<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 June 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
(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) 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___
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 5,322,270 shares of common stock of
Acrodyne Communications, Inc. were outstanding on August 7,1998.
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
INDEX
Page
No.
----
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheet at June 30, 1998
(unaudited) and December 31, 1997.....................................2
Consolidated Statement of Operations for the Three and Six
Months Ended June 30, 1998 and 1997 (unaudited).....................3
Consolidated Statement of Cash Flows for the Six Months
Ended June 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.................................12
SIGNATURES.................................................................13
1
<PAGE>
Acrodyne Communications, Inc.
Consolidated Balance Sheet
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31
Assets 1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,180,957 $ 3,011,294
Accounts receivable, net of allowance for doubtful accounts 2,250,927 943,183
Inventories 5,862,152 5,271,449
Prepaid expenses and deposits 319,104 105,067
----------- -----------
Total current assets 10,613,138 9,330,993
Property, plant and equipment, net 620,446 666,395
Note receivable 88,445 85,436
Non-compete agreement, net 473,322 510,822
Goodwill, net 4,133,954 4,212,202
----------- -----------
Total assets $15,929,307 $14,805,848
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 352,082 $ 352,082
Borrowings under Line of Credit 1,200,000 -0-
Accounts payable 1,200,358 1,151,372
Accrued expenses 203,874 238,796
Customer advances 364,900 347,378
----------- -----------
Total current liabilities 3,321,214 2,089,628
Long-term debt 192,294 379,196
Non-compete liability 717,495 722,647
----------- -----------
Total liabilities 4,231,003 3,191,471
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 shares issued and outstanding 6,500 6,500
Common stock, par value $.01; 10,000,000 shares
authorized, 5,320,270 shares issued and outstanding
on June 30 1998 and 5,314,270 on December 31,1997 53,203 53,143
Additional paid-in capital 17,183,027 17,180,718
Accumulated deficit (5,544,426) (5,625,984)
------------ ------------
Total liabilities and shareholders' equity $ 15,929,307 $ 14,805,848
============ ============
</TABLE>
See notes to consolidated financial statements
2
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Acrodyne Communications, Inc.
Consolidated Statement of Operations
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 3,431,505 2,710,845 6,595,480 4,979,043
Cost of Sales 2,108,935 1,999,268 4,242,373 3,671,153
--------- --------- --------- ---------
Gross Profit 1,322,570 711,577 2,353,107 1,307,891
--------- --------- --------- ---------
Operating Expenses:
Engineering, R & D 208,339 217,627 427,777 411,524
Selling 506,258 566,777 844,094 894,000
Administration 470,760 412,591 856,194 766,299
Amortization 57,874 57,874 115,748 115,748
--------- --------- ---------- ---------
Total operating expenses 1,243,231 1,254,869 2,243,813 2,187,571
--------- --------- ---------- ---------
Operating profit (loss) 79,339 (543,292) 109,294 (879,680)
Other income (expense)
Interest expense, net (34,011) (10,562) (28,338) (29,815)
Other income, net (600) 474 (602) 1,087
--------- ---------- ---------- ----------
Net income (loss) 45,928 (553,380) 81,558 (908,408)
--------- ---------- ---------- ----------
Dividend on 8% Convertible Redeemable (14,028) (17,000) (28,056) (36,888)
Preferred Stock
Net income (loss) available to common shares 31,900 (570,380) 53,502 (945,296)
========== ========== ========== ==========
Net income (loss) per common share - basic $.006 ($0.13) $.01 ($0.21)
Weighted average shares outstanding - basic 5,318,995 4,461,122 5,316,533 4,472,574
Net income (loss) per common share - diluted $.006 ($0.13) $.01 ($0.21)
Weighted average shares outstanding - diluted 5,666,154 4,461,122 5,608,379 4,427,574
</TABLE>
See notes to consolidated financial statements
3
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Acrodyne Communications, Inc.
(Consolidated Statement of Cash Flows
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 81,558 ($ 908,408)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 225,310 187,032
Stock option accrual 0 8,333
Changes in assets and liabilities:
Accounts receivable (1,307,744) 455,283
Inventories (590,703) (749,464)
Note receivable (3,009) (3,149)
Prepaids and deposits (214,035) (35,218)
Accounts payable (48,986) (214,043)
Accrued expenses ( 34,922) (53,760)
Customer advances 17,522 (78,103)
---------- ----------
Net cash used in operating activities (1,875,009) (1,321,061)
---------- ----------
CASH USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment (45,949) (25,865)
---------- ----------
Net cash used in investing activities (45,949) (25,865)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock, net 16,380 35,519
Proceeds from line of credit borrowings 1,200,000 200,000
Dividends on convertible preferred stock, net (28,056) (36,888)
Payments on promissory notes (135,000) (135,000)
Capital leases repayments (39,109) (39,040)
Repayments on other borrowings and non-compete
liability (5,152) (2,306)
---------- ----------
Net cash provided by financing activities (1,009,063) (115,124)
---------- ----------
Net decrease in cash and cash equivalents (830,337) (1,141,126)
Cash and cash equivalents at beginning of period 3,011,294 3,921,544
---------- ----------
Cash and cash equivalents at end of period $ 2,180,957 $ 2,780,418
========== ==========
Supplemental cash flow information:
Cash paid for interest $ 53,705 42,181
</TABLE>
See notes to consolidated financial statements
4
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Acrodyne Communications, 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 June 30, 1998
and the related consolidated statements of operations and of cash flows for the
three and six months ended June 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 June 30, 1998, and the results of operations and cash flows for the three
and six months ended June 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:
June 30, December 31,
1998 1997
----- ----
Raw materials $1,976,206 $2,381,914
Work in process 1,980,146 1,035,065
Finished goods 1,905,800 1,854,470
---------- ----------
$5,862,152 $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 are 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 the power output of
such transmitters . Lower power transmitters and higher power transmitters
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
Distribtuion 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 six months ended June 30, 1998 to the three and six months ended June 30,
1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited) (Unaudited)
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 3,431,505 2,710,845 6,595,480 4,979,043
Cost of Sales 2,108,935 1,999,268 4,242,373 3,671,153
--------- --------- --------- ----------
Gross Profit 1,322,570 711,577 2,353,107 1,307,891
Operating Expenses 1,243,231 1,254,869 2,243,813 2,187,571
--------- --------- --------- ---------
Operating Profit (loss) 79,339 (543,292) 109,294 (879,680)
========= ========= ========== ==========
</TABLE>
Net sales for the three months ended June 30, 1998 showed a 26% increase over
net sales for the three months ended June 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. The volume of sales of High Power Transmitters in the domestic
market, which was basically non existent in fiscal 1997, increased to
approximately $2 Million in sales during the six months ended June 30, 1998 as
compared to zero sales volume during the six months ended June 30, 1997. The
Company's margin on sales increased to 38% and 35% in the three and six months
ended June 30, 1998, respectively from 26% in both the three and six months
ended June 30, 1997. This increase is attributable to the sale of High Power
transmitters which are less labor intensive and to the higher content of foreign
sales which can command higher margins in the industry.
Operating expenses for the three months ended June 30, 1998 decreased slightly
to $1,243,231 as compared to $1,254,869 for the three months ended June 30,
1997. The comparisons for the six month period expenses ended June 30, 1998 find
a 3% increase for the same period in 1997.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, Acrodyne has financed its activities primarily from operations,
borrowings and equity transactions. At June 30, 1998, the Company's working
capital increased by $50,559 to $7,291,924 as compared to $7,241,365 at December
31, 1997, mainly from the use of its credit facility.
Accounts receivable at June 30, 1998 were $2,250,927 and reflected a $1,307,744
increase from December 31, 1997 This increase is due mainly to the unusual sales
content with 30 day terms. Government contracts, letters of credit, and leasing
company sales comprised most of June 1998 shipments putting a further strain on
the Company's cash reserves.. The majority of the Company's sales of domestic
transmitters are made with credit terms 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. The Company continues to require an irrevocable letter of credit on
international orders.
Inventories, net of reserves, increased to $5,862,152 at June 30, 1998 from
$5,271,449 at December 31, 1997 due to the growth in order backlog. The
significant increases are only found in the Company's Finished Goods and Work in
Process areas. The slow turnover in these areas is due to the delay in
purchasing of Digital transmission equipment by the broadcaster. It was the
Company's strategy to build up its inventories in an attempt to provide quick
turnaround to strengthen market position and to acquire higher volume in
purchasing to take advantage of discount opportunities.
In the first quarter of 1998, the Company established a new $1,500,000 credit
facility with a bank for working capital purposes to replace its then existing
bank credit facilities. Also, in the same time period, the Company reserved
$500,000 for an irrevocable standby letter of credit to secure the Senior
Subordinated Note described below. At December 31, 1997 and March 31, 1998 there
was no balance outstanding under the new credit facility. As of June 30, 1998
Acrodyne had an outstanding balance of $1,200,000 and by August 7, 1998
$1,500,000 had been utilized. The new credit facility is secured by the
assignment of a certificate of deposit in the amount of $1,500,000 maintained at
the bank. The standby letter of credit which was secured by a $500,000 treasury
bill maintained at the issuing bank has now been amended as of August 6, 1998 to
$360,000 to reflect only the outstanding balance on the Senior Subordinated Note
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 a $1,450,000 Senior Subordinated Note. Interest on such note is
payable at the rate of 9% per annum. Such note is secured by the newly amended
irrevocable standby letter of credit in the new principal amount of $360,000
mentioned above. The first fifteen (15) quarterly payments totaling $1,415,183
(including interest) under such note have been made through July 23, 1998
pursuant to the agreement. The next quarterly payment of $75,094 (including
interest) is due on October 23, 1998.
8
<PAGE>
As of August 7, 1998, the Company had approximately $2,200,000 of cash and cash
equivalents on hand, as compared to $2,418,561 and $3,011,294 as of March
31,1998 and December 31, 1997, respectively. The reduction is due primarily to
the use of capital for funding the growth in operating performance during the
first and second quarters of 1998 . Of the $2,200,000 in cash and cash
equivalents as of June 30, 1998, $1,860,000 was unavailable for use as working
capital, as it collateralized the Company's obligations .As of August 7, 1998,
the Company had an outstanding balance against its credit facility of $1,500,000
mainly due to the self financing of the majority of its June 1998 shipments
mentioned earlier.
The Company is in active discussions with an investor group to obtain additional
equity and/or debt financing in the range of $1 million to $2 million to be used
for working capital purposes. While management believes that such financing is
available, management can give no assurances as to its timing or terms.
SIGNIFICANT AND 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 450,000 shares at an option price of $4.50 per share, distributed in
the following manner:
9
<PAGE>
OFFICERS DIRECTORS
A.R.Mancuso 200,000 B.Byrnes 7,500
T.Hulick 75,000 E.Lipsey 15,000
D.Traynor 75,000 M.Hermann 20,000
R.Lanchoney 50,000 R.Raucci 7,500
-------- -------
400,000 50,000
The stock options will vest over a four year period with the first vesting
period effective June 30,1997 and will become fully vested on June 30,2000.
The Company filed on April 17, 1998 a registration statement on Form S-3 with
the Securities and Exchange Commission to, among other things, register for
resale, under the Act, the shares of common stock sold and the shares of common
stock underlying the warrants sold in the Private Placement, as well as the
shares of common stock underlying certain other warrants previously issued by
the Company issued to other investors. However, the Scorpion Investor Group has
agreed not to sell or otherwise dispose of such shares and warrants for a period
of one year after the Private Placement. The registration statement was declared
effective on May 19, 1998.
10
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ACRODYNE COMMUNICATIONS, INC.
PART II. OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security-Holders
(a) At the Annual Meeting of Shareholders of the Company held on June
8, 1998, the Company's shareholders elected the following
Directors with the following votes:
(b)
<TABLE>
<CAPTION>
For Against Abstain Withheld
--- ------- ------- --------
<S> <C> <C> <C> <C>
A. Robert Mancuso 4,655,028 N/A N/A 38,080
Daniel D. Traynor 4,655,028 N/A N/A 38,080
Martin J. Hermann 4,655,028 N/A N/A 38,080
Robert F. Raucci 4,655,028 N/A N/A 38,080
Brian N. Byrnes 4,655,028 N/A N/A 38,080
</TABLE>
With regard to ratification of Price Waterhouse LLP as auditors of the
Company, there were 10,830 votes against ratification and 27,247 votes
in abstention.
Item 6. Exhibits and Reports on Form 8-KSB
(a) No Exhibits
(b) No Form 8-KSB was filed during the quarter ended June 30,
1998.
11
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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: August 13, 1998 /s/ A. Robert Mancuso
------------------------------
A. Robert Mancuso
Chairman and President
