**U.S. SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**Form 10-QSB**

 

**(Mark one)**

| **ý****  QUARTERLY REPORT  UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---------------------------------------------------------------------------------------------------------|
|                                                                                                    |
|                                                                                                    | **For the quarterly  period ended March 31, 2002** |
|                                                                                                    |
| **o****  TRANSITION REPORT  UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT**             |

 

**Commission file number**

**0-24886**

 

**ACRODYNE COMMUNICATIONS, INC.**

(Exactname of small business issuer as specified in its charter)

 

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

 

Check whether the issuer (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the ExchangeAct during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes ý   No  o

 

State the number of sharesoutstanding of each of the issuer’s classes of common equity, as of the latestpracticable date. As of May 3, 2002 the registrant had outstanding 7,409,608shares of common stock, par value $0.01

 

 

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**ACRODYNE COMMUNICATIONS, INC.**

 

INDEX

 
| PART I.  FINANCIAL INFORMATION:            |
|-------------------------------------------------|
|                                            |   |   |
|                                            | Item 1.   Financial Statements |   |
|                                            |   |   |
|                                            | Consolidated Balance Sheets  at March 31, 2002 (unaudited) and December 31, 2001 |   |
|                                            |   |   |
|                                            | Consolidated  Statements of Operations for the Three Months Ended March 31, 2002 and 2001  (unaudited) |   |
|                                            |   |   |
|                                            | Consolidated  Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001  (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                                      |
|                                                 |  |  |  |

 

2

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**Acrodyne Communications, Inc.**

**Consolidated Balance Sheets**

 
|                                                                                                                                                                   |   | **March 31  2002** |       | **December  31,  2001** |       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|------------|-------------------------|------------|
|                                                                                                                                                                   |   | **(unaudited)**    | ** ** |                    | ** ** |
| **ASSETS**                                                                                                                                                             |   |               |       |                    |       |
| CURRENT  ASSETS:                                                                                                                                                       |   |               |       |                    |       |
| Cash  and cash equivalents                                                                                                                                             |   | $                  | 305,342    |                    | $          | 17,687 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $500,000 at March 31,  2002 and December 31, 2001, respectively                                        |   | 1,746,414          |       | 1,466,788               |       |
| Inventories,  net                                                                                                                                                      |   | 1,130,031          |       | 1,281,512               |       |
| Prepaid  assets and deposits                                                                                                                                           |   | 84,219             |       | 44,955                  |       |
| Total  current assets                                                                                                                                                  |   | 3,266,006          |       | 2,810,942               |       |
|                                                                                                                                                                   |   |               |       |                    |       |
| PROPERTY,  PLANT, AND EQUIPMENT,  net                                                                                                                             |   | 3,677,932          |       | 3,771,969               |       |
| LICENSE  AGREEMENT,  net of accumulated  amortization of $600,000 and $525,000 at March 31, 2002 and  December 31, 2001, respectively                   |   | 900,000            |       | 975,000                 |       |
| TOTAL  ASSETS                                                                                                                                                          |   | $                  | 7,843,938  |                    | $          | 7,557,911 |   |
|                                                                                                                                                                   |   |               |       |                    |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                                                                                               |   |               |       |                    |       |
| CURRENT  LIABILITIES:                                                                                                                                                  |   |               |       |                    |       |
| Line  of credit — related party                                                                                                                                   |   | 5,133,759          |       | 5,133,759               |       |
| Subordinated  debenture — related party                                                                                                                           |   | 2,000,000          |       | 2,000,000               |       |
| Current  portion of capital lease obligations                                                                                                                          |   | 233,858            |       | 116,478                 |       |
| Accounts  payable                                                                                                                                                      |   | 1,817,373          |       | 1,946,907               |       |
| Accrued  expenses                                                                                                                                                      |   | 903,921            |       | 1,185,828               |       |
| Customer  advances                                                                                                                                                     |   | 3,171,127          |       | 2,879,995               |       |
| Deferred  revenue                                                                                                                                                      |   | 14,103             |       | 14,103                  |       |
| Other  current liabilities                                                                                                                                             |   | 1,734,554          |       | 1,445,016               |       |
| Total  current liabilities                                                                                                                                             |   | 15,008,695         |       | 14,722,086              |       |
| CAPITAL  LEASE OBLIGATIONS,  net of current  portion                                                                                                              |   | 3,750,712          |       | 3,757,987               |       |
| LICENSE  FEE PAYABLE — long term                                                                                                                                  |   | 900,000            |       | 975,000                 |       |
| NON-COMPETE  LIABILITY                                                                                                                                                 |   | 845,912            |       | 845,912                 |       |
| Total  liabilities                                                                                                                                                     |   | 20,505,319         |       | 20,300,985              |       |
|                                                                                                                                                                   |   |               |       |                    |       |
| SHAREHOLDERS’  EQUITY (DEFICIT):                                                                                                                                  |   |               |       |                    |       |
| Common  stock, par value $.01; 30,000,000 shares authorized; 7,409,608 shares  issued and outstanding at March 31, 2002 and December 31, 2001,  respectively |   | 74,096             |       | 74,096                  |       |
| Additional  paid-in-capital                                                                                                                                            |   | 22,071,641         |       | 22,071,641              |       |
| Accumulated  deficit                                                                                                                                                   |   | (34,807,118        | )          | (34,888,811             | )          |
| Total  shareholders’ equity (deficit)                                                                                                                             |   | (12,661,381        | )          | (12,743,074             | )          |
| TOTAL  LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)                                                                                                             |   | $                  | 7,843,938  |                    | $          | 7,557,911 |   |

** **

**See notes to consolidatedfinancial statements**

 

3

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**AcrodyneCommunications, Inc.**

**ConsolidatedStatements of Operations     (Unaudited)**

** **
|                                                                 |   | **Three  Months Ended  March 31,** |      |
|----------------------------------------------------------------------|--------|------------------------------------|-----------|
|                                                                 |   | **2002**                           |      | **2001** |   |
|                                                                 |   |                               |      |   |   |
| NET  SALES                                                           |   |                               |      |   |   |
| Related  party sales, net                                            |   | $                                  | 3,274,436 |   | $ | — |   |
| Other  sales, net                                                    |   | 2,547,201                          |      | 2,226,178 |   |
| NET  SALES                                                           |   | 5,821,637                          |      | 2,226,178 |   |
| COST  OF SALES                                                       |   | 4,477,313                          |      | 1,983,391 |   |
| Gross  Profit                                                        |   | 1,344,324                          |      | 242,787 |   |
|                                                                 |   |                               |      |   |   |
| OPERATING  EXPENSES                                                  |   |                               |      |   |   |
| Engineering                                                          |   | 515,320                            |      | 576,923 |   |
| Selling                                                              |   | 329,707                            |      | 262,332 |   |
| Administration                                                       |   | 278,511                            |      | 724,503 |   |
| Amortization  of intangible assets                                   |   | 75,000                             |      | 75,000 |   |
| Total  Operating Expenses                                            |   | 1,198,538                          |      | 1,638,758 |   |
| Operating  Income (Loss)                                             |   | 145,786                            |      | (1,395,971 | ) |
|                                                                 |   |                               |      |   |   |
| OTHER  (EXPENSES) INCOME                                             |   |                               |      |   |   |
| Interest  Expense, Net                                               |   | (220,361                           | )         | (213,475 | ) |
| Other  Income, Net                                                   |   | 156,268                            |      | 177,504 |   |
| Net  Income (Loss)                                                   |   | 81,693                             |      | (1,431,942 | ) |
|                                                                 |   |                               |      |   |   |
| Dividends  on 8% convertible preferred stock                         |   | —                             |      | (14,028 | ) |
|                                                                 |   |                               |      |   |   |
| NET  INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS                 |   | $                                  | 81,693    |   | $ | (1,445,970 | ) |
|                                                                 |   |                               |      |   |   |
| NET  INCOME LOSS PER COMMON SHARE — BASIC AND DILUTED           |   | $                                  | 0.01      |   | $ | (0.21 | ) |
| WEIGHTED  AVERAGE COMMON SHARES OUTSTANDING — BASIC AND DILUTED |   | 7,409,608                          |      | 6,981,161 |   |

 

**Seenotes to consolidated financial statements**

 

4

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**AcrodyneCommunications, Inc.**

**ConsolidatedStatements of Cash Flows     (Unaudited)**

 
|                                                                                                 |   | **For the  Three Months Ended** |    |
|------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|
|                                                                                                 |   | **March 31,  2002**             |    | **March 31,  2001** |   |
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                                               |   |                            |    |   |   |
| Net  Income (Loss)                                                                                   |   | $                               | 81,693  |   | $ | (1,431,942 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by (used in) operating  activities: |   |                            |    |   |   |
| Depreciation  and amortization                                                                       |   | 97,266                          |    | 156,273 |   |
| Increase  in capital lease obligations                                                               |   | 110,105                         |    | — |   |
| Changes  in assets and liabilities:                                                                  |   |                            |    |   |   |
| Accounts  receivable                                                                                 |   | (279,626                        | )       | 417,547 |   |
| Inventories                                                                                          |   | 151,481                         |    | 580,028 |   |
| Prepaid  expenses and deposits                                                                       |   | (39,264                         | )       | 48,975 |   |
| Accounts  payable                                                                                    |   | (129,534                        | )       | (27,856 | ) |
| Accrued  expenses                                                                                    |   | (281,907                        | )       | 283,076 |   |
| Deferred  revenue                                                                                    |   | —                          |    | (830,332 | ) |
| Other  current liabilities                                                                           |   | 289,538                         |    | (245,815 | ) |
| Customer  advances                                                                                   |   | 291,132                         |    | (142,490 | ) |
| Net  cash provided by (used in) operating activities                                                 |   | 290,884                         |    | (1,192,537 | ) |
|                                                                                                 |   |                            |    |   |   |
| CASH  FROM INVESTING ACTIVITIES:                                                                     |   |                            |    |   |   |
| Purchase  of property, plant, and equipment                                                          |   | (3,229                          | )       | (1,358 | ) |
| Net  cash used in investing activities                                                               |   | (3,229                          | )       | (1,358 | ) |
|                                                                                                 |   |                            |    |   |   |
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                                               |   |                            |    |   |   |
| Proceeds  from the issuance of warrants                                                              |   | —                          |    | 336,000 |   |
| Borrowings  under line of credit                                                                     |   | —                          |    | 1,341,247 |   |
| Cash  dividends on convertible preferred stock                                                       |   | —                          |    | (14,028 | ) |
| Net  cash provided by financing activities                                                           |   | —                          |    | 1,663,219 |   |
|                                                                                                 |   |                            |    |   |   |
| Net  increase in cash and cash equivalents                                                           |   | 287,655                         |    | 469,324 |   |
| Cash  and cash equivalents at beginning of period                                                    |   | 17,687                          |    | 86,959 |   |
| Cash  and cash equivalents at end of period                                                          |   | $                               | 305,342 |   | $ | 556,283 |   |
|                                                                                                 |   |                            |    |   |   |
| Supplemental  Cash Flow Information:                                                                 |   |                            |    |   |   |
| Cash  paid for interest                                                                              |   | $                               | —  |   | $ | — |   |

 

**Seenotes to consolidated financial statements**

 

5

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**Acrodyne Communications, Inc.**

**Notes to Consolidated Financial Statements (unaudited)**

 

**1.             Unaudited Consolidated FinancialStatements**

 

The accompanying consolidated balancesheets of Acrodyne Communications, Inc. and its subsidiaries (the “Company” or“Acrodyne”) at March 31, 2002 and the related consolidated statements ofoperations and of cash flows for the three months ended March 31, 2002 and 2001have been prepared by management.  Inthe opinion of management, all adjustments (consisting of normal recurringadjustments only) necessary to present fairly the financial position at March31, 2002 and the results of operations and cash flows for the three monthsended March 31, 2002 and 2001 have been made.

 

These consolidated financial statements should be read in conjunctionwith the financial statements and notes thereto included in the Company’sAnnual Report on Form 10-KSB for the year ended December 31, 2001 filed withthe Securities and Exchange Commission. The results of operations for interim periods are not necessarilyindicative of the results to be obtained for the entire year.

 

**2.         ****Inventories**

 

            Inventories comprise:

 
|                              |   | **March 31,  2002** |      | **December 31,  2001** |   |
|-----------------------------------|--------|---------------------|-----------|------------------------|--------|
| Raw materials                     |   | $                   | 2,353,899 |                   | $      | 2,192,096 |   |
| Work in process                   |   | 136,458             |      | 449,742                |   |
| Finished goods                    |   | 116,110             |      | 116,110                |   |
| Total Inventory                   |   | 2,606,467           |      | 2,757,948              |   |
| Allowance for  obsolete inventory |   | (1,476,436          | )         | (1,476,436             | )      |
|                              |   |                |      |                   |   |
| Inventory, net                    |   | $                   | 1,130,031 |                   | $      | 1,281,512 |   |

 

**3.             Property and Equipment**

 

                Propertyand equipment consist of the following:

 
|                                       |   | **March 31,  2002** |      | **December 31,  2001** |   |
|--------------------------------------------|--------|---------------------|-----------|------------------------|--------|
| Test Equipment                             |   | $                   | 690,273   |                   | $      | 690,273 |   |
| Machinery and  equipment                   |   | 52,755              |      | 52,755                 |   |
| Office furniture  and equipment            |   | 440,095             |      | 436,866                |   |
| Building  lease/leasehold improvements     |   | 3,781,167           |      | 3,781,167              |   |
| Purchased  computer software               |   | 120,646             |      | 120,646                |   |
|                                       |   | 5,084,936           |      | 5,081,707              |   |
|                                       |   |                |      |                   |   |
| Accumulated  depreciation and amortization |   | (1,407,004          | )         | (1,309,738             | )      |
| Property, plant  and equipment, net        |   | $                   | 3,677,932 |                   | $      | 3,771,969 |   |

 

6

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**4.**             **Earnings PerShare**

 

Basic earnings (loss) per share iscomputed by dividing the net loss available to common shareholders by theweighted average number of shares outstanding during the period.  Diluted earnings (loss) per share iscomputed using the weighed average number of shares determined for the basiccomputations plus the number of shares of common stock that would be issuedassuming all contingently issuable shares having a dilutive effect on earningsper share were outstanding for the period.

 

The following table sets forth thecomputation of basic and diluted earnings per share

 
|                                                                     |   | **Three months ended** |   |
|--------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                     |   | **March 31, 2002**     |   | **March 31, 2001** |   |
| Numerator                                                                |   |                   |   |   |   |
| Net income (loss)                                                        |   | $                      | 81,693 |   | $ | (1,445,970 | ) |
|                                                                     |   |                   |   |   |   |
| Denominator                                                              |   |                   |   |   |   |
| Denominator for basic income per share — weighted average  shares   |   | 7,409,608              |   | 6,981,161 |   |
|                                                                     |   |                   |   |   |   |
| Dilutive effect of options and warrants                                  |   | —                 |   | — |   |
| Denominator for diluted income per share — weighted average  shares |   | 7,409,608              |   | 6,981,161 |   |
|                                                                     |   |                   |   |   |   |
|                                                                     |   |                   |   |   |   |
| Basic income per share                                                   |   | $                      | 0.01   |   | $ | (0.21 | ) |
|                                                                     |   |                   |   |   |   |
| Diluted income per share                                                 |   | $                      | 0.01   |   | $ | (0.21 | ) |

 

Exercise price of outstanding optionsand warrants to purchase shares of the Company stock are in excess of the

market price and are excluded fromthe computation of diluted income per share.

 

STATEMENTOF OPERATIONS

 
|                                 |   | **Three months ended** |   |
|--------------------------------------|--------|------------------------|--------|
|                                 |   | **March 31, 2002**     |   | **March 31, 2001** |   |
| Per share of common stock:           |   |                   |   |   |   |
| Basic income per share               |   | $                      | 0.01   |   | $ | (0.21 | ) |
|                                 |   |                   |   |   |   |
| Diluted income per share             |   | $                      | 0.01   |   | $ | (0.21 | ) |
|                                 |   |                   |   |   |   |
| Weighted average shares outstanding: |   |                   |   |   |   |
|                                 |   |                   |   |   |   |
| Basic                                |   | 7,409,608              |   | 6,981,161 |   |
| Diluted                              |   | 7,409,608              |   | 6,981,161 |   |

 

7

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Due to the Company’s net loss in 2001the incremental shares issuable in connection with convertible preferred stock,stock options and warrants were anti-dilutive and, accordingly, are notconsidered in the calculation.

 

**5.             Related Party Transactions**

 

On January 27, 1999, Sinclairinvested $4,300,000 in the Company in return for 1,431,333 shares of theCompany’s common stock and warrants to purchase up to an aggregate of 8,719,225shares over a term of up to seven years at prices ranging from $3.00 to $6.00per share. Sinclair also acquired an additional 800,000 shares of common stockpreviously held by outside investors. On December 20, 1999, the Companycommitted to issue 112,000 shares to Sinclair with respect to the terms of aGuaranty and Lease Compensation Agreement (see discussion below).  As of December 31, 2000, the Company isobligated to issue 589,506 shares to Sinclair with respect to the terms of theGuaranty and Lease Compensation Agreement. As of March 31, 2002 and December 31, 2001, Sinclair held an aggregateof 2,418,333 shares of the Company’s common stock, representing approximately32.64% of issued common stock assuming no warrants are exercised.

 

During November 1999, the Companyentered into a Guaranty and Lease Compensation Agreement (the “GuarantyAgreement”) with Sinclair, intended to be effective September 16, 1999 inconnection with a $2,500,000 Credit Facility. As a condition of that loan the bank required Sinclair tounconditionally and irrevocably guarantee all of the Company’s obligation withrespect to the Credit Facility.  As compensationto Sinclair for the guarantee, the Company provided Sinclair with $200,000payable in Company common stock (based upon the closing price as quoted onSeptember 16, 1999) and on October 1, 2000 and payable each year thereafter,until the bank no longer required the guarantee from Sinclair, an amount equalto the average of the line of credit outstanding balances as of the last day ofeach of the preceding twelve months (not to be less than $1,700,000) multipliedby 12.5% and payable in the form of Company common stock.  In November 2000 Sinclair purchased thecredit facility and assumed all rights of the bank.  Sinclair filed the UCC liens against the Company’s personalproperty, which eliminated the Sinclair guaranty.

 

During March 2000, theCompany entered 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 theCompany attributable to the License Agreement. At 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, the Companyentered into a subordinated debenture agreement (the “Debenture”) with Sinclair.Under the terms of the Debenture, the Company may borrow up to $2,000,000 at aninterest rate of 10.5%. The first payment of interest shall be made April 1,2001 and on a monthly basis thereafter. Principal is payable upon demand by Sinclair. Further, Sinclair has theright, at any time, to convert all, but not less than all, of the principalowed to Sinclair into the Company’s common stock at

 

8

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$3.45 per share.  The Company had borrowed $2,000,000 underthe terms of this arrangement on March 31, 2002 and December 31, 2001.

 

In the first quarter of 2001 it wasdetermined by Sinclair that in order for Sinclair to meet their SEC publicfinancial filing requirements that Acrodyne would have to accelerate theiraudit schedule.  Sinclair agreed to pay$150,000 of Acrodyne’s audit fees for the year ended 2000, in order to meet theexpedited schedule.

 

**MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERARTION**S

 

OVERVIEW

 

**THE COMPANY**. We are Acrodyne Holdings, Inc., a Delawarecorporation, which was formed in May 1991. In 1995, we changed our name to Acrodyne Communications, Inc. which weoperate in one industry segment — the design, manufacture and marketing oftelevision transmitters and translators, which are sold in the United Statesand 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.

 

On January 27, 1999, we finalized a strategic agreement with theSinclair Broadcast Group, Inc. (“Sinclair”). Under this agreement Sinclair invested $4.3 million in consideration for1,431,333 shares of our common stock and the issuance of warrants to purchaseup to an aggregate of 8,719,225 shares over a term of seven years at pricesranging from $3.00 to $6.00 per share. Of such warrants, 6,000,000 areexercisable only upon our achievement of increased product sales of productswith new technology.  See additionaldiscussion in the Significant and Recent Events section of this document.

 

**Basis of Presentation**

 

Upon completion of the audit of our consolidated financial statementsfor the year ended December 31, 2001, 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 a going concern depends upon: (1)market acceptance of our new digital product; (2) our ability to generatesufficient revenues to achieve and sustain positive cash flow; and (3) ourability to raise the necessary capital to fund operating needs and finance theplanned investment.  The factors notedabove raise substantial doubt concerning our ability to continue as a goingconcern.  The consolidated financialstatements do not include any adjustments relating to the recoverability andclassification of asset carrying amounts or the amount and classification ofliabilities that might result should we be unable to continue as a goingconcern.  We are currently exploring ouroptions to raise capital.  Among theoptions is a potential recapitalization by Sinclair Broadcast Group(“Sinclair”).  Under the potentialrecapitalization,  Sinclair

 

9

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could receive additional common stock in exchange for certain amountsthat we owe to Sinclair.  As of May 14,2002 a recapitalization plan has not been executed.   Sinclair, however, has orally committed to purchase all UHFtransmitters requirements from us.

 

**SignificantAccounting Policies**

 

In June 2001, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards (“SFAS”) 141, *Business Combinations*, and SFAS 142, *Goodwill and Intangible Assets*.  SFAS 141 is effective for all business combinationscompleted after June 30, 2001.  SFAS 142is effective for fiscal years beginning after December 15, 2001; however,certain provisions of this Statement apply to goodwill and other intangibleassets acquired between July 1, 2001 and the effective date of SFAS 142.  Major provisions of these Statements andtheir effective dates for the Company are as follows:

 

•             All business combinations initiated afterJune 30, 2001 must use the purchase method of accounting.  The pooling of interests method of accountingis prohibited except for transactions initiated before July 1, 2001.

•             Intangible assets acquired in a businesscombination must be recorded separately from goodwill if they arise fromcontractual or other legal rights or are separable from the acquired entity andcan be sold, transferred, licensed, rented or exchanged, either individually oras part of a related contract, asset or liability.

•             Goodwill, as well as intangible assets withindefinite lives, acquired after June 30, 2001, will not be amortized.

•             Effective January 1, 2002, all previouslyrecognized goodwill and intangible assets with indefinite lives will no longerbe subject to amortization.

•             Effective January 1, 2002, goodwill andintangible assets with indefinite lives will be tested for impairment annuallyand whenever there is an impairment indicator.

•             All acquired goodwill must be assigned toreporting units for purposes of impairment testing and segment reporting.

 

On January 1, 2002, the Company adopted SFAS 142 and as required discontinuedamortization of goodwill and certain intangible assets determined to haveindefinite useful lives acquired prior to July 1, 2001.  This statement also required that within thefirst interim period of adoption, the intangible assets with indefinite livesshould be tested for impairment as of the date of adoption, and that if anyimpairment results, it should be recognized as a change in accountingprinciple.  Additionally, SFAS 142requires that, within six months of adoption, goodwill be tested for impairmentat the reporting unit level as of the date of adoption.  If any impairment is indicated to haveexisted upon adoption, it should be measured and recorded before the end of theyear of adoption.  SFAS 142 requiresthat any goodwill impairment loss recognized as a result of initial applicationbe reported in the first interim period of adoption as a change in accountingprinciple and that the income per share effects of the accounting change beseparately disclosed.  The Company hasno goodwill or indefinitely lived intangible assets.  The adoption of SFAS 142 had no impact on the financial, positionor  results of operations of theCompany.

 

In August 2001, the FASB issued SFAS 143, *Accounting for Asset Retirement Obligations*.  SFAS 143 applies to all entities, includingrate-regulated entities, that have legal obligations associated with theretirement of a tangible long-lived asset that result from acquisition,constructions or development and (or) normal operations of the long-livedasset.  The application of thisStatement is not limited to certain specialized industries, such as theextractive or nuclear industries.  ThisStatement also applies, for example, to a company that operates a manufacturingfacility and has a legal obligation to dismantle the manufacturing plant andrestore the underlying land when it ceases operation of that plant.  A liability for an asset retirementobligation should be recognized if the obligation meets the definition of aliability

 

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and can be reasonably estimated. The initial recording should be at fair value.  SFAS 143 is effective for financial statements issued for fiscalyears beginning after June 15, 2002, with earlier application encouraged.  The provisions of the Statement are notexpected to have a material impact on the financial condition or results ofoperations of the Company.

 

In August 2001, the FASB issued SFAS 144, *Accounting for the Impairment or Disposal of Long-Lived Assets*.  SFAS 144 retains the existing requirementsto recognize and measure the impairment of long-lived assets to be held andused or to be disposed of by sale. However, SFAS 144 makes changes to the scope and certain measurementrequirements of existing accounting guidance. SFAS 144 also changes the requirements relating to reporting the effectsof a disposal or discontinuation of a segment of a business.  SFAS 144 is effective for financial statementsissued for fiscal years beginning after December 15, 2001 and interim periodswithin those fiscal years.  The adoptionof this Statement did not have a significant impact on the financial conditionor results of operations of the Company.

 

Other Intangible Assets

 

Effective January 1, 2002, the Company adopted SFAS 142, “Goodwill andOther Intangible Assets.”  The followingtable reflects the components of intangible assets:

 
|                         |   | **March 31, 2002**         |      | **January 1, 2002**           |   |
|------------------------------|--------|----------------------------|-----------|-------------------------------|--------|
|                         |   | **Gross Carrying  Amount** |      | **Accumulated  Amortization** |   | **Gross Carrying  Amount** |   | **Accumulated  Amortization** |   |
| Amortized intangible assets: |   |                       |      |                          |   |   |   |   |   |
| License agreement            |   | $                          | 1,500,000 |                          | $      | 600,000 |   | $ | 1,500,000 |   | $ | 525,000 |   |
|                              |        |                            |           |                               |        |  |  |  |  |  |  |  |  |

 

The following sets forth the estimated amortization expense onintangible assets for the fiscal years ending December 31,:

 

| 2002 |   | $ | 300,000 |   |
|------|--------|---|---------|--------|
| 2003 |   | $ | 300,000 |   |
| 2004 |   | $ | 300,000 |   |
| 2005 |   | $ | 300,000 |   |
| 2006 |   | $ | 300,000 |   |

 

Income Taxes:

 

The Company recorded no taxexpense for the three months ended March 31, 2002.  Tax expense reflects the recording of income taxes at aneffective rate of 0%.  The effective ratediffers from the federal statutory rate primarily due to the use of netoperating loss carryforwards

 

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**BUSINESS OF ACRODYNE.** We have designed, manufactured and marketedtelevision transmitters and translators which have been sold in the UnitedStates and internationally since 1971. The function of a television transmitter is to broadcast over the airtelevision signals to a specific audience receiving such signals by regularantenna or by a local cable company, which then feeds the signal to theirsubscribers.  Television translators,which operate unattended, retransmit incoming signals from primary stations ondifferent channels within areas where direct reception of the original signalmay be limited by mountains or other geographic impediments.

 

**ACRODYNEPRODUCTS 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 modular 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 television transmitters feature enhanced linearamplifiers.   Such units feature easy toread diagnostic displays and meters which clearly indicate a unit’s operatingcondition.  Units automatically shut downfor self-protection if out-of-tolerance conditions are encountered. We believethat our television transmitters are relatively easy to maintain since theyutilize common modules and parts.  Otheroperating features include full remote control, telemetry and status functions,and a modular design which allows for cost-effective expansion to higher outputpower levels.

 

**NEW PRODUCTS**

 

**We expanded our solid state productline to 40 kilowatts analog and 10 kilowatts digital**

 

The forthcoming digitization of television networks in the UnitedStates, the world’s single most significant market for television transmitters,has created greater demand for digital broadcasting technology.  This demand offers the opportunity to takeadvantage of the emerging market, not only with high power transmitters, butalso with solid-state and medium power transmitters.  On November 29, 1999, Acrodyne and Rohde & Schwartz, theworld’s foremost manufacturer of solid-state transmitters formed a strategicalliance.  The Rohde & Schwarz groupof companies, with headquarters in Munich, Germany, develops, produces andmarkets communication test and measurement instruments and systems.  It gave exclusive rights to us to market andsell Rohde & Schwarz solid state transmitter 

 

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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 lineof IOT-equipped television transmitters developed at Sinclair**

 

In March 2000, we reached a definitive agreement with Sinclair toexclusively manufacture and sell the Sinclair designed “Quantum” IOTtransmitter line.  Sinclair created thisnewly developed line of transmitter products at its Hunt Valley, Maryland,headquarters to meet its own internal digital and analog requirements and haslicensed this technology to us.  TheQuantum line was conceived by broadcasters and designed by the same Emmy awardwinning talents that invented IOT transmitters over ten years ago.  The digital version of the Quantum line isdesigned to be capable of both 8-VSB and COFDM service.  We introduced this advanced line oftransmitters at the National Association of Broadcasters April 2001 Show in LasVegas.

 

With the addition of the Rohde & Schwarz solid-state productsand  the new Quantum IOT products, wefeel that we have the broadest transmitter product line in the industry.

### *** ***

### ***OPERATIONS AND BUSINESS RISK***

 

Due to the nature of our business, we are subject to various risksincluding, but not limited to, technological and market acceptance of our product,capital availability, dependence on management and other risks.

 

We have been in the process of developing products and applicationsusing digital transmission technology. Related to this process, we entered into a license agreement withSinclair in March 2001 (see Note 5).  Weshipped the first of our digital transmitters in March 2001.  To date, most of the orders for our digitalproduct are from Sinclair.

 

Since the acquisition of AcrodyneIndustries in 1994, we have incurred significant losses including a net loss of$2,569,204 and a cash flow deficit of $3,877,708 in 2001.  These losses and cash flow deficits havebeen funded primarily with proceeds from the sale of equity securities,including $225,000 and $3,805,374 from common stock and warrants sold toSinclair in 2000 and 1999, respectively, a $2,000,000 subordinated debentureprovided by Sinclair, our Credit Facility with Sinclair (see Note 5) andcustomer advances. As of March 31, 2002 and December 31, 2001 Sinclair owned32.6% of our common stock, and has warrants to purchase 8,644,225 additionalshares (see Notes 5), which represented 60.4% of our common stock on a fullydiluted basis.

 

On April 27, 2001, we entered into an additional $4,000,000 line ofcredit facility with Sinclair.   Thisline of credit requires monthly interest-only payments at a fixed rate ofinterest of 12% per annum and matures upon demand by Sinclair.  Our ability to continue as a going concerndepends upon: (1) market acceptance of our new digital product; (2) our abilityto generate

 

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sufficient revenues to achieve and sustain positive cash flow; and (3)our ability to raise the necessary capital to fund operating needs and financethe planned investment.  The factorsnoted above raise substantial doubt concerning our ability to continue as agoing concern. The consolidated financial statements do not include anyadjustments relating to the recoverability and classification of asset carryingamounts or the amount and classification of liabilities that might resultshould we be unable to continue as a going concern.  We are currently exploring options available to raisecapital.  Among the options is apotential recapitalization by Sinclair. Under terms of the proposed recapitalization which has yet to beexecuted, Sinclair could receive additional common stock in exchange of certainamounts owed to Sinclair by us and could cancel certain existing warrants andreceive additional warrants as part of a new secured line of credit.  Sinclair, however, has orally committed topurchase all UHF transmitter requirements from us.

 

**RESULTS OF OPERATIONS**

 

The following compares the Company’ssummary results of operations for the three months ended March 31, 2002 to thethree months ended March 31, 2001:

 
| **Three  Months Ended March 31 (unaudited)** |   |
|----------------------------------------------|--------|
|                                         |   | **2002** |   | **2001** |   |
| Net  Sales                                   |   | $ | 5,821,637 |   | 100.0 | % | $ | 2,226,178 |   | 100.0 | % |
| Cost  of Sales                               |   | 4,477,313 |   | 76.9 | % | 1,983,391 |   | 89.1 | % |
| Gross  Profit                                |   | 1,344,324 |   | 23.1 | % | 242,787 |   | 10.9 | % |
| Operating  Expenses                          |   | 1,198,538 |   | 20.6 | % | 1,638,758 |   | 73.6 | % |
| Operating  Income (Loss)                     |   | $ | 145,786 |   | 2.5 | % | $ | (1,395,971 | ) | (62.7 | )% |

 

Sales increased by $3,595,459 or 162% for the three months ended March31, 2002 as compared to the three months ended March 31, 2001.  In the first quarter of 2001 the Company waschanging its production to the new, high power, Quantum line oftransmitters.  Production and sales ofthe new product had not yet begun. Sales that were recorded during this period consisted of customerservice, spare parts, and the remaining backlog of older model, lower powertransmitters.  In the first quarter of2002 sales were recorded for the new Quantum line, installation oftransmitters, and Rohde and Schwartz transmitters under an exclusivedistribution agreement.

 

Gross margin on sales increased to 23% for the first quarter 2002 ascompared to 11% for same period in 2001. During both periods a charge of 5% of sales was recorded in cost ofsales for potential warranty claims. That percentage will be adjusted up or down in future periods dependingupon warranty expense incurred.  Thereis not enough history on installed, operating transmitters to revise thisnumber currently.  Margins for thequarter of 2001 were adversely affected by lower sales volume.

 

Operating expenses decreased substantially in the firstquarter of 2002, both in absolute dollars, $440,220, and as a percentage ofsales, from 73.6% to 20.6%.  There was acharge recorded of $336,000 in the first quarter of 2001, which was the fairvalue of warrants issued as settlement of a shareholder lawsuit.  In addition, maintaining stability andimproving efficiencies in operating expenses are consistent with the Company’sstrategy to restructure, rebuild and improve, in anticipation of significant growthof the new IOT (Quantum) product.  

 

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**LIQUIDITY AND CAPITAL RESOURCES**

 

Historically, we have financed ouractivities primarily from customer advances, internally generated funds,proceeds from the sale of equity securities and use of our creditfacilities.  At March 31, 2002, we had aworking capital deficit of  $11,742,689compared to a working capital deficit of $11,911,144 at December 31, 2001.  The reduced deficit resulted from increasesin cash and accounts receivable being offset by increases in liabilities forcustomer deposits, the current portion of lease obligations, license feespayable to Sinclair, and accruals for warranty reserves.

 

In September 1999, we established a new $2,500,000 credit facility (the“Credit Facility”) arrangement with a bank for working capital purposes toreplace our then existing bank credit facilities.  As of December 31, 1999, we were not in compliance with terms ofthe credit facility.  The bank provideda waiver for the 1999 event of default. The credit facility was collateralized by all of our personal propertyand expired on October 31, 2000.  Inconnection with obtaining this facility, the bank required, as a condition ofthe loan, that Sinclair unconditionally and irrevocably guarantee all of ourobligations under the facility.  Weagreed to issue Sinclair $200,000 of our common stock (83,000 shares) ascompensation for the guarantee.  InOctober 2000, Sinclair purchased the line of credit from the bank and filedrelated UCC liens against our personal property, which eliminated the Sinclairguarantee.  At March 31, 2002 andDecember 31, 2001 the borrowing on this facility was $1,158,753.  On April 27, 2001, we secured an additional$4,000,000 line of credit facility with Sinclair.  The credit facility requires monthly interest-only payments at afixed rate of interest of 12% per annum and matures upon demand bySinclair.  At March 31, 2002 we hadborrowed approximately $3,975,000 against the line.

 

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 arecurrently exploring options available to raise capital.  Among the options is a potential recapitalizationby Sinclair.  Under terms of theproposed recapitalization which has yet to be executed, Sinclair could receiveadditional common stock in exchange of certain amounts owed to Sinclair by usand could cancel certain existing warrants and receive additional warrants aspart of a new secured line of credit. Sinclair, however, has orally committed to purchase all UHF transmitterrequirements from us.

 

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#### **Significant and Recent Events**

 

The SEC is currently conducting an investigation of the factsand circumstances that required the company’s financial statements and filingsto be restated for the year ending 1999 and the first two quarters of2000.  Acrodyne has not been chargedwith any wrongdoing, is cooperating fully with the investigation, and hassupplied documents to assist in the SEC investigation.  Several former employees, a current employeeof the company, as well as a Sinclair employee have been subpoenaed andtestified before attorneys for the SEC. The duration, facts, and outcome of the investigation cannot beestimated by the company at this time.

 

**ForwardLooking Statements**

 

Certain statements contained in this report that do not relate tohistorical information are “forward looking statements” within the meaning ofthe United States 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,projected or implied by such forward-looking statements.  Such factors include, but are not limitedto, economic, competitive, and broadcast industry conditions.  These factors are discussed in greaterdetail in the Company’s filings with the United States Securitiesregulators.  The Company disclaims anyresponsibility to update any such forward-looking statements.

 

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ACRODYNE COMMUNICATIONS, INC.

PART II. OTHER INFORMATION

 

Item 6.    None

 

                (a)           NoExhibits

 

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SIGNATURES

 

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

 
|                     |   | Acrodyne Communications, Inc.                    |                        |   |
|--------------------------|--------|--------------------------------------------------|-----------------------------|--------|
|                     |   | (Registrant)                                     |                        |
|                     |   |                                             |                        |
| Date:  May 14, 2002 |   | By                                               | /s/ John Strzelecki         |   |   |
|                     |   | John Strzelecki, Executive Vice  President,      |                        |
|                     |   |                                             |                        |
|                     |   |                                             |                        |
|                     |   | By                                               | /s/ Robert E. Woodruff, Jr. |   |   |
|                     |   | Robert E. Woodruff, Jr., Chief Financial Officer |                        |
|                          |        |                                                  |                             |        |  |  |  |

 

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