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, 1999
[ ] 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 6,769,523 shares of common stock and
6,500 shares of Preferred Stock of Acrodyne Communications, Inc. were
outstanding on November 5, 1999.
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ACRODYNE COMMUNICATIONS, INC.
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INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheet at September 30, 1999 (unaudited) and
December 31, 1998 .............................................................2
Consolidated Statement of Operations for the Nine Months Ended
September 30, 1999 and 1998 (unaudited)........................................3
Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998
(unaudited)....................................................................4
Notes to Consolidated Financial Statements (unaudited).................................5
Management's Discussions and Anaylsis of Financial Condition
and Results of Operations......................................................6
PART II. OTHER INFORMATION, AS APPLICABLE...........................................................11
SIGNATURES...........................................................................................12
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1
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Acrodyne Communications, Inc.
Consolidated Balance Sheet
====================================================================================================
September 30, December 31,
1999 1998
------------ ------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 1,800,895 $ 983,695
Accounts receivable, net of allowance for doubtful accounts 1,541,246 1,497,197
Inventories 6,451,495 4,325,445
Prepaid expenses and deposits 371,913 170,958
------------ ------------
Total current assets 10,165,549 6,977,295
Property, plant and equipment, net 488,539 504,469
Non-compete agreement, net 379,572 435,822
Goodwill, net 3,938,335 4,055,707
------------ ------------
Total assets $ 14,971,995 $ 11,973,293
============ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt 87,331 75,630
Borrowings under Credit Line 1,613,404 1,275,000
Accounts payable 1,570,681 2,119,604
Accrued expenses 248,747 386,363
Customer advances 2,157,015 161,418
------------ ------------
Total current liabilities 5,677,178 4,018,015
Long-term debt 17,050 69,824
Non-compete liability 703,712 712,168
------------ ------------
Total liabilities 6,397,940 4,800,007
------------ ------------
Shareholders' equity:
Preferred Stock Series "A" par value $1.00
8% Preferred Redeemable Convertible Stock -- 326,530
Preferred stock, par value $1.00
8% Convertible Redeemable Preferred Stock 6,500 6,500
Common stock, par value $.01; 35,000,000 shares authorized
6,791,681 shares issued and outstanding on September 30, 1999 67,917 53,317
5,331,670 shares issued and outstanding on December 31, 1998
Additional paid-in-capital 20,764,075 17,720,449
Accumulated deficit (12,264,437) (10,933,510)
------------ ------------
Total shareholders' equity 8,574,055 7,173,286
------------ ------------
Total liabilities and shareholders' equity $ 14,971,995 $ 11,973,293
============ ============
See notes to consolidated financial statements
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2
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Acrodyne Communications, Inc.
Consolidated Statement of Operations (Unaudited)
==============================================================================================================
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net Sales $2,327,703 $3,357,391 $7,730,399 $9,952,871
Cost of Sales 2,074,933 2,300,174 5,600,451 6,542,547
----------- ----------- ----------- -----------
Gross Profit 252,770 1,057,217 2,129,948 3,410,324
----------- ----------- ----------- -----------
Operating Expenses:
Engineering, R & D 220,079 222,316 656,470 650,093
Selling 291,555 580,174 1,072,525 1,424,269
Administration 529,627 459,453 1,484,056 1,315,647
Amortization 57,874 57,874 173,622 173,622
----------- ----------- ----------- -----------
Total Operating Expenses 1,099,135 1,319,817 3,386,673 3,563,631
----------- ----------- ----------- -----------
Operating Loss (846,365) (262,600) (1,256,725) (153,307)
----------- ----------- ----------- -----------
Other Income (Expense)
Interest Expense, Net (21,600) (37,756) (74,705) (66,094)
Other Income, Net 162 5 502 607
----------- ----------- ----------- -----------
Net Loss (867,803) (300,351) (1,330,928) (218,794)
----------- ----------- ----------- -----------
Dividend on 8% Preferred Stock (14,028) (14,028) (42,084) (42,084)
----------- ----------- ----------- -----------
Net Loss available to Common Shares (881,831) (314,379) (1,373,012) (260,878)
=========== =========== =========== ===========
Net Loss per Common share basic $(0.1300) $(0.0600) $(0.2000) $(0.0500)
Weighted average shares outstanding basic 6,761,681 5,321,996 6,761,681 5,318,045
Net Loss per Common share diluted $(0.1300) $(0.0600) $(0.2000) $(0.0500)
Weighted average shares outstanding diluted 6,761,681 5,321,996 6,761,681 5,318,045
</TABLE>
See notes to consolidated financial statements
3
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Acrodyne Communications, Inc.
Consolidated statement of cash flows (Unaudited)
==================================================================================================
Sept 30, Sept 30,
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,330,928) $(218,794)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 348,493 332,742
Changes in assets and liabilities:
Accounts receivable (44,049) (2,583,693)
Inventories (2,126,050) (1,623,090)
Note receivable (4,512)
Prepaid and deposits (200,955) (273,643)
Accounts payable (548,923) 866,645
Accrued expenses (137,616) 101,715
Customer advances 1,995,597 (43,885)
----------- -----------
Net cash used in operating activities (2,044,431) (3,446,515)
----------- -----------
CASH FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment (158,942) (79,506)
----------- -----------
Net cash used in investing activities (158,942) (79,506)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock, net 3,806,001 35,490
Proceeds from the line of credit borrowings 1,951,808 1,500,000
Payments from the line of credit borrowings (1,613,404)
Dividends on convertible preferred stock, net (42,084) (42,084)
Redemption of Preferred Stock Series A (1,030,780) 972,670
Payments on promissory notes (202,500)
Capital lease repayments (42,513) (48,086)
Repayments on non-compete liability (8,455) (7,785)
----------- -----------
Net cash provided by financing activities 3,020,573 2,207,705
----------- -----------
Net increase (decrease) in cash and cash equivalents 817,200 (1,318,316)
Cash and cash equivalents at beginning of period 983,695 3,011,294
=========== ===========
Cash and cash equivalents at end of period $1,800,895 $1,692,978
=========== ===========
Supplemental cash flow information:
Cash paid for interest $135,040 $126,056
</TABLE>
4
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Acrodyne Communications, Inc.
Notes to Consolidated Financial Statements
==============================================================================
1. Unaudited Consolidated Financial Statements
The accompanying consolidated balance sheet of Acrodyne Communications, Inc. and
its subsidiaries (the "Company" or "Acrodyne") at September 30, 1999 and the
related consolidated statements of operations and of cash flows for the nine
months ended September 30, 1999 and 1998 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, 1999, and the results of operations and cash flows for the three
and nine months ended September 30, 1999 and 1998 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, 1998 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, 1999 December 31, 1998
Raw materials $3,604,500 $2,779,646
Work in process 2,776,915 576,973
Finished goods 426,080 1,324,826
Inventory reserves (356,000) (356,000)
=========== ===========
6,451,495 4,325,445
=========== ===========
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.
4. Related Party Transactions
Sales to Sinclair Broadcast Group, Inc. amounted to $1,460,409 for the first
nine months of 1999. This represents 19% of the Company's total sales of
$7,730,399 for the nine months ended September 30, 1999. See the Management's
Discussions and Analysis of Financial Condition and Results of Operations for
additional discussion of these arrangements. In September 1999, the Company
committed to issue shares to Sinclair Broadcast Group, Inc. ("Sinclair") in
exchange for: (1) Sinclair's assistance in arranging the Company's lease of a
new manufacturing facility, and (2) Sinclair guaranteeing the Company's
obligations under a new credit facility. The Company will record expense of
$270,000 for the fair value of the shares issued to Sinclair over the estimated
period of benefit.
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., ("Acrodyne" or the
"Company") a Delaware corporation is conducted through its sole operating
subsidiary Acrodyne Industries, Inc. Acrodyne was acquired by the Company on
October 24, 1994. 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.
SIGNIFICANT EVENTS. On January 27, 1999 Sinclair Broadcast Group ("Sinclair")
acquired a significant equity interest in the Company. Sinclair has made a cash
infusion of $4.3 million in the Company in receipt of 1,431,333 shares of the
Company's common stock and warrants to purchase up to an aggregate of 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 the Company's
achievement of increased product sales or sales of products with new technology.
Sinclair has also acquired an additional 800,000 shares of the Company's common
stock previously held by the Scorpion/New Light investment group. Sinclair now
holds an aggregate of 2,231,333 shares of the Company, representing
approximately 33% of the Company's issued common stock. From the net proceeds of
this transaction, $1,031,780 was used to retire all Series A 8% Redeemable
Convertible Preferred Stock issued in September 1998 to the Scorpion/New Light
investment group.
6
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On October 20, 1999, Acrodyne entered into an agreement in principle for the
construction of a 60,000 square foot facility. The new building will include the
corporate headquarters, the sales/marketing, engineering, financial and
operations team, and a state-of-the-art manufacturing facility capable of
continuing the transition of the company into the digital era and beyond. The
manufacturing facility will be designed to incorporate modern flow manufacturing
techniques with greatly expanded capabilities for high power testing of new
technology transmitters. Relocation is scheduled for the Summer of 2000. The new
headquarters and operations facility will be located in Oaks, Montgomery County,
Pa., a suburb of Philadelphia. On behalf of Acrodyne, Sinclair entered into a
lease agreement for the new facility. Acrodyne will sub-lease the facility from
Sinclair. Compensation for this arrangement in the amount of $70,000 will be
paid to Sinclair in the form of 36,700 shares of Acrodyne common stock. Until
Acrodyne assumes the responsibility for the lease, Sinclair will be compensated
$70,000 on each anniversary date. (See discussion in Notes to Consolidated
Financial Statements)
7
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RESULTS OF OPERATIONS
===============================================================================
The following compares the Company's summary results of operations for the three
and nine months ended September 30,1999 to the three and nine months ended
September 30, 1998:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $2,327,703 100% $3,357,391 100% $7,730,399 100% $9,952.871 100%
Cost of Sales 2,074,933 89% 2,300,174 68% 5,600,451 72% 6,542,547 66%
---------------- ---------------- ----------------- --------------
Gross Profit 252,770 11% 1,057,217 32% 2,129,948 28% 3,410,324 34%
Operating Expenses 1,099,135 47% 1,319,817 39% 3,386,673 44% 3,563,631 36%
---------------- ---------------- ----------------- --------------
Operating Loss $ (846,365) (36%) $ (262,600) (8%) $(1,256,725) (16%) $(153,307) (15%)
================ ================ ================= ==============
</TABLE>
Sales decreased by $1,029,688 or 31% from the three months ended September 1998
as compared to the three months ended September 1999. Furthermore, the nine
month comparison reports sales decreased by $2,222,472 or 22% from the nine
months ended 1998 as compared to the same period in 1999. Management believes
the reduction in sales is mainly due to the delay in purchasing of Digital
transmission equipment by broadcasters. A significant number of broadcasters
have on file with the FCC applications for increased digital transmitter power.
Transmitter orders are being delayed until the FCC authorizes these power
increases.
Gross margin on sales decreased to 11% for the third quarter 1999 and 28% for
nine months ended September 1999. Standard margins for low and medium power
products remain at 30%. Standard margins for high power products exceeds 30%.
Margins for the quarter were adversely affected by excess field installation
costs and warranty repairs for recently introduced ACT and ARS series
transmitters. Management believes it has identified a number of the problems
causing these excess costs and is implementing corrective actions. The company
continued its efforts at improving future manufacturing efficiency by the
additions of manufacturing management, materials management, production planning
and test supervision. As future volumes increase, these expenses will be
absorbed without an adverse effect on margins.
Operating expenses for the third quarter of 1999 were $1,099,135 which were
$220,682 (16.7%) below the same period of last year. Reductions in operating
expenses are consistent with the Company's strategy to restructure, rebuild and
improve, in anticipation for the introduction of new products resulting in
higher customer satisfaction.
8
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LIQUIDITY AND CAPITAL RESOURCES
===============================================================================
Historically, Acrodyne has financed its activities primarily from operations,
borrowings and equity transactions and more recently through investment
transactions such as the Sinclair investment. At September 30, 1999 the
Company's working capital increased by $1,529,091 to $4,488,371 as compared to
$2,959,280 at December 31, 1998, mainly from the increase in Inventories and
Customer Advances.
Customer Advances are deposits required on current orders to be shipped in the
fourth quarter of 1999 and beyond. The non refundable down payments are recorded
on the Balance Sheet as a liability until time of shipment.
Accounts receivable at September 30, 1999 were $1,541,246 and remained
relatively constant from December 31, 1998. The Company has been deviating 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 may
reduce the Company's cash reserves. The majority of the Company's sales of
domestic transmitters requires 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. Allowance for Doubtful accounts were
recorded at $50,000 and $62,566 for September 30, 1999 and December 31, 1998,
respectively.
Inventories, net of reserves in the amount of $356,000, increased to $6,451,495
on September 30, 1999 from $4,325,445 at December 31, 1998 due to slower than
anticipated shipments during the year, mainly relating to the 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.
In August, the Company entered into a new credit facility ("Credit Facility")
which provides for a $2,500,000 line of credit. This credit facility bears
interest at LIBOR rate plus 2%. (LIBOR rate is the London Interbank offered
rates) The Credit Facility does not require a compensation balance or escrow
account, is collateralized by all personal property of the Company and is
guaranteed by Sinclair. Compensation for the guarantee is $200,000 paid in the
form of 75,300 shares of Acrodyne common stock. The available credit is
calculated with a formula based on available Inventory and Accounts Receivable.
Borrowings under the line of credit totaled $1,613,404 and $1,275,000 on
September 30, 1999 and December 31, 1998, respectively.
9
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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.
Year 2000
During 1998 and early 1999, management of the Company and their staff completed
their assessment of the various computer software and hardware used in
connection with ongoing operations. This review indicated that significantly all
of the computer programs used by the Company are off the-shelf "packaged"
computer programs which are easily upgraded to be Year 2000 compliant.
Management began to upgrade those systems during the last quarter of 1998 and
into the first quarter of 1999, and at present they are Year 2000 compliant. To
date, management is not aware of any external agent that would materially impact
the results of operation, liquidity or capital. However, management has no means
of ensuring that external agents are Year 2000 compliant.
10
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ACRODYNE COMMUNICATIONS, INC.
PART II. OTHER INFORMATION
===============================================================================
Item 4. Submission of Matters to a Vote of Security Holders
none
Item 6. Exhibits and Reports on Form 8-KSB
none
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: November 11, 1999 /s/ A. Robert Mancuso
------------------------
A. Robert Mancuso
President and CEO
12
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<NAME> ACRODYNE COMMUNICATIONS, INC.
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,800,895
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<COMMON> 67,917
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<SALES> 7,730,399
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