<PAGE>
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, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
Commission file number
0-24886
ACRODYNE COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-3067564
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
516 Township Line Road
Blue Bell, Pennsylvania 19422
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 215-542-7000
Check whether the issuer (1) has 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
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 5,327,270 shares of common
stock of Acrodyne Communications, Inc. were outstanding on November 6, 1998.
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
INDEX
<TABLE>
<CAPTION>
Page
No.
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<S> <C>
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheet at September 30, 1998 (unaudited) and
December 31, 1997 ..................................................2
Consolidated Statement of Operations for the Three and Nine Months Ended
September 30, 1998 and 1997 (unaudited) ............................3
Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 (unaudited) .............................4
Notes to Consolidated Financial Statements (unaudited) ....................5
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................6
PART II. OTHER INFORMATION, AS APPLICABLE ......................................10
SIGNATURES ......................................................................11
</TABLE>
<PAGE>
Acrodyne Communications, Inc.
Consolidated Balance Sheet
(Unaudited)
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<TABLE>
<CAPTION>
September 30, December 31,
Assets 1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,692,978 $ 3,011,294
Accounts receivable, net of allowance for doubtful accounts 3,526,876 943,183
Inventories 6,894,540 5,271,449
Prepaid expenses and deposits 378,711 105,067
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Total current assets 12,493,105 9,330,993
Property, plant and equipment, net 569,065 666,395
Note receivable 89,949 85,436
Non-compete agreement, net 454,572 510,822
Goodwill, net 4,094,83 4,212,202
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Total assets $ 17,701,521 $ 14,805,848
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 352,082 $ 352,082
Borrowings under Line of Credit 1,500,000 -0-
Accounts payable 2,018,017 1,151,372
Accrued expenses 340,511 238,796
Customer advances 303,494 347,378
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Total current liabilities 4,514,104 2,089,628
Long-term debt 110,778 379,196
Non-compete liability 714,861 722,647
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Total liabilities 5,339,743 3,191,471
Shareholders' equity:
Preferred Stock Series "A" par value $ 1.00 326,530
8% Redeemable Convertible Preferred Stock
Preferred stock, par value $1.00; 1,000,000 shares authorized,
8% Convertible Redeemable Preferred Stock 6,500 6,500
Common stock, par value $.01; 10,000,000 shares
authorized, 5,327,270 shares issued and outstanding 53,273 53,143
on September 30, and 5,314,270 on December 31,1997
Additional paid-in capital 17,820,133 17,180,718
Accumulated deficit (5,844,658) (5,625,984
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Total liabilities and shareholders' equity $ 17,701,521 $ 14,805,848
============ ============
</TABLE>
See notes to consolidated financial statements
2
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Acrodyne Communications, Inc.
Consolidated Statement of Operations
(Unaudited)
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 3,357,391 2,012,245 9,952,871 6,991,288
Cost of Sales 2,300,174 1,485,447 6,542547 5,156,600
---------- ---------- ---------- ----------
Gross Profit 1,057,217 526,798 3,410,324 1,834,688
---------- ---------- ---------- ----------
Operating Expenses:
Engineering, R & D 222,316 196,897 650,093 608,421
Selling 580,174 328,996 1,424,269 1,222,995
Administration 459,453 412,912 1,315,647 1,179,211
Amortization 57,874 57,874 173.622 173,621
---------- ---------- ---------- ----------
Total operating expenses 1,319,817 996,679 3,563,631 3,184,248
---------- ---------- ---------- ----------
Operating loss (262,600) (469,881) (153,307) (1,349,560)
Other income (expense)
Interest expense, net (37,756) 39,197 (66,094) 9,381
Other income, net 5 2,260 607 3,346
---------- ---------- ---------- ----------
Net loss (300,351) (428,424) (218,794) (1,336,833)
---------- ---------- ---------- ----------
Dividend on 8% Convertible Redeemable
Preferred Stock (14,028) (13,734) (42,084) (50,622)
---------- ---------- ---------- ----------
Net loss applicable to common shares (314,379) (442,158) (260,878) (1,387,455)
========== ========== ========== ==========
Net loss per common share
basic and diluted ($0.06) ($0.09) ($0.05) ($0.31)
Weighted average shares outstanding
basic and diluted 5,321,996 4,504,226 5,318,045 4,453,471
</TABLE>
See notes to consolidated financial statements
3
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Acrodyne Communications, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
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<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (218,794) ($ 1,336,833)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 332,742 282,295
Stock option accrual 0 12,500
Changes in assets and liabilities:
Accounts receivable (2,583,693) 946,521
Inventories (1,623,090) (700,922)
Note receivable (4,512) (4,152)
Prepaids and deposits (273,643) (14,569)
Accounts payable 866,645 (750,674)
Accrued expenses 101,715 (93,699)
Customer advances (43,885) (130,707)
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Net cash used in operating activities (3,446,515) (1,790,240)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (79,506) (144,937)
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Net cash used in investing activities (79,506) (144,937)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from warrant exercise, net 35,490 93,379
Proceeds from sale of preferred stock, net 972,670
Proceeds from line of credit borrowings 1,500,000 500,000
Dividends on convertible preferred stock, net (42,084) (50,402)
Payments on promissory notes (202,500) (202,500)
Capital leases repayments (48,086) (23,039)
Repayments on other borrowings and non-compete liability (7,785) (6,724)
------------ ------------
Net cash provided by financing activities 2,207,705 310,714
------------ ------------
Net decrease in cash and cash equivalents (1,318,316) (1,624,463)
Cash and cash equivalents at beginning of period 3,011,294 3,921,544
------------ ------------
Cash and cash equivalents at end of period $ 1,692,978 $ 2,297,081
============ ============
Supplemental cash flow information:
Cash paid for interest $ 126,056 119,066
</TABLE>
See notes to consolidated financial statements
4
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Acrodyne Communications, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
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1. Unaudited Consolidated Financial Statements
The accompanying consolidated balance sheet of Acrodyne Communications, Inc.
(the "Company") and its subsidiaries (collectively "Acrodyne") at September
30, 1998 and the related consolidated statements of operations and of cash
flows for the three and nine months ended September 30, 1998 and 1997 have
been prepared by management. In the opinion of management, all adjustments
(consisting of normal recurring adjustments only) necessary to present
fairly the financial position at September 30, 1998, and the results of
operations and cash flows for the three and nine months ended September 30,
1998 and 1997 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 for the year ended December 31, 1997 filed with the
Securities and Exchange Commission, as amended through the date hereof on
Form 10-KSB/A and 10-KSB/A-2 and Form 10KSB/A-3. 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, December 31,
1998 1997
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Raw materials $1,655,800 $2,381,914
Work in process 2,238,230 1,035,065
Finished goods 3,000,510 1,854,470
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$6,894,540 $5,271,449
========== ==========
3. Earnings Per Share
Basic earnings per share is computed by dividing net income available to
common shareholders by the weighted average number of shares outstanding.
Diluted earnings per share is computed using the weighted average number of
shares determined for the basic computations plus the number of shares of
common stock that would be issued assuming all contingently issuable shares
having a dilutive effect on earnings per share were outstanding.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
THE COMPANY. The business of Acrodyne Communications, Inc. (formerly
Acrodyne Holdings, Inc.), a Delaware corporation (the "Company"), is
conducted through its sole operating subsidiary Acrodyne Industries, Inc.
("Acrodyne"). Acrodyne was acquired by the Company on October 24, 1994 (the
"Acquisition"). Prior thereto, the Company had no operations. The Company
changed its name to Acrodyne Communications, Inc. on June 9, 1995.
BUSINESS OF ACRODYNE. Acrodyne (together with its predecessor) has designed,
manufactured and marketed television transmitters and translators which have
been sold in the United States and internationally since 1971. The function
of a television transmitter is to broadcast on the air television signals to
a specific audience receiving such signals by regular antenna or by a local
cable company which then feeds the signal to their subscribers. Television
translators, which operate unattended, retransmit incoming signals from
primary stations on different channels within areas where direct reception
of the original signal may be limited by mountains or other geographic
impediments.
ACRODYNE PRODUCTS AND SERVICES.
Acrodyne designs, manufactures and markets digital and analog television
broadcast transmitters and translators for domestic and international
television stations, broadcasters, government agencies, not-for-profit
organizations and educational institutions. The useful life of a television
transmitter or translator is approximately 20 years. Acrodyne's television
transmitters, which range in transmission power levels from one watt for
localized applications to tens of thousands of watts for large television
broadcasters, have a modularized design which permits Acrodyne to respond to
specific customer requests. Acrodyne classifies its transmitters into two
categories based upon their power output. Lower power transmitters and
higher power transmitters each transmit signals in both UHF and VHF
frequency bands. The VHF band covers channels two through thirteen and the
UHF band covers channels above thirteen. Typically each transmitter permits
the sender to broadcast over one channel. In the case of adjacent channel
assignments, for which the broadcaster transmits two television signals on
adjacent channels, one analog and one digital, Acrodyne offers a single
transmitter to transmit both signals. To the Company's knowledge, none of
its competitors offers this single transmitter capability. In addition,
Acrodyne manufactures a full line of Multichannel Multipoint Distribution
System ("MMDS") transmitters for the wireless cable industry.
6
<PAGE>
RESULTS OF OPERATIONS
The following compares the Company's summary results of operations for the
three and nine months ended September 30, 1998 to the three and nine months
ended September 30, 1997:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 3,357,391 2,012,245 9,952,871 6,991,288
Cost of Sales 2,300,174 1,485,447 6,542,547 5,156,600
---------- ---------- ---------- ----------
Gross Profit 1,057,217 526,798 3,410,324 1,834,688
Operating Expenses 1,319,817 996,679 3,563,631 3,184,248
---------- ---------- ---------- ----------
Operating Profit (loss) (262,600) (469,881) (153,307) (1,349,560)
========== ========== ========== ==========
</TABLE>
Net sales for the three months ended September 30, 1998 showed a 67% increase
over net sales for the three months ended September 30, 1997. Management
believes that the issuance of final channel allocations relative to Digital
Television by the Federal Communications Commission was a significant factor in
the increase in sales volume. Sales of High Power transmitters in the domestic
market, which were basically non existent in fiscal 1997, increased to
approximately $4.6 million during the nine months ended September 30, 1998.
Additionally, the Company successfully completed the sale of its new design ACT
transmitter (Adjacent Channel Technology). Although sold at a profit margin
which the Company anticipates is substantially less than it should be able to
earn on future sales of this product, this new transmitter illustrates Acrodyne
currently as the only manufacturer able to overcome, with one transmitter, the
problems inherent in having adjacent NTSC and DTV channels. Overall, the
Company's margin on sales increased to 34% in the nine months ended September
30, 1998, from 26% for the nine months ended September 30, 1997. This increase
is attributable to the sale of High Power transmitters which are less labor
intensive and to a greater proportion of foreign sales which typically have
higher margins.
Operating expenses for the three months ended September 30, 1998 increased
to $1,319,117 as compared to $996,679 for the three months ended September
30, 1997. In the nine month period ended September 30, 1998 expenses rose
11% compared to the same period in 1997. The increase relates to engineering
expense associated with the ACT transmitter and higher sales and marketing
expenses associated with new product introduction and volume related sales
commissions.
7
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LIQUIDITY AND CAPITAL RESOURCES
Historically, Acrodyne has financed its activities primarily from
operations, borrowings and equity transactions. At September 30, 1998, the
Company's working capital increased by $1,089,718 to $8,331,083 as compared
to $7,241,365 at December 31, 1997, mainly from the increase in Accounts
receivable and Inventories.
Accounts receivable at September 30, 1998 were $3,526,876 and reflected a
$2,583,693 increase from December 31, 1997. This increase is due to the
favorable credit terms associated with the sale of the new ACT transmitters
sold in the third quarter. The Company deviated from its standard credit
terms as an inducement to its customers. This practice, along with open account
terms for government contracts, the acceptance of letters of credit from
customers and transactions with leasing companies put a further strain on
the Company's cash reserves. The majority of the Company's sales of domestic
transmitters require payment of a non-refundable 30% deposit at the time of
placing the order, 40% to 60% prior to shipment and 10% to 30% net thirty
days after shipment. The Company continues to require an irrevocable letter
of credit on international orders.
Inventories, net of reserves, increased significantly to $6,894,539 at
September 30, 1998 from $5,271,449 at December 31, 1997 due to slower
shipment in the third quarter, principally relating to delay in purchasing
of Digital transmission equipment by broadcasters. The Company's strategy
has been to build up its inventories in an attempt to provide quick
turnaround to strengthen its market position and to acquire higher volume in
purchasing to take advantage of discount opportunities. Two high power
domestic sales have been delayed possibly until 1999 awaiting FCC licensing
approval. Further, on the international side, the monetary crisis that is
affecting the Far East has delayed an order in that region. The monetary
exchange issues and the unsettled economic environment internationally, may
have an impact on bookings and sales for the fourth quarter of 1998 and
beyond.
In the third quarter of 1998, the Company renegotiated the revolving line of
credit with its existing bank institution. The new $2,000,000 credit
arrangement is now available on a standard formula basis involving qualified
Accounts Receivable and Inventory. This new credit facility is secured by
the assignment of a certificate of deposit in the amount of $750,000
maintained at the bank. The interest rate charged on the borrowings against
this credit line is the bank's prime rate. At September 30, 1998 borrowings
of $1,500,000 were outstanding on the facility.
8
<PAGE>
On September 4, 1998 Scorpion-Acrodyne Investors L.L.C. and the Newlight
Associates funds acquired an aggregate of 326,530 shares of the Company's
"Series A" 8% Redeemable Convertible Preferred Stock for $1,000,000. The Series
A Preferred is redeemable by the Company at any time, carries an 8% dividend
rate compounded and paid annually in either cash or additional Preferred Stock
at the option of the Company. The Series A Preferred is convertible at the
option of the holder into Common Stock of the Company at a conversion price of
$3.0625 per share. In connection with the investment, the Investors received
500,000 warrants of Common Stock with an exercise price of $3.00 per warrant.
The warrants will have a 7-year life from the time of issuance. In addition, S-A
Partners received 25,000 similar warrants for arranging the equity financing.
The Company was obligated to pay the former majority shareholder of Acrodyne
quarterly installments of principal and interest over a five-year period
under the terms of a Senior Subordinated Note bearing interest at the rate
of 9% per annum. The first fifteen (15) quarterly payments totaling
$1,415,183 (including interest) under such note were made through July 23,
1998 pursuant to the agreement. On October 23, 1998., the Company paid all
remaining installments. Installment number 16 was paid with all interest due
and installments 17 through 20 contained principal payments only of $67,500
each. The note owing to the Company which included principal of $66,850 and
accrued interest of $23,600 was offset against this final payment.
Recent Events
On April 15, 1997, the Company's Board of Directors approved the Company's
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. On
January 20, 1998 the stock option plan was amended to add another 200,000
shares of the Company's common stock. On June 8, 1998, the Board of
Directors approved the granting of options for 450,000 shares at an option
price of $4.50 per share. The stock options will vest annually over a four
year period, with the first vesting period effective June 30, 1997, and will
become fully vested on June 30, 2000. On October 16, 1998 the Board of
Directors resolved to reduce the option price from $4.50 per share to $3.00.
Forward Looking Statements
Certain statements contained in this report that do not relate to historical
information are "forward looking statements" within the meaning of the United
States Private Securities Litigation Reform Act of 1995 and thus are
prospective. Such forward-looking statements are subject to risks, uncertainties
and other factors which could cause actual results to differ materially from
future results expressed, projected or implied by such forward-looking
statements. Such factors include, but are not limited to, economic, competitive,
and broadcast industry conditions. These factors are discussed in greater detail
in the Company's filings with the Canadian and United States Securities
regulators. The Company disclaims any responsibility to update any such
forward-looking statements.
9
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ACRODYNE COMMUNICATIONS, INC.
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-KSB
(a) No Exhibits
(b) No Form 8-KSB was filed during the quarter ended September 30, 1998.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Acrodyne Communications, Inc.
-----------------------------
(Registrant)
Date: November 6, 1998 /s/ A. Robert Mancuso
------------------------------
A. Robert Mancuso
Chairman and President
