**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, 2001** |
|                                             |                                                                                   |
| **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) has filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes   o  No   ý

 

State the number ofshares outstanding of each of the issuer's classes of common equity, as of thelatest practicable date: 7,409,608 shares of common stock of AcrodyneCommunications, Inc. were outstanding on November 16, 2001.

 

 

 

**ACRODYNECOMMUNICATIONS, INC.**

 

INDEX

 

 
| PART I.   FINANCIAL INFORMATION:           |                                                                                                  |
|-------------------------------------------------|-------------------------------------------------------------------------------------------------------|
|                                            |                                                                                                  |   |
|                                            | Item 1.   Financial Statements                                                                   |   |
|                                            |                                                                                                  |   |
|                                            | Consolidated  Balance Sheets at June 30, 2001 (unaudited) and December 31, 2000                       |   |
|                                            |                                                                                                  |   |
|                                            | Consolidated  Statements of Operations for the Six Months Ended June 30, 2001 and 2000  (unaudited)   |   |
|                                            |                                                                                                  |   |
|                                            | Consolidated  Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000  (unaudited)   |   |
|                                            |                                                                                                  |   |
|                                            | Notes  to Consolidated Financial Statements (unaudited)                                               |   |
|                                            |                                                                                                  |   |
|                                            | Item  2.  Management's Discussion and  Analysis of Financial Condition and Results of Operations |   |
|                                            |                                                                                                  |   |
| PART II.  OTHER INFORMATION, AS APPLICABLE |                                                                                                  |
|                                            |                                                                                                  |   |
|                                            | Item 6.  Exhibits and Reports on Form 8-K                                                             |   |
|                                            |                                                                                                  |   |
| SIGNATURES                                      |                                                                                                  |

 

 

**AcrodyneCommunications, Inc.**

**Consolidated Balance Sheets     (Unaudited)**

 
|                                                                                                                                 |   | **June 30,** |          | **December 31,** |          |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|---------------|------------------|---------------|
|                                                                                                                                 |   | **2001**     |          | **2000**         |          |
| **Assets**                                                                                                                           |   |         |          |             |          |
| Current  assets:                                                                                                                     |   |         |          |             |          |
| Cash  and cash equivalents                                                                                                           |   | 583,055      |          | $                | 86,959        |   |
| Accounts  receivable, net of allowance for doubtful accounts of $389,000 at June 30,  2001 and December 31, 2000, respectively       |   | 379,048      |     | 944,225          |     |
| Inventories                                                                                                                          |   | 2,741,675    |          | 2,286,887        |          |
| Prepaid  expenses and deposits                                                                                                       |   | 48,344       |          | 58,555           |          |
| Other  Assets                                                                                                                        |   | 582,440      |          | 500,524          |          |
| Total  current assets                                                                                                                |   | 4,334,562    |          | 3,877,150        |          |
|                                                                                                                                 |   |         |          |             |          |
| Property,  plant and equipment, net                                                                                                  |   | 3,953,370    |          | 4,150,926        |          |
|                                                                                                                                 |   |         |          |             |          |
| License  Agreement                                                                                                                   |   | 1,125,000    |          | 1,275,000        |          |
|                                                                                                                                 |   |         |          |             |          |
| Total  assets                                                                                                                        |   | 9,412,932    |          | 9,303,076        |          |
| **Liabilities and  Stockholders' Equity (Deficiency)**                                                                               |   |         |          |             |          |
| Current  Liabilities:                                                                                                                |   |         |          |             |          |
| Borrowings  under Line of Credit                                                                                                     |   | 3,412,975    |          | 1,158,753        |          |
| Subordinated  debenture with Sinclair Broadcast Group, Inc.                                                                          |   | 2,000,000    |          | 2,000,000        |          |
| Current  portion of long-term lease obligations                                                                                      |   | 245,441      |          | 9,494            |          |
| Accounts  payable                                                                                                                    |   | 1,745,715    |          | 1,737,230        |          |
| Accrued  expenses                                                                                                                    |   | 1,984,490    |          | 1,420,094        |          |
| Customer  advances                                                                                                                   |   | 5,968,494    |          | 4,723,430        |          |
| Deferred  Revenue                                                                                                                    |   | 1,459,753    |          | 2,290,085        |          |
| Other  Current Liabilities                                                                                                           |   | 450,000      |          | 651,000          |          |
| Total  current liabilities                                                                                                           |   | 17,266,868   |          | 13,990,086       |          |
|                                                                                                                                 |   |         |          |             |          |
| Capital  Lease Obligation                                                                                                            |   | 3,763,240    |          | 3,776,948        |          |
| License  Fee Payable                                                                                                                 |   | 1,050,000    |          | 1,200,000        |          |
| Non-compete  liability                                                                                                               |   | 845,912      |          | 845,912          |          |
| Total  liabilities                                                                                                                   |   | 22,926,020   |          | 19,812,946       |          |
|                                                                                                                                 |   |         |          |             |          |
| Stockholders'  equity (deficiency):                                                                                                  |   |         |          |             |          |
| Preferred  stock, par value $1.00; 1,000,000 shares authorized,                                                                      |   |         |          |             |          |
| 8%  Convertible Redeemable Preferred Stock, 6500 shares issued and outstanding on  June 30, 2001 and December 31, 2000, respectively |   | 6500         |          | 6,500            |          |
| Common  stock, par value $.01; 30,000,000 shares authorized                                                                          |   |         |          |             |          |
| 6,981,161  shares issued and outstanding on June 30, 2001 and December 31, 2000,  respectively                                       |   | 69,812       |          | 69,812           |          |
|                                                                                                                                 |   |         |          |             |          |
| Additional  paid-in-capital                                                                                                          |   | 21,496,778   |          | 21,496,778       |          |
| Additional paid-in-capital - Warrants                                                                                                |   | 336,000      |          | 0                |          |
| Accumulated  deficit                                                                                                                 |   | (35,422,178  | )             | (32,082,960      | )             |
| Total  stockholder’s equity (deficiency)                                                                                        |   | (13,513,088  | )             | (10,509,870      | )             |
| Total  liabilities and stockholders' equity                                                                                          |   | $            | 9,412,932     |             | $             | 9,303,076 |   |
|                                                                                                                                      |        |              |               |                  |               |  |  |

 

**See notes to consolidated financialstatements**

** **

 

**AcrodyneCommunications, Inc.**

**ConsolidatedStatements of Operations   (Unaudited)**

 
|                                                   |   | **Three Months Ended** |   | **Six Months Ended** |   |
|--------------------------------------------------------|--------|------------------------|--------|----------------------|--------|
|                                                   |   | **June 30,**           |   | **June 30,**         |   |
|                                                   |   | **2001**               |   | **2000**             |   | **2001** |   | **2000** |   |
|                                                   |   |                   |   |                 |   |   |   |   |   |
| Net  Sales                                             |   | 672,334                |   | 954,205              |   | 2,898,512 |   | 3,178,265 |   |
| Cost  of Sales                                         |   | 751,499                |   | 1,055,074            |   | 2,734,890 |   | 3,466,985 |   |
| Gross  Profit                                          |   | (79,165                | )      | (100,869             | )      | 163,622 |   | (288,720 | ) |
|                                                   |   |                   |   |                 |   |   |   |   |   |
| Operating  Expenses:                                   |   |                   |   |                 |   |   |   |   |   |
| Engineering,  research and development                 |   | 586,403                |   | 139,257              |   | 1,163,327 |   | 314,866 |   |
| Selling                                                |   | 284,657                |   | 418,142              |   | 546,989 |   | 697,394 |   |
| Administration                                         |   | 631,217                |   | 873,367              |   | 1,355,720 |   | 1,518,793 |   |
| Amortization                                           |   | 75,000                 |   | 95,374               |   | 150,000 |   | 152,828 |   |
| Total  Operating Expenses                              |   | 1,577,277              |   | 1,526,140            |   | 3,216,036 |   | 2,683,881 |   |
| Operating  Loss                                        |   | (1,656,442             | )      | (1,627,009           | )      | (3,052,414 | ) | (2,972,601 | ) |
|                                                   |   |                   |   |                 |   |   |   |   |   |
| Other  Income (Expense)                                |   |                   |   |                 |   |   |   |   |   |
| Interest  Expense, Net                                 |   | (217,494               | )      | (130,454             | )      | (430,968 | ) | (242,326 | ) |
| Other  Income (expense), Net                           |   | (5,284                 | )      | 0                    |   | 172,220 |   | 0 |   |
| Loss  before income taxes                              |   | (1,879,220             | )      | (1,757,463           | )      | (3,311,162 | ) | (3,214,927 | ) |
| Income  taxes                                          |   | 0                      |   | 0                    |   | 0 |   | 0 |   |
| Net  Loss                                              |   | (1,879,220             | )      | (1,757,463           | )      | (3,311,162 | ) | (3,214,927 | ) |
|                                                   |   |                   |   |                 |   |   |   |   |   |
| Dividend  on 8% Preferred Stock                        |   | (14,028                | )      | (14,028              | )      | (28,056 | ) | (28,056 | ) |
| Net  Loss available to Common Shares                   |   | (1,893,248             | )      | (1,771,491           | )      | (3,339,218 | ) | (3,242,983 | ) |
|                                                   |   |                   |   |                 |   |   |   |   |   |
| Basic  and diluted loss per share                      |   | (0.27                  | )      | $                    | (0.25  | ) | (0.48 | ) | $ | (0.46 | ) |
| Weighted  average shares outstanding basic and diluted |   | 6,981,161              |   | 6,981,161            |   | 6,981,161 |   | 6,981,161 |   |
|                                                        |        |                        |        |                      |        |  |  |  |  |  |  |

 

**Seenotes to consolidated financial statements**

** **

 

**AcrodyneCommunications, Inc.**

**ConsolidatedStatements of Cash Flows   (Unaudited)**

** **
|                                                                         |   | **Six Months Ended** |   |
|------------------------------------------------------------------------------|--------|----------------------|--------|
|                                                                         |   | **June 30,**         |   | **June 30,** |   |
|                                                                         |   | **2001**             |   | **2000** |   |
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                       |   |                 |   |   |   |
| Net  Loss                                                                    |   | (3,311,162           | )      | (3,214,927 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities: |   |                 |   |   |   |
| Depreciation  and amortization                                               |   | 321,542              |   | 270,170 |   |
| Provision  for bad debts and loan guarantee                                  |   | 0                    |   | 446,667 |   |
|                                                                         |   |                 |   |   |   |
| Changes  in assets and liabilities:                                          |   |                 |   |   |   |
| Accounts  receivable and other                                               |   | 483,261              |   | 480,867 |   |
| Inventories                                                                  |   | (454,788             | )      | (67,480 | ) |
| Prepaid  expenses and deposits                                               |   | 10,211               |   | 239,149 |   |
| Accounts  payable                                                            |   | 8,485                |   | (764,918 | ) |
| Accrued  expenses                                                            |   | 564,395              |   | 324,021 |   |
| Other  current liabilities                                                   |   | 18,864               |   | 0 |   |
| Deferred  revenue                                                            |   | (830,332             | )      | (485,303 | ) |
| Customer  advances                                                           |   | 1,245,064            |   | 1,940,626 |   |
| Net  cash used in operating activities                                       |   | (1,944,460           | )      | (831,128 | ) |
|                                                                         |   |                 |   |   |   |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                       |   |                 |   |   |   |
| Retirement  (Purchase) of property, plant, and equipment                     |   | 26,014               |   | 0 |   |
| Net  cash provided by investing activities                                   |   | 26,014               |   | 0 |   |
|                                                                         |   |                 |   |   |   |
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                       |   |                 |   |   |   |
| Proceeds  from the issuance and exercise of warrants                         |   | 336,000              |   | 225,000 |   |
| Borrowings  under line of credit                                             |   | 2,254,222            |   | 55,599 |   |
| Capital  lease and license agreements                                        |   | (147,624             | )      | (42,761 | ) |
| Repayments  on non-compete liability                                         |   | 0                    |   | (6,097 | ) |
| Cash  dividends to stockholders                                              |   | (28,056              | )      | (28,056 | ) |
| Net  cash provided by financing activities                                   |   | 2,414,542            |   | 203,685 |   |
|                                                                         |   |                 |   |   |   |
| Net  increase (decrease) in cash and cash equivalents                        |   | 496,096              |   | (627,443 | ) |
| Cash  and cash equivalents at beginning of period                            |   | 86,959               |   | 664,950 |   |
| Cash  and cash equivalents at end of period                                  |   | 583,055              |   | 37,507 |   |

 

**Seenotes to consolidated financial statements**

** **

 

**AcrodyneCommunications, Inc.**

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

** **

**1.  Unaudited Consolidated Financial Statements**

 

Theaccompanying consolidated balance sheet of Acrodyne Communications, Inc. (the“Company”) and its subsidiaries (collectively “Acrodyne”) at June 30, 2001 andthe related consolidated statements of operations and of cash flows for the sixmonths ended June 30, 2001 and 2000 have been prepared by management.  In the opinion of management, alladjustments (consisting of normal recurring adjustments only) necessary topresent fairly the financial position at June 30, 2001, and the results ofoperations and cash flows for the six months ended June 30, 2001 and 2000 havebeen made.  

 

Theseconsolidated financial statements should be read in conjunction with thefinancial statements and notes thereto included in the Company’s Annual Reporton Form 10-KSB for the year ended December 31, 2000 as filed with theSecurities and Exchange Commission.   The results of operations for interim periodsare not necessarily indicative of the results to be obtained for the entireyear.  

 

**2.  Basis of Presentation** The condensed consolidated financial statements of AcrodyneCommunications, Inc. and subsidiary (the “Company”) presented herein areunaudited.  In the opinion ofmanagement, these financial statements include all adjustments (which includenormal recurring and nonrecurring adjustments, as disclosed below) necessaryfor a fair presentation of the financial position, results of operations, andcash flows for the periods presented. The results for interim periods are not necessarily indicative ofresults for the entire year.  Thefinancial statements presented herein should be read in connection with thefinancial statements included in the Company’s Annual Report on Form 10-KSB forthe year ended December 31, 2000.  

 

Thepreparation of financial statements, in conformity with accounting principlesgenerally accepted in the United States of America, requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities, disclosures of contingent assets and liabilities at the date ofthe financial statements and the reported amounts for certain revenues and expensesduring the reporting periods.  Actualresults could differ materially from those estimates.  

** **

**3.  Inventories**

 

Inventoriescomprise: 

 
|                      |   | **June  30,** |      | **December  31,** |   |
|---------------------------|--------|---------------|-----------|-------------------|--------|
|                      |   | **2001**      |      | **2000**          |   |
| Raw  materials            |   | $             | 1,988,925 |              | $      | 2,158,035 |   |
| Work  in process          |   | 1,139,458     |      | 139,523           |   |
| Finished  goods           |   | 1,129,985     |      | 1,506,022         |   |
|                      |   | $             | 4,258,368 |              | $      | 3,803,580 |   |
| less:                     |   |          |      |              |   |
| reserve  for obsolescence |   | 1,516,693     |      | 1,516,693         |   |
| Net  Inventory            |   | $             | 2,741,675 |              | $      | 2,286,887 |   |

 

**4.  Property, plant and equipment consisted ofthe following at:**

 
|                                            |   | **June  30,** |   | **December  31** |   |
|-------------------------------------------------|--------|---------------|--------|------------------|--------|
|                                            |   | **2001**      |   | **2000**         |   |
| Test  Equipment                                 |   | 1,016,717     |   | 1,048,884        |   |
| Office  Equipment                               |   | 625,236       |   | 619,083          |   |
| Building  and capital lease                     |   | 3,776,667     |   | 3,776,667        |   |
|                                            |   | 5,418,620     |   | 5,444,634        |   |
|                                            |   |          |   |             |   |
| Less  accumulated depreciation and amortization |   | 1,465,250     |   | 1,293,708        |   |
| Property,  plant and equipment, net             |   | 3,953,370     |   | 4,150,926        |   |

 

**5.  Earnings Per Share**  

 

Basicearnings per share is computed by dividing net loss available to commonshareholders by the weighted average number of shares outstanding.   Diluted earnings per share is computedusing the weighted 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.  At the endof June the following potentially dilutive items were outstanding:

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

 

Commonstock equivalents were not included in net loss per diluted share calculationas they would be antidilutive.

 

**6.  Related Party Transactions**  

 

TheCompany has a number of transactions with Sinclair Broadcasting (Sinclair)which also owns 35%  of the common stock at June30, 2001.   The Company was indebted to Sinclair in the amount of $5,412,975 and $2,158,753 as of June 30, 2001 andDecember 31, 2000, respectively.  

 

·        TheCompany also had receivables in the amount of $117,380 and $117,380  as of  June 30, 2001 andDecember 31, 2000, respectively. 

·        TheCompany sales to Sinclair of  $409,762 and $2,415,387 for the three monthsended June 30, 2001 and year ended December 31, 2000, respectively. 

·        Sinclairalso reimbursed the Company for audit fees in the first quarter of 2001 in theamount of $150,000. 

·        DuringMarch 2000, we entered into a 10-year license agreement (the “LicenseAgreement") with Sinclair for the exclusive right to manufacture and sellcertain Sinclair designed transmitter lines. Under terms of the LicenseAgreement, we will pay Sinclair an annual royalty of $300,000 for fiveyears.  For years six through ten, weshall pay Sinclair an annual royalty equal to 1.0% of revenues realized by usattributable to the License Agreement. At end of the tenth year, we have the option to purchase the Sinclairtechnology.  The purchase price would betwice the cumulative royalty amount paid to Sinclair for years six through ten.

 

**SIGNIFICANT ACCOUNTING POLICIES**

 

OnJune 29, 2001, the Financial Accounting Board (FASB) issued Statement ofFinancial Accounting Standards (SFAS) No. 141, *Business Combinations*, andSFAS No. 142, *Goodwill and Intangible Assets.* These statements are expected to result in significantmodifications relative to the Company’s accounting for goodwill and otherintangible assets. SFAS No. 141 requires that all business combinationsinitiated after June 30, 2001, must be accounted for the under the purchasemethod of accounting.  SFAS No. 141 waseffective upon issuance.  SFAS No. 142modifies the accounting for all purchased goodwill and intangible assets.  SFAS No. 142 includes requirements to testgoodwill assets for impairment rather than amortize them.  SFAS No. 142 will be effective for fiscalyears beginning after December 31, 2001, and early adoption is not permittedexcept for business combinations entered into after June 30, 2001.  Management believes that there will be nomaterial impact on the financial position or results of operation as a resultof these new statements.

MANAGEMENT'S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

OVERVIEW

 

**THECOMPANY**. We areAcrodyne Holdings, Inc., a Delaware corporation, which was formed in May 1991.In 1995, we changed our name to Acrodyne Communications, Inc. which we operatein one industry segment – the design, manufacture and marketing of televisiontransmitters and translators, which are sold in the United States andinternationally.  

 

On May16, 1994, we entered into agreements to acquire all of the outstanding stock ofAcrodyne Industries, Inc., a company engaged in the manufacture and sale of TVtransmitters, LPTV transmitters and TV translators, which are produced tocustomer specification.  The acquisitionwas consummated on October 24, 1994 with proceeds obtained from a public offeringof our common stock.  

 

OnJanuary 27, 1999, we finalized a strategic agreement with the SinclairBroadcast 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.   

 

**Operations and Business Risk**

 

Due tothe nature of business, it is subject to various risks including, but notlimited to, technological and market acceptance of the Company’s product,capital availability, dependence on management and other risks.  The Company shipped the first of its Quantumtransmitters in March 2001.  To date,most of the orders for the Company’s Quantum product have been withSinclair.  There is no current indicationthat our product will achieve widespread use or acceptance in the televisionbroadcasting industry.  Our competitors,which may be better capitalized, could design products which make ours obsoleteor uneconomical.  Since the broadcastindustry is regulated by government agencies, notably the FederalCommunications Commission, the future direction in standards and the timing ofimplementation of digital transmissions could change.  This could substantially change or negate the need for our products.  Our design, production, and marketingfunctions are all highly dependent on certain key individuals.  Should any of those key individuals leavethe employ of the company, it is uncertain that adequate replacements could befound.  

 

Sincethe acquisition of Acrodyne Industries in 1994, the Company has incurredsignificant losses including net losses of $12,984,186 and $6,906,373 in 2000and 1999, respectively.  In addition,the Company has generated operating cash flow deficits of $2,306,348 and $2,905,477 in2000 and 1999, respectively.  Additionallosses and cash flow deficits have continued in 2001.  These losses and cash flow deficits have been funded primarilywith proceeds from the sale of equity securities, including $225,000 and$4,075,374 from common stock and warrants sold to Sinclair in 2000 and 1999,respectively, a $2,000,000 subordinated debenture provided by Sinclair, theCompany’s Credit Facility with Sinclair, and customer advances. As of December31, 2000, Sinclair owned 35% of our common stock and has warrants to purchase8,644,225 additional shares, which represented a 60% ownership interest on afully diluted basis. As of June 30, 2001 Sinclair owned 35% of the issuedcommon stock assuming no exercise of options or warrants.

Sinclairhad provided a guarantee of the Company’s $2,500,000 credit facility.  In November 2000, Sinclair purchased thecredit facility from the creditor.  InMarch 2000, Sinclair agreed to provide additional funds of up to $2,000,000under terms of a subordinated debenture. From January 1, 2001 through April 24, 2001, Sinclair providedadditional funds in the amount of $1,341,247. Upon completion of the audit ofthe Company’s consolidated financial statements for the year ended December 31,2000, the Company’s independent auditors issued an opinion with an explanatoryparagraph stating that substantial doubt exists about the Company’s ability tocontinue as a going concern.  TheCompany’s ability to continue as a going concern depends upon: (1) marketacceptance of the Company’s new digital product; (2) the Company’s ability togenerate sufficient revenues to achieve and sustain positive cash flow; and (3)the Company’s ability to raise the necessary capital to fund operating needsand finance the Company’s planned investment. The factors noted above raise substantial doubt concerning the Company’sability to continue as a going concern. The Company is currently exploringoptions available to raise capital. Among the options is a potential recapitalization of the Company bySinclair.  Under terms of the proposedrecapitalization which has yet to be executed, Sinclair would receiveadditional common stock in exchange for forgiveness of certain amounts theCompany owes to Sinclair in the amount of approximately $3,500,000 and wouldcancel certain existing warrants and receive additional warrants as part of anew secured line of credit in the amount of $4,000,000.  As a result of this transaction, Sinclairwould own approximately 80% of the Company’s outstanding common shares.  In addition, Sinclair verbally committed topurchase all UHF transmitter requirements from the Company.  As of November 16, 2001, no formalrecapitalization plan has been executed.

 

Ourshares are currently delisted from trading on the NASDAQ stock exchange.  It is uncertain that we will be able to havethe stock relisted and traded.  Withouta market for our stock our ability to raise capital is minimal and we are highlydependent on Sinclair for any additional required financing.  In addition, the outstanding balances due toSinclair are payable on demand by Sinclair. We do not have the resources available to repay those loans, if Sinclairdemanded repayment.

**RESULTSOF OPERATIONS**  

 

Thefollowing compares the Company’s summary results of operations for the threeand six months ended June 30, 2001, respectively.

 
|                |   | **Three  Months Ended June 30,** |    | **Six Months  Ended June 30** |   |
|---------------------|--------|----------------------------------|---------|-------------------------------|--------|
|                |   | **2001**                         |    |                          |   | **2000** |   |   |   | **2001** |   |   |   | **2000** |   |   |   |
|                |   |                             |    |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales           |   | $                                | 672,334 |                          | 100.0  | % | $ | 954,205 |   | 100.0 | % | $ | 2,898,512 |   | 100.0 | % | $ | 3,178,265 |   | 100.0 | % |
| Cost of Sales       |   | 751,499                          |    | 111.8                         | %      | 1,055,074 |   | 110.6 | % | 2,734,890 |   | 94.4 | % | 3,466,985 |   | 109.1 | % |
| Gross Profit (Loss) |   | (79,165                          | )       | (11.8                         | )%     | (100,869 | ) | (10.6 | )% | 163,622 |   | 5.6 | % | (288,720 | ) | (9.1 | )% |
| Operating Expenses  |   | 1,577,277                        |    | 234.6                         | %      | 1,526,140 |   | 159.9 | % | 3,216,036 |   | 110.9 | % | 2,683,881 |   | 84.4 | % |
| Operating Loss      |   | (1,656,442                       | )       | (246.4                        | )%     | (1,627,009 | ) | (170.5 | )% | (3,052,414 | ) | (105.3 | )% | (2,972,601 | ) | (93.5 | )% |
|                     |        |                                  |         |                               |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Netsales for the three months ended June 30, 2001 resulted in a 29.5% decreaseover net sales for the three months ended June 30, 2000.  The decrease in sales for the periodresulted from the slower than anticipated design and start of production of theQuantum product line.  The majority ofsales in the 2001 period were products produced by year end 2000.  Recording of sales on the company’s bookswas deferred to comply with revenue recognition criteria issued in SAB101.  Net sales decreased 8.8% for thesix month period ended June 30, 2001 as compared to sales of the same period in2000.  

 

Therewas a negative gross margin on sales for the June 2001 quarter due tounabsorbed overhead, resulting from the low sales volume.  

 

Totaloperating expenses increased $ 51,137 to $1,577,277 for the three months endedJune 30, 2001 from $1,526,140 for the same period in 2000.  The six month comparison of operatingexpenses shows a 19.8% increase from $2,683,881 for the six months ended June30, 2000 to $3,216,036 for June 30, 2001. These increases are attributable higher facilities cost at our newmanufacturing facility and consulting, legal, and settlement fees associatedwith our financial restatements and shareholder lawsuit.

LIQUIDITYAND CAPITAL RESOURCES

 

Historically,we have financed our activities primarily from borrowings, equity transactionsand investments.  At June 30, 2001 andDecember 31, 2000 our net working capital deficit increased by $2,819,370 to($12,932,306) as compared to ($10,112,936) at December 31, 2000, mainly from anincrease in debt outstanding and amounts owed to customers for deposits onequipment.  

 

Accountsreceivable at June 30, 2001 were $379,048 and reflected a $565,177 decreasefrom December 31, 2000.  This decreasewas due to a lower sales level. The majority of our sales of domestictransmitters require payment of a non-refundable 30% deposit at the time ofplacing the order, 90% prior to shipment, and 10% thirty days aftershipment.  We typically require anirrevocable letter of credit on international orders.  

 

Inventories,net of reserves, increased to $2,741,675 at June 30, 2001 from $2,286,887 atDecember 31, 2000 due to production startup of the new Quantum productline.  Sales were booked for one (1)Quantum transmitter in the quarter, but production was underway on severaladditional systems.  Also, other unitswere shipped to the field but considered test sights.  The recording of sales on these units and the relieving of theassociated inventory was deferred until testing was complete.  

 

InSeptember 1999, we entered into a new credit facility (the "CreditFacility") with PNC Bank, N.A. that provided for a $2,500,000 line ofcredit. The Credit Facility bears interest at LIBOR plus 200 basis points(8.56% at December 31, 2000 and 7.9% at December 31, 1999) and replaced a prior$2,000,000 line of credit facility maintained with another bank. The CreditFacility was collateralized by all our personal property and was guaranteed bySinclair. The Credit Facility, which expired on July 31, 2000, was extended toOctober 31, 2000. In November 2000, Sinclair purchased the Credit Facility andassumed all rights of the bank. The weighted-average interest rate and totalinterest expense related to the lines of credit during 2000 were 8.3% and$111,226. Average borrowing related to the Credit Facility during 2000 was$1,343,304.  At March 30, 2001 we hadborrowed the entire $2,500,000 available under this facility.  On April 27, 2001 this Credit Facility wasexpanded to $4,000,000 and the interest rate was amended to be a fixed rate of12%.  On June 30, 2001 $3,412,975 wasoutstanding under this line.  

 

DuringMarch 2000, we entered into a subordinated debenture agreement (the"Debenture") with Sinclair. Under the terms of the Debenture, we mayborrow up to $2,000,000 at an interest rate of 10.5%. The first payment ofinterest shall be made April 1, 2000 and on a monthly basis thereafter.  Principal is payable upon demand ofSinclair.  Further, Sinclair has theright, at any time, to convert all, but not less than all, of the principalowed to Sinclair into our common stock at $3.45 per share.  During 2000, the we paid $115,815 ofinterest due under the Debenture.  As ofJune 30, 2001 $2,000,000 was outstanding under the terms of this agreement.  

 

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

**OtherInformation**

 

**Significantand Recent Events**

** **

DuringAugust 2000 we announced that it is necessary to defer filing our Form 10-QSBfor the quarter ended June 30, 2000.  Wealso announced that prior years' audited consolidated financial statementswould have to be amended and restated along with the previously filed firstquarter consolidated financial statements for the period ended March 31, 2000.  

 

InSeptember 2000 we announced that we would voluntarily delist after delistingproceedings were announced by the Nasdaq for not filing timely financialinformation.  The shares may trade onthe OTC Bulletin Board, but not before we file our Form 10-QSB for the periodsended September 30, 2000, June 30, 2000, March 31, 2000 (restated) and Form10-KSB for the year ended December 31, 2000 and the restated Form 10-KSB forthe years ended December 31, 1999 and 1998. 

 

InSeptember 2000, the Company was joined as a defendant along with two of itsofficers and directors, in a class action in the United States District Courtfor the District of Maryland. The lawsuit asserts that the Company issued falseand misleading financial statements. The Company has reached a settlement withplaintiffs’ counsel. The settlement requires the Company to issue plaintiffswarrants to purchase 1,600,000 shares of the Company’s common stock at anexercise price of $1.00 per share. The warrants will expire after five years.The Company also has agreed to pay the plaintiffs $750,000.  The cash portion of the settlement will befunded by its officers’ and directors’ indemnity insurance policy. A Memorandumof Understanding reflecting the material terms of the settlement was filed withthe Court on March 1, 2001. On April 6, 2001, a Stipulation and Agreement ofSettlement was submitted to the Court along with all required documents toeffectuate the settlement.  On April 9,2001, the Court approved the proposed settlement but reserved its right toreview the settlement and/or enter a final judgment approving the settlementand dismissing the lawsuit.  On June 26,2001, the Court (i) found the settlement to be fair, reasonable, and adequateand in the best interests of the parties; (ii) settled, released, dischargedand dismissed with prejudice the cases against the defendants; (iii) determinedthat neither the settlement nor any of the documents or statements associatedtherewith are, or shall be construed as, a concession or admission by thedefendants of the existence of any damages or wrongdoing; and (iv) awarded theplaintiffs’ counsel 25% of the gross amount of the settlement fund asattorneys’ fees, which amount is to be paid out of the settlement fund.  As a result of the settlement, during thethree months ended March 31, 2001, the Company recorded a charge to operationsof $336,000 which represented the fair value of the warrants issued.  

 

Wepaid $42,084 in preferred dividends for the nine months ended September 30,2000. Currently dividend payments have been suspended on the preferred stockoutstanding.  Arrearages as of June 30,2001 amount to $42,084.  

 

On May8, 2001 the position of Senior Vice President and Chief Financial Officer waseliminated.  A Form 8K was filed withthe SEC regarding this action on May 10. A charge for termination expenses was recorded in the quarter endingJune 30, 2001.

**SubsequentEvents**

InSeptember 2000, the Company was joined as a defendant along with two of itsofficers and directors, in a class action in the United States District Courtfor the District of Maryland. The lawsuit asserts that the Company issued falseand misleading financial statements. The Company has reached a settlement withplaintiffs’ counsel. The settlement requires the Company to issue plaintiffswarrants to purchase 1,600,000 shares of the Company’s common stock at anexercise price of $1.00 per share. The warrants will expire after five years.The Company also has agreed to pay the plaintiffs $750,000.  The cash portion of the settlement will befunded by its officers’ and directors’ indemnity insurance policy. A Memorandumof Understanding reflecting the material terms of the settlement was filed withthe Court on March 1, 2001. On April 6, 2001, a Stipulation and Agreement ofSettlement was submitted to the Court along with all required documents toeffectuate the settlement.  On April 9,2001, the Court approved the proposed settlement but reserved its right toreview the settlement and/or enter a final judgment approving the settlementand dismissing the lawsuit.  On June 26,2001, the Court (i) found the settlement to be fair, reasonable, and adequateand in the best interests of the parties; (ii) settled, released, dischargedand dismissed with prejudice the cases against the defendants; (iii) determinedthat neither the settlement nor any of the documents or statements associatedtherewith are, or shall be construed as, a concession or admission by thedefendants of the existence of any damages or wrongdoing; and (iv) awarded theplaintiffs’ counsel 25% of the gross amount of the settlement fund asattorneys’ fees, which amount is to be paid out of the settlement fund. As aresult of the settlement, during the three months ended March 31, 2001, theCompany recorded a charge to operations of $336,000, which represents the fair value of the warrants issued.  

 

InJuly 18, 2001, the 8% convertible preferred stock and unpaid accrued dividendswere converted into common shares.  The6,500 shares of preferred were converted to 428,447 common shares.  

 

OnNovember 13, 2001 the Forms 10-QSB for the quarters ending March 31, 2000 werefiled with restated financial information. 

 

OnNovember 13, 2001 the Forms 10-QSB for the quarters ending  June 30, and September 30, 2000 and Form10-KSB for the fiscal year 2000  werefiled.  

 

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

 

OnNovember 19, 2001 the Forms 10-QSB for the quarters ending March 31, 2001 andSeptember 30, 2001 were filed.   

 

**ForwardLooking Statements**  

 

Certainstatements contained in this report that do not relate to historicalinformation are forward looking statements within the meaning of the UnitedStates Private Securities Litigation Reform Act of 1995 and thus are prospective.  Such forward-looking statements are subjectto risks, uncertainties and other factors which could cause actual results todiffer materially from future results expressed, projected or implied by suchforward-looking statements.  Suchfactors include, but are not limited to, economic, competitive, and broadcastindustry conditions.  These factors arediscussed in greater detail in our filings with the Canadian and United StatesSecurities regulators.  We disclaim anyresponsibility to update any such forward-looking statements. 

 

ACRODYNECOMMUNICATIONS, INC.

PART II. OTHER INFORMATION

 

 

Item 6.  Exhibits and Reports on Form 8-KSB

 

                (a)           Exhibits

 

                (b)           Form8-KSB was filed on May 10, 2001 announcing the elimination of the position ofSenior Vice President and Chief Financial Officer 

 

                (c)           Form 8-KSB was filed on November 16,2001 announcing the replacement of Arthur Andersen, LLP with Grant Thornton LLPas the company’s outside audit firm. This change is effective for fiscal year 2001.  

 

 

SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                           |   | Acrodyne Communications, Inc. |
|--------------------------------|--------|-------------------------------|
|                           |   | (Registrant)                  |
|                           |   |                          |
| Date:  November  19, 2001 |   | /s/ Nathaniel Ostroff         |
|                           |   | Nathaniel Ostroff             |
|                           |   | Chairman, President and CEO   |