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

**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 quarterlyperiod ended September 30, 2001**

** **

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

** **

** **

**Commission filenumber**

**0-24886**

** **

** **

**ACRODYNE COMMUNICATIONS, INC.**

(Exact name of small business issuer asspecified in its charter)

 

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

 

Check whether the issuer  (1) has filed all reports required to befiled by Section 13 or 15(d) of the Exchange Act during the past 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.

Yes  o No ý

 

State the number of shares outstanding ofeach of the issuer's classes of common equity, as of the latest practicabledate: 7,409,608 shares of common stock of Acrodyne Communications, Inc.  were outstanding on November 16, 2001.

 

 

 

ACRODYNE COMMUNICATIONS, INC.

 

# **INDEX**

##  

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

 

 

 

**Acrodyne Communications, Inc. And Subsidiary **

**Consolidated Balance Sheets**

 
|                                                                                                                                                                                                 |   | **September 30, 2001** |   | **December 31, 2000** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|-----------------------|--------|
|                                                                                                                                                                                                 |   | **(unaudited)**        |   | **(audited)**         |   |
| **Assets**                                                                                                                                                                                           |   |                   |   |                  |   |
|                                                                                                                                                                                                 |   |                   |   |                  |   |
| Current Assets:                                                                                                                                                                                      |   |                   |   |                  |   |
| Cash and cash  equivalents                                                                                                                                                                           |   | 212,759                |   | 86,959                |   |
| Accounts receivables,  net of allowance for doubtful accounts of $375,000 and $389,000 at September  30 and December 31                                                                              |   | 720,927                |   | 944,225               |   |
| Inventories                                                                                                                                                                                          |   | 2,956,432              |   | 2,286,887             |   |
| Prepaid expenses  and deposits                                                                                                                                                                       |   | 331,595                |   | 58,555                |   |
| Other current assets                                                                                                                                                                                 |   | 407,102                |   | 500,524               |   |
| **Total current assets**                                                                                                                                                                             |   | 4,628,815              |   | 3,877,150             |   |
|                                                                                                                                                                                                 |   |                   |   |                  |   |
| Property, plant and  equipment, net                                                                                                                                                                  |   | 3,859,051              |   | 4,150,926             |   |
| License agreement, net                                                                                                                                                                               |   | 1,125,000              |   | 1,275,000             |   |
| **Total Assets**                                                                                                                                                                                     |   | 9,612,866              |   | 9,303,076             |   |
|                                                                                                                                                                                                 |   |                   |   |                  |   |
|                                                                                                                                                                                                 |   |                   |   |                  |   |
| **Liabilities and Shareholders'  Equity (Deficiency)**                                                                                                                                               |   |                   |   |                  |   |
| Borrowings under Line of  credit                                                                                                                                                                     |   | 3,458,753              |   | 1,158,753             |   |
| Subordinated debenture  with Sinclair Broadcast Group                                                                                                                                                |   | 2,000,000              |   | 2,000,000             |   |
| Current portion of  capital lease obligation                                                                                                                                                         |   | 428,340                |   | 9,494                 |   |
| Accounts payable                                                                                                                                                                                     |   | 2,316,788              |   | 1,737,230             |   |
| Accrued expenses                                                                                                                                                                                     |   | 2,224,128              |   | 1,420,094             |   |
| Customer advances                                                                                                                                                                                    |   | 5,501,556              |   | 4,723,430             |   |
| Deferred revenue                                                                                                                                                                                     |   | 459,753                |   | 2,290,085             |   |
| Other current  liabilities                                                                                                                                                                           |   | 525,000                |   | 651,000               |   |
| **Total current liabilities**                                                                                                                                                                        |   | 16,914,318             |   | 13,990,086            |   |
|                                                                                                                                                                                                 |   |                   |   |                  |   |
| Capital lease  obligations                                                                                                                                                                           |   | 3,768,836              |   | 3,776,948             |   |
| License fee payable                                                                                                                                                                                  |   | 1,050,000              |   | 1,200,000             |   |
| Non-compete liability                                                                                                                                                                                |   | 845,912                |   | 845,912               |   |
| **Total liabilities**                                                                                                                                                                                |   | 22,579,066             |   | 19,812,946            |   |
| **SHAREHOLDERS’ EQUITY  (DEFICIENCY)**                                                                                                                                                          |   |                   |   |                  |   |
| 8% Convertible  Redeemable Preferred Stock, par value$1.00, 1,000,000 shares authorized, 0  shares and 6,500shares issued and outstanding at September 30, 2001 and  December 31, 2000, respectively |   | 0                      |   | 6,500                 |   |
| Common stock, par value $.01,  30,000,000 shares authorized, 7,409,608 and 6,981,161 issued and outstanding  at September 30, 2000 and December 31, 2000, respectively                               |   | 70,240                 |   | 69,812                |   |
| Additional paid-in  capital                                                                                                                                                                          |   | 21,502,850             |   | 21,496,778            |   |
| Additional  paid-in-capital - warrants                                                                                                                                                               |   | 336,000                |   | 0                     |   |
| Accumulated deficit                                                                                                                                                                                  |   | (34,875,290            | )      | (32,082,960           | )      |
|                                                                                                                                                                                                 |   |                   |   |                  |   |
| Total shareholders'  equity (deficiency)                                                                                                                                                             |   | (12,966,200            | )      | (10,509,870           | )      |
| **Total Liabilities and  Shareholders' Equity (Deficit)**                                                                                                                                            |   | 9,612,866              |   | 9,303,076             |   |

 

**See notes toconsolidated financial statements**

 

 

 

**AcrodyneCommunications, Inc.**

**ConsolidatedStatements of Operations     (Unaudited)**

 
|                                                         |   | **Three Months Ended** |   | **Nine Months Ended** |   |
|--------------------------------------------------------------|--------|------------------------|--------|-----------------------|--------|
|                                                         |   | **September 30,**      |   | **September 30,**     |   |
|                                                         |   | **2001**               |   | **2000**              |   | **2001** |   | **2000** |   |
|                                                         |   |                   |   |                  |   |   |   |   |   |
| Net Sales                                                    |   | 4,740,062              |   | 1,805,406             |   | 7,638,574 |   | 4,983,671 |   |
| Cost of Sales                                                |   | 3,056,534              |   | 3,121,580             |   | 5,791,425 |   | 6,588,565 |   |
| Gross Profit  (Loss)                                         |   | 1,683,528              |   | (1,316,174            | )      | 1,847,149 |   | (1,604,894 | ) |
|                                                         |   |                   |   |                  |   |   |   |   |   |
| Operating  Expenses:                                         |   |                   |   |                  |   |   |   |   |   |
| Engineering                                                  |   | 379,360                |   | 503,837               |   | 1,542,687 |   | 818,703 |   |
| Selling                                                      |   | 179,338                |   | 256,411               |   | 726,327 |   | 953,805 |   |
| Administration                                               |   | 293,370                |   | 947,312               |   | 1,649,089 |   | 2,428,185 |   |
| Amortization                                                 |   | 75,000                 |   | 75,000                |   | 225,000 |   | 265,748 |   |
| Goodwill and  non-compete write-off                          |   | 0                      |   | 4,144,284             |   | 0 |   | 4,144,284 |   |
| Total operating expenses                                     |   | 927,068                |   | 5,926,844             |   | 4,143,103 |   | 8,610,725 |   |
|                                                         |   |                   |   |                  |   |   |   |   |   |
| Operating Profit  (Loss)                                     |   | 756,460                |   | (7,243,018            | )      | (2,295,954 | ) | (10,215,619 | ) |
|                                                         |   |                   |   |                  |   |   |   |   |   |
|                                                         |   |                   |   |                  |   |   |   |   |   |
| Other Income  (Expense):                                     |   |                   |   |                  |   |   |   |   |   |
| Interest expense,  net                                       |   | (213,337               | )      | (113,045              | )      | (644,305 | ) | (355,371 | ) |
| Other Income, net                                            |   | 3,764                  |   | 0                     |   | 175,984 |   | 0 |   |
| Total other  income (expense)                                |   | (209,573               | )      | (113,045              | )      | (468,321 | ) | (355,371 | ) |
|                                                         |   |                   |   |                  |   |   |   |   |   |
| Net Profit (Loss)                                            |   | 546,887                |   | (7,356,063            | )      | (2,764,275 | ) | (10,570,990 | ) |
|                                                         |   |                   |   |                  |   |   |   |   |   |
| Dividend on 8%  preferred stock                              |   | 0                      |   | (14,028               | )      | (28,056 | ) | 42,084 |   |
|                                                         |   |                   |   |                  |   |   |   |   |   |
| Net Income (loss)  available to common shares                |   | 546,887                |   | (7,370,091            | )      | (2,792,331 | ) | (10,613,074 | ) |
|                                                         |   |                   |   |                  |   |   |   |   |   |
| Net Income (Loss)  per common share – basic and diluted |   | .07                    |   | (1.06                 | )      | (0.39 | ) | (1.52 | ) |
| Weighted average  shares outstanding - basic                 |   | 7,330,438              |   | 6,981,161             |   | 7,098,866 |   | 6,965,011 |   |

 

**See notes toconsolidated financial statements**

 

 

**Acrodyne Communications, Inc.**

**CONSOLIDATED STATEMENTS OF CASHFLOWS     (Unaudited)**

 
|                                                                         |   | **Nine months ended** |   |
|------------------------------------------------------------------------------|--------|-----------------------|--------|
|                                                                         |   | **September 30,**     |   |
|                                                                         |   | **2001**              |   | **2000** |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                       |   |                  |   |   |   |
|                                                                         |   |                  |   |   |   |
| Net loss                                                                     |   | (2,764,275            | )      | (10,570,990 | ) |
| Adjustments to reconcile  net loss to net cash used in operating activities: |   |                  |   |   |   |
| Depreciation and  amortization                                               |   | 423,699               |   | 389,359 |   |
| Issuance of warrants for  legal proceedings                                  |   | 336,000               |   | 0 |   |
| Provision for lease loan  guarantee                                          |   | 0                     |   | 214,167 |   |
| Provision for bad debts                                                      |   | 13,983                |   | 496,990 |   |
| Write-off of goodwill  and non-compete                                       |   | 0                     |   | 4,144,284 |   |
|                                                                         |   |                  |   |   |   |
| Changes in assets and  liabilities:                                          |   |                  |   |   |   |
| Accounts receivable and  other                                               |   | 302,737               |   | 249,405 |   |
| Inventories                                                                  |   | (669,545              | )      | 1,583,995 |   |
| Prepaid and deposits                                                         |   | (273,040              | )      | 114,276 |   |
| Accounts payable                                                             |   | 579,558               |   | (1,169,633 | ) |
| Accrued expenses                                                             |   | 804,034               |   | 456,514 |   |
| Other current liabilities                                                    |   | (284,111              | )      |   |   |
| Deferred revenue                                                             |   | (1,830,332            | )      | (485,303 | ) |
| Customer advances                                                            |   | 778,126               |   | 3,106,726 |   |
| Net cash used in  operating activities                                       |   | (2,583,166            | )      | (1,470,210 | ) |
|                                                                         |   |                  |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                       |   |                  |   |   |   |
| Retirement (Purchase) of  property, plant, and equipment                     |   | 18,176                |   | 0 |   |
| Sale of short-term  investment                                               |   | 0                     |   | 200,000 |   |
| Net cash provided by  investing activities                                   |   | 18,176                |   | 200,000 |   |
|                                                                         |   |                  |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                       |   |                  |   |   |   |
|                                                                         |   |                  |   |   |   |
| Proceeds from issuance  and exercise of warrants                             |   | 0                     |   | 225,000 |   |
| (Repayments) /  borrowings under line of credit                              |   | 2,300,000             |   | (487,248 | ) |
| Borrowings under  debenture                                                  |   | 0                     |   | 1,000,000 |   |
| Capital lease repayments                                                     |   | 418,846               |   | (55,964 | ) |
| Repayments on  non-compete liability                                         |   | 0                     |   | (9,180 | ) |
| Dividends on convertible  preferred stock                                    |   | (28,056               | )      | (42,084 | ) |
| Net cash provided by  financing activities                                   |   | 2,690,790             |   | 630,524 |   |
|                                                                         |   |                  |   |   |   |
| Net increase (decrease)  in cash and cash equivalents                        |   | 125,800               |   | (639,686 | ) |
| Cash and cash  equivalents at beginning of period                            |   | 86,959                |   | 664,950 |   |
| Cash and cash  equivalents at end of period                                  |   | 212,759               |   | 25,264 |   |

 

 

 

    **See notes to consolidated financial statements**

 

 

**AcrodyneCommunications, Inc.**

#### **Notes to ConsolidatedFinancial Statements (Unaudited)**

 

 

**1.  Unaudited Consolidated Financial Statements**

 

The accompanying consolidated balance sheetof Acrodyne Communications, Inc. (the “Company”) and its subsidiaries(collectively “Acrodyne”) at September 30, 2001 and the related consolidatedstatements of operations and of cash flows for the nine months ended September30, 2001 and 2000 have been prepared by management.  In the opinion of management, all adjustments (consisting ofnormal recurring adjustments only) necessary to present fairly the financialposition at September 30, 2001, and the results of operations and cash flowsfor the nine months ended September 30, 2001 and 2000 have been 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 periods are not necessarilyindicative of the results to be obtained for the entire year.

 

 

**2.     BASIS OF PRESENTATION**

 

The condensedconsolidated financial statements of Acrodyne Communications, Inc. andsubsidiary (the “Company”) presented herein are unaudited.  In the opinion of management, thesefinancial statements include all adjustments (which include normal recurringand nonrecurring adjustments, as disclosed below) necessary for a fairpresentation of the financial position, results of operations, and cash flowsfor the periods presented.  The resultsfor interim periods are not necessarily indicative of results for the entireyear.  The financial statementspresented herein should be read in connection with the financial statementsincluded in the Company’s Annual Report on Form 10-KSB for the year ended December31, 2000.

 

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

 

 

**3. INVENTORIES**

 
| Inventories  comprise:   |   |                   |   |                  |   |
|--------------------------|--------|------------------------|--------|-----------------------|--------|
|                     |   | **September 30, 2001** |   | **December 31, 2000** |   |
|                     |   |                   |   |                  |   |
| Raw materials            |   | 3,129,289              |   | 2,158,035             |   |
| Work in process          |   | 878,927                |   | 139,523               |   |
| Finished goods           |   | 264,909                |   | 1,506,022             |   |
|                     |   | 4,273,125              |   | 3,803,580             |   |
| Less:                    |   |                   |   |                  |   |
| Reserve for obsolescence |   | 1,516,693              |   | 1,516,693             |   |
|                     |   |                   |   |                  |   |
| Net Inventory            |   | 2,956,432              |   | 2,286,887             |   |

 

**4.  Property, plant and equipment consisted**

**                of the following at:**
|                                            |   | **June 30,** |   | **December 31** |   |
|-------------------------------------------------|--------|--------------|--------|-----------------|--------|
|                                            |   | **2001**     |   | **2000**        |   |
|                                            |   |         |   |            |   |
| Test  Equipment                                 |   | 1,016,715    |   | 1,048,884       |   |
| Office  Equipment                               |   | 633,075      |   | 619,083         |   |
| Building and  capital lease                     |   | 3,776,667    |   | 3,776,667       |   |
|                                            |   | 5,426,457    |   | 5,444,634       |   |
|                                            |   |         |   |            |   |
| Less  accumulated depreciation and amortization |   | 1,567,406    |   | 1,293,708       |   |
| Property, plant and equipment, net              |   | 3,859,051    |   | 4,150,926       |   |

 

**5.  Earnings Per Share**

 

Basic earnings per share is computed bydividing net loss available to common shareholders by the weighted averagenumber of shares outstanding.   Dilutedearnings per share is computed using the weighted average number of shares determinedfor the basic computations plus the number of shares of common stock that wouldbe issued assuming all contingently issuable shares having a dilutive effect onearnings per share were outstanding.  Atthe end of September the following potentially dilutive items were outstanding:

 

 

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

 

Common stock equivalents werenot included in net loss per diluted share calculation as they would beantidilutive.

 

 

**6.  Related Party Transactions**

 

The Company has a number of transactions withSinclair Broadcasting (Sinclair) which also owns 35%  of the common stock at September 30,2001.   The Company was indebted   toSinclair in the amount of $5,458,753 and $2,158,753 as of September 30, 2001and December 31, 2000, respectively.

 
| • | The Company also had receivables in the amount of $117,380 and  $117,380  as of September 30, 2001 and  December 31, 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | The Company had sales to Sinclair of  $4,517,048  for the three months ended September 30, 2001, $4,926,810 for the nine months  ended September 30, 2001, and $2,415,387 for the year ended December 31,  2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| • | Sinclair also reimbursed the Company for audit fees in the first  quarter of 2001 in the amount of $150,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| • | During March 2000, we entered into a 10-year license agreement (the  “License Agreement") with Sinclair for the exclusive right to  manufacture and sell certain Sinclair designed transmitter lines. Under terms  of the License Agreement, we will pay Sinclair an annual royalty of $300,000  for five years.  For years six through  ten, we shall pay Sinclair an annual royalty equal to 1.0% of revenues  realized by us attributable to the License Agreement.  At end of the tenth year, we have the  option to purchase the Sinclair technology.   The purchase price would be twice the cumulative royalty amount paid  to Sinclair for years six through ten. |

 

**7. NON-COMPETE AGREEMENT AND GOODWILL**

 

Inconnection with the 1994 acquisition of Acrodyne Industries (see Item 2), theCompany recorded goodwill totaling $4,711,274 representing the excess ofpurchase price over the fair value of net assets acquired.  Prior to being written off, goodwill wasbeing amortized on a straight-line basis over 30 years.

 

Duringthe third quarter of 2000, the Company determined that as a result of thecombination of regulatory changes, evolving technology, changes dictated by themarket place, changes to key management and continued negative profit marginsfor its medium and low power transmitter product line, it would exit suchproduct line.  The Company acquired thisproduct line in 1994 (see item 2).  As aresult of this decision, the Company reviewed all of the long-term assets ofits medium and low power product line (principally goodwill, covenantnot-to-compete and property and equipment) for impairment.  As a result of this review, managementconcluded that these assets had been permanently impaired and, as such,recorded a charge to write-off all goodwill and certain other long-term assetsin the amount of $4,144,284 during the third quarter of 2000, which includes$323,322 related to the non-compete intangible asset and $3,820,962 related togoodwill.

 

 

 

 

**ITEM 2.**

 

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

 

 

OVERVIEW

 

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

 

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

 

 

 

 

# **Significant Accounting Policies**

 

On June 29, 2001, the FinancialAccounting Board (FASB) issued Statement of Financial Accounting Standards(SFAS) No. 141, *Business Combinations*, and SFAS No. 142, *Goodwill andIntangible Assets.* Thesestatements are expected to result in significant modifications relative to theCompany’s accounting for goodwill and other intangible assets. SFAS No. 141requires that all business combinations initiated after June 30, 2001, must beaccounted for the under the purchase method of accounting.  SFAS No. 141 was effective uponissuance.  SFAS No. 142 modifies theaccounting for all purchased goodwill and intangible assets.  SFAS No. 142 includes requirements to 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.

 

#### **Operations and Business Risk**

 

Due to the nature of the ourbusiness, it is subject to various risks including, but not limited to,technological and market acceptance of the Company’s product, capitalavailability, 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 currentindication that our product will achieve widespread use or acceptance in thetelevision broadcasting industry.  Ourcompetitors, which may be better capitalized, could design products which makeours obsolete or uneconomical.  Sincethe broadcast industry 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 ourproducts.  Our design, production, andmarketing functions are all highly dependent on certain key individuals.  Should any of those key individuals leavethe employ of the company, it is uncertain that adequate replacements could befound.

 

Since the acquisition of Acrodyne Industries in 1994, the Company hasincurred significant losses including net losses of $12,984,186 and $6,906,373in 2000 and 1999, respectively.  Inaddition, the Company has generated operating cash flow deficits of $2,306,348and $2,905,477in 2000 and 1999, respectively.  Additional losses and cash flow deficits have continued in2001.  These losses and cash flowdeficits have been funded primarily with proceeds from the sale of equitysecurities, including $225,000 and $4,075,374 from common stock and warrantssold to Sinclair in 2000 and 1999, respectively, a $2,000,000 subordinateddebenture provided by Sinclair, the Company’s Credit Facility with Sinclair,and customer advances. As of December 31, 2000, Sinclair owned 35% of ourcommon stock and has warrants to purchase 8,644,225 additional shares, whichrepresented a 60% ownership interest on a fully diluted basis. As of September30, 2001, Sinclair owned 35% of the issued common stock assuming no exercise ofwarrants.

 

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 formal recapitalization 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.

 

 

#### **RESULTS OF OPERATIONS**

 

Withinthe following discussion, unless otherwise stated, “ quarter” and “ nine-monthperiod” refer to the third quarter of fiscal 2001 and the nine months endedSeptember 30, 2001. All comparison discussions are with the correspondingperiods in the previous year unless otherwise stated.

 

Thefollowing compares our summary results of operations for the three andnine-month periods ended September 30, 2001 and 2000:

 
|                       |   | **Three Months Ended September  30,** |   |   |   | **Nine Months ended September 30** |   |    |   |
|----------------------------|--------|---------------------------------------|--------|--------|--------|------------------------------------|--------|---------|--------|
|                       |   |                                  |   |   |   |                               |   |    |   |
|                       |   | **2001**                              |   |   |   | **2000**                           |   |    |   | **2001** |   |   |   | **2000** |   |   |   |
|                       |   |                                  |   |   |   |                               |   |    |   |   |   |   |   |   |   |   |   |
| Net Sales                  |   | 4,740,062                             |   | 100.0  | %      | 1,805,406                          |   | 100.0   | %      | 7,638,574 |   | 100.0 | % | 4,983,671 |   | 100.0 | % |
| Cost of Sales              |   | 3,056,534                             |   | 64.5   | %      | 3,121,580                          |   | 172.9   | %      | 5,791,425 |   | 75.8 | % | 6,588,565 |   | 132.2 | % |
| Gross profit /  (loss)     |   | 1,683,528                             |   | 35.5   | %      | (1,316,174                         | )      | (72.9%  | )      | 1,847,149 |   | 24.2 | % | (1,604,894 | ) | 32.2 | % |
| Operating  Expenses        |   | 927,068                               |   | 19.6   | %      | 5,926,844                          |   | 328.3   | %      | 4,143,103 |   | 54.3 | % | 8,610,725 |   | 172.8 | % |
| Operating profit  / (loss) |   | 756,460                               |   | 15.9   | %      | (7,243,018                         | )      | (401.2% | )      | (2,295,954 | ) | (30.1% | ) | (10,215,619 | ) | (205.0% | ) |
| Interest expense,  net     |   | 209,573                               |   | 4.4    | %      | 113,045                            |   | 6.3     | %      | 468,321 |   | 6.1 | % | 355,371 |   | 7.1 | % |
| Net loss                   |   | 546,887                               |   | 11.5   | %      | (7,356,063                         | )      | (407.5% | )      | 2,764,275 |   | (36.2% | ) | (10,570,990 | ) | (212.1% | ) |

 

Sales increased by $2,934,656 or 162.5%for the quarter and $2,654,903 or 53.3% for the nine-month period. Ournew Quantum line of transmitters began to ship in significant volume in thethird quarter of 2001.  In the precedingtwo quarters only one Quantum transmitter was recorded as sales on the company’sbooks.  In the third quarter eleven (11)units completed installation, test, and check-out and were recorded assales.  The company also recorded saleson a design and development contract which was terminated.  Upon termination the items previouslycharged to other assets were liquidated to cost of sales and amounts incustomer deposits were recorded as sales. Sales associated with this terminated contract amounted to $1,000,000 inthe third quarter.

 

Costof sales for the quarter were 64.5% of sales compared to 172.9% of sales in theprevious years quarter. Cost of sales in the third quarter of 2001 werefavorably impacted by efficient production in our new production line forQuantum and the margin on the terminated program discussed above.  Cost of sales in the September 2000 quarterincluded a charge of $1,200,000 for obsolete inventory associated with thediscontinuance of the production of a product line.  For the nine-month period the margin was 24.2% compared tonegative 32.2% for the prior year.

 

Operatingexpenses for the 2001 quarter was less than in previous quarters.   Prior quarters in 2001 were adverselyimpacted by legal, consulting, and accounting fees associated with ourfinancial restatements and a shareholder lawsuit.  The September quarter in 2000 was effected by the write off ofgoodwill and “non-compete” asset (see below), amortization of a licensingagreement with Sinclair, increase in the reserve for bad debts, and costsincurred in the connection with the review of internal controls and restatementof financial results.

 

Inconnection with the 1994 acquisition of Acrodyne Industries, we had recordedgoodwill totaling $4,711,274 representing the excess of purchase price over thefair value of net assets acquired, which were being amortized over 30 years.  During the third quarter 2000, we concludedthat we would discontinue our traditional product line as a result ofregulatory changes, evolving technology, changes dictated by the marketplace,changes to key management and continued negative profit margins for our traditionalproduct line.  Consequently, wedetermined that our goodwill was permanently impaired and, as such, wrote offthe remaining balance of goodwill of $3,820,962 during the quarter.

 

**In connection with theacquisition of Acrodyne Industries, we entered into a non-compete agreementwith the selling shareholder.  Theintangible asset recorded was being amortized over a ten-year period.  Because of the combination of changes notedin the preceding paragraph, we concluded that the asset had ceased to provide anyfuture value to our operations and, consequently, wrote off the remainingbalance of $323,322 during the quarter.**

** **

**We recorded an increase to theallowance for doubtful accounts of $136,990 for the quarter ended September 30,2000.**

 

**During March 2000, we enteredinto a 10-year license agreement with Sinclair, for the exclusive right tomanufacture and sell certain Sinclair designed transmitter lines.  Under terms of the license agreement, wewill pay Sinclair an annual royalty of $300,000 for five years, and 1% ofrelated sales thereafter.  EffectiveApril 1, 2000, we have been recognizing an annual amortization expense of$300,000 in recognition of our liability to Sinclair, which is recognizedpro-rata in the accompanying statements.**

** **

**Net interest exp**ense has increased due to higheroutstanding balances drawn against the credit line and the expense of the newmanufacturing facility in Oaks, PA, which is treated as a capitalizedlease.  This capitalized lease was begunin the fourth quarter of 2000.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Historically,we have financed our activities primarily from borrowings, equity transactionsand investments.  At September 30, 2001and December 31, 2000 our net working capital deficit increased by $2,172,567to ($12,285,503) as compared to ($10,112,936) at December 31, 2000, mainly fromincreases in debt, accounts payable, and customer deposits.  They were partially offset by a reduction indeferred revenue and an increase in inventory, which supported our new productsales.

 

Accounts receivable atSeptember 30, 2001 were $720,927  andreflected a $223,298 decrease from December 31, 2000. The majority of our salesof domestic transmitters require payment of a non-refundable 30% deposit at thetime of placing 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 $2,956,432 at September 30, 2001 from $2,286,887at December 31, 2000.  This increase wasdue to the production rate of our new Quantum transmitter.

 

In September 1999, we entered into a new credit facility (the"Credit Facility") with PNC Bank, N.A. that provided for a $2,500,000line of credit. The Credit Facility bears interest at LIBOR plus 200 basispoints (8.56% at December 31, 2000 and 7.9% at December 31, 1999) and replaceda prior $2,000,000 line of credit facility maintained with another bank. TheCredit Facility was collateralized by all our personal property and was guaranteedby Sinclair. The Credit Facility, which expired on July 31, 2000, was extendedto October 31, 2000. In November 2000, Sinclair purchased the Credit Facilityand assumed all rights of the bank. The weighted-average interest rate andtotal interest 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 31, 2001 we hadborrowed the entire $2,500,000 available under this facility. On April 27,2001, the credit facility was replaced with a $4,000,000 line of credit withSinclair.   The line of credit requiresmonthly interest-only payments at a fixed rate of interest of 12% per annum andmatures upon demand by Sinclair.  OnSeptember 30, 2001 $3,458,753 had been borrowed against this facility.

 

During March 2000, we enteredinto a subordinated debenture agreement (the "Debenture") withSinclair. Under the terms of the Debenture, we may borrow up to $2,000,000 atan interest rate of 10.5%. The first payment of interest shall be made April 1,2000 and on a monthly basis thereafter. Principal is payable upon demand of Sinclair.  Further, Sinclair has the right, at any time, to convert all, butnot less than all, of the principal owed to Sinclair into our common stock at$3.45 per share.  During 2000, the wepaid $115,815 of interest due under the Debenture.  As of September 30, 2001 $2,000,000 was outstanding under theterms of this agreement.

 

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

 

We have noprovision for federal income tax, in that the tax loss carryforwards, whichbegin to expire in 2011, total approximately $22,800,000 at December 31,2000.

 

 

 

 

**Significantand Recent Events**

 

 

During August 2000 we announcedthat it is necessary to defer filing our Form 10-QSB for the quarter ended June30, 2000.  We also announced that prioryears' audited consolidated financial statements would have to be amended andrestated along with the previously filed first quarter consolidated financialstatements for the period ended March 31, 2000.

 

In September 2000 we announcedthat we would voluntarily delist after delisting proceedings were announced bythe Nasdaq for not filing timely financial information.  The shares may trade on the OTC BulletinBoard, but not before we file our Form 10-QSB for the periods ended September30, 2000, June 30, 2000, March 31, 2000 (restated) and Form 10-KSB for the yearended December 31, 2000 and the restated Form 10-KSB for the years endedDecember 31, 1999 and 1998.

 

In September 2000, the Companywas joined as a defendant along with two of its officers and directors, in aclass action in the United States District Court for the District of Maryland.The lawsuit asserts that the Company issued false and misleading financialstatements. The Company has reached a settlement with plaintiffs’ counsel. Thesettlement requires the Company to issue plaintiffs warrants to purchase1,600,000 shares of the Company’s common stock at an exercise price of $1.00per share. The warrants will expire after five years. The Company also hasagreed to pay the plaintiffs $750,000. The cash portion of the settlement will be funded by its officers’ anddirectors’ indemnity insurance policy. A Memorandum of Understanding reflectingthe material terms of the settlement was filed with the Court on March 1, 2001.On April 6, 2001, a Stipulation and Agreement of Settlement was submitted tothe Court along with all required documents to effectuate the settlement.  On April 9, 2001, the Court approved theproposed settlement but reserved its right to review the settlement and/orenter a final judgment approving the settlement and dismissing thelawsuit.  On June 26, 2001, the Court(i) found the settlement to be fair, reasonable, and adequate and in the bestinterests of the parties; (ii) settled, released, discharged and dismissed withprejudice the cases against the defendants; (iii) determined that neither thesettlement nor any of the documents or statements associated therewith are, orshall be construed as, a concession or admission by the defendants of theexistence of any damages or wrongdoing; and (iv) awarded the plaintiffs’counsel 25% of the gross amount of the settlement fund as attorneys’ fees,which amount is to be paid out of the settlement fund.  As a result of the settlement, during thethree months ended March 31, 2001, the Company recorded a charge to operationsof $336,000 which represented the fair value of the warrants issued.

 

** **

**On November 13, 2001 the Forms 10-QSB for the quarters ending March 31,2000 was filed with restated financial information.**

** **

**On November 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.**

** **

**On November 16,  2001 a Form 8-KSB was filed announcing achange in audit firms beginning with the year 2001.**

** **

**On November 19, 2001 the Forms 10-QSB for the quarters ending March 31,2001 and June 30, 2001 were filed.**

 

 

 

**ForwardLooking Statements**

 

Certain statements contained in this reportthat do not relate to historical information are forward looking statementswithin the meaning of the United States Private Securities Litigation ReformAct of 1995 and thus are prospective. Such forward-looking statements are subject to risks, uncertainties andother factors which could cause actual results to differ materially from futureresults expressed, projected or implied by such forward-lookingstatements.  Such factors include, butare not limited to, economic, competitive, and broadcast industryconditions.  These factors are discussedin greater detail in our filings with the Canadian and United States Securitiesregulators.  We disclaim anyresponsibility to update any such forward-looking statements.

 

 

 

ACRODYNE COMMUNICATIONS, INC.

PART II. OTHER INFORMATION

 

 

Item 6.  Exhibits and Reports on Form 8-KSB

 

**(a)           Exhibits**

 

 

**(b) On November 13, 2001 the Forms 10-QSB forthe quarters ending  June 30, and**

**September 30, 2000 and Form 10-KSB for thefiscal year 2000  were filed.**

** **

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

 

SIGNATURES

 

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

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