preferred Stock          |   | (14,028                          | )         | (14,028 | ) |
|                                                           |   |                             |      |   |   |
| Net income applicable to common shares                         |   | (1,445,971                       | )         | (1,471,492 | ) |
|                                                           |   |                             |      |   |   |
| Basic & diluted net loss per common share                  |   | $                                | (0.21     | ) | $ | (0.21 | ) |
|                                                           |   |                             |      |   |   |
| Weighted average shares outstanding – basic & diluted |   | 6,981,161                        |      | 6,932,535 |   |

 

See notes to consolidated financial statements

 

 

**Acrodyne Communications, Inc.**

**Consolidated Statements of Cash Flows**

**(Unaudited)**

 
|                                                                         |   | **Three Months Ended March 31,** |       |
|------------------------------------------------------------------------------|--------|----------------------------------|------------|
|                                                                         |   | **2001**                         |       | **2000** |   |
|                                                                         |   |                             |       |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                        |   |                             |       |   |   |
| Net loss                                                                     |   | $                                | (1,431,943 | ) | $ | (1,457,464 | ) |
| Adjustments to reconcile net loss to net cash used in  operating activities: |   |                             |       |   |   |
| Depreciation and amortization                                                |   | 156,273                          |       | 117,180 |   |
| Issuance of Warrants for legal proceedings                                   |   | 336,000                          |       | -0- |   |
| Changes in assets and liabilities:                                           |   |                             |       |   |   |
| Accounts receivable and other                                                |   | 417,547                          |       | (24,366 | ) |
| Inventories                                                                  |   | 580,028                          |       | 180,822 |   |
| Prepaid and deposits                                                         |   | 48,975                           |       | 504,180 |   |
| Accounts payable                                                             |   | (27,856                          | )          | (340,295 | ) |
| Accrued expenses                                                             |   | 283,076                          |       | 725,500 |   |
| Other current liabilities                                                    |   | (245,815                         | )          | (35,473 | ) |
| Deferred revenue                                                             |   | (830,332                         | )          | -0- |   |
| Customer advances                                                            |   | (142,490                         | )          | (787,051 | ) |
|                                                                         |   |                             |       |   |   |
| Net cash used in operating activities                                        |   | (856,537                         | )          | (1,116,967 | ) |
|                                                                         |   |                             |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                        |   |                             |       |   |   |
| Purchase of property, plant and equipment                                    |   | (1,358                           | )          | (31,623 | ) |
| License agreement                                                            |   | -0-                              |       | (1,500,000 | ) |
| License fee payable                                                          |   | -0-                              |       | 1,200,000 |   |
|                                                                         |   |                             |       |   |   |
| Net cash used in investing activities                                        |   | (1,358                           | )          | (331,623 | ) |
|                                                                         |   |                             |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                        |   |                             |       |   |   |
| Proceeds from warrant exercise                                               |   | -0-                              |       | 225,000 |   |
| Proceeds from line of credit borrowings                                      |   | 1,341,247                        |       | 606,000 |   |
| Dividends on convertible preferred stock                                     |   | (14,028                          | )          | (14,028 | ) |
|                                                                         |   |                             |       |   |   |
| Net cash provided by financing activities                                    |   | 1,327,219                        |       | 816,972 |   |
|                                                                         |   |                             |       |   |   |
| Net  increase  (decrease) in cash and cash equivalents                  |   | 469,324                          |       | (631,618 | ) |
| Cash and cash equivalents at beginning of period                             |   | 86,959                           |       | 664,950 |   |
| Cash and cash equivalents at end of period                                   |   | $                                | 556,283    |   | 33,332 |   |
|                                                                              |        |                                  |            |  |  |  |  |

 

See notes to consolidated financial statements

 

**Acrodyne Communications, Inc.**

**Notes to Consolidated Financial Statements**

**(Unaudited**)

 

**1.  UnauditedConsolidated Financial Statements**

 

The accompanying consolidated balance sheet of AcrodyneCommunications, Inc. (the “Company”) and its subsidiaries (collectively“Acrodyne”) at March 31, 2001 and the related consolidated statements ofoperations and of cash flows for the three months ended March 31, 2001 and 2000have been prepared by management.  Inthe opinion of management, all adjustments (consisting of normal recurringadjustments only) necessary to present fairly the financial position at March31, 2001, and the results of operations and cash flows for the three monthsended March 31, 2001 and 2000 have been made.

 

These consolidated financial statements should be read inconjunction with the financial statements and notes thereto included in theCompany’s Annual Report on Form 10-KSB for the year ended December 31, 2000 asfiled with the Securities and Exchange Commission.   The results of operations for interim periods are notnecessarily indicative of the results to be obtained for the entire year.

 

**2.  Inventories**

 

      Inventoriescomprise:
|                       |   | **March 31,** |      | **December 31,** |   |
|----------------------------|--------|---------------|-----------|------------------|--------|
|                       |   | **2001**      |      | **2000**         |   |
|                       |   |          |      |             |   |
| Raw materials              |   | $             | 2,192,935 |             | $      | 2,158,035 |   |
| Work in process            |   | 525,049       |      | 139,523          |   |
| Finished goods             |   | 505,568       |      | 1,506,022        |   |
|                       |   | $             | 3,223,552 |             | $      | 3,803,580 |   |
| less:                      |   |          |      |             |   |
| allowance for obsolescence |   | 1,516,693     |      | 1,516,693        |   |
|                       |   |          |      |             |   |
| Inventories, net           |   | $             | 1,706,859 |             | $      | 2,286,887 |   |

** **

** **

** **

**3.  Property, plantand equipment  consisted****of thefollowing at:**

 
|                                           |   | **March 31,** |   | **December 31,** |   |
|------------------------------------------------|--------|---------------|--------|------------------|--------|
|                                           |   | **2001**      |   | **2000**         |   |
|                                           |   |          |   |             |   |
| Test Equipment                                 |   | 1,048,023     |   | 1,048,884        |   |
| Office Equipment                               |   | 621,299       |   | 619,083          |   |
| Building and capital lease                     |   | 3,776,667     |   | 3,776,667        |   |
|                                           |   | 5,445,989     |   | 5,444,634        |   |
|                                           |   |          |   |             |   |
| Less accumulated depreciation and amortization |   | 1,374,978     |   | 1,293,708        |   |
| Property, plant and equipment, net             |   | 4,071,011     |   | 4,150,926        |   |

** **

 

**4.  Earnings Per Share**

 

Basic earnings per share is computed by dividing net lossavailable to common shareholders by the weighted average number of sharesoutstanding.   Diluted earnings pershare is computed using the weighted average number of shares determined forthe basic computations plus the number of shares of common stock that would beissued assuming all contingently issuable shares having a dilutive effect onearnings per share were outstanding.  Atthe end of March the following potentially dilutive items were outstanding:

 
| Options issued to executives and employees         |   | 1,424,300  shares |   |
|----------------------------------------------------|--------|-------------------|--------|
| Preferred stock convertible to common stock        |   | 179,920  shares   |   |
| Warrants issued to Sinclair currently exerciseable |   | 1,976,248  shares |   |
| Maximum shares issued upon debt conversion         |   | 579,710  shares   |   |
| Warrants to Sinclair contingent on product sales   |   | 6,000,000  shares |   |

 

Common stock equivalents were not included in net loss perdiluted share calculation as they would be antidilutive.

 

**5.  Related PartyTransactions**

 

The Company has a number of transactions with SinclairBroadcasting (Sinclair) which also owns 35% of the common stock at March 31, 2001.  The Company was indebted to Sinclair in the amount of $4,500,000 and$2,158,753 as of March 31, 2001 and December 31, 2000, respectively.

 

•      The Company also had receivables in theamount of $117,380 and $117,380  as ofMarch 31, 2001 and December 31, 2000, respectively.

•      The Company sales to Sinclair of  $0 and $2,415,387 for the three months endedMarch 31, 2001 and year ended December 31, 2000, respectively.

•      Sinclair also reimbursed the Company foraudit fees in the first quarter of 2001 in the amount of $150,000.

•      During March 2000, we entered into a10-year license agreement (the “License Agreement") with Sinclair for theexclusive right to manufacture and sell certain Sinclair designed transmitterlines. Under terms of the License Agreement, we will pay Sinclair an annualroyalty of $300,000 for five years.  Foryears six through ten, we shall pay Sinclair an annual royalty equal to 1.0% ofrevenues realized by us attributable to the License Agreement.  At end of the tenth year, we have the optionto purchase the Sinclair technology. The purchase price would be twice the cumulative royalty amount paid toSinclair for years six through ten.

 

 

MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

OVERVIEW

 

**THE COMPANY**. We are Acrodyne Holdings, Inc., aDelaware corporation, which was formed in May 1991. In 1995, we changed ourname to Acrodyne Communications, Inc. which we operate in one industry segment– the design, manufacture and marketing of television transmitters andtranslators, which are sold in the United States and internationally.

 

On May 16, 1994, we entered intoagreements to acquire all of the outstanding stock of Acrodyne Industries,Inc., a company engaged in the manufacture and sale of TV transmitters, LPTVtransmitters and TV translators, which are produced to customerspecification.  The acquisition wasconsummated on October 24, 1994 with proceeds obtained from a public offeringof our common stock.

 

On January 27, 1999, we finalized astrategic agreement with the Sinclair Broadcast Group, Inc.("Sinclair").  Under thisagreement Sinclair invested $4.3 million in consideration for 1,431,333 sharesof our common stock and the issuance of warrants to purchase up to an aggregateof 8,719,225 shares over a term of seven years at prices ranging from $3.00 to$6.00 per share. Of such warrants, 6,000,000 are exercisable only upon ourachievement of increased product sales or products with new technology.  See additional discussion in the Significantand Recent Events section of this document.

 

 

1.     BASIS OF PRESENTATION

 

The condensed consolidated financialstatements of Acrodyne Communications, Inc. and subsidiary (the “Company”)presented herein are unaudited.  In theopinion of management, these financial statements include all adjustments(which include normal recurring and nonrecurring adjustments, as disclosedbelow) necessary for a fair presentation of the financial position, results ofoperations, and cash flows for the periods presented.  The results for interim periods are not necessarily indicative ofresults for the entire year.  Thefinancial statements presented herein should be read in connection with thefinancial statements included in the Company’s Annual Report on Form 10-KSB forthe year ended December 31, 2000

 

The preparation of financial statements,in conformity with accounting principles generally accepted in the UnitedStates of America, requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities, disclosures ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts for certain revenues and expenses during the reportingperiods.  Actual results could differmaterially from those estimates.

 

# **Significant AccountingPolicies**

 

On June 29, 2001, the FinancialAccounting Board (FASB) issued Statement of Financial Accounting Standards(SFAS) No. 141, *Business Combinations*, and SFAS No. 142, *Goodwill andIntangible Assets.* Thesestatements are expected to result in significant modifications relative to theCompany’s accounting for goodwill and other intangible assets. SFAS No. 141requires that all business combinations initiated after June 30, 2001, must beaccounted for the under the purchase method of accounting.  SFAS No. 141 was effective uponissuance.  SFAS No. 142 modifies theaccounting for all purchased goodwill and intangible assets.  SFAS No. 142 includes requirements to test goodwillassets for impairment rather than amortize them.  SFAS No. 142 will be effective for fiscal years beginning afterDecember 31, 2001, and early adoption is not permitted except for businesscombinations entered into after June 30, 2001. Management believes adoption of these new standards will have nomaterial impact on the Company’s consolidated financial position, results ofoperations, or cash flows.

 

**BUSINESS OF ACRODYNE**. We have designed,manufactured and marketed television transmitters and translators which havebeen sold in the United States and internationally since 1971.  The function of a television transmitter isto broadcast over the air television signals to a specific audience receivingsuch signals by regular antenna or by a local cable company, which then feedsthe signal to their subscribers. Television translators, which operate unattended, retransmit incomingsignals from primary stations on different channels within areas where directreception of the original signal may be limited by mountains or othergeographic impediments

 

**ACRODYNE PRODUCTS AND SERVICES.**

We design, manufacture and marketdigital and analog television broadcast transmitters and translators fordomestic and international television stations, broadcasters, governmentagencies, not-for-profit organizations and educational institutions.  The useful life of a television transmitteror translator is approximately 20 years. Our television transmitters, which range in transmission power levelsfrom one watt for localized applications to tens of thousands of watts forlarge television broadcasters, have a modularized design which permits us torespond to specific customer requests. We classify our transmitters into two categories based upon the poweroutput of such transmitters (as discussed in greater detail below).  Lower power transmitters and higher powertransmitters transmit signals in both UHF and VHF frequency bands.  The VHF band covers channels two throughthirteen and the UHF band covers channels above thirteen.  Each transmitter permits the sender tobroadcast over one channel, except in the case of adjacent channel assignmentsfor which one transmitter is able to transmit two television signals, oneanalog and one digital.

 

All of our televisiontransmitters feature enhanced linear amplifiers.   Such units feature easy to read diagnostic displays and meterswhich clearly indicate a unit's operating condition.  Units automatically shut down for self-protection ifout-of-tolerance conditions are encountered. We believe that our televisiontransmitters are relatively easy to maintain since they utilize common modulesand parts.  Other operating featuresinclude full remote control, telemetry and status functions, and a modulardesign which allows for cost-effective expansion to higher output power levels.

 

 

**NEW PRODUCTS**

 

##### **We expanded oursolid state product line to 40 kilowatts analog and 10 kilowatts digital**

 

The forthcoming digitization oftelevision networks in the United States, the world's single most significantmarket for television transmitters, has created greater demand for digitalbroadcasting technology.  This demandoffers the opportunity to take advantage of the emerging market, not only withhigh power transmitters, but also with solid-state and medium powertransmitters.  On November 29, 1999,Acrodyne and Rohde & Schwartz, the world’s foremost manufacturer ofsolid-state transmitters formed a strategic alliance.  The Rohde & Schwarz group of companies, with headquarters inMunich, Germany, develops, produces and markets communication test andmeasurement instruments and systems.  Itgave exclusive rights to us to market and sell Rohde & Schwarz solid statetransmitter products in the United States. This agreement also includes technology and product sales agreement tosupport a new line of our high power transmitter products.

 

**New line of IOT-equipped television transmitters developed atSinclair**

 

In March 2000, we reached a definitiveagreement with Sinclair to exclusively manufacture and sell the Sinclairdesigned "Quantum" IOT transmitter line.  Sinclair created this newly developed line of transmitterproducts at its Hunt Valley, Maryland, headquarters to meet its own internaldigital and analog requirements and has licensed this technology to us.  The Quantum line was conceived bybroadcasters and designed by the same Emmy award winning talents that inventedIOT transmitters over ten years ago. The digital version of the Quantum line is designed to be capable ofboth 8-VSB and COFDM service.  We introducedthis advanced line of transmitters at the National Association of BroadcastersApril 2000 Show in Las Vegas.

 

With the addition of the Rohde &Schwarz solid-state products and the introduction of the new Quantum IOTproducts, we feel that we have the broadest transmitter product line in theindustry.

 

#### **Operations and BusinessRisk**

 

Due to the nature of the our business, itis subject to various risks including, but not limited to, technological andmarket acceptance of the Company’s product, capital availability, dependence onmanagement and other risks.  The Companyshipped the first of its Quantum transmitters in March 2001.  To date, most of the orders for the Company’sQuantum product have been with Sinclair. There is no current indication that our product will achieve widespreaduse or acceptance in the television broadcasting industry.  Our competitors, which may be bettercapitalized, could design products which make ours obsolete or uneconomical.  Since the broadcast industry is regulated bygovernment agencies, notably the Federal Communications Commission, the futuredirection in standards and the timing of implementation of digitaltransmissions could change.  This couldsubstantially change or negate the need for our products.  Our design, production, and marketingfunctions are all highly dependent on certain key individuals.  Should any of those key individuals leavethe employ of the company, it is uncertain that adequate replacements could befound.

 

Since the acquisition of Acrodyne Industriesin 1994, the Company has incurred significant losses including net losses of$12,984,186 and $6,906,373 in 2000 and 1999, respectively.  In addition, the Company has generatedoperating cash flow deficits of $2,306,348 and $2,905,477in 2000 and 1999,respectively.  Additional losses andcash flow deficits have continued in 2001. These losses and cash flow deficits have been funded primarily withproceeds from the sale of equity securities, including $225,000 and $4,075,374from common stock and warrants sold to Sinclair in 2000 and 1999, respectively,a $2,000,000 subordinated debenture provided by Sinclair, the Company’s CreditFacility with Sinclair, and customer advances. As of December 31, 2000,Sinclair owned 35% of our common stock and has warrants to purchase 8,644,225additional shares, which represented a 60% ownership interest on a fullydiluted basis. As of March 31, 2001 Sinclair owned 35% of the issued commonstock assuming no exercise of warrants.

 

Sinclair had provided a guarantee of the Company’s $2,500,000credit facility.  In November 2000,Sinclair purchased the credit facility from the creditor.  In March 2000, Sinclair agreed to provideadditional funds of up to $2,000,000 under terms of a subordinateddebenture.  From January 1, 2001 throughApril 24, 2001, Sinclair provided additional funds in the amount of $1,341,247.Upon completion of the audit of the Company’s consolidated financial statementsfor the year ended December 31, 2000, the Company’s independent auditors issuedan opinion with an explanatory paragraph stating that substantial doubt existsabout the Company’s ability to continue as a going concern.  The Company’s ability to continue as a goingconcern depends upon: (1) market acceptance of the Company’s new digitalproduct; (2) the Company’s ability to generate sufficient revenues to achieveand sustain positive cash flow; and (3) the Company’s ability to raise thenecessary capital to fund operating needs and finance the Company’s plannedinvestment.  The factors noted aboveraise substantial doubt concerning the Company’s ability to continue as a goingconcern. The Company is currently exploring options available to raisecapital.  Among the options is apotential recapitalization of the Company by Sinclair.  Under terms of the proposed recapitalizationwhich has yet to be executed, Sinclair would receive additional common stock inexchange for forgiveness of certain amounts the Company owes to Sinclair in theamount of approximately $3,500,000 and would cancel certain existing warrantsand receive additional warrants as part of a new secured line of credit in theamount of $4,000,000.  As a result ofthis transaction, Sinclair would own approximately 80% of the Company’s outstandingcommon shares.  In addition, Sinclairverbally committed to purchase all UHF transmitter requirements from theCompany.  As of November 9, 2001, noformal recapitalization plan has been executed

 

Our shares are currently delisted from trading on the NASDAQstock exchange.  It is uncertain that wewill be able to have the stock relisted and traded.  Without a market for our stock our ability to raise capital isminimal and we are highly dependent on Sinclair for any additional requiredfinancing.  In addition, the outstandingbalances due to Sinclair are payable on demand by Sinclair.  We do not have the resources available torepay those loans, if Sinclair demanded repayment.

 

 

RESULTSOF OPERATIONS

 

The following compares the Company’s summary results ofoperations for the three months ended March 31, 2001 and 2000.

 
|               |   | **Three Months Ended** |      |
|--------------------|--------|------------------------|-----------|
|               |   | **March 31,**          |      |
|               |   | **(Unaudited)**        |      |
|               |   | **2001**               |      | **2000** |   |
|               |   |                   |      |   |   |   |   |   |   |
| Net Sales          |   | $                      | 2,226,178 |   | 100.0 | % | $ | 2,029,362 |   | 100.0 | % |
| Cost of Sales      |   | 1,983,391              |      | 89.1 | % | 2,217,213 |   | 109.3 | % |
| Gross Profit       |   | 242,787                |      | 10.9 | % | (187,851 | ) | (9.3% | ) |
| Operating Expenses |   | 1,638,758              |      | 73.6 | % | 1,157,741 |   | 57.0 | % |
| Operating Loss     |   | (1,395,971             | )         | (62.7% | ) | (1,345,592 | ) | (66.3% | ) |
|                    |        |                        |           |  |  |  |  |  |  |  |  |

 

Net sales for the three months ended March 31, 2001 showed anincrease of approximately 9.7% over net sales for the three months ended March31, 2000.  Due to the slower thananticipated start up of production of the new “Quantum” line, sales wereexclusively comprised of discontinued products and service and repair revenue.  Approximately $1,900,000 of the current quarter’srevenue came from product that was substantially produced and complete onDecember 31, 2000.  Revenue recognitionhad been deferred to comply with Staff Accounting Bulletin (“SAB”) 101 issuedby the Securities and Exchange Commission. Company’s margin on sales increased to 10.9% in the three months endedMarch 31, 2001.  This margin was helpedby the sale of several systems that were deferred from the prior year, but waspenalized by the high overhead expense associated with the start up of the new productline.

 

Operating expenses forthe three months ended March 31, 2001 increased 41.5% to $1,638,758 from$1,157,741 for the three months ended March 31, 2000.  The increase relates to higher rent expense at the new facility inPhoenixville, Pennsylvania, consulting and legal fees related to financialstatement restatements, litigation of the shareholder lawsuit, higher interestexpense associated with increased debt outstanding, and recording the value ofwarrants issued as settlement of the shareholder lawsuit. (Discussed in theSignificant and Recent Events Section).

 

LIQUIDITY AND CAPITAL RESOURCES

 

Historically, we havefinanced our activities primarily from borrowings, equity transactions andinvestments.  At March 31, 2001 andDecember 31, 2000 our net working capital deficit increased by $966,601 to($11,079,537) as compared to ($10,112,936) at December 31, 2000, mainly from anincrease in debt outstanding, a reduction in inventories, a reduction inaccounts receivable, and was offset by an increase in cash.

 

Accounts receivable at March 31, 2001were $444,762  and reflected a $499,463decrease from December 31, 2000.  Thisdecrease was due to a lower sales level. The majority of our sales of domestictransmitters require payment of a non-refundable 30% deposit at the time ofplacing the order, 90% prior to shipment, and 10% thirty days aftershipment.  We typically require anirrevocable letter of credit on international orders.

 

Inventories, net ofreserves, decreased to $1,706,859 at March 31, 2001 from $2,286,887 at December31, 2000 due to sales deferrals to comply with SAB 101.  Upon satisfying the revenue recognitioncriteria, sales were booked and inventory was relieved.  There were no Quantum sales recognized inthe first quarter because of the delay in shipments and a change in contractualterms.  In the future, sales should berecognized upon shipment of the transmitter.

 

In September 1999, we entered into anew credit facility (the "Credit Facility") with PNC Bank, N.A. thatprovided for a $2,500,000 line of credit. The Credit Facility bears interest atLIBOR plus 200 basis points (8.56% at December 31, 2000 and 7.9% at December31, 1999) and replaced a prior $2,000,000 line of credit facility maintainedwith another bank. The Credit Facility was collateralized by all our personalproperty and was guaranteed by Sinclair. The Credit Facility, which expired onJuly 31, 2000, was extended to October 31, 2000. In November 2000, Sinclairpurchased the Credit Facility and assumed all rights of the bank. Theweighted-average interest rate and total interest expense related to the linesof credit during 2000 were 8.3% and $111,226. Average borrowing related to theCredit Facility during 2000 was $1,343,304. At March 31, 2001 we had borrowed the entire $2,500,000 available underthis facility.

 

During March 2000, we entered into asubordinated debenture agreement (the "Debenture") with Sinclair.Under the terms of the Debenture, we may borrow up to $2,000,000 at an interestrate of 10.5%. The first payment of interest shall be made April 1, 2000 and ona monthly basis thereafter.  Principalis payable upon demand of Sinclair. Further, Sinclair has the right, at any time, to convert all, but notless than all, of the principal owed to Sinclair into our common stock at $3.45per share.  During 2000, the we paid$115,815 of interest due under the Debenture. As of March 31, 2001 $2,000,000 was outstanding under the terms of thisagreement.

 

We have no provision for federal income tax, in that the taxloss carryforwards, which begin to expire in 2011, total approximately$22,800,000 at December 31, 2000.

 

 

**Significant and Recent Events**

 

 

During August 2000 we announced that itis necessary to defer filing our Form 10-QSB for the quarter ended June 30, 2000.  We also announced that prior years' auditedconsolidated financial statements would have to be amended and restated alongwith the previously filed first quarter consolidated financial statements forthe period ended March 31, 2000.

 

In September 2000 we announced that wewould voluntarily delist after delisting proceedings were announced by theNasdaq for not filing timely financial information.  The shares may trade on the OTC Bulletin Board, but not before wefile our Form 10-QSB for the periods ended September 30, 2000, June 30, 2000,March 31, 2000 (restated) and Form 10-KSB for the year ended December 31, 2000and the restated Form 10-KSB for the years ended December 31, 1999 and 1998.

 

In September 2000, the Company was joinedas a defendant along with two of its officers and directors, in a class actionin the United States District Court for the District of Maryland. The lawsuitasserts that the Company issued false and misleading financial statements. TheCompany has reached a settlement with plaintiffs’ counsel. The settlementrequires the Company to issue plaintiffs warrants to purchase 1,600,000 sharesof the Company’s common stock at an exercise price of $1.00 per share. Thewarrants will expire after five years. The Company also has agreed to pay theplaintiffs $750,000.  The cash portionof the settlement will be funded by its officers’ and directors’ indemnityinsurance policy. A Memorandum of Understanding reflecting the material termsof the settlement was filed with the Court on March 1, 2001. On April 6, 2001,a Stipulation and Agreement of Settlement was submitted to the Court along withall required documents to effectuate the settlement.  On April 9, 2001, the Court approved the proposed settlement butreserved its right to review the settlement and/or enter a final judgmentapproving the settlement and dismissing the lawsuit.  On June 26, 2001, the Court (i) found the settlement to be fair,reasonable, and adequate and in the best interests of the parties; (ii)settled, released, discharged and dismissed with prejudice the cases againstthe defendants; (iii) determined that neither the settlement nor any of thedocuments or statements associated therewith are, or shall be construed as, aconcession or admission by the defendants of the existence of any damages orwrongdoing; and (iv) awarded the plaintiffs’ counsel 25% of the gross amount ofthe settlement fund as attorneys’ fees, which amount is to be paid out of thesettlement fund.  As a result of thesettlement, during the three months ended March 31, 2001, the Company recordeda charge to operations of $336,000 which represented the fair value of thewarrants issued.

 

We paid $42,084 in preferred dividends forthe nine months ended September 30, 2000. Currently dividend payments have beensuspended on the preferred stock outstanding. Arrearages as of March 31, 2001 amount to $28,056.

 

 

**SubsequentEvents**

 

On April 27, 2001, the Company entered intoa $4,000,000 line of  credit facilitywith Sinclair.   The line of creditrequires monthly interest-only payments at a fixed rate of interest of 12% perannum and matures upon demand by Sinclair.

 

On May 8, 2001 the position of Senior VicePresident and Chief Financial Officer was eliminated.  A Form 8K was filed with the SEC regarding this action on May 10.

 

In September 2000, the Company was joinedas a defendant along with two of its officers and directors, in a class actionin the United States District Court for the District of Maryland. The lawsuitasserts that the Company issued false and misleading financial statements. TheCompany has reached a settlement with plaintiffs’ counsel. The settlementrequires the Company to issue plaintiffs warrants to purchase 1,600,000 sharesof the Company’s common stock at an exercise price of $1.00 per share. Thewarrants will expire after five years. The Company also has agreed to pay theplaintiffs $750,000.  The cash portionof the settlement will be funded by its officers’ and directors’ indemnityinsurance policy. A Memorandum of Understanding reflecting the material termsof the settlement was filed with the Court on March 1, 2001. On April 6, 2001,a Stipulation and Agreement of Settlement was submitted to the Court along withall required documents to effectuate the settlement.  On April 9, 2001, the Court approved the proposed settlement butreserved its right to review the settlement and/or enter a final judgmentapproving the settlement and dismissing the lawsuit.  On June 26, 2001, the Court (i) found the settlement to be fair,reasonable, and adequate and in the best interests of the parties; (ii)settled, released, discharged and dismissed with prejudice the cases againstthe defendants; (iii) determined that neither the settlement nor any of thedocuments or statements associated therewith are, or shall be construed as, aconcession or admission by the defendants of the existence of any damages orwrongdoing; and (iv) awarded the plaintiffs’ counsel 25% of the gross amount ofthe settlement fund as attorneys’ fees, which amount is to be paid out of thesettlement fund. As a result of the settlement, during the three months endedMarch 31, 2001, the Company recorded a charge to operations of  $336,000, which represents the fair value ofthe warrants issued.

 

On July 18, 2001, the 8% convertiblepreferred stock and unpaid accrued dividends were converted into commonshares.  The 6500 shares of preferredwere converted to 428,447 common shares.

 

On November 13, 2001 the Forms 10-QSB forthe quarters ending March 31, 2000 was filed with restated financialinformation.

 

On November 13, 2001 the Forms 10-QSB forthe quarters ending  June 30, andSeptember 30, 2000 and Form 10-KSB for the fiscal year 2000  were filed.

 

On November 16,  2001 a Form 8-KSB was filed announcing a change in audit firmsbeginning with the year 2001.

 

** **

**ForwardLooking Statements**

 

Certainstatements contained in this report that do not relate to historicalinformation are forward looking statements within the meaning of the UnitedStates Private Securities Litigation Reform Act of 1995 and thus areprospective.  Such forward-lookingstatements are subject to risks, uncertainties and other factors which couldcause actual results to differ materially from future results expressed, projectedor implied by such forward-looking statements. Such factors include, but are not limited to, economic, competitive, andbroadcast industry conditions.  Thesefactors are discussed in greater detail in our filings with the Canadian andUnited States Securities regulators.  Wedisclaim any responsibility to update any such forward-looking statements.

 

 

ACRODYNECOMMUNICATIONS, INC.

PART II. OTHER INFORMATION

 

Item6.  Exhibits and Reports on Form8-KSB

 
| (a)                                                                                                                                                                  | Exhibits |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                                                 |     |
| (b) Form 8-KSB was filed on May 10,  2001 announcing the elimination of the position of Senior Vice President and  Chief Financial Officer.                          |
|                                                                                                                                                                 |     |
| (c) On November 13, 2001 the Forms 10-QSB  for the quarters ending  June 30, and  September 30, 2000 and Form 10-KSB for the fiscal year 2000  were filed. |
|                                                                                                                                                                 |     |
| (d) On November 16,  2001 a Form 8-KSB was filed announcing a  change in audit firms beginning with the year 2001.                                              |

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Actof 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned thereunto duly authorized.

 
|                          |   |                                       |   | Acrodyne Communications, Inc.                                                                          |   |
|-------------------------------|--------|--------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|--------|
|                          |   |                                       |   | (Registrant)                                                                                           |   |
|                          |   |                                       |   |                                                                                                   |   |   |
|                          |   |                                       |   |                                                                                                   |   |   |
| Date:  November 19, 2001 |   | By    /s/ Nathaniel Ostroff |   |
|                          |   |                                       |   | Nathaniel Ostroff, Chairman of the  Board of Directors,  Chief Executive Officer and Interim President |