**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 June 30,  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                        |   | (I.R.S. Employer    |
| incorporation or organization)                         |   | Identification No.) |
|                                                   |   |                |
| **10706 Beaver Dam  Road**                             |   |                |
| **Cockeysville, MD**                                   |   | **21030**           |
| (Address of principal executive  offices)              |   | (Zip Code)          |
|                                                   |   |                |
| Issuer’s telephone number:  **410-568-1629** |   |                |

 

 

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 ýNo o

 

State the number of sharesoutstanding of each of the issuer’s classes of common equity, as of the latestpracticable date: 7,409,608 shares of common stock of Acrodyne Communications,Inc. were outstanding on August 7, 2002.

 

 

----

 

**ACRODYNE COMMUNICATIONS, INC.**

 

INDEX

 

 
| PART I.  FINANCIAL INFORMATION:                  |
|-------------------------------------------------------|
|                                                  |
|                                                  | Item 1.   Financial Statements |
|                                                  |
|                                                  | Consolidated Balance Sheets  at June 30, 2002 (unaudited) and December 31, 2001 |
|                                                  |   |
|                                                  | Consolidated  Statements of Operations for the Six Months Ended June 30, 2002 and 2001  (unaudited) |
|                                                  |   |
|                                                  | Consolidated  Statements of Cash Flows for the Six Months Ended June 30, 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**

 
|                                                                                                                                                       |   | **June 30,  2002** |      | **December  31,  2001** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|-------------------------|--------|
|                                                                                                                                                       |   | (unaudited)        |      | (audited)               |   |
| **ASSETS**                                                                                                                                                 |   |               |      |                    |   |
| CURRENT  ASSETS:                                                                                                                                           |   |               |      |                    |   |
| Cash  and cash equivalents                                                                                                                                 |   | $                  | 974,933   |                    | $      | 17,687 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $500,000 at both June  30, 2002 and December 31, 2001, respectively                        |   | 1,214,475          |      | 1,466,788               |   |
| Inventories,  net                                                                                                                                          |   | 1,520,242          |      | 1,281,512               |   |
| Prepaid  assets and deposits                                                                                                                               |   | 180,633            |      | 44,955                  |   |
| Total  current assets                                                                                                                                      |   | 3,890,283          |      | 2,810,942               |   |
| PROPERTY,  PLANT AND EQUIPMENT, net                                                                                                                        |   | 3,598,078          |      | 3,771,969               |   |
| LICENSE  AGREEMENT, net of accumulated amortization of $675,000 and $525,000 at June  30, 2002 and December 31, 2001, respectively                         |   | 825,000            |      | 975,000                 |   |
| Total  assets                                                                                                                                              |   | $                  | 8,313,361 |                    | $      | 7,557,911 |   |
|                                                                                                                                                       |   |               |      |                    |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                                                                                   |   |               |      |                    |   |
| CURRENT  LIBILITIES:                                                                                                                                       |   |               |      |                    |   |
| 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                                                                                                              |   | 351,237            |      | 116, 478                |   |
| Accounts  payable                                                                                                                                          |   | 1,755,804          |      | 1,946,907               |   |
| Accrued  expenses                                                                                                                                          |   | 1,057,769          |      | 1,185,828               |   |
| Customer  advances                                                                                                                                         |   | 3,229,643          |      | 2,879,995               |   |
| Deferred  revenue                                                                                                                                          |   | 14,103             |      | 14,103                  |   |
| Other  current liabilities                                                                                                                                 |   | 1,901,167          |      | 1,445,016               |   |
| Total  current liabilities                                                                                                                                 |   | 15,443,482         |      | 14,722,086              |   |
| CAPITAL  LEASE OBLIGATION, net of current portion                                                                                                          |   | 3,745,466          |      | 3,757,987               |   |
| LICENSE  FEE PAYABLE - long term                                                                                                                           |   | 825,000            |      | 975,000                 |   |
| NON-COMPETE  LIABILITY                                                                                                                                     |   | 845,912            |      | 845,912                 |   |
| Total  liabilities                                                                                                                                         |   | 20,859,860         |      | 20,300,985              |   |
| SHAREHOLDERS’  EQUITY (DEFICIT)                                                                                                                       |   |               |      |                    |   |
| Common  stock, par value $.01; 30,000,000 shares authorized; 7,409,608 shares issued  and outstanding at June 30, 2002 and December 31, 2001, respectively |   | 74,096             |      | 74,096                  |   |
| Additional  paid-in-capital                                                                                                                                |   | 22,071,641         |      | 22,071,641              |   |
| Accumulated  deficit                                                                                                                                       |   | (34,692,236        | )         | (34,888,811             | )      |
| Total  shareholders’ equity (deficiency)                                                                                                              |   | (12,546,499        | )         | (12,743,074             | )      |
| TOTAL  LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)                                                                                                 |   | $                  | 8,313,361 |                    | $      | 7,557,911 |   |

 

**See notes to consolidated financialstatements**

 

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**AcrodyneCommunications, Inc.**

**ConsolidatedStatements of Operations****    (Unaudited)**

 
|                                                                     |   | **Three Months Ended****June 30,** |            | **Six Months Ended****June 30,** |        |
|--------------------------------------------------------------------------|--------|------------------------------------|-----------------|----------------------------------|-------------|
|                                                                     |   | **2002**                           |            | **2001**                         |        | **2002** |   | **2001** |   |
|                                                                     |   |                               |            |                             |        |   |   |   |   |
| **NET SALES**                                                            |   |                               |            |                             |        |   |   |   |   |
| **Related party sales, net**                                             |   | $                                  | 4,377,881  |                             | $           | 409,762  |   | $ | 7,652,317 |   | $ | 409,762 |   |
| **Other sales, net**                                                     |   | 1,488,012                          |            | 262,572                          |        | 4,035,213 |   | 2,488,750 |   |
| **NET SALES**                                                            |   | 5,865,893                          |            | 672,334                          |        | 11,687,530 |   | 2,898,512 |   |
| **COST OF SALES**                                                        |   | 4,023,226                          |            | 751,499                          |        | 8,500,539 |   | 2,734,890 |   |
| **Gross Profit (Loss)**                                                  |   | 1,842,667                          |            | (79,165                          | )           | 3,186,991 |   | 163,622 |   |
|                                                                     |   |                               |            |                             |        |   |   |   |   |
| **OPERATING EXPENSES**                                                   |   |                               |            |                             |        |   |   |   |   |
| **Engineering**                                                          |   | 537,651                            |            | 586,403                          |        | 1,052,971 |   | 1,163,327 |   |
| **Selling**                                                              |   | 427,399                            |            | 284,657                          |        | 757,106 |   | 546,989 |   |
| **Administration**                                                       |   | 548,770                            |            | 631,217                          |        | 827,281 |   | 1,355,720 |   |
| **Amortization of intangible assets**                                    |   | 75,000                             |            | 75,000                           |        | 150,000 |   | 150,000 |   |
| **Total Operating Expenses**                                             |   | 1,588,820                          |            | 1,577,277                        |        | 2,787,358 |   | 3,216,036 |   |
| **Operating Income (Loss)**                                              |   | 253,847                            |            | (1,656,442                       | )           | 399,633 |   | (3,052,414 | ) |
|                                                                     |   |                               |            |                             |        |   |   |   |   |
| **OTHER (EXPENSES) INCOME**                                              |   |                               |            |                             |        |   |   |   |   |
| **Interest Expense, Net**                                                |   | (212,533                           | )               | (217,494                         | )           | (432,894 | ) | (430,968 | ) |
| **Other Income (Loss), Net**                                             |   | 73,569                             |            | (5,284                           | )           | 229,837 |   | 172,220 |   |
| **Net Income (Loss)**                                                    |   | 114,883                            |            | (1,879,220                       | )           | 196,576 |   | (3,311,162 | ) |
|                                                                     |   |                               |            |                             |        |   |   |   |   |
| **Dividends on 8% convertible preferred stock**                          |   | 0                                  |            | (14,028                          | )           | 0 |   | (28,056 | ) |
| **NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS**                  |   | $                                  | 114,883         |                             | ($1,893,248 | ) | $ | 196,576 |   | ($3,339,218 | ) |
|                                                                     |   |                               |            |                             |        |   |   |   |   |
| **NET INCOME (LOSS) PER COMMON SHARE – BASIC AND DILUTED**          |   | $                                  | 0.02            |                             | $           | (0.27 | ) | $ | 0.03 |   | $ | (0.48 | ) |
| **WEIGHTED AVERAGE COMMON SHARES OUTSTANDING – BASIC AND  DILUTED** |   | 7,409,608                          |            | 6,981,161                        |        | 7,409,608 |   | 6,981,161 |   |

 

**Seenotes to consolidated financial statements**

 

4

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**AcrodyneCommunications, Inc.**

**ConsolidatedStatements of Cash Flows****    (Unaudited)**

** **
|                                                                                      |   | **Six Months Ended** |    |
|-------------------------------------------------------------------------------------------|--------|----------------------|---------|
|                                                                                      |   | **June 30,2002**     |    | **June 30,2001** |   |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                                 |   |                 |    |   |   |
| **Net Income (Loss)**                                                                     |   | $                    | 196,576 |   | $ | (3,311,162 | ) |
| **Adjustments to reconcile net income (loss) to net cash used  in operating activities:** |   |                 |    |   |   |
| **Depreciation and amortization**                                                         |   | 190,530              |    | 355,885 |   |
| **Increase in capital lease obligations**                                                 |   | 222,236              |    | — |   |
| **Changes in assets and liabilities:**                                                    |   |                 |    |   |   |
| **Accounts receivable and other**                                                         |   | 252,313              |    | 483,261 |   |
| **Inventories**                                                                           |   | (238,730             | )       | (454,788 | ) |
| **Prepaid expenses and deposits**                                                         |   | (135,678             | )       | 10,211 |   |
| **Accounts payable**                                                                      |   | (191,103             | )       | 8,485 |   |
| **Accrued expenses**                                                                      |   | (128,059             | )       | 564,395 |   |
| **Other current liabilities**                                                             |   | 456,151              |    | 18,864 |   |
| **Deferred revenue**                                                                      |   | —               |    | (830,332 | ) |
| **Customer advances**                                                                     |   | 349,648              |    | 1,245,064 |   |
| **Net cash provided (used) in operating activities**                                      |   | 973,884              |    | (1,910,117 | ) |
|                                                                                      |   |                 |    |   |   |
| **CASH FROM INVESTING ACTIVITIES:**                                                       |   |                 |    |   |   |
| **Purchase of property, plant, and equipment**                                            |   | (16,638              | )       | (8,329 | ) |
| **Net cash provided (used) in investing activities**                                      |   | (16,638              | )       | (8,329 | ) |
|                                                                                      |   |                 |    |   |   |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                                 |   |                 |    |   |   |
| **Proceeds from the issuance of warrants**                                                |   | —               |    | 336,000 |   |
| **Borrowings under line of credit**                                                       |   | —               |    | 2,254,222 |   |
| **Capital lease and license agreement**                                                   |   | —               |    | (147,624 | ) |
| **Cash dividends on convertible preferred stock**                                         |   | —               |    | (28,056 | ) |
| **Net cash provided by financing activities**                                             |   | —               |    | 2,414,542 |   |
|                                                                                      |   |                 |    |   |   |
| **Net increase in cash and cash equivalents**                                             |   | 957,246              |    | 496,096 |   |
| **Cash and cash equivalents at beginning of period**                                      |   | 17,687               |    | 86,959 |   |
| **Cash and cash equivalents at end of period**                                            |   | $                    | 974,933 |   | 583,055 |   |
|                                                                                           |        |                      |         |  |  |  |  |

 

**Seenotes to consolidated financial statements**

 

5

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**Acrodyne Communications, Inc.**

**Notes to Consolidated FinancialStatements (unaudited)**

 

**1.             UnauditedConsolidated Financial Statements**

 

The accompanying consolidated balance sheets of AcrodyneCommunications, Inc. and its subsidiaries (the “Company” or “Acrodyne”) at June30, 2002 and the related consolidated statements of operations and of cashflows for the six months ended June 30, 2002 and 2001 have been prepared bymanagement.  In the opinion ofmanagement, all adjustments (consisting of normal recurring adjustments only)necessary to present fairly the financial position at June 30, 2002, and theresults of operations and cash flows for the six months ended June 30, 2002 and2001 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 as 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 are comprised of:

 
|                             |   | **June 30,  2002** |      | **December  31,  2001** |   |
|----------------------------------|--------|--------------------|-----------|-------------------------|--------|
|                             |   |               |      |                    |   |
| Raw materials                    |   | $                  | 2,707,320 |                    | $      | 2,192,096 |   |
| Work in process                  |   | 173,248            |      | 449,742                 |   |
| Finished Goods                   |   | 116,110            |      | 116,110                 |   |
| Total inventory                  |   | 2,996,678          |      | 2,757,948               |   |
| Allowance for obsolete inventory |   | (1,476,436         | )         | (1,476,436              | )      |
| Inventory (net)                  |   | $                  | 1,520,242 |                    | $      | 1,281,512 |   |

 

**3.               ****Property and Equipment**

 

Property and equipment consist of the following:

 
|                                      |   | **June 30,  2002** |      | **December  31,  2001** |   |
|-------------------------------------------|--------|--------------------|-----------|-------------------------|--------|
|                                      |   |               |      |                    |   |
| Test Equipment                            |   | $                  | 692,632   |                    | $      | 690,273 |   |
| Machinery and equipment                   |   | 63,805             |      | 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                 |   |
|                                      |   | 5,098,345          |      | 5,081,707               |   |
| Accumulated depreciation and amortization |   | (1,500,268         | )         | (1,309,738              | )      |
| Property, plant and equipment, net        |   | $                  | 3,598,077 |                    | $      | 3,771,969 |   |

 

6

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**4.             EarningsPer Share**

 

Basic earnings (loss) per share is computed by dividing the net lossavailable to common shareholders by the weighted average number of sharesoutstanding during the period.  Dilutedearnings (loss) per share is computed using the weighted average number of sharesdetermined for the basic computations plus the number of shares of common stockthat would be issued assuming all contingently issuable shares having adilutive effect on earnings per share were outstanding for the period.

 

The following table sets forth the computation of basic and diluted earningsper share.

 
|                                                                   |   | **Three Months Ended** |    | **Six Months Ended** |   |
|------------------------------------------------------------------------|--------|------------------------|---------|----------------------|--------|
|                                                                   |   | **June**               |    | **June**             |   |
|                                                                   |   | **2002**               |    | **2001**             |   | **2002** |   | **2001** |   |
| Numerator                                                              |   |                   |    |                 |   |   |   |   |   |
| Net income (loss)                                                      |   | $                      | 114,883 |                 | $      | (1,893,248 | ) | $ | 196,576 |   | $ | (3,339,218 | ) |
|                                                                   |   |                   |    |                 |   |   |   |   |   |
| Denominator                                                            |   |                   |    |                 |   |   |   |   |   |
| Denominator for basic income Per share – weighted average  shares |   | 7,409,608              |    | 6,981,161            |   | 7,409,608 |   | 6,981,161 |   |
|                                                                   |   |                   |    |                 |   |   |   |   |   |
| Dilutive effect of options and warrants                                |   | —                 |    | —               |   | — |   | — |   |
| Basic income (loss) per share                                          |   | $                      | 0.02    |                 | $      | (0.27 | ) | $ | 0.03 |   | $ | (0.48 | ) |
|                                                                   |   |                   |    |                 |   |   |   |   |   |
| Diluted income (loss) per share                                        |   | $                      | 0.02    |                 | $      | (0.27 | ) | $ | 0.03 |   | $ | (0.48 | ) |

 

Exercise price of outstanding options and warrants to purchase sharesof the Company stock are in excess of the market price and are excluded fromthe computation of diluted income per share.

 

Due to the Company’s net loss in 2001 the incremental shares issuablein connection with convertible preferred stock, stock options and warrants wereanti-dilutive and, accordingly, are not considered in the calculation.

 

 

**5.             Related Party Transactions**

 

On January 27, 1999, Sinclair invested $4,300,000 in the Company inreturn for 1,431,333 shares of the Company’s common stock and warrants topurchase up to an aggregate of 8,719,225 shares over a term of up to sevenyears at prices ranging from $3.00 to $6.00 per share. Sinclair also acquiredan additional 800,000 shares of common stock previously held by outsideinvestors. On December 20, 1999, the Company committed to issue 112,000 sharesto Sinclair with respect to the terms of a Guaranty and Lease CompensationAgreement (see discussion below).  As ofDecember 31, 2000, the Company is obligated to issue 589,506 shares to Sinclairwith respect to the terms of the Guaranty and Lease Compensation Agreement.  As of June 30, 2002 and December 31, 2001,Sinclair held an aggregate of 2,418,333 shares of the Company’s common stock,representing approximately 32.6% of issued common stock assuming no warrantsare exercised.

 

7

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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 June 30, 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 June 30, 2002 we hadborrowed approximately $3,975,000 against the line.

 

On November 19, 1999 we entered into a sublease agreement with Sinclairfor approximately 44,000 square feet of space on Hollow Road in UpperProvidence, Montgomery County, Pennsylvania. Our relocation to this facility was completed in the fourth quarter of2000.  The lease commenced at thattime.  Lease payments were not made dueto liquidity and are recorded as current liabilities on the balance sheet.

 

During March 2000, the Company entered into a 10-year license agreement(the “License Agreement”) with Sinclair for the exclusive right to manufactureand sell certain Sinclair designed transmitter lines. Under terms of theLicense Agreement, the Company will pay Sinclair an annual royalty of $300,000for five years.  For years six throughten, the Company shall pay Sinclair an annual royalty equal to 1.0% of revenuesrealized by the Company attributable to the License Agreement.  At end of the tenth year, the Company hasthe option to purchase the Sinclair technology.  The purchase price would be twice the cumulative royalty amountpaid to Sinclair for years six through ten.

 

During March 2000, the Company entered into a subordinated debentureagreement (the “Debenture”) with Sinclair. Under the terms of the Debenture,the Company could borrow up to $2,000,000 at an interest rate of 10.5%. Thefirst payment of interest was to be made April 1, 2000 and on a monthly basisthereafter.  Principal is payable upondemand by Sinclair.  Further, Sinclairhas the right, at any time, to convert all, but not less than all, of theprincipal owed to Sinclair into the Company’s common stock at $3.45 pershare.  The Company had borrowed$2,000,000 under the terms of this arrangement on June 30, 2002 and December31, 2001.

 

In the first quarter of 2001 it was determined by Sinclair that inorder for Sinclair to meet their SEC public financial filing requirements thatAcrodyne would have to accelerate their audit schedule.  Sinclair agreed to pay $150,000 ofAcrodyne’s audit fees for the year ended 2000, in order to meet the expeditedschedule.

 

8

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**6.             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 businesscombinations completed after June 30, 2001. SFAS 142 is effective for fiscal years beginning after December 15,2001; however, certain provisions of this Statement apply to goodwill and otherintangible assets acquired between July 1, 2001 and the effective date of SFAS142.  Major provisions of theseStatements and their effective dates for the Company are as follows:

 

•                Allbusiness combinations initiated after June 30, 2001 must use the purchasemethod of accounting.  The pooling ofinterests method of accounting is prohibited except for transactions initiatedbefore July 1, 2001.

•                Intangibleassets acquired in a business combination must be recorded separately from goodwillif they arise from contractual or other legal rights or are separable from theacquired entity and can be sold, transferred, licensed, rented or exchanged,either individually or as part of a related contract, asset or liability.

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

•                EffectiveJanuary 1, 2002, all previously recognized goodwill and intangible assets withindefinite lives will no longer be 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.

•                Allacquired goodwill must be assigned to reporting units for purposes ofimpairment testing and segment reporting.

 

On January 1, 2002, the Company adopted SFAS 142 and as requireddiscontinued amortization of goodwill and certain intangible assets determinedto have indefinite 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 accounting principle.  Additionally, SFAS 142 requires that, withinsix months of adoption, goodwill be tested for impairment at the reporting unitlevel as of the date of adoption.  Ifany impairment is indicated to have existed upon adoption, it should bemeasured and recorded before the end of the year of adoption.  SFAS 142 requires that any goodwillimpairment loss recognized as a result of initial application be reported inthe first interim period of adoption as a change in accounting principle andthat the income per share effects of the accounting change be separatelydisclosed.  The Company company has nogoodwill or indefinitely lived intangible assets.  The adoption of SFAS 142 had no impact on the financial, positionor results of operations of the Company.

 

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 and can be reasonable 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 an impact on the financial condition or results of operationsof the Company.

 

9

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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 financialstatements issued for fiscal years beginning after December 15, 2001 andinterim periods within those fiscal years. The adoption of this Statement is not expected to have an impact on thefinancial condition or 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,

 

 
|              |   | **June 30, 2002**          |      | **January 1, 2002**            |   |
|-------------------|--------|----------------------------|-----------|--------------------------------|--------|
|              |   | **Gross Carrying  Amount** |      | **Accumulated  Amortization.** |   | **Gross Carrying  Amount** |   | **Accumulated  Amortization.** |   |
|              |   |                       |      |                           |   |   |   |   |   |
| License agreement |   | $                          | 1,500,000 |                           | $      | 675,000 |   | $ | 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 |   | $ | 75,000  |   |
| 2006 |   | $ | 0       |   |

 

Income Taxes:

 

The Company recorded no tax expense for the six months ended June 30,2002 due to the use of net operating loss carryforwards.

 

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**MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**THE COMPANY**

We are Acrodyne Holdings, Inc., a Delaware corporation, which wasformed in May 1991. In 1995, we changed our name to Acrodyne Communications,Inc. which we operate in one industry segment – the design, manufacture andmarketing of television transmitters and translators, which are sold in theUnited 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.

 

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 or 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 couldreceive additional common stock in exchange for forgiveness of certain amountsthat we owe to Sinclair.  As of August7, 2002 a recapitalization plan has not been executed.  In addition, Sinclair has orally committedto purchase all UHF transmitters requirements from us.

 

 

**BUSINESS OF ACRODYNE**

We have designed, manufactured and marketed television transmitters andtranslators which have been sold in the United States and internationally since1971.  The function of a televisiontransmitter is to broadcast over the air television signals to a specificaudience receiving such signals by regular antenna or by a local cable company,which then feeds the signal to their subscribers.  Television translators, which operate unattended, retransmitincoming signals from primary stations on different channels within areas wheredirect reception of the original signal may be limited by mountains or othergeographic impediments.

 

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**ACRODYNE PRODUCTS AND SERVICES**

We design, manufacture and market digital and analog televisionbroadcast transmitters and translators for domestic and internationaltelevision stations, broadcasters, government agencies, not-for-profitorganizations and educational institutions. The useful life of a television transmitter or translator isapproximately 20 years.  Our televisiontransmitters, which range in transmission power levels from one watt forlocalized applications to tens of thousands of watts for large televisionbroadcasters, have a modularized design which permits us to respond to specificcustomer requests.  We classify ourtransmitters into two categories based upon the power output of such transmitters(as discussed in greater detail below). Lower power transmitters and higher power transmitters transmit signalsin both UHF and VHF frequency bands. The VHF band covers channels two through thirteen and the UHF bandcovers channels above thirteen.  Eachtransmitter permits the sender to broadcast over one channel, except in thecase of adjacent channel assignments for which one transmitter is able totransmit two television signals, one analog 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.

 

**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 products in the United States.  This agreement also includes technology andproduct sales agreement to support a new line of our high power transmitterproducts.

 

**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.

 

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**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 ourproduct, 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 to Financial Statements).  We shipped the first of our digitaltransmitters in March 2001.  To date,most of the orders for our digital product are from Sinclair.

 

Since the acquisition of Acrodyne Industries in 1994, we have incurredsignificant losses including a net loss of $2,569,204 and a cash flow deficitof $3,877,708 in 2001.  These losses andcash flow deficits have been funded primarily with proceeds from the sale ofequity securities, including $225,000 and $3,805,374 from common stock andwarrants sold to Sinclair in 2000 and 1999, respectively, a $2,000,000subordinated debenture provided by Sinclair, our Credit Facility with Sinclair(see Note 5 to Financial Statements) and customer advances. As of June 30, 2002and December 31, 2001 Sinclair owned 32.6% of our common stock, and haswarrants to purchase 8,644,225 additional shares (see Notes 5 to FinancialStatements), which represented 60.4% of our common stock on a fully dilutedbasis.

 

In March 2000, Sinclair agreed to provide additional funds to us of upto $2,000,000 under terms of a subordinated debenture (see Note 5 to FinancialStatments).  On April 27, 2001, weentered into an additional $4,000,000 line of credit facility withSinclair.   This line of credit requiresmonthly interest-only payments at a fixed rate of interest of 12% per annum andmatures upon demand by Sinclair.  Ourability to continue as a going concern depends upon: (1) market acceptance ofour new digital product; (2) our ability to generate sufficient revenues toachieve and sustain positive cash flow; and (3) our ability to raise thenecessary capital to fund operating needs and finance the planned investment.  The factors noted above raise substantialdoubt concerning our ability to continue as a going concern. The consolidatedfinancial statements do not include any adjustments relating to therecoverability and classification of asset carrying amounts or the amount andclassification of liabilities that might result should we be unable to continueas a going concern.  We are currentlyexploring options available 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 owed to Sinclair by us and couldcancel certain existing warrants and receive additional warrants as part of anew secured line of credit.  Inaddition, Sinclair has orally committed to purchase all UHF transmitterrequirements from us.

 

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**RESULTS OF OPERATIONS**

 

The following compares the Company’s summary results of operations forthe three and six months ended June 30, 2002 to the three and six months endedJune 30, 2001:

 

 
|                    |   | **Three Months Ended June 30,** |   | **Six Months Ended June 30** |   |
|-------------------------|--------|---------------------------------|--------|------------------------------|--------|
|                    |   | **2002**                        |   | **2001**                     |   | **2002** |   | **2001** |   |
|                    |   | **$**                           |   | **%**                        |   | **$** |   | **%** |   | **$** |   | **%** |   | **$** |   | **%** |   |
| Net Sales               |   | 5,865,893                       |   | 100.0                        |   | 672,334 |   | 100.0 |   | 11,687,530 |   | 100.0 |   | 2,898,512 |   | 100.0 |   |
| Cost of Sales           |   | 4,023,226                       |   | 68.6                         |   | 751,499 |   | 111.8 |   | 8,500,539 |   | 72.7 |   | 2,734,890 |   | 94.4 |   |
| Gross Profit (Loss)     |   | 1,842,667                       |   | 31.4                         |   | (79,165 | ) | (11.8 | ) | 3,186,991 |   | 27.3 |   | 163,622 |   | 5.6 |   |
| Operating Expenses      |   | 1,588,820                       |   | 27.1                         |   | 1,577,278 |   | 234.6 |   | 2,787,358 |   | 23.9 |   | 3,216,036 |   | 110.9 |   |
| Operating Income (Loss) |   | 253,847                         |   | 4.3                          |   | (1,656,443 | ) | (246.4 | ) | 399,633 |   | 3.4 |   | (3,052,414 | ) | (105.3 | ) |

 

Net sales for the three months and six month periods ended June 30,2002 increased 772.5% and 303.2%, respectively over net sales for the periodsended June 30, 2001.  Sales for theprior year, both the three and six month periods, resulted from the slower thananticipated design and start of production of the Quantum product line.  Significant quantities of the Quantumtransmitter were not produced and shipped until the third quarter of 2001.  The majority of sales in the 2001 periodwere products produced by year end 2000. Recording of sales on the company’s books was deferred to comply withrevenue recognition criteria issued in SAB 101.

 

Gross margin on sales in 2002, as a percentage of sales and in dollars,improved substantially from the prior year. Margin for both the second quarter and the first half of 2001 were negativelyeffected by unabsorbed overhead, resulting from the low sales volume.

 

Total operating expenses remained about the same for the three monthsended June 30, 2002 from the same period in 2001.  The six month comparison of operating expenses shows a 13.3%decrease from $3,216,036 for the six months ended June 30, 2001 to $2,787,358for June 30, 2002.  The decrease isattributable to cost incurred in the first quarter of 2001 for legal,consulting, and settlement fees associated with our financial restatements andshareholder lawsuit.  A $336,000 chargewas booked in the first quarter of 2001 for the issuance of 1,600,000 warrantsin settlement of the lawsuit.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Historically, we have financed our activities primarily from customeradvances, internally generated funds, proceeds from the sale of equitysecurities and use of our credit facilities. At June 30, 2002, we had a working capital deficit of  $11,553,199 compared to a working capitaldeficit of $11,911,144 at December 31, 2001. The reduced deficit resulted from increases in cash and inventory beingoffset by a reduction in receivables and increases in liabilities for customerdeposits, the current portion of lease obligations, license fees payable toSinclair, and accruals for warranty reserves.

 

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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 June 30, 2002 and December31, 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 June 30, 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 potentialrecapitalization by Sinclair.  Underterms of the proposed recapitalization which has yet to be executed, Sinclaircould receive additional common stock in exchange for forgiveness 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.  In addition, Sinclair has orally committed topurchase all UHF transmitter requirements from us.

 

**Significant and Recent Events**

 

The SEC is currently conducting an investigation of the facts andcircumstances that required the company’s financial statements and filings tobe restated for the year ending 1999 and the first two quarters of 2000.  Acrodyne has not been charged with anywrongdoing, is cooperating fully with the investigation, and has supplieddocuments to assist in the SEC investigation. Several former employees, a current employee of the company, as well asa Sinclair employee have been subpoenaed and testified before attorneys for theSEC.  The duration, facts, and outcomeof the investigation cannot be estimated by the company at this time.

 

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**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 Securities regulators.  The Company disclaims any responsibility toupdate any such forward-looking statements.

 

 

ACRODYNE COMMUNICATIONS, INC.

PART II. OTHERINFORMATION

 

 

Item 6.  None

 

(a)           NoExhibits

 

 

**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 theundersigned thereunto duly authorized.

 
|                        |   |   |   |   | Acrodyne Communications, Inc.                                                               |   |
|-----------------------------|--------|--------|--------|--------|---------------------------------------------------------------------------------------------|--------|
|                        |   |   |   |   | (Registrant)                                                                                |
|                        |   |   |   |   |                                                                                        |
| Date:  August 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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**CERTIFICATIONOF PERIODIC REPORT**

 

 

I, Nathaniel Ostroff, CEO of Acrodyne Communications (the “Company”),certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.Section 1350, that:

 

(1)                                  theQuarterly Report on Form 10Q of the Company for the quarterly period ended June30, 2002 (the “Report”) fully complies with the requirements of Section 13(a)or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)                                  theinformation contained in the Report fairly presents, in all material respects,the financial condition and results of operations of the Company.

 
| Dated:   August 14, 2002 |   |   |   |   |   | By           /s/  Nathaniel Ostroff |   |
|-------------------------------|--------|--------|--------|--------|--------|---------------------------------------------------------------------------------------|--------|
|                          |   |   |   |   |   | Nathaniel Ostroff, Chief Executive Officer                                            |

 

 

I, Robert E. Woodruff, Jr., CFO of Acrodyne Communications (the“Company”), certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002,18 U.S.C. Section 1350, that:

 

(1)          the Quarterly Report onForm 10Q of the Company for the quarterly period ended June 30, 2002 (the“Report”) fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)          the informationcontained in the Report fairly presents, in all material respects, thefinancial condition and results of operations of the Company.

 
| Dated:   August 14, 2002 |   |   |   |   |   | By           /s/  R. E. Woodruff, Jr. |   |
|-------------------------------|--------|--------|--------|--------|--------|-----------------------------------------------------------------------------------------|--------|
|                          |   |   |   |   |   | Robert E. Woodruff, Jr., Chief Financial Officer                                        |

 

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