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

**Washington,D.C. 20549**

** **

**Form 10-QSB/A**

**(AmendmentNo. 1)**

 

**(Markone)**

 
| **ý** | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------|

 

### **For the quarterly period ended March 31, 2000**

 
| **o** | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT** |
|-------|---------------------------------------------------------------------------------|

 

 

**Commissionfile number**

**0-24886**

 

 

**ACRODYNE COMMUNICATIONS, INC.**

(Exact name of smallbusiness issuer as specified in its charter)

 

| **Delaware**                     |   | **11-3067564**      |
|----------------------------------|--------|---------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer    |
| incorporation or  organization)  |   | Identification No.) |

 

| **10706  Beaver Dam Road**                |   |       |
|-------------------------------------------|--------|------------|
| **Cockeysville,  Maryland**               |   | **21030**  |
| (Address of principal  executive offices) |   | (Zip Code) |

 

**410-568-1629**

Issuer's telephonenumber, including Area Code

 

Check whether theissuer  (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes oNo **ý**

 

State the number ofshares outstanding of each of the issuer's classes of common equity, as of thelatest practicable date: 7,409,608 shares of common stock of AcrodyneCommunications, Inc.  were outstandingon November 8, 2001.

 

 

ACRODYNE COMMUNICATIONS,INC.

 

# **INDEX**

 
| Explanatory Statement                 |
|---------------------------------------|
|                                  |   |
| PART I.  FINANCIAL  INFORMATION: |
|                                  |   |
| Item 1 –                         | Financial Statements |
|                                  |   |
|                                  | Consolidated Balance Sheets  - March 31, 2000 and December 31, 1999 |
|                                  |   |
|                                  | Consolidated  Statements of Operations for the Three Months Ended March 31, 2000 and 1999 |
|                                  |   |
|                                  | Consolidated  Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999 |
|                                  |   |
|                                  | Notes  to Consolidated Financial Statements |
|                                  |   |
| Item  2 –                        | Management's  Discussion and Analysis of Financial Condition and Results of Operations |
|                                  |   |
| PART II.  OTHER INFORMATION      |
|                                  |   |
| SIGNATURES                            |
|                                       |  |  |

 

EXPLANATORY STATEMENT

 

** **

During the third quarterof 2000, we announced that the audited financial statements for the year endedDecember 31, 1999 and the unaudited interim financial statements for thequarter ended March 31, 2000 would need to be amended and restated.  Since then and during our ongoing review ofour internal controls and procedures, it became apparent that the auditedfinancial statements for the year ended December 31, 1998 also warrantedrestatement.  As a result of our reviewof our accounting records, certain charges and adjustments were recorded whichhad an effect on the financial results for the years ended December 31, 1999,1998, and the quarters therein, as well as the quarter ended March 31, 2000.Most significant of the adjustments was charges to cost of sales of $981,460during the quarter ended March 31, 2000, $648,387 during the quarter endedMarch 31, 1999, $2,795,322 during the year ended December 31, 1999 and $406,406during the year ended December 31, 1998 which related, primarily, to thepricing of the period-end physical inventories, offset by the effects on costof sales of reversing revenues previously recognized. The year ended December31, 1999 amount also included a $563,000 increase to the inventory obsolescencereserve.  Other adjustments related tothe timing of revenue recognition of $454,043 during the three months endedMarch 31, 2000, $749,160 during the three months ended March 31, 1999,$2,299,511 during the year ended December 31, 1999 and $852,485 during the yearended December 31, 1998. The total effect of all adjustments increased the netloss by $707,074 and $1,459,547 for the three months ended March 31, 2000 and1999, respectively, and $5,218,583 and $1,258,891 for the years ended December31, 1999 and 1998, respectively. These adjustments were made based on ourinternal review in 2000, which indicated that certain revenues should not havebeen recognized or were recognized in the improper period.  The adjustments have been determined througha specific review of the related supporting documents and a determination of theproper reporting period for the recognition of the revenue transaction.

 

For additionalinformation see "Accounting Review Charges, Adjustments andRestatements" (Note 13 to the consolidated financial statements) filed onamended Form 10-KSB/A dated April 17, 2001. See also “Accounting Review Charges, Adjustments and Restatements” (Note2 to the consolidated financial statements) contained elsewhere in this Form10-QSB/A.

 
| **Acrodyne Communications, Inc. And  Subsidiary**                                                                               |   |            |       |             |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|------------|------------------|--------|
| **Consolidated  Balance Sheets**                                                                                                |   |            |       |             |   |
|                                                                                                                            |   | **March 31,**   |       | **December 31,** |   |
|                                                                                                                            |   | **2000**        |       | **1999**         |   |
| **Assets**                                                                                                                      |   | **(Restated)**  |       | **(Restated)**   |   |
|                                                                                                                            |   | **(unaudited)** |       |             |   |
| Current Assets:                                                                                                                 |   |            |       |             |   |
| Cash and cash  equivalents                                                                                                      |   | $               | 33,332     |             | $      | 664,950 |   |
| Short-term  investments                                                                                                         |   | 200,000         |       | 200,000          |   |
| Accounts  receivables, net                                                                                                      |   | 1,084,801       |       | 1,201,268        |   |
| Inventories, net                                                                                                                |   | 3,018,727       |       | 3,199,549        |   |
| Prepaid assets                                                                                                                  |   | 63,928          |       | 348,108          |   |
| Other current  assets                                                                                                           |   | 140,833         |       | 220,000          |   |
| **Total current assets**                                                                                                        |   | 4,541,621       |       | 5,833,875        |   |
|                                                                                                                            |   |            |       |             |   |
| Property, plant  and equipment, net                                                                                             |   | 542,500         |       | 570,182          |   |
| Non-compete  agreement, net                                                                                                     |   | 342,072         |       | 360,822          |   |
| License  agreement, net                                                                                                         |   | 1,500,000       |       | -                |   |
| Goodwill, net                                                                                                                   |   | 3,860,087       |       | 3,899,211        |   |
| **Total Assets**                                                                                                                |   | $               | 10,786,280 |             | $      | 10,664,090 |   |
|                                                                                                                            |   |            |       |             |   |
| **Liabilities  and Shareholders' Equity**                                                                                       |   |            |       |             |   |
|                                                                                                                            |   |            |       |             |   |
| Line of credit                                                                                                                  |   | 1,559,404       |       | 1,613,404        |   |
| Subordinated  debenture / Sinclair                                                                                              |   | 660,000         |       | -                |   |
| Accounts payable                                                                                                                |   | 1,447,560       |       | 1,801,883        |   |
| Accrued expenses                                                                                                                |   | 697,655         |       | 272,155          |   |
| Customer  advances                                                                                                              |   | 2,946,911       |       | 3,233,962        |   |
| Current portion  of capital lease                                                                                               |   | 49,870          |       | 69,947           |   |
| Deferred revenue                                                                                                                |   | 320,559         |       | 818,912          |   |
| Other current  liabilities                                                                                                      |   | 300,000         |       | -                |   |
| **Total current liabilities**                                                                                                   |   | 7,981,959       |       | 7,810,263        |   |
|                                                                                                                            |   |            |       |             |   |
| Capital lease  obligations                                                                                                      |   | 12,021          |       | 12,021           |   |
| License fee  payable                                                                                                            |   | 1,200,000       |       | -                |   |
| Non-compete  liability                                                                                                          |   | 842,976         |       | 845,990          |   |
| **Total liabilities**                                                                                                           |   | 10,036,956      |       | 8,668,274        |   |
| **SHAREHOLDERS’ EQUITY**                                                                                                   |   |            |       |             |   |
| Convertible  redeemable, 8% preferred stock, par value $1.00,  1,000,000 shares authorized, 6,500 shares issued and outstanding |   | 6,500           |       | 6,500            |   |
| Common stock,  par value $.01, 30,000,000 shares authorized;  6,981,161 and 6,906,161 issued, respectively                      |   | 69,812          |       | 69,062           |   |
|                                                                                                                            |   |            |       |             |   |
| Additional  paid-in-capital                                                                                                     |   | 21,229,250      |       | 21,019,028       |   |
|                                                                                                                            |   |            |       |             |   |
| Accumulated  deficit                                                                                                            |   | (20,556,238     | )          | (19,098,774      | )      |
|                                                                                                                            |   |            |       |             |   |
| Total  shareholders' equity                                                                                                     |   | 749,324         |       | 1,995,816        |   |
| **Total  Liabilities and Shareholders' Equity**                                                                                 |   | $               | 10,786,280 |             | $      | 10,664,090 |   |

 

**Seenotes to consolidated financial statements**

 
| **Acrodyne Communications, Inc. And  Subsidiary**       |   |                   |       |           |   |
|---------------------------------------------------------|--------|------------------------|------------|----------------|--------|
| **Consolidated Statements of Operations (Unaudited)**   |   |                   |       |           |   |
|                                                    |   |                   |       |           |   |
|                                                    |   | **Three Months Ended** |       |
|                                                    |   | **March 31,**          |       |
|                                                    |   | **2000**               |       | **1999**       |   |
|                                                    |   | **(Restated)**         |       | **(Restated)** |   |
|                                                    |   |                   |       |           |   |
| Net sales                                               |   | $                      | 2,224,060  |           | $      | 2,273,932 |   |
|                                                    |   |                   |       |           |   |
| Cost of sales                                           |   | 2,411,911              |       | 2,579,736      |   |
|                                                    |   |                   |       |           |   |
| Gross loss                                              |   | (187,851               | )          | (305,804       | )      |
|                                                    |   |                   |       |           |   |
| Operating  Expenses:                                    |   |                   |       |           |   |
| Engineering,  research and development                  |   | 175,609                |       | 224,479        |   |
| Selling                                                 |   | 279,252                |       | 351,192        |   |
| Administration                                          |   | 645,006                |       | 478,112        |   |
| Amortization of  intangible assets                      |   | 57,874                 |       | 57,874         |   |
|                                                    |   |                   |       |           |   |
| Total operating  expenses                               |   | 1,157,741              |       | 1,111,657      |   |
|                                                    |   |                   |       |           |   |
| Operating loss                                          |   | (1,345,592             | )          | (1,417,461     | )      |
|                                                    |   |                   |       |           |   |
| Other Income  (Expenses):                               |   |                   |       |           |   |
|                                                    |   |                   |       |           |   |
| Interest  expense, net                                  |   | (111,872               | )          | (23,587        | )      |
|                                                    |   |                   |       |           |   |
| Loss before  income taxes                               |   | (1,457,464             | )          | (1,441,048     | )      |
|                                                    |   |                   |       |           |   |
| Income taxes                                            |   | ---                    |       | ---            |   |
| Net loss                                                |   | (1,457,464             | )          | (1,441,048     | )      |
|                                                    |   |                   |       |           |   |
| Dividends on 8%  preferred stock                        |   | (14,028                | )          | (14,028        | )      |
|                                                    |   |                   |       |           |   |
| Net loss  applicable to common shareholders             |   | $                      | (1,471,492 | )              | $      | (1,455,076 | ) |
|                                                    |   |                   |       |           |   |
| Net loss per  common share:  basic and diluted     |   | $                      | (0.21      | )              | $      | (0.23 | ) |
|                                                    |   |                   |       |           |   |
| Weighted average  shares outstanding: basic and diluted |   | 6,932,535              |       | 6,352,873      |   |
|                                                    |   |                   |       |           |   |
|                                                    |   |                   |       |           |   |
| **See notes to consolidated financial  statements**     |   |                   |       |           |   |
|                                                         |        |                        |            |                |        |  |  |  |

 
| **Acrodyne Communications, Inc. And  Subsidiary**                             |   |                   |       |              |   |
|-------------------------------------------------------------------------------|--------|------------------------|------------|-------------------|--------|
| **CONSOLIDATED STATEMENTS OF CASH FLOWS     (Unaudited)** |   |                   |       |              |   |
|                                                                          |   | **Three months ended** |       |
|                                                                          |   | **March 31,**          |       |
|                                                                          |   | **2000**               |       | **1999**          |   |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                                    |   | **(As Restated)**      |       | **(As Restated)** |   |
|                                                                          |   |                   |       |              |   |
| Net loss                                                                      |   | $                      | (1,457,464 | )                 | $      | (1,441,048 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:  |   |                   |       |              |   |
| Depreciation and  amortization                                                |   | 117,180                |       | 110,015           |   |
| Provision for  lease and loan guarantees                                      |   | 79,167                 |       | -                 |   |
| Changes in  assets and liabilities:                                           |   |                   |       |              |   |
| Accounts  receivable                                                          |   | 116,467                |       | (212,991          | )      |
| Inventories                                                                   |   | 180,822                |       | 225,965           |   |
| Prepaid assets                                                                |   | 284,180                |       | 55,382            |   |
| Accounts payable                                                              |   | (354,323               | )          | (941,814          | )      |
| Accrued expenses  and other liabilities                                       |   | 425,500                |       | 138,195           |   |
| Deferred revenue                                                              |   | (498,353               | )          | 66,445            |   |
| Customer  advances                                                            |   | (287,051               | )          | 158,000           |   |
| Net cash used in  operating activities                                        |   | (1,393,875             | )          | (1,841,851        | )      |
| CASH FROM  INVESTING ACTIVITIES:                                              |   |                   |       |              |   |
| Purchase of  property, plant, and equipment                                   |   | (31,624                | )          | (34,930           | )      |
|                                                                          |   |                   |       |              |   |
| Cash used in  investing activities                                            |   | (31,624                | )          | (34,930           | )      |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                        |   |                   |       |              |   |
| Proceeds from  the sale of common stock, net                                  |   | -                      |       | 3,115,777         |   |
| Redemption of  Series A preferred stock                                       |   | -                      |       | (326,530          | )      |
| Proceeds from  exercise of warrants                                           |   | 225,000                |       | -                 |   |
| Repayments under  line of credit                                              |   | (54,000                | )          | (275,000          | )      |
|                                                                          |   |                   |       |              |   |
| Borrowings under  debenture                                                   |   | 660,000                |       |              |   |
| Capital lease  repayments                                                     |   | (20,077                | )          | (16,660           | )      |
|                                                                          |   |                   |       |              |   |
| Repayments on  non-compete liability                                          |   | (3,014                 | )          | (2,744            | )      |
|                                                                          |   |                   |       |              |   |
| Preferred stock  dividends                                                    |   | (14,028                | )          | (14,028           | )      |
| Net cash  provided by financing activities                                    |   | 793,881                |       | 2,480,815         |   |
| Net increase  (decrease) in cash and cash equivalents                         |   | (631,618               | )          | 604,032           |   |
| Cash and cash  equivalents at beginning of period                             |   | 664,950                |       | 983,695           |   |
| Cash and cash  equivalents at end of period                                   |   | $                      | 33,332     |              | $      | 1,587,728 |   |
| Supplement cash  flow information:                                            |   |                   |       |              |   |
| Cash paid for  interest                                                       |   | $                      | 32,648     |              | $      | 26,734 |   |

 

 

**Seenotes to consolidated financial statements**

 

**AcrodyneCommunications, Inc. And Subsidiary**

#### **Notes to Consolidated Financial Statements (Unaudited)**

 

 

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 except as discussed innote 2.  The results for interim periodsare not necessarily indicative of results for the entire year.  The financial statements presented hereinshould be read in connection with the financial statements included in theCompany’s Annual Report on Form 10-KSB/A as amended for the year ended December31, 1999.

 

The preparation of financial statements, in conformity with generallyaccepted accounting principles, requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities,disclosures of contingent assets and liabilities at the date of the financialstatements and the reported amounts for certain revenues and expenses duringthe reporting periods.  Actual resultscould differ materially from those estimates.

 

#### **Operations and BusinessRisk**

 

Due to the nature of the our business, it is subject to various risksincluding, but not limited to, technological and market acceptance of theCompany’s product, capital availability, dependence on management and otherrisks.  The Company has been in theprocess of developing a new transmitter product line (“Quantum”). Related tothis process, the Company entered into a license agreement with SinclairBroadcast Group, Inc. (“Sinclair”) in March 2000 (see Note. 4).  The Company shipped the first of its Quantumtransmitters in March 2001.  To date,most of the orders for the Company’s Quantum product  have been with Sinclair.

 

Since the acquisition ofAcrodyne Industries in 1994, the Company has incurred significant lossesincluding net losses of $12,984,186 and $6,906,373 in 2000 and 1999,respectively.  In addition, the Companyhas generated operating cash flow deficits of $2,306,348 and $2,905,477 in 2000and 1999, respectively. Additional losses and cash flow deficits have continuedin 2001.  These losses and cash flowdeficits have been funded primarily with proceeds from the sale of equitysecurities, including $225,000 and $4,075,374 from common stock and warrantssold to Sinclair in 2000 and 1999, respectively, a $2,000,000 subordinateddebenture provided by Sinclair, the Company’s Credit Facility with Sinclair(see Note. 4) and customer advances. As of December 31, 2000, Sinclair owned35% of our common stock and has warrants to purchase 8,644,225 additionalshares, which represented a 60% ownership interest on a fully diluted basis. Asof March 31, 2000 and 1999, Sinclair owned 34% and 33%, respectively, of theissued common stock assuming no exercise of warrants.

 

Sinclair had provided aguarantee of the Company’s $2,500,000 credit facility.  In November 2000, Sinclair purchased thecredit facility from the creditor.  InMarch 2000, Sinclair agreed to provide additional funds of up to $2,000,000under terms of a subordinated debenture. From January 1, 2001 through April 24, 2001, Sinclair providedadditional funds in the amount of $1,341,247. Upon completion of the audit ofthe Company’s consolidated financial statements for the year ended December 31,2000, the Company’s independent auditors issued an opinion with an explanatoryparagraph stating that substantial doubt exists about the Company’s ability tocontinue as a going concern.  TheCompany’s ability to continue as a going concern depends upon: (1) marketacceptance of the Company’s new digital product; (2) the Company’s ability togenerate sufficient revenues to achieve and sustain positive cash flow; and (3)the Company’s ability to raise the necessary capital to fund operating needsand finance the Company’s planned investment. The factors noted above raise substantial doubt concerning the Company’sability to continue as a going concern. The Company is currently exploringoptions available to raise capital. Among the options is a potential recapitalization of the Company bySinclair.  Under terms of the proposedrecapitalization which has yet to be executed, Sinclair could receiveadditional common stock in exchange for forgiveness of certain amounts theCompany owes to Sinclair in the amount of approximately $3,500,000 and couldcancel certain existing warrants and receive additional warrants as part of anew secured line of credit in the amount of $4,000,000.  As a result of this transaction, Sinclaircould own approximately 80% of the Company’s outstanding common shares.  In addition, Sinclair verbally committed topurchase all UHF transmitter requirements from the Company.  As of November 8, 2001, no formalrecapitalization plan has been executed.

 

 

2.  ACCOUNTING REVIEW CHARGES,ADJUSTMENTS AND RESTATEMENTS

 

###### **For the threemonths ended March 31, 2000 and 1999**

 

During the third quarter of 2000, the Company initiated a comprehensiveinternal review of its accounting records. As a result of this review, certaincharges and adjustments were recorded to the previously audited consolidatedfinancial statements for the year ended December 31, 1999, the unauditedquarters therein and for the unaudited quarter ended March 31, 2000. Theseadjustments had a material effect on the unaudited financial statements for thethree months ended March 31, 2000 and 1999. The following is a summary of these adjustments:

 
|                             |   | **Three Months Ended March 31,** |     |
|----------------------------------|--------|----------------------------------|----------|
|                             |   | **2000**                         |     | **1999** |   |
|                             |   |                             |     |   |   |
| Cost of sales  adjustments, net  |   | $                                | (981,460 | ) | $ | (648,387 | ) |
| Revenue  recognition adjustments |   | 454,043                          |     | (749,160 | ) |
| Accrual  adjustments             |   | (179,657                         | )        | (62,000 | ) |
|                             |   |                             |     |   |   |
| Impact of  charges on net income |   | $                                | (707,074 | ) | $ | (1,459,547 | ) |

 

 

The Company’s results for the comparablequarters reflect net charges to cost of sales of ($981,460) in 2000 and($648,387) in 1999, which relate to pricing of year-end physicalinventories.  The Company’s thirdquarter accounting review in 2000 included a detailed review of the pricing ofthe physical inventory taken as of December 31, 1999.  The review necessitated a number of adjustments affecting theprior valuations of physical inventory and cost of sales for interim periodsoffset by the effects of reversing revenues previously recognized.  The Company does not have sufficientinformation to identify the amount of the inventory adjustment specificallyrelated to the first quarter of 2000 or any other interim period in 1999.Therefore, the inventory valuation adjustments were spread among the quartersof 2000 and 1999 based on revenues for applicable quarter relative to totalrevenues for the year.

 

The Company has recorded adjustments to net loss related to the timingof revenue recognition for certain sales of $454,043 in 2000 and ($749,160) in1999.  These adjustments were made basedon the Company’s internal review, which indicated that certain revenues shouldnot have been recognized or were recognized in the improper period.  The adjustments noted above have beendetermined through a specific review of the related supporting documents and adetermination of the proper reporting period for the recognition of the revenuetransaction.

 

The Company recorded adjustments of ($179,657) in 2000 and ($62,000) in1999 related to certain accruals and expense items, which were not previouslyrecognized or recognized in the improper period.

 

The impact of the above charges increased net loss by $707,074 or $.10per share for the quarter ended March 31, 2000 and reduced net income by $1,459,547or $.23 per share for 1999. The schedules that follow show the impact on theconsolidated financial statements from previously reported results for thequarters ended March 31, 2000 and 1999.

 

The charges described above, which include both recurring andnonrecurring items that have been aggregated for this presentation forconvenience, were reflected in our financial statements as follows:

 
|                                              |   | **March 31, 2000**  |       |
|---------------------------------------------------|--------|---------------------|------------|
|                                              |   |                |       |   |   |
| **Acrodyne Communications, Inc. And  Subsidiary** |   | **As  Reported in** |       |   |   |
|                                              |   | **March  31, 2000** |       |   |   |
|                                              |   | **Form  10-QSB**    |       | **As  Restated** |   |
| **ASSETS**                                        |   |                |       |   |   |
|                                              |   |                |       |   |   |
| CURRENT ASSETS:                                   |   |                |       |   |   |
| Cash and cash  equivalents                        |   | $                   | 33,332     |   | $ | 33,332 |   |
| Short-term  investments                           |   | 200,000             |       | 200,000 |   |
| Accounts  receivables, net                        |   | 1,218,691           |       | 1,084,801 |   |
| Inventories, net                                  |   | 6,881,895           |       | 3,018,727 |   |
| Prepaid assets                                    |   | 127,928             |       | 63,928 |   |
| Other current  assets                             |   | 170,000             |       | 140,833 |   |
| Total current  assets                             |   | 8,631,846           |       | 4,541,621 |   |
|                                              |   |                |       |   |   |
| Property, plant and equipment, net                |   | 552,218             |       | 542,500 |   |
|                                              |   |                |       |   |   |
| Non-compete agreement, net                        |   | 342,072             |       | 342,072 |   |
|                                              |   |                |       |   |   |
| License agreement, net                            |   | -                   |       | 1,500,000 |   |
|                                              |   |                |       |   |   |
| Goodwill, net                                     |   | 3,860,087           |       | 3,860,087 |   |
| TOTAL ASSETS                                      |   | $                   | 13,386,223 |   | $ | 10,786,280 |   |
|                                              |   |                |       |   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**     |   |                |       |   |   |
| CURRENT LIABILITIES:                              |   |                |       |   |   |
| Accounts payable                                  |   | $                   | 1,461,589  |   | $ | 1,447,560 |   |
| Accrued expenses                                  |   | 259,084             |       | 697,655 |   |
| Customer  advances                                |   | 640,907             |       | 2,946,911 |   |
| Line of  Credit/Sinclair                          |   | 1,559,405           |       | 1,559,404 |   |
| Subordinated  Debenture/Sinclair                  |   | 660,000             |       | 660,000 |   |
| Current portion  capital lease obligations        |   | 61,891              |       | 49,870 |   |
| Other current  liabilities and deferred revenue   |   | 16,500              |       | 620,559 |   |
| Total current  liabilities                        |   | 4,659,376           |       | 7,981,959 |   |
|                                              |   |                |       |   |   |
| Capital lease obligations                         |   | -                   |       | 12,021 |   |
|                                              |   |                |       |   |   |
| License fee payable                               |   | -                   |       | 1,200,000 |   |
| Non-compete liability                             |   | 843,033             |       | 842,976 |   |
| Total  liabilities                                |   | 5,502,408           |       | 10,036,956 |   |
|                                              |   |                |       |   |   |
| COMMITMENTS AND CONTINGENCIES                     |   |                |       |   |   |
|                                              |   |                |       |   |   |
| SHAREHOLDERS’ EQUITY                         |   | 7,883,815           |       | 749,324 |   |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   |   | $                   | 13,386,223 |   | $ | 10,786,280 |   |

 
|                                                             |   | **For  the Three Months Ended March 31,** |      |
|------------------------------------------------------------------|--------|-------------------------------------------|-----------|
|                                                             |   | **2000**                                  |      |
| **Acrodyne  Communications, Inc. And Subsidiary**                |   |                                      |      |   |   |
|                                                             |   | **As  Reported in**                       |      |   |   |
|                                                             |   | **March  31, 2000**                       |      |   |   |
|                                                             |   | **Form  10-QSB**                          |      | **As  Restated** |   |
|                                                             |   |                                      |      |   |   |
| Net sales                                                        |   | $                                         | 1,575,319 |   | $ | 2,224,060 |   |
| Cost of sales                                                    |   | 1,149,982                                 |      | 2,411,911 |   |
| Gross  profit/(loss)                                             |   | 425,336                                   |      | (187,851 | ) |
|                                                             |   |                                      |      |   |   |
| Operating expenses:                                              |   |                                      |      |   |   |
| Engineering, research  and development                           |   | 175,609                                   |      | 175,609 |   |
| Selling                                                          |   | 227,708                                   |      | 279,252 |   |
| Administration                                                   |   | 565,063                                   |      | 645,006 |   |
| Amortization of  intangible assets                               |   | 57,874                                    |      | 57,874 |   |
| Total Operating Expenses                                         |   | 1,076,254                                 |      | 1,157,741 |   |
| Operating loss                                                   |   | (650,917                                  | )         | (1,345,592 | ) |
|                                                             |   |                                      |      |   |   |
| Other income (expense):                                          |   |                                      |      |   |   |
| Interest  expense, net                                           |   | (99,473                                   | )         | (111,872 | ) |
|                                                             |   |                                      |      |   |   |
| Loss before income taxes                                         |   | (750,390                                  | )         | (1,457,464 | ) |
|                                                             |   |                                      |      |   |   |
| Income taxes                                                     |   | -                                         |      | - |   |
|                                                             |   |                                      |      |   |   |
| Net loss                                                         |   | (750,390                                  | )         | (1,457,464 | ) |
|                                                             |   |                                      |      |   |   |
| Dividend on 8% Preferred Stock                                   |   | (14,028                                   | )         | (14,028 | ) |
|                                                             |   |                                      |      |   |   |
| Net loss applicable to common shareholders                       |   | $                                         | (764,418  | ) | $ | (1,471,492 | ) |
| Net Loss Per Common Share -- Basic and Diluted                   |   | $                                         | (0.11     | ) | $ | (0.21 | ) |
| Weighted Average Common Shares Outstanding -- Basic  and Diluted |   | 6,981,161                                 |      | 6,932,535 |   |

 
|                                              |   | **March 31, 1999** |       |
|---------------------------------------------------|--------|--------------------|------------|
| **Acrodyne Communications, Inc. And  Subsidiary** |   | **As Reported in** |       |   |   |
|                                              |   | **March 31, 1999** |       |   |   |
|                                              |   | **Form 10-QSB**    |       | **As Restated** |   |
| **ASSETS**                                        |   |               |       |   |   |
|                                              |   |               |       |   |   |
| CURRENT ASSETS:                                   |   |               |       |   |   |
| Cash and cash  equivalents                        |   | $                  | 1,587,727  |   | $ | 1,587,727 |   |
| Accounts  receivables, net                        |   | 2,300,868          |       | 1,270,450 |   |
| Inventories, net                                  |   | 4,747,867          |       | 3,693,074 |   |
| Prepaid assets                                    |   | 115,576            |       | 115,576 |   |
| Total current  assets                             |   | 8,752,038          |       | 6,666,827 |   |
|                                              |   |               |       |   |   |
| Property, plant  and equipment, net               |   | 487,258            |       | 487,258 |   |
|                                              |   |               |       |   |   |
| Non-compete  agreement, net                       |   | 417,072            |       | 417,072 |   |
|                                              |   |               |       |   |   |
| Goodwill, net                                     |   | 4,016,583          |       | 4,016,583 |   |
| TOTAL ASSETS                                      |   | $                  | 13,672,951 |   | $ | 11,587,740 |   |
|                                              |   |               |       |   |   |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**    |   |               |       |   |   |
|                                              |   |               |       |   |   |
| CURRENT  LIABILITIES:                             |   |               |       |   |   |
| Accounts payable                                  |   | $                  | 1,177,789  |   | $ | 1,177,789 |   |
| Accrued expenses                                  |   | 524,558            |       | 524,558 |   |
| Customer  advances                                |   | 165,391            |       | 640,618 |   |
| Line of credit                                    |   | 1,000,000          |       | 1,000,000 |   |
| Current portion  capital lease obligations        |   | 75,630             |       | 75,630 |   |
| Other current  liabilities                        |   | 0                  |       | 158,000 |   |
| Total current  liabilities                        |   | 2,943,368          |       | 3,576,595 |   |
|                                              |   |               |       |   |   |
| Capital lease  obligations                        |   | 53,164             |       | 53,164 |   |
|                                              |   |               |       |   |   |
| Non-compete  liability                            |   | 709,412            |       | 709,412 |   |
| Total  liabilities                                |   | 3,705,944          |       | 4,339,171 |   |
|                                              |   |               |       |   |   |
| COMMITMENTS AND  CONTINGENCIES                    |   |               |       |   |   |
|                                              |   |               |       |   |   |
| SHAREHOLDERS’  EQUITY                        |   | 9,967,007          |       | 7,248,569 |   |
| TOTAL  LIABILITIES AND SHAREHOLDERS’ EQUITY  |   | $                  | 13,672,951 |   | $ | 11,587,740 |   |

 
|                                                            |   | **For the Three Months Ended** |      |
|-----------------------------------------------------------------|--------|--------------------------------|-----------|
|                                                            |   | **March 31, 1999**             |      |
|                                                            |   |                           |      |   |   |
| **Acrodyne Communications, Inc. And  Subsidiary**               |   | **As Reported in**             |      |   |   |
|                                                            |   | **March 31, 1999**             |      |   |   |
|                                                            |   | **Form 10-QSB**                |      | **As Restated** |   |
|                                                            |   |                           |      |   |   |
| Net sales                                                       |   | $                              | 3,023,092 |   | $ | 2,273,932 |   |
| Cost of sales                                                   |   | 1,931,349                      |      | 2,579,736 |   |
| Gross profit  (loss)                                            |   | 1,091,743                      |      | (305,804 | ) |
|                                                            |   |                           |      |   |   |
| Operating  expenses:                                            |   |                           |      |   |   |
| Engineering,  research and development                          |   | 224,479                        |      | 224,479 |   |
| Selling                                                         |   | 351,192                        |      | 351,192 |   |
| Administration                                                  |   | 428,112                        |      | 478,112 |   |
| Amortization on intangible  assets                              |   | 57,874                         |      | 57,874 |   |
| Total Operating  Expenses                                       |   | 1,061,657                      |      | 1,111,657 |   |
|                                                            |   |                           |      |   |   |
| Operating income  (loss)                                        |   | 30,086                         |      | (1,417,461 | ) |
|                                                            |   |                           |      |   |   |
| Other income  (expense):                                        |   |                           |      |   |   |
| Interest  expense, net                                          |   | (11,587                        | )         | (23,587 | ) |
|                                                            |   |                           |      |   |   |
| Net income (loss)  before income taxes                          |   | 18,499                         |      | (1,441,048 | ) |
|                                                            |   |                           |      |   |   |
| Income taxes                                                    |   | -                              |      | - |   |
|                                                            |   |                           |      |   |   |
| Net income  (loss)                                              |   | 18,499                         |      | (1,441,048 | ) |
|                                                            |   |                           |      |   |   |
| Dividend on 8%  Preferred Stock                                 |   | (14,028                        | )         | (14,028 | ) |
|                                                            |   |                           |      |   |   |
| Net income  (loss) available to common shareholders’       |   | $                              | 4,471     |   | $ | (1,455,076 | ) |
| Net income  (loss) Per Common Share - Basic and Diluted         |   | $                              | 0.00      |   | $ | (0.23 | ) |
|                                                            |   |                           |      |   |   |
| Weighted Average  Common Shares Outstanding - Basic and Diluted |   | 6,320,572                      |      | 6,352,873 |   |

 

As discussed above, theCompany recorded significant adjustments in the years ended December 31, 2000and 1999, certain of which affect account balances applicable to the quartersended March 31, 2000 and 1999.  However,the Company does not have sufficient information to identify the specificamounts of the inventory valuation adjustments attributable to the individual2000 and 1999 interim periods.  TheCompany spread the inventory valuation adjustments among the four unauditedquarters of the year in a manner that provided a negative margin of 5.0% and13.4% for each of the first three unaudited quarters of 2000 and 1999,respectively.  Accordingly, the Companyhas concluded that its internal controls for the preparation of interimfinancial information did not provide an adequate basis for its independentpublic accountants to complete reviews of the quarterly data for the quartersin the three-month periods ended March 31, 2000 and 1999 in accordance withstandards established by the American Institute of Certified PublicAccountants.  As discussed above, theCompany believes that portions of the adjustments to inventory and the cost ofsales that were recorded in the quarters ended March 31, 2000 and 1999 mayrelate to other individual interim periods within 2000 or 1999. The Company iscommitting resources to mitigate previously identified control weaknesses.  A full physical inventory was completed inAugust of 2000.  In addition, theCompany will complete physical inventories on a quarterly basis.  Management believes that as a result ofthese efforts that its processes will continue to improve, although there canbe no assurance this will be the case.

 

2. INVENTORIES

 

Inventories consisted of the following::
|            |   | **March 31, 2000** |      | **December 31, 1999** |   |
|-----------------|--------|--------------------|-----------|-----------------------|--------|
|            |   |               |      |                  |   |
| Raw materials   |   | **$**              | 1,085,345 |                  | $      | 1,220,965 |   |
| Work in process |   | 679,180            |      | 764,048               |   |
| Finished goods  |   | 1,254,202          |      | 1,214,536             |   |
|            |   | $                  | 3,018,727 |                  | $      | 3,199,549 |   |

 

3. EARNINGS PER SHARE

 

Basic earnings per shareis computed by dividing the net income (loss) applicable to common shareholdersby the weighted average number of shares outstanding during the period.  Diluted earnings per share is computed usingthe weighted average number of shares determined for the basic computationsplus the number of shares of common stock that would be issued assuming allcontingently issuable shares having a dilutive effect on earnings per sharewere outstanding for the period.  Due tothe Company's net loss for the periods presented, the incremental sharesissuable in connection with convertible stock, stock options and warrants wereanti-dilutive and, accordingly, not considered in the calculation of earningsper share.

 

4. RELATED PARTY TRANSACTIONS

 

Sales made to Sinclair Broadcast Group, Inc. (“Sinclair”) amounted to$1,089,635 for the first three months of 2000. This represents 49% of the Company's total sales of $2,224,060 for thethree months ended March 31, 2000.  TheCompany sells these products to Sinclair at prices which approximate fairmarket value.

 

On January 27, 1999,Sinclair invested $4,300,000 in the Company in return for 1,431,333 shares ofthe Company's common stock and warrants to purchase up to an aggregate of8,719,225 shares over a term of up to seven years at prices ranging from $3.00to $6.00 per share.  Sinclair alsoacquired an additional 800,000 shares of common stock previously held byoutside investors.  At March 31,1999,Sinclair owned approximately 33% of the common stock issued.

 

During November 1999, the Company entered into a Guaranty and LeaseCompensation Agreement (the "Guaranty Agreement") with Sinclair,intended to be effective September 16, 1999. In connection with its $2,500,000Credit Facility, the bank required, as a condition of the loan, that Sinclairunconditionally and irrevocably guarantee all of the Company’s obligation withrespect to the Credit Facility. Under the Guaranty Agreement and ascompensation to Sinclair for the guarantee, the Company committed to provideSinclair the following: (1) $200,000 payable in Company common stock (basedupon the closing price as quoted on September 16, 1999), and (2) on October 1,2000 and payable each year thereafter until the bank no longer requires theguarantee from Sinclair, the Company shall pay Sinclair an amount equal to theaverage of the line of credit outstanding balances as of the last day of eachof the preceding twelve months (not to be less than $1,700,000) multiplied by12.5% and payable in the form of Company common stock. The $200,000 dueSinclair under the terms of the guarantee was capitalized and was amortized asinterest expense over the guarantee period. Of the $200,000 related to thisguarantee, $150,000 and $50,000 were recorded as interest expense during 2000and 1999, respectively.  During thethree months ended March 31, 2000, the Company recorded $50,000 as interestexpense.  No amounts were recordedduring the three months ended March 31, 1999. For the year ended December 31, 2000, the Company recorded additionalinterest expense related to the Guarantee Agreement of $235,500. In November2000, Sinclair purchased the credit facility discussed and assumed all rightsof the bank.  Sinclair filed the UCCliens against the Company’s personal property, which eliminated the Sinclairguaranty.

 

During November of 1999, the Company entered into a sublease agreement(the “Lease Agreement”) with Sinclair. Under the terms of the Lease Agreementand as compensation for the Lease Agreement, the Company agreed to compensateSinclair as follows: (1) on the lease execution date, $70,000 payable in theform of Company common stock calculated as the average closing price for thefive business days preceding the lease execution date and (2) on each leaseanniversary date, $70,000 payable in the form of Company common stockcalculated as the average closing price for the five business days preceding thelease anniversary date.

 

**During March 2000, the Companyentered into a 10-year license agreement (the “License Agreement") withSinclair for the exclusive right to manufacture and sell certain Sinclairdesigned transmitter lines. Under terms of the License Agreement, the Companywill pay Sinclair an annual royalty of $300,000 for five years.  For years six through ten, the Company shallpay Sinclair an annual royalty equal to 1.0% of revenues realized by the Companyattributable to the License Agreement. At the end of the tenth year, the Company has the option to purchase theSinclair technology.  The purchase pricewould be twice the cumulative royalty amount paid to Sinclair for years sixthrough ten.**

 

During March 2000, theCompany entered into a subordinated debenture agreement (the"Debenture") with Sinclair. Under the terms of the Debenture, theCompany may borrow up to $2,000,000 at an interest rate of 10.5%. The firstpayment of interest shall be made April 1, 2000 and on a monthly basis thereafter.  Principal is payable upon demand ofSinclair. Further, Sinclair has the right, at any time, to convert all, but notless than all, of the principal owed to Sinclair into the Company's commonstock at $3.45 per share.  Through April23, 2001, the Company had borrowed $2,000,000 under the terms of thisarrangement.  During 2000, the Companypaid $47,903 of interest due under the Debenture.  No payments of interest were made during the first quarter of2000.

 

On February 29, 2000Sinclair exercised warrants for 75,000 shares of the Company's stock for$225,000. At the end of the quarter Sinclair held 2,418,333 shares of theCompany's common stock, representing 34.6% of issued common stock assuming nowarrants are exercised.

 

On April 27, 2001, the Company entered into a $4,000,000 line of  credit facility with Sinclair.   The line of credit requires monthlyinterest-only payments at a fixed rate of interest of 12% per annum and maturesupon demand by Sinclair.

 

5. REVENUE RECOGNITION

 

In December 1999, the Securities and Exchange Commission issued StaffAccounting Bulletin (“SAB”) No. 101, “Revenue Recognition in FinancialStatements.”  SAB No. 101 summarizes thestaff's views in applying generally accepted accounting principles to selectedrevenue recognition issues.  Guidance isprovided with respect to the recognition, presentation and disclosure ofrevenue in the financial statements. The Company implemented the provisions ofSAB 101 in the fourth quarter of 2000, retroactive to January 1, 2000.  Effective January 1, 2000, the Companychanged its method of accounting for transmitter sales such that the Companyrecognizes revenue from the sale of transmitters when title and risks ofownership are transferred to the customer, which generally occurs upon shipment,customer pick-up or completion of the installation process if the Company isobligated to perform the installation. A customer may be invoiced for andreceive title to transmitters prior to taking physical possession when thecustomer has made a fixed, written commitment for the purchase, thetransmitters have been completed, tested and are available for pick-up ordelivery, and the customer has requested that the Company hold the transmittersuntil the customer determines the most economical means of taking physicalpossession. Upon such a request, the Company recognizes revenue if it has nofurther obligation except to segregate the transmitters, invoice the customerunder normal billing and credit terms, and hold the transmitter for a shortperiod of time as is customary in the industry, until pick-up or delivery.  Transmitters are built to customerspecification and no right of return or exchange privileges are granted.Accordingly, no provision for sales allowances or returns is recorded.  The Company records revenue for servicesrelated to installation of transmitters upon completion of the installationprocess. Amounts, which cannot be recognized in accordance with the abovepolicy, are recorded as deferred revenue in the accompanying consolidatedbalance sheets.

 

The adoption of SAB No. 101, in the fourth quarter of 2000, resulted inan increase in reported revenues for the year 2000 of $539,698 of which$194,698 related to the first quarter and is reflected in the accompanyingfinancial statements; however, there is no change in earnings as the costapproximated the revenue. In accordance with the bulletin, prior yearconsolidated financial statements have not been restated to apply SAB 101retroactively.

 

6. NEW ACCOUNTING PRONOUNCEMENTS

 

In June 1998, the Financial Accounting Standards Board issued SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities."SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, is required to beadopted by the Company on January 1, 2001. SFAS No. 133 establishes theaccounting and financial reporting requirements for derivative instruments andrequires companies to recognize derivatives as either assets or liabilities onthe balance sheet and measure these instruments at fair value.  This statement did not have a materialeffect on the Company's consolidated financial position or results ofoperations upon adoption in 2001.

 

The Financial Accounting Standards Board’s Emerging Issues Task Forcereleased Issue 00-10 “Accounting for Shipping and Handling Fees and Costs,”which requires amounts charged to customers for shipping and handling to beclassified as revenue and the related costs to be classified as cost ofsales.  Issue 00-10 is applicable no laterthan the fourth quarter of fiscal years beginning after December 15, 1999, andhas been adopted by the Company in 2000. As a result of the adoption of Issue 00-10, the Company has classifiedapproximately $135,000 of charges to customers for shipping and handling as netsales within the consolidated statement of operations for the year endedDecember 31, 2000.  This policy had noeffect on the Company’s consolidated financial position or results ofoperations for the year ended December 31, 2000.  The Company was unable to obtain the information required for1999 due to the nature in which the required data was recorded and maintained.Accordingly, no reclassification was made to the 1999 consolidated financialstatements.

 

7. CONTINGENT LIABILITIES

 

In September 2000, theCompany was joined as a defendant along with two of its officers and directors,in a class action in the United States District Court for the District ofMaryland. The lawsuit asserts that the Company issued false and misleadingfinancial statements. The Company has reached a settlement with plaintiffs’counsel. The settlement requires the Company to issue plaintiffs warrants topurchase 1,600,000 shares of the Company’s common stock at an exercise price of$1.00 per share. The warrants will expire after five years. The Company alsohas agreed to pay the plaintiffs $750,000. The cash portion of the settlement will be funded by its officers’ anddirectors’ indemnity insurance policy. A Memorandum of Understanding reflectingthe material terms of the settlement was filed with the Court on March 1, 2001.On April 6, 2001, a Stipulation and Agreement of Settlement was submitted tothe Court along with all required documents to effectuate the settlement.  On April 9, 2001, the Court approved theproposed settlement but reserved its right to review the settlement and/orenter a final judgment approving the settlement and dismissing thelawsuit.  On June 26, 2001, the Court(i) found the settlement to be fair, reasonable, and adequate and in the bestinterests of the parties; (ii) settled, released, discharged and dismissed withprejudice the cases against the defendants; (iii) determined that neither thesettlement nor any of the documents or statements associated therewith are, orshall be construed as, a concession or admission by the defendants of theexistence of any damages or wrongdoing; and (iv) awarded the plaintiffs’counsel 25% of the gross amount of the settlement fund as attorneys’ fees,which amount is to be paid out of the settlement fund.  As a result of the settlement, during thethree months ended March 31, 2001, the Company will record a charge tooperations of approximately $336,000 which represents the fair value of thewarrants issued.

 

SUBSEQUENTS EVENTS

 

On April 27, 2001, we entered into a $4,000,000 line of  credit facility with Sinclair.   The line of credit requires monthlyinterest-only payments at a fixed rate of interest of 12% per annum and maturesupon demand by Sinclair.

 

On July 17, 2001, weentered into an agreement to exchange all the outstanding shares of our 8%Convertible Redeemable Preferred Stock for 428,447 shares of our Common Stock.

 

**ITEM 2.**

 

**MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND**

**RESULTSOF OPERATIONS**

 

 

##### OVERVIEW

 

We are Acrodyne Holdings,Inc., a Delaware corporation, which was formed in May 1991. In 1995, we changedour name to Acrodyne Communications, Inc. which we operate in one industrysegment – the design, manufacture and marketing of television transmitters andtranslators, which are sold in the United States and internationally.

 

On May 16, 1994, we entered into agreements to acquire all of theoutstanding stock of Acrodyne Industries, Inc., a company engaged in themanufacture and sale of TV transmitters, LPTV transmitters and TV translators,which are produced to customer specification. The acquisition was consummated on October 24, 1994 with proceedsobtained from a public offering of our common stock.

### ** **

 

##### BASISOF PRESENTATION

 

Upon completion of the audit of our consolidated financial statementsfor the year ended December 31, 2000, our independent auditors issued anopinion with an explanatory paragraph stating that substantial doubt existsabout our ability to continue as a going concern. Our ability to continue as agoing concern depends upon: (1) market acceptance of our new digital product;(2) our ability to generate sufficient revenues to achieve and sustain positivecash flow; and (3) our ability to raise the necessary capital to fund operatingneeds and finance the planned investment. The factors noted above raise substantial doubt concerning our abilityto continue as a going concern. The consolidated financial statements do notinclude any adjustments relating to the recoverability and classification ofasset carrying amounts or the amount and classification of liabilities thatmight result should we be unable to continue as a going concern.  We are currently exploring our options toraise capital.  Among the options is apotential recapitalization by Sinclair Broadcast Group, Inc. (“Sinclair”).  Under terms of the proposed recapitalizationwhich has yet to be executed, Sinclair could receive additional common stock inexchange for forgiveness of certain amounts that we owe to Sinclair in theamount of $3,500,000 and could cancel certain existing warrants and receiveadditional warrants as part of a new secured line of credit in the amount of$4,000,000.  As a result of thistransaction, Sinclair could own approximately 80% of our common stock. Inaddition, Sinclair has orally committed to purchase all UHF transmitterrequirements from us.  As of November 8,2001, no formal recapitalization plan has been executed. See “Significant andSubsequent Events” below for additional information concerning futureliquidity.

 

##### OPERATIONSAND BUSINESS RISK

 

Due to the nature of the our business, it is subject to various risksincluding, but not limited to, technological and market acceptance of ourproduct, capital availability, dependence on management and other risks.  We have been in the process of developing anew transmitter product line (“Quantum”). Related to this process, we enteredinto a license agreement with Sinclair Broadcast Group, Inc. (“Sinclair”) inMarch 2000 (see Note. 4).  We shippedthe first of our Quantum transmitters in March 2001.  To date, most of the orders for our Quantum product  have been with Sinclair.

 

Since the acquisition ofAcrodyne Industries in 1994, we have incurred significant losses including netlosses of $12,984,186 and $6,906,373 in 2000 and 1999, respectively.  In addition, we have generated operatingcash flow deficits of $2,306,348 and $2,905,477in 2000 and 1999,respectively. Additional losses and cash flow deficits have continued in2001.  These losses and cash flowdeficits have been funded primarily with proceeds from the sale of equitysecurities, including $225,000 and $4,075,374 from common stock and warrantssold to Sinclair in 2000 and 1999, respectively, a $2,000,000 subordinateddebenture provided by Sinclair, our Credit Facility with Sinclair (see Note. 4)and customer advances. As of December 31, 2000, Sinclair owned 35% of ourcommon stock and has warrants to purchase 8,644,225 additional shares, whichrepresented a 60% ownership interest on a fully diluted basis. For the quartersended March 31, 2000 and 1999 Sinclair owned 34% and 33% of the issued commonstock assuming no exercise of warrants.

 

Sinclair had provided aguarantee of our $2,500,000 credit facility. In November 2000, Sinclair purchased the credit facility from thecreditor.  In March 2000, Sinclair agreedto provide additional 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 our consolidated financial statements for theyear ended December 31, 2000, our independent auditors issued an opinion withan explanatory paragraph stating that substantial doubt exists about ourability to continue as a going concern. Our ability to continue as a going concern depends upon: (1) marketacceptance of our new digital product; (2) our ability to generate sufficientrevenues to achieve and sustain positive cash flow; and (3) our ability toraise the necessary capital to fund operating needs and finance our plannedinvestment.  The factors noted aboveraise substantial doubt concerning our ability to continue as a going concern.We are currently exploring options available to us to raise capital.  Among the options is a potentialrecapitalization of us by Sinclair. Under terms of the proposed recapitalization which has yet to beexecuted, Sinclair could receive additional common stock in exchange forforgiveness of certain amounts we owe to Sinclair in the amount of approximately$3,500,000 and could cancel certain existing warrants and receive additionalwarrants as part of a new secured line of credit in the amount of$4,000,000.  As a result of thistransaction, Sinclair could own approximately 80%.  In addition, Sinclair verbally committed to purchase all UHF transmitterrequirements from us.  As of November 8,2001, no formal recapitalization plan has been executed.

 

SIGNIFICANT AND SUBSEQUENT EVENTS

 

In February 2000, we terminated 18 of our employees in an effort tocontrol costs in anticipation of lower than forecasted sales volume in the nearterm and to maintain our working capital.

 

**During March 2000, we entered intoa 10-year license agreement (the “License Agreement") with Sinclair forthe exclusive right to manufacture and sell the Quantum product line. Underterms of the License Agreement, we will pay Sinclair an annual royalty of$300,000 for five years.  For years sixthrough ten, we shall pay Sinclair an annual royalty equal to 1.0% of revenuesattributable to the License Agreement. At end of the tenth year, we have the option to purchase the Sinclairtechnology.  The purchase price would betwice the cumulative royalty amount paid to Sinclair for years six through ten.**

 

During March 2000, we entered into a subordinated debenture agreement(the "Debenture") with Sinclair. Under the terms of the Debenture, we may borrow up to $2,000,000 at aninterest rate of 10.5%.  The firstpayment of interest shall be made April 1, 2000 and on a monthly basisthereafter.  Principal is payable upondemand of Sinclair.  Further, Sinclairhas the right, at any time, to convert all, but not less than all, of theprincipal owed to Sinclair into our common stock at $3.45 per share.  As of April 24, 2001, we have drawn$2,000,000 against this Debenture to fund operating needs.

 

In July 2000, we announced that the corporate headquarters would berelocating to Cockeysville, MD, and that manufacturing and support would moveto Phoenixville, PA.  This move wascompleted in the fourth quarter of 2000.

 

During August 2000, we announced that it was necessary to defer filingthe Company’s 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 three months ended March 31, 2000.

 

In September 2000, we announced that we would voluntarily delist afterdelisting proceedings were announced by the Nasdaq for not filing timelyfinancial information.  The shares maytrade on the OTC Bulletin Board, but not before we file our Form 10-QSB for theperiods ended September 30, 2000, June 30, 2000, March 31, 2000 (restated) andForm 10-KSB for the year ended December 31, 2000 and the restated Form 10-KSBfor the years ended December 31, 1999 and 1998.   We filed the restated Form 10-KSB for the year ended December31, 1999 on April 17, 2001.

 

In September 2000, wewere named as defendant, along with two of our directors, in four class actionlawsuits filed in the United States District Court for the District of Maryland(Northern Division).  These fourlawsuits were consolidated into a single lawsuit.  A description of this lawsuit and its proposed settlement iscontained in Part I, Item 3.  LegalProceedings of the Company's 1999 Form 10-KSB as amended.

 

On April 27, 2001, we entered into a $4,000,000 line of  credit facility with Sinclair.   The line of credit requires monthlyinterest-only payments at a fixed rate of interest of 12% per annum and maturesupon demand by Sinclair.

#####  

On July 17, 2001, we entered into an agreement to exchange all theoutstanding shares of our 8% Convertible Redeemable Preferred Stock for 428,447shares of our Common Stock.

 

**RESULTSOF OPERATIONS**

 

The following compares the summary results of operations for the threemonths ended March 31, 2000 to the three months ended March 31, 1999(restated):

 
|                   |   | **2000**   |       | **1999** |   |
|------------------------|--------|------------|------------|----------|--------|
| Net Sales              |   | $          | 2,224,060  |     | 100    | % | $ | 2,273,932 |   | 100 | % |
| Cost of Sales          |   | 2,411,911  |       | 108      | %      | 2,579,736 |   | 113 | % |
| Gross loss             |   | (187,851   | )          | (8%      | )%     | (305,804 | ) | (13 | )% |
| Operating  Expenses    |   | 1,157,741  |       | 52       | %      | 1,111,657 |   | 49 | % |
| Operating Loss         |   | (1,345,592 | )          | (60      | )%     | (1,417,461 | ) | (62 | )% |
| Interest  expense, net |   | 111,872    |       | 5        | %      | 23,587 |   | 1 | % |
| Net  Loss              |   | $          | (1,457,464 | )        | (65    | )% | $ | (1,441,048 | ) | (63 | )% |

 

Sales decreased by $244,570 or 11% (without the benefit of recognizing$194,698 of revenue due the adoption of SAB No. 101 as discussed more fully inNote 5 to the consolidated financial statements) from the three months endedMarch 31, 2000 as compared to the three months ended March 31, 1999.  The reduction in sales is mainly due to thedelay in purchasing of digital transmission equipment by broadcasters. Webelieve that the broadcasters have postponed any significant transmissionequipment expenditures pending a clearer plan for the emergence of digitaltelevision and related transition. We also believe the delay in purchases isdue to a desire by broadcasters to increase transmission power, which requiresauthorization from the FCC.

 

Gross margin on sales was (8%) for the first quarter 2000 as comparedto (13%) for same period in 1999. Margins on a quarter to quarter basis improved slightly but were stilladversely affected by lower sales volume in 2000, and a higher sales volume ofLow Band VHF products and pass-through vendor sales, which historically haveresulted in lower profit margins due more labor intensive manufacturing.  Also, contributing to the negative profitmargin were excess field installation costs and warranty repairs.Operating   expenses for the firstquarter of 2000 were $1,157,741 as compared to $1,111,657 for the same periodin 1999 representing a slight increase of $46,084. There were decreases inengineering, research and development and selling expenses of $121,080 offsetby an increase in administration of $166,894 due mainly to legal andprofessional services used during the 2000 quarter and severance costs recordedfor the employees terminated in February. Interest expense increased as aresult of Sinclair’s guarantee of our line of credit and facilities lease andincrease in borrowings available to us under terms of our lines of credit.

 

#### **LIQUIDITY AND CAPITALRESOURCES**

 

 

Historically, we havefinanced our activities primarily from internally generated funds, customeradvances, use of our credit facilities and sales of equity securities and, morerecently, through investments and funding by Sinclair.  At March 31, 2000, our working capitaldecreased to ($3,440,338) as compared to ($1,976,388) at December 31, 1999, mainly due to increased borrowingsfrom Sinclair under the subordinated debenture and the license fee payable toSinclair.  Net cash used in operatingactivities was ($1,393,875) for the current quarter as compared to $(1,841,851)a year ago.

 

Cash flow from financingactivities decreased significantly from the 1999 quarter. The current quarternet financing activities generated $793,881 compared to $2,480,815 in the samequarter last year.  In the prior yearquarter, Sinclair invested $4,300,000 in return for 1,431,333 shares of ourstock and warrants (see Note 4).

 

In September 1999, weestablished a new $2,500,000 credit facility (the "Credit Facility")arrangement with a bank for working capital purposes to replace its thenexisting bank credit facilities.  Thecredit facility bears interest at LIBOR rate plus 200 basis points.  The new facility is available on a standardformula basis involving qualified accounts receivable and inventory and containcertain covenants having to do with the maintenance of a minimum tangible networth.  As of December 31, 1999, we werenot in compliance with terms of the credit facility.  The bank provided a waiver for the 1999 event of default.  The credit facility was collateralized byall of our personal property and expired on October 31, 2000.  In connection with obtaining this facility,the bank required, as a condition of the loan, that Sinclair unconditionallyand irrevocably guarantee all of our obligations under the facility.  We agreed to issue Sinclair $200,000 of ourcommon stock as compensation for the guarantee.  In November 2000, Sinclair purchased the $2,500,000 line ofcredit from the bank and filed related UCC liens against our personal property,which eliminated the Sinclair guarantee. The $200,000 obligation for the guarantee was capitalized as "OtherAssets," and is being amortized as interest expense over the guaranteeperiod of one year.

 

**MaterialCommitments for Capital Expenditures**

 

We do not have any material commitments for capital expenditures otherthan the commitment under the sublease agreement with Sinclair. This subleaseagreement entered into in September 1999 relates to our new manufacturing andsupport facility located in Phoenixville, Pennsylvania.  We moved into the new building duringNovember 2000 and recorded the lease with Sinclair as a capital lease. Minimumlease payments due under this building lease are as follows:

 

 

| 2001                 |   | $         | 424,453   |   |
|----------------------|--------|-----------|-----------|--------|
| 2002                 |   | 416,374   |      |
| 2003                 |   | 427,553   |      |
| 2004                 |   | 448,103   |      |
| 2005                 |   | 505,341   |      |
| 2006 and  thereafter |   | 5,759,784 |      |
|                 |   | $         | 7,981,608 |   |

 

 

**FutureLiquidity**

 

Upon completion of theaudit of our consolidated financial statements for the year ended December 31,2000, our independent auditors issued an opinion with an explanatory paragraphstating that substantial doubt exists about our ability to continue as a goingconcern. Our ability to continue as a going concern depends upon: (1) marketacceptance of our new digital product; (2) our ability to generate sufficientrevenues to achieve and sustain positive cash flow; and (3) our ability toraise the necessary capital to fund operating needs and finance the plannedinvestment.  The factors noted aboveraise substantial doubt concerning our ability to continue as a going concern.The consolidated financial statements do not include any adjustments relatingto the recoverability and classification of asset carrying amounts or theamount and classification of liabilities that might result should we be unableto continue as a going concern.  We are currentlyexploring our options to raise capital. Among the options is a potential recapitalization by Sinclair.  Under terms of the proposed recapitalizationwhich has yet to be executed, Sinclair could receive additional common stock inexchange for forgiveness of certain amounts that we owe to Sinclair in theamount of $3,500,000 and could cancel certain existing warrants and receiveadditional warrants as part of a new secured line of credit in the amount of$4,000,000.  As a result of thistransaction, Sinclair could own approximately 80% of our common stock. Inaddition, Sinclair has orally committed to purchase all UHF transmitterrequirements from us.  As of November 8,2001, no formal recapitalization plan has been executed. See “Significant andSubsequent Events” above for additional information concerning futureliquidity.

 

 

#### **Forward LookingStatements**

 

 

Certain informationcontained in this report including, without limitation, information appearingunder Item 2, “Management’s Discussion and Analysis of Financial Condition andResults of Operations,” are forwarding-looking statements within the meaning ofthe Securities Act of 1933 and the Exchange Act of 1934 (also known as thePrivate Securities Litigation Reform Act of 1995). Words and expressions thatdo not relate to historical information are "forward looking statements”.Such forward-looking statements are subject to risks, uncertainties and otherfactors  which could cause actual  results to differ  materially  fromfuture  results  expressed,  projected  or  implied by  such   forward-looking statements. Such factorsinclude, but are not limited to the following:

 

•       Our highlevel of indebtedness and our ability to refinance our substantial debt andcontractual obligations,

•       Ourability to make interest and principal payments on debt and other contractualobligations,

•       Ourability to improve operating performance,

•       Theoutcomes of pending lawsuits involving our financial reporting and othermatters,

•       Ourability to manufacture and sell the new Quantum transmitter product line in atimely manner,

•                Regulatorychanges governing transmission platforms,

•       Generaleconomic and marketplace conditions,

•       Interestrate fluctuations, access to capital, and

•       Ourability to develop, implement and maintain reliable and adequate internal accountingsystems and controls.

 

Part II   OTHERINFORMATION

 

#### **Item 1. LEGAL PROCEEDINGS**

 

In September 2000, theCompany was joined as a defendant along with two of its officers and directors,in a class action in the United States District Court for the District ofMaryland. The lawsuit asserts that the Company issued false and misleadingfinancial statements. The Company has reached a settlement with plaintiffs’counsel. The settlement requires the Company to issue plaintiffs warrants topurchase 1,600,000 shares of the Company’s common stock at an exercise price of$1.00 per share. The warrants will expire after five years. The Company alsohas agreed to pay the plaintiffs $750,000. The cash portion of the settlement will be funded by its officers’ and directors’indemnity insurance policy. A Memorandum of Understanding reflecting thematerial terms of the settlement was filed with the Court on March 1, 2001. OnApril 6, 2001, a Stipulation and Agreement of Settlement was submitted to theCourt along with all required documents to effectuate the settlement.  On April 9, 2001, the Court approved theproposed settlement but reserved its right to review the settlement and/orenter a final judgment approving the settlement and dismissing thelawsuit.  On June 26, 2001, the Court(i) found the settlement to be fair, reasonable, and adequate and in the bestinterests of the parties; (ii) settled, released, discharged and dismissed withprejudice the cases against the defendants; (iii) determined that neither the settlementnor any of the documents or statements associated therewith are, or shall beconstrued as, a concession or admission by the defendants of the existence ofany damages or wrongdoing; and (iv) awarded the plaintiffs’ counsel 25% of thegross amount of the settlement fund as attorneys’ fees, which amount is to bepaid out of the settlement fund. As a result of the settlement, during thethree months ended March 31, 2001, the Company will record a charge tooperations of approximately $336,000 which represents the fair value of thewarrants issued.

 

#### **Item 2.                CHANGESIN SECURITIES AND USE OF PROCEEDS**

Not applicable

 

#### **Item 3.**                DEFAULTS UPON SENIOR SECURITIES

Not applicable

 

#### **Item 4.**                SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submittedto a vote of the security holders during the quarter ended March 31, 2000

 

#### **Item 5.    OTHERINFORMATION**

#### **Not applicable**

 

#### **Item 6.                 EXHIBITSAND REPORTS ON FORM 8-K**

#### **8-K filed on April 17, 2001 -Financial results for second and third quarters 2000 and restated results for 1998, 1999 and first quarter2000; preliminary settlement of stockholders class action litigation andrelated financial matters.**

 

8-K filed on April 17, 2001 – Acrodyne Communications,Inc. consolidated balance sheets, related Consolidated statements ofoperations, shareholders equity, and cash flows for the two years endedDecember 31, 2000 and 1999.

 

8-K filed on May 10, 2001 – Elimination of theposition of Senior Vice President and Chief Financial Officer effective May 8,2001.

 

**SIGNATURES**

 

 

Pursuant  to the  requirements  of the  Securities  Exchange Act of  1934,  the registrant  has duly  caused  this report  to be  signed on its  behalf by the undersignedthereunto duly authorized.

 

 
|   |   |                                                                                                   | ACRODYNE COMMUNICATONS,  INC. |
|--------|--------|--------------------------------------------------------------------------------------------------------|-------------------------------|
|   |   |                                                                                                   | (Registrant)                  |
|   |   |                                                                                                   |
|   |   |                                                                                                   |                          |   |
|   |   |                                                                                                   |                          |   |
|   |   |                                                                                                   | By:                           | /s/ Nathaniel Ostroff |
|   |   | Nathaniel  Ostroff, Chairman of the Board of Directors,  Chief Executive Officer and Interim President |
|   |   |                                                                                                   |                          |   |
|   |   |                                                                                                   |                          |   |
|   |   |                                                                                                   |                          |   |
|   |   |                                                                                                   |                          |   |
|   |   |                                                                                                   |                          |   |
|   |   |                                                                                                   | By:                           | /s/ Robert E. Woodruff |
|   |   | Robert E. Woodruff, Chief Accounting Officer                                                           |
|        |        |                                                                                                        |                               |  |  |

 

 

Date    November 8, 2001