U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number
0-24886
ACRODYNE COMMUNICATIONS, INC.
(Exact name 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.)
516 Township Line Road
Blue Bell, Pennsylvania 19422
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number: 215-542-7000
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
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 X No _____
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 5,310,270 shares of common
stock of Acrodyne Communications, Inc. were outstanding on November 7, 1997.
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
INDEX
Page
No.
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheet at September 30,
1997 and 1996 (unaudited)............................................ 2
Consolidated Statement of Operations for the
Three and Nine Months Ended September 30,
1997 and 1996(unaudited)............................................. 3
Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 (unaudited) ........... 4
Notes to Consolidated Financial Statements (unaudited)............... 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ 7
PART II. OTHER INFORMATION, AS APPLICABLE............................. 12
SIGNATURES............................................................. 12
<PAGE>
Acrodyne Communications, Inc.
(formerly Acrodyne Holdings, Inc.)
Consolidated Balance Sheet
(Unaudited)___________________________________________________________________
September 30, September 30,
Assets 1997 1996
Current assets:
Cash and cash equivalents $ 2,297,081 $ 4,578,934
Accounts receivable 1,210,588 1,919,827
Inventories 5,188,809 3,549,154
Prepaid expenses and deposits 78,525 263,162
------------ ------------
Total current assets 8,775,003 10,311,077
Property, plant and equipment, net 610,575 578,784
Note receivable 84,087 78,416
Non-compete agreement, net 529,572 604,572
Goodwill, net 4,251,326 4,407,823
------------ ------------
Total assets $ 14,250,563 $ 15,980,672
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 344,240 $ 375,075
Borrowings under line of credit 500,000 -
Accounts payable 674,475 674,217
Accrued expenses 290,124 300,105
Customer advances 118,559 132,469
------------ ------------
Total current liabilities 1,927,398 1,481,866
Long-term debt 396,043 655,872
Non-compete liability 714,919 724,758
------------ ------------
Total liabilities 3,038,360 2,862,496
Shareholders' equity:
Preferred stock, par value $1.00;
1,000,000 shares authorized,
25,000 shares designated as,
8% Convertible Redeemable Preferred
Stock, 6,500 and 10,500 shares
issued and outstanding in 1997 and
1996 respectively 6,500 10,500
Common stock, par value $.01;
10,000,000 shares authorized,
4,504,270 shares issued and outstanding 45,043 43,843
Additional paid-in capital 14,761,521 14,668,827
Accumulated deficit ( 3,600,861) (1,604,994)
------------ ------------
Total liabilities and
shareholders' equity $14,250,563 $15,980,672
============ ============
See notes to consolidated financial statements
<PAGE>
Acrodyne Communications, Inc.
(formerly Acrodyne Holdings, Inc.)
Consolidated Statement of Operations
(Unaudited)___________________________________________________________________
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Net sales $2,012,245 $2,648,394 $6,991,288 $8,062,851
Cost of sales 1,485,447 1,857,904 5,156,600 5,558,532
---------- ---------- ---------- ----------
Gross profit 526,798 790,490 1,834,688 2,504,319
---------- ---------- ---------- ----------
Operating expenses:
Engineering, research
and development 196,897 196,228 608,421 571,910
Selling 328,996 383,883 1,222,995 1,010,693
Administration 412,912 378,693 1,179,211 1,076,430
Amortization 57,874 57,874 173,621 173,621
---------- ---------- ---------- ----------
Total operating expenses 996,679 1,016,678 3,184,248 2,832,654
---------- ---------- ---------- ----------
Operating profit (loss) (469,881) (226,188) (1,349,560) (328,335)
Other income (expense):
Interest income
(expense), net 39,197 6,599 9,381 (82,706)
Other income (expense), net 2,260 (440) 3,346 (248,664)
---------- ---------- ---------- ----------
Net profit (loss) ($428,424) ($220,029) ($1,336,833) ($659,705)
Dividend on 8% Convertible
Redeemable Preferred Stock (13,734) (21,000) (50,622) (39,661)
---------- ---------- ---------- ----------
Net income (loss) applicable
to common shares ($ 442,158) ($ 241,029) ($1,387,455) ($699,366)
=========== =========== ============ ===========
Net income (loss) loss
per common share ($0.09) ($0.06) ($0.31) ($0.16)
=========== =========== ============ ===========
Weighted average number of 4,504,226 4,238,000 4,453,471 3,300,000
common shares outstanding =========== =========== ============ ===========
See notes to consolidated financial statements
<PAGE>
Acrodyne Communications, Inc.
(formerly Acrodyne Holdings, Inc.)
Consolidated Statement of Cash Flows
(Unaudited)___________________________________________________________________
Nine Months Ended September 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996
Net (loss) $(1,336,833) $ (659,705)
Adjustments to reconcile net (loss)
to net cash used in operating activities:
Depreciation and amortization 282,295 249,449
Stock option accrual 12,500 12,500
Issuance of warrants for services - 250,000
Changes in assets and liabilities:
Accounts receivable 946,521 (769,827)
Inventories (700,922) (1,225,367)
Note receivable (4,152) (4,512)
Prepaids and deposits (14,569) (171,692)
Accounts payable (750,674) (506,594)
Accrued expenses (93,699) (139,758)
Customer advances (130,707) (23,267)
------------ -----------
Net cash used in operating activities (1,790,240) (2,988,773)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (144,937) (199,588)
------------ -----------
Net cash used in investing activities (144,937) (199,588)
CASH FLOWS FROM FINANCING ACTIVITIES:
Fees related to securities 23,379 -
Proceeds from warrant exercise, net 70,000 6,314,145
Proceeds from the issuance of preferred
stock, net - 1,050,000
Payments on promissory notes (202,500) (202,500)
Proceeds from line-of-credit borrowings 500,000 (200,000)
Capital leases payments (23,039) (72,378)
Payment of dividends (50,402) (39,661)
Repayments on other borrowings and
non-compete liability (6,724) (1,058)
Net cash provided by/(used in) ------------ -----------
financing activities 310,714 6,848,548
Net increase (decrease) in cash and
cash equivalents (1,624,463) 3,660,187
Cash and cash equivalents at
beginning of period 3,921,544 918,747
------------ ------------
Cash and cash equivalents at end of period $2,297,081 $ 4,578,934
============ ============
Supplemental cash flow information:
Cash paid for interest $ 119,066 $ 120,037
See notes to consolidated financial statements
<PAGE>
Acrodyne Communications, Inc.
(formerly Acrodyne Holdings, Inc.)
Notes to Consolidated Financial Statements (Unaudited)________________________
1. Unaudited Consolidated Financial Statements
The accompanying consolidated balance sheet of Acrodyne Communications, Inc.
(the "Company") and its subsidiaries (collectively "Acrodyne") at September
30, 1997 and the related consolidated statements of operations and of cash
flows for the nine months ended September 30, 1997 and 1996 have been prepared
by management and have not been audited by the Company's Independent
Accountants. In the opinion of management, all adjustments (consisting of
normal recurring adjustments only) necessary to present fairly the financial
position at September 30, 1997, and the results of operations and cash flows
for the nine months ended September 30, 1997 and 1996 have been made.
These consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-KSB/A for the year ended December 31, 1996 filed with the
Securities and Exchange Commission. The results of operations for interim
periods are not necessarily indicative of the results to be obtained for the
entire year.
2. Inventories
Inventories comprise:
September 30,
1997 1996
Raw materials $3,195,808 $2,413,424
Work in process 1,637,897 887,289
Finished goods 355,104 248,441
---------- ----------
$5,188,809 $3,549,154
========== ==========
3. Net Income (Loss) Per Share
The computation of net income (loss) per share is based on the weighted
average common shares outstanding for the applicable period. Potentially
dilutive securities have not been considered in the calculation of weighted
average common shares outstanding since they would have an anti-dilutive
effect on the loss per share.
<PAGE>
4. Restatement of Other income for the nine months ended September 30, 1996
During 1996, the Company paid $125,200 and issued an aggregate of 465,000
warrants to a financial consulting firm for advisory services performed
during the year. The warrants are exercisable over a three year period at
prices ranging from $4.00 to $5.00. The common shares underlying 140,000 of
these warrants have not been registered. In the fourth quarter the Company
charged $250,000 to other expenses in connection with these warrant issuances
and accordingly, reported this transaction in the Company's Annual Report on
Form 10-KSB/A for the year ended December 31, 1996 filed with the Securities
and Exchange Commission. However, to properly reflect the impact of this
charge to the period affected, the entire $250,000 was included in the
Consolidated Statement of Operations for the six months ended June 30, 1996
and now is carried forward in the Consolidated Statement of Operations for
the nine months ended September 30, 1996.
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The business of Acrodyne Communications, Inc. (the "Company") is conducted
through its sole operating subsidiary, Acrodyne Industries, Inc. ("Acrodyne").
Acrodyne was acquired by the Company pursuant to a stock acquisition agreement
on October 24, 1994 (the "Acrodyne Acquisition"). Prior thereto, the Company
had no operations. The Company changed its name from Acrodyne Holdings, Inc.
to Acrodyne Communications, Inc. on June 9, 1995.
Acrodyne's transmitters and translators are manufactured to customer
specifications for installation in connection with television broadcasting
systems and range in price from $10,000 to $140,000 for lower power units and
$150,000 to $2,000,000 for higher power units. Acrodyne's business
historically has been dependent on a relatively small number of significant
orders from one-time customers. Customers establish delivery times often to
coincide with the completion of transmission towers and other components of
the broadcasting system, which is subject to delays beyond Acrodyne's control.
As a result, variances in sales from period to period may occur but are not
necessarily indicative of any particular positive or negative longer term
trend.
RESULTS OF OPERATIONS
The following compares the Company's summary results of operations for the
three and nine months ended September 30, 1997 and for the three and nine
months ended September 30, 1996:
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
1997 1996 1997 1996
Net sales $2,012,245 $2,648,394 $6,991,288 $8,062,851
Cost of sales 1,485,447 1,857,904 5,156,600 5,558,532
----------- ----------- ------------ -----------
Gross profit 526,798 790,490 1,834,688 2,504,319
Operating expenses 996,679 1,016,678 3,184,248 2,832,654
----------- ----------- ------------ -----------
Operating profit (loss) $ (469,881) $ (226,188) $(1,349,560) $(328,335)
=========== =========== ============ ===========
Net sales are consistently down in the three and nine month periods ending
September 30, 1997. Management believes that these results are attributable
to the continued delay of the broadcasting industry to launch the
implementation of Digital Television ("DTV"). The delay has been extended by
recent adjacent channel conflict resulting from digital channel assignment by
the FCC. The Company has since introduced "ACT" (Adjacent Channel Technology),
a transmitter capable of passing adjacent digital and analog signals through
a single high power amplifier. However, non-digital sales remain sluggish as
the market continues a wait-and-see approach to replace its low and medium
power equipment while delaying any longer term expansion decisions for higher
power equipment.
<PAGE>
As a result of the Company's efforts to generate sales volume and meet the
demands of an increasingly competitive market, the Company's margin on sales
decreased from an average of 30% for the three and nine months ending
September 30, 1996 to an average of 26% for the three and nine months ending
September 30, 1997. The decrease in profit margin is indicative of continued
price pressures from the current stagnated market and also due internally to
the addition of five manufacturing positions to improve production, materials
management and service. The decreased profitability trend reflects the
discounts being provided to customers coupled with additional operating
expenses by the Company to place itself in a more competitive market position.
The increase in operating expenses for the nine months ending September 30,
1997 and 1996 in the amounts of $3,184,248 and $2,832,654, respectively, are
consistent with the Company's strategy to improve its sales and marketing
presence through the addition of direct sales personnel, increased advertising,
increased participation in trade shows and the implementation of a sales
commission program. Administratively, the Company has expanded its Human
Resources and Information Technology capabilities. Management believes that
this expansion, combined with an additional investment in legal and
consulting services to support sales and marketing, should enable the Company
to compete for a significant share of the DTV transmitter market.
Although sales volume continues to be below budgeted expectations, the Company
with its previously reported reduction in employee headcount, along with its
overall cost containment measures, has begun to see a reduction in its
operating expenses versus budget.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Acrodyne has financed its activities primarily from customer
deposits, internally generated funds, and use of its credit facility. At
September 30, 1997, the Company's working capital decreased approximately
$1,981,606 compared to December 31, 1996 primarily due to the use of working
capital for operations and a lack of sales activity during the nine month
period ended September 30, 1997.
Accounts Receivable at September 30, 1997 decreased approximately $946,520
and $709,240 compared to December 31, 1996 and September 30, 1996,
respectively, primarily as a result of lower sales volume during the nine
months ended September 30, 1997. Sale of domestic transmitters continue to
be made with credit terms of 30% as a deposit at the time of placing the
order, 40-60% prior to shipment, and 10-30% net thirty days. The Company
continues to require an irrevocable letter of credit on international orders.
The significant increase in raw materials and work-in-process inventories at
September 30, 1997 compared to September 30, 1996 is due to lower sales
volume, slow inventory turnover due to delayed purchasing of Digital
transmission equipment and for replacement or upgrading of current
transmission equipment, the Company's strategy to provide quick turnaround to
strengthen market position, and higher volume purchasing by the Company to
take advantage of discount opportunities. The increase in finished goods
(historically not carried by the Company) can be attributed to the Company's
decision to build for its inventories and for demonstration in its factory,
the Acrodyne model AuD-6T digital transmitter and the Acrodyne ACT-AuD-25D.
The Company purchased a full complement of Digital Technology test equipment
from Hewlett Packard. This capital leased test equipment has enabled
engineering to properly monitor and test the Company's Digital products in
compliance with the new 8-VSB technology (Digital Modulation scheme.) The
Company believes that the use of these assets demonstrates its DTV and ACT
capabilities which are expected to enhance its sales opportunities for 1998
and beyond.
<PAGE>
The Company and Acrodyne, as co-borrowers, have a $1,200,000 credit facility
with a bank for working capital purposes, of which $500,000 is reserved for
an irrevocable standby letter of credit to partially secure the Senior
Subordinated Note (see below). At September 30, 1997 there was $500,000
outstanding under such credit facility. The interest rate on this facility
is based on prime plus 1% and was 9.50% on September 30, 1997. The credit
facility and the standby letter of credit are secured by substantially all
the assets of the Company and Acrodyne and contain no restrictive covenants.
In October 1996, the bank amended the credit facility, as it pertains to the
formal Borrowing Base Certificate requirement, to permit borrowing of up to
$1,200,000 (less any outstanding Letters of Credit) without being limited by
a formal borrowing formula. At September 30, 1997, there was approximately
$200,000 available to be borrowed by the Company under the credit facility.
The Company is obligated to pay the former majority shareholder of Acrodyne
quarterly installments of principal and interest over a five-year period
under the terms of the $1,450,000 Senior Subordinated Note. Interest on such
note is payable at the rate of 9% per annum. Such note is partially secured
by the irrevocable standby letter of credit in the principal amount of
$500,000 mentioned above. The first twelve quarterly payments totaling
$1,180,789 (including interest) under such note have been made through
October 23, 1997 according to the agreement. The next quarterly payment of
$79,650 (including interest) is due on January 23, 1998.
As of February 12, 1997, 2,000 shares of the Company's 8% Convertible
Redeemable Preferred Stock, par value $1.00 per share (the "8% Preferred
Stock"), were converted into 50,000 shares of common stock in accordance
with the conversion provisions of the 8% Preferred Stock. As of June 6, 1997,
2,000 additional shares of 8% Preferred Stock were converted into 50,000
shares of common stock.
On April 15, 1997, the Company's Board of Directors approved the 1997 Stock
Option Plan with authorization to grant options with respect to an aggregate
of up to 450,000 shares of the Company's common stock. There have been no
options granted through November 14, 1997.
On May 31, 1997, Colin Winthorp exercised 10,000 warrants at $4.00 per share.
On June 6, 1997 Alchemy Capital exercised 3,000 warrants at $3.00 per share
and on June 30, 1997, exercised and additional 3,000 warrants at $3.00 per
share.
<PAGE>
On July 1, 1997, the Company imposed an indefinite freeze on all salaries,
wages and new hires. Employee headcount was reduced by 25%.
On July 2, 1997, Alchemy Capital exercised another 4,000 warrants at $3.00
per share.
Available cash on hand combined with cash flow from operations and available
funds under the Company's line of credit and other financing sources are
anticipated to be sufficient to finance the operations and obligations of
the Company through 1998.
As of November 7, 1997, the Company had approximately $4,177,549 of available
cash on hand.
RIDER 10-A
- ----------
RECENT EVENTS
On November 7, 1997, the Company privately placed with a group of investors
800,000 shares (the "Shares") of its common stock at a purchase price of
$2.50 per share, for an aggregate purchase price of $2,000,000. Concurrently
therewith, the Company also issued warrants (the "Warrants") for the purchase
of up to 500,000 shares of its common stock, with such warrants being
exercisable until November 7, 2002 at an exercise price of $3.00 per share of
common stock. These securities were all issued pursuant to the exemption
from registration under the Securities Act of 1933, as amended (the "Act"),
set forth in Section 4(2) of the Act (such issuance of the Shares and
Warrants, collectively, the "Private Placement"). Scorpion Holdings Inc.
("Scorpion") arranged for the financing by the investors in the Private
Placement.
Of the total number of Shares issued, 134,400 were purchased by Newlight
Associates L.P. ("Newlight") for $336,000; 225,600 were purchased by Newlight
Associates (B.V.I.) L.P. ("Newlight BVI") for $564,000; and 440,000 were
purchased by Scorpion-Acrodyne Investors LLC ("SAI" and, collectively with
Newlight and Newlight BVI, the "Investor Group") for $1,100,000. Immediately
after the Private Placement, the Shares represented 15% of the issued and
outstanding shares of common stock of the Company.
Of the total number of Warrants issued, warrants for the purchase of up to
50,400 shares of common stock were issued to Newlight; warrants for the
purchase of up to 84,600 shares of common stock were issued to Newlight BVI;
warrants for the purchase of up to 165,000 shares of common stock were issued
to SAI; and warrants for the purchase of up to 200,000 shares of common stock
were issued to S-A Partners, an affiliate of Scorpion. The warrants issued
to the Investor Group were issued in consideration of the Investor Group's
investment in the Company; the warrants issued to S-A Partners were issued
in consideration of Scorpion's introduction of the Investor Group to the
Company.
<PAGE>
As part of the Private Placement, the Company has undertaken to file, within
90 days of the Private Placement, a registration statement on Form S-3 with
the Securities and Exchange Commission to register for resale, under the Act,
the Shares and the shares of common stock underlying the Warrants. However,
the Investor Group has agreed not to sell or otherwise dispose of the Shares
and Warrants for a period of one year after the Private Placement. The
Company has also agreed that for so long as the Investor Group owns
beneficially not less than 10% of the Company's issued and outstanding common
stock, on a fully diluted basis (assuming the exercise or conversion of all
securities exercisable or convertible into common stock): (i) the Company's
Board of Directors shall consist of five directors; (ii) the Investor Group
shall be entitled to nominate one director for election as a member of the
Board of Directors of the Company at the annual meeting of stockholders or
any other meeting at which directors are elected, and the Company shall
include such nominee in the slate of nominee directors recommended for
election by the incumbent directors and management; and (iii) the Company
shall include in such slate of nominee directors at least two nominees who
are not affiliated with the Company's management or with the Investor Group
and who shall be selected with the consent of the Investor Group, whose
consent shall not be unreasonably or arbitrarily withheld. In addition, the
Company has entered into an advisory agreement with Scorpion pursuant to
which Scorpion has agreed to provide certain financial advisory services to
the Company in connection with the Company's management and strategic planning
and its identification of opportunities for growth.
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
PART II. OTHER INFORMATION
______________________________________________________________________________
RIDER 11-A
- ----------
Item 2. Changes in Securities and Use of Proceeds
See the description set forth in Part I of this Quarterly Report on Form
10-QSB under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Recent Events" for a description of
certain securities issued (after the period covered by this Quarterly Report)
by the Company that were not registered under the Act.
Item 6. Exhibits and Reports on Form 8-KSB
(a) Exhibits
No exhibits.
(b) No Form 8-KSB was filed during the quarter ended September
30, 1997.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Acrodyne Communications, Inc.
--------------------------------
(Registrant)
Date: November 14, 1997 /s/A. Robert Mancuso
--------------------------------
A. Robert Mancuso
Chairman, President, and Chief
Financial Officer
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