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, 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 July 21, 1999.
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
INDEX
<TABLE>
<CAPTION>
Page
No.
<S> <C>
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheet at June 30, 1999 (unaudited) and
December 31, 1998............................................................................2
Consolidated Statement of Operations for the Six Months Ended
June 30, 1999 and 1998 (unaudited)............................................................3
Consolidated Statement of Cash Flows for the Six Months Ended June
30, 1999 and 1998
(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.....................................................................11
SIGNATURES.....................................................................................................13
</TABLE>
1
<PAGE>
Acrodyne Communications, Inc.
Consolidated Balance Sheet (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
1999 1998
Assets
Current assets:
Cash and cash equivalents $ 1,721,415 $ 983,695
Accounts receivable, net of allowance for doubtful accounts 1,516,044 1,497,197
Inventories 5,934,487 4,325,445
Prepaid expenses and deposits 71,596 170,958
------------ ------------
Total current assets 9,243,542 6,977,295
Property, plant and equipment, net 522,139 504,469
Non-compete agreement, net 398,322 435,822
Goodwill, net 3,977,459 4,055,707
------------ ------------
Total assets 14,141,462 11,973,293
============ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt 75,630 75,630
Borrowings under Credit Line 1,600,000 1,275,000
Accounts payable 1,244,847 2,119,604
Accrued expenses 459,931 386,363
Customer advances 548,098 161,418
------------ ------------
Total current liabilities 3,928,506 4,018,015
Long-term debt 49,034 69,824
Non-compete liability 706,594 712,168
------------ ------------
Total liabilities 4,684,134 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
6,769,523 shares issued and outstanding on June 30, 1999 67,695 53,317
5,331,670 shares issued and outstanding on December 31, 1998
Additional paid-in-capital 20,779,766 17,720,449
Accumulated deficit (11,396,633) (10,933,510)
------------ ------------
Total liabilities and shareholders' equity $ 14,141,462 $ 11,973,293
============ ============
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
Acrodyne Communications, Inc.
Consolidated Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net Sales $ 2,379,605 $ 3,431,505 $ 5,402,696 $ 6,595,480
Cost of Sales 1,594,169 2,108,935 3,525,518 4,242,373
----------- ----------- ----------- -----------
Gross Profit 785,436 1,322,570 1,877,178 2,353,107
----------- ----------- ----------- -----------
Operating Expenses:
Engineering, R & D 211,912 208,339 436,391 427,777
Selling 429,778 506,258 780,970 844,094
Administration 526,317 470,760 954,429 856,194
Amortization 57,874 57,874 115,748 115,748
----------- ----------- ----------- -----------
Total Operating Expenses 1,225,881 1,243,231 2,287,538 2,243,813
----------- ----------- ----------- -----------
Operating Profit (Loss) (440,445) 79,339 (410,360) 109,294
Other Income (Expense)
Interest Expense, Net (41,187) (34,011) (53,104) (28,338)
Other Income, Net 9 600 341 602
----------- ----------- ----------- -----------
Net Income (Loss) (481,623) 45,928 (463,123) 81,558
----------- ----------- ----------- -----------
Dividend on 8% Preferred Stock (14,028) (14,028) (28,056) (28,056)
----------- ----------- ----------- -----------
Net Income (Loss) available to Common Shares (495,651) 31,900 (491,179) 53,502
=========== =========== =========== ===========
Net Income (Loss) per Common share basic $ (0.0700) $ 0.0060 $ (0.0700) $ 0.0100
Weighted average shares outstanding basic 6,769,523 5,318,995 6,545,047 5,316,533
Net Income (Loss) per Common share diluted $ (0.0700) $ 0.0060 $ (0.0700) $ 0.0100
Weighted average shares outstanding diluted 6,769,523 5,666,154 6,545,047 5,608,379
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
Acrodyne Communications, Inc.
Consolidated statement of cash flows (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, Dec 31,
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (463,123) $ 81,558
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 222,431 225,310
Changes in assets and liabilities:
Accounts receivable (18,847) (1,307,744)
Inventories (1,609,042) (590,703)
Note receivable (3,009)
Prepaid and deposits 99,362 (214,035)
Accounts payable (874,757) 48,986
Accrued expenses 73,568 (34,922)
Customer advances 386,680 17,522
----------- -----------
Net cash used in operating activities (2,183,728) (1,777,037)
CASH FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment (124,353) (45,949)
----------- -----------
Net cash used in investing activities (124,353) (45,949)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock, net 3,806,001 16,380
Proceeds from the line of credit borrowings 325,000 1,200,000
Dividends on convertible preferred stock, net (28,056) (28,056)
Repurchase of 8% Conv. Preferred stock (1,030,780)
Payments on promissory notes (135,000)
Capital lease repayments (20,790) (55,523)
Repayments on non-compete liability (5,574) (5,152)
----------- -----------
Net cash provided by financing activities 3,045,801 992,649
Net increase (decrease) in cash and cash equivalents 737,720 (830,337)
Cash and cash equivalents at beginning of period 983,695 3,011,294
----------- -----------
Cash and cash equivalents at end of period $ 1,721,415 $ 2,180,957
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 62,805 $ 53,705
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
Acrodyne Communications, Inc.
Notes to Consolidated Financial Statements
1. Unaudited Consolidated Financial Statements
The accompanying consolidated balance sheet of Acrodyne Communications, Inc.
(the "Company") and its subsidiaries (collectively "Acrodyne") at June 30, 1999
and the related consolidated statements of operations and of cash flows for the
six months ended June 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 June 30,
1999, and the results of operations and cash flows for the three and six months
ended June 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:
June 30, 1999 December 31, 1998
Raw materials $3,685,247 $2,779,646
Work in process 789,287 576,973
Finished goods 1,815,953 1,324,826
Inventory reserves (356,000) (356,000)
================= ================
5,934,487 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. Sales to Related Parties
Sales to Sinclair Broadcast Group, Inc. amounted to $1,325,000 for the first
six months of 1999. This represents 24.5% of the Company's total sales of
$5,402,696. For the six months ended June 30, 1999. See also Management's
Discussions and Analysis of Financial Condition and Results of Operations.
5
<PAGE>
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. 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.
On June 15, 1999 the shareholders of the Company voted in favor of appointing
Arthur Andersen LLP as the Company's independent accountant for the fiscal year
ending December 31, 1999. The Company filed a Form 8-KSB with regard to this
appointment on May 5, 1999 which is hereby incorporated by reference.
On June 15, 1999 the shareholders of the Company voted for the approval of the
1999 Long-Term Incentive Plan. 355,000 options were issued under the Long-Term
Incentive Plan to various employees and directors. The options are either
immediately exercisable or will become exercisable within the next two years.
6
<PAGE>
RESULTS OF OPERATIONS
The following compares the Company's summary results of operations for the three
and six months ended June 30,1999 to the three and six months ended June 30,
1998:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $2,379,605 100% $3,431,505 100% $5,402,696 100% $6,595,480 100%
Cost of Sales 1,594,169 67% 2,108,935 61% 3,525,518 65% 4,242,373 64%
---------------- ----------------- ----------------- -----------------
Gross Profit 785,436 33% 1,322,570 39% 1,877,178 35% 2,353,107 36%
---------------- ----------------- ----------------- -----------------
Operating Expenses 1,225,881 52% 1,243,231 36% 2,287,538 42% 2,243,813 34%
Operating Profit (Loss) (440,445) -19% 79,339 2% (410,360) -8% 109,294 2%
</TABLE>
Net sales for the three months ended June 30, 1999 showed a 31% decrease over
net sales for the three months ended June 30, 1998. Management believes that the
decrease is attributable to the delay in purchasing Digital transmission
equipment by broadcasters, which has further caused a delay or disturbance in
the routine purchasing of standard analog equipment. Additionally, nearly $1M of
the orders scheduled to be shipped in the second quarter were rescheduled by
customers to allow time for site preparation and other related construction
matters to be completed. Although overall sales volume in dollars is down, the
increase in High Power sales and new orders remain on the rise. The Company
believes that this increase in High Power products is a result of its strategic
alliance with Sinclair Broadcast, who has increased Acrodyne's national
recognition and has improved Acrodyne's access to major customers.
The gross margin on sales decreased to 33% and 35% in the three and six months
ended June 30, 1999, respectively from 39% and 36% in the three and six months
ended June 30, 1998. This decrease is attributable to increased competitive
pricing, thereby lowering sellprice levels industrywide.
Total Operating expenses decreased slightly to $1,225,881 for the three months
ended June 30, 1999 from $1,243,231 for the same period in 1998. The six month
comparison of operating expenses however, shows an increase of $43,725 from the
six months ended June 30, 1998 to June 30, 1999. This increase is attributable
to internal restructuring following the Sinclair investment. The restructuring
will improve the Company's position in the current and future market place, and
provide for the introduction of new products and improvement of customer
satisfaction.
7
<PAGE>
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 June 30, 1999 the Company's
working capital increased by $2,355,756 to $5,315,036 as compared to $2,959,280
at December 31, 1998, mainly from the increase in Inventories and a decrease in
Accounts Payable.
Accounts receivable at June 30, 1999 were $1,516,044 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 reduced 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, in the amount of $356,000 increased to $5,934,487
on June 30, 1999 from $4,325,445 at December 31, 1998 due to slower than
anticipated shipments in the first and second quarters, mainly relating to the
delay in purchasing of Digital transmission equipment by broadcasters, and a
build up of needed components in anticipation of summer months shut down by
critical vendors. 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.
As of June 30, 1999, the Company had a line of credit of $2,000,000. This
facility required the Company to maintain a $750,000 certificate of deposit,
which is included in Cash and Cash Equivalents on the Consolidated Balance
Sheets. In August, the Company entered into a new credit facility ("Credit
Facility") which provides for a $2,5000,000 line of credit. This credit facility
bears interest at the lower of the Prime Rate minus 1/2% or the Euro-Rate plus
2%. 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. Under the terms of the Credit Facility, the Company is
required to maintain various loan covenants, including a Minimum Tangible Net
Worth, as defined of $4,500,000 and a minimum interest coverage ratio of 1.1 to
1.0.
On December 31, 1998 the Company was not in compliance with the terms of the
line of credit with respect to their working capital ratio with their present
banking facility. The Company obtained a waiver for the 1998 event of default
and restructured its loan agreement for 1999. Borrowings under the line of
credit totaled $1,600,000 and $1,275,000 on June 30, 1999 and December 31, 1998,
respectively. As of July 21, 1999 the borrowings remained at $1,600,000.
8
<PAGE>
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.
9
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
PART II. OTHER INFORMATION
- ------------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
(a) At the Annual Meeting of Stockholders of the Company held on June
15, 1999, the Company's stockholders voted on the following three (3) proposals:
Proposal 1: Directors
For Withheld
A. Robert Mancuso 5,554,254 22,100
Martin J. Herman 5,554,054 22,300
Richard P. Flam 5,554,254 22,100
Michael E. Anderson 5,554,254 22,100
Nat Ostroff 5,556,254 20,100
David D. Smith 5,554,254 22,100
David D. Amy 5,556,254 20,100
Proposal 2 : Change in Company's Independent Accountant
Acrodyne's Board of Directors unanimously resolved to appoint Arthur Andersen
LLP, as the Company's independent accountant for the fiscal year ending December
31, 1999, and to discontinue the services of PricewaterhouseCoopers LLP, which
has served as the Company's independent accountant since May 1991. 5,543,072
votes FOR, and 21,350 votes AGAINST with 11,932 abstentions were counted for the
appointment of Arthur Andersen LLP as the Company's independent accountant.
Proposal 3 : The 1999 Long Term Incentive Plan
By a majority vote, the shareholders approved the Company's 1999 Long-Term
Incentive Plan, with 2,814,135 votes FOR, 283,170 votes AGAINST and with 12,932
abstentions. Directly following the shareholders meeting, the Board of Directors
held a meeting which resulted in the appointment of the Awards Committee under
the1999 Long Term Incentive Plan resulting in the election of David B. Amy,
Martin J. Herman and Richard P. Flam as committee members. The newly appointed
committee then granted 300,000 stock options to Nat Ostroff, all immediately
exercisable, and 55,000 to William Barclay with 25,000 exercisable on December
15, 1999 and 30,000 exercisable on June 1, 2001. Mr. Barclay was hired on June
1, 1999 as the new Vice President of Manufacturing reporting to A. Robert
Mancuso. The grant price is the closing price of ACRO on June 15, 1999, which
was $3.25 per share.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-KSB
Exhibits
(a) Form 8-KSB filed on January 27, 1999.
(b) Form 8-KSB was filed on May 5, 1999 and was further amended on
Form 8KSB/A on May 13, 1999.and further amended on Form 8KSB/2 on
May 24, 1999
11
<PAGE>
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: July 21, 1999 /s/ A. Robert Mancuso
---------------------
A. Robert Mancuso
President and CEO
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000883296
<NAME> ACRODYNE COMMUNICATIONS, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,721,415
<SECURITIES> 0
<RECEIVABLES> 1,516,044
<ALLOWANCES> 0
<INVENTORY> 5,934,487
<CURRENT-ASSETS> 9,243,542
<PP&E> 1,559,674
<DEPRECIATION> 1,032,535
<TOTAL-ASSETS> 14,141,462
<CURRENT-LIABILITIES> 3,852,876
<BONDS> 0
0
6,500
<COMMON> 67,695
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,141,462
<SALES> 5,902,696
<TOTAL-REVENUES> 0
<CGS> 3,525,517
<TOTAL-COSTS> 2,171,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,204
<INCOME-PRETAX> (463,123)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (463,123)
<EPS-BASIC> 6,769,523
<EPS-DILUTED> 6,769,523
</TABLE>
