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 March 31, 2000
[ ] 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
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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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date 6,981,161 shares of common stock and
6,500 shares of Preferred Stock of Acrodyne Communications, Inc. were
outstanding on May 8, 2000.
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheet at March 31, 2000 (unaudited) and
December 31, 1999 2
Consolidated Statement of Operations for the Three Months Ended
March 31, 2000 and 1999 (unaudited)...........................3
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 2000 and December 31, 1999
(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
<PAGE>
<TABLE>
Acrodyne Communications, Inc.
Consolidated Balance Sheet
===================================================================================================================
<S> <C> <C>
March 31, December 31,
2000 1999
---------- ------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 33,332 $ 664,951
Short term investments 200,000 200,000
Accounts receivable, net of allowance for doubtful accounts 1,218,691 1,335.158
Inventories 6,881,895 6,401,277
Prepaid expenses and deposits 127,928 412,108
Other Assets 170,000 220,000
------------ ------------
Total current assets 8,631,846 9,233,493
Property, plant and equipment, net 552,218 570,182
Non-compete agreement, net 342,072 360,822
Goodwill, net 3,860,087 3,899,211
------------ ------------
Total Assets $13,386,223 $14,063,708
============ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt 61,891 69,947
Borrowings under Credit Line 1,559,405 1,613,404
Debenture Credit Line 660,000
Accounts payable 1,461,589 1,801,883
Accrued expenses 259,084 516,405
Deferred Revenue 16,500 16,500
Customer advances 640,907 984,268
------------ ------------
Total Current Liabilities 4,659,376 5,002,407
Long-term debt 12,021
Non-compete liability 843,033 845,990
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Total Liabilities 5,502,408 5,860,418
------------ ------------
Shareholders' equity:
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
6,981,161 shares issued and outstanding on March 31, 2000 69,812 67,942
6,794,161 shares issued and outstanding on Dec 31, 1999
Additional paid-in-capital 20,764,075 20,750,148
Accumulated deficit (12,264,437) (12,621,300)
------------ ------------
Total Shareholders' Equity 7,883,815 8,203,290
------------ ------------
Total Liabilities and Shareholders' Equity $ 13,386,223 $ 14,063,708
============ ============
See notes to consolidated financial statements
</TABLE>
<PAGE>
Acrodyne Communications, Inc.
Consolidated Statement of Operations (Unaudited)
================================================================================
Three Months Ended
March 31
2000 1999
---- ----
Net Sales $1,575,319 $3,023,091
Cost of Sales 1,149,982 1,931,348
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Gross Profit 425,336 1,091,743
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Operating Expenses:
Engineering, R & D 175,609 224,479
Selling 277,708 351,191
Administration 565,063 428,112
Amortization 57,874 57,874
---------- ----------
Total Operating Expenses 1,076,254 1,061,656
---------- ----------
Operating(Loss) Income (650,917) 30,087
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Other Income (Expense)
Interest Expense, Net (99,755) (11,918)
Other Income, Net 282 332
---------- ----------
Net Loss (750,390) 18,501
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Dividend on 8% Preferred Stock (14,028) (14,028)
---------- ----------
Net Income ( Loss)available to (764,418) 4,473
Common Shares
========== ==========
Net Income (Loss) per Common share $(0.1100) $0.006
Weighted average shares outstanding 6,981,161 6,769,523
diluted
Net Loss per Common share $(0.1100) $0.006
Weighted average shares outstanding 6,981,161 6,320,572
See notes to consolidated financial statements
<PAGE>
<TABLE>
Acrodyne Communications, Inc.
Consolidated statement of cash flows (Unaudited)
===================================================================================================================
March 31, December 31,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(750,390) $(1,687,790)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 108,685 371,763
Other Non Cash 145,226
Changes in assets and liabilities:
Accounts receivable 116,467 162,039
Inventories (480,618) (2,075,832)
Note receivable (4,512)
Prepaid and deposits 334,180 (461,150)
Accounts payable (340,294) (317,721)
Accrued expenses (273,821) 146,542
Customer advances ( 343,361) 822,850
--------------- ---------------
Net cash used in operating activities (1,629,152) (2,894,073)
--------------- ---------------
CASH FROM INVESTING ACTIVITIES:
Purchase of short term investment (200,000)
Purchase of property, plant, and equipment (17,964) (205,980)
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Net cash used in investing activities (17,964) (405,980)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock, net 221,559 3,805,374
Borrowings under line of credit 606,001 338,404
Payments from the line of credit borrowings
Dividends on convertible preferred stock, net (14,028) (89,361)
Redemption of Preferred Stock Series A - 0 - 998,531
Proceeds from exercise of warrants 225,000 312
Capital lease repayments (20,077) (63,486)
Repayments on non-compete liability (2,957) (11,404)
--------------- ---------------
Net cash provided by financing activities 1,015,498 2,981,308
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (631,618) (318,745)
Cash and cash equivalents at beginning of period 664,950 983,695
--------------- ---------------
Cash and cash equivalents at end of period $33,332 $664,950
=============== ===============
Supplemental cash flow information:
Cash paid for interest 100,565 $221,209
</TABLE>
<PAGE>
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 March 31,2000 and the related
consolidated statements of operations and of cash flows for the three months
ended March 31, 2000 and 1999 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 March 31,2000 and the
results of operations and cash flows for the three months ended March 31, 2000
and 1999 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, 1999 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:
March 31, 2000 December 31, 1999
Raw materials $2,495,623 $2,508,061
Work in process 2,342,577 2,536,386
Finished goods 2,430,695 1,743,830
Inventory reserves (387,000) (387,000)
----------------- ----------------
6,881,895 6,401,277
================= ================
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 $645,945 for the first three
months of 2000. This represents 41% of the Company's total sales of $1,575,319
for the three months ended March 31, 2000. At March 31, 2000, the Company had
borrowed $660,000 under the terms of a subordinated debenture agreement with
Sinclair. See the Management's Discussions and Analysis of Financial Condition
and Results of Operations for additional discussion of these arrangements
<PAGE>
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 Industries, Inc.was acquired by
the Company on October 24, 1994. Prior thereto, the Company had no operations.
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 purchased
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 for $4.3 million. 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. An additional 112,000 shares were recently acquired in
the Lease and Loan Guarantee Agreement . Sinclair exercised 75,000 warrants in
February of 2000 at an exercise price of $3.00, for $225,000. Sinclair now holds
an aggregate of 2,418,333 shares of Acrodyne, representing approximately 34.64%
of issued common stock.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
================================================================================
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 assistance with 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.
<PAGE>
RESULTS OF OPERATIONS
================================================================================
The following compares the Company's summary results of operations for the three
months ended March 31, 2000 to the three months ended March 31, 1999:
Three Months Ended March 31
2000 1999
Net Sales $1,575,319 100% $3,023,091 100%
Cost of Sales 1,149,982 73% 1,931,348 64%
----------------- ----------------
Gross Profit 425,337 27% 1,091,743 36%
Operating Expenses 1,076,254 68% 1,061,656 35%
----------------- ----------------
Operating Loss $ (650,917) (41%) $ 30,087 1%
=========== ========
Sales decreased by $1,782,072 or 53% from the three months ended March 31, 2000
as compared to the three months ended March 31, 1999. 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 .In addition, the
U.S. TV broadcast industry is also experiencing further delays due to concerns
over the appropriate transmission standards.
Gross margin on sales decreased to 27% for the first quarter 2000 as compared to
36% for same period in 1999. Margins for the quarter were adversely affected by
lower sales volume in 2000, and a higher sales volume of Low Band VHF products
and pass-through vendor sales, which historically have resulted in lower profit
margins due to more labor intensive manufacturing. Also, contributing to the
decrease in profit margin were excess field installation costs and warranty
repairs for the ACT and ARS series transmitters manufactured in late 1998.
Management believes it has identified 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 first quarter of 2000 were $1,076,254 as compared to
$1,061,656 for the same period in 1999 representing a slight increase of
$14,598. Maintaining stability and improving efficiencies in operating expenses
are consistent with the Company's strategy to restructure, rebuild and improve,
in anticipation of significant growth of the new IOT (Quantum) product line
introduced at the NAB 2000 Show in Las Vegas (April 10-13, 2000)
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
================================================================================
Historically, Acrodyne has financed its activities primarily from operations,
borrowings and equity transactions and more recently through investments and
funding by the Sinclair Broadcast Group. At March 31, 2000 the Company's working
capital decreased by $180,224 to $4,050,862 as compared to $4,231,086 at
December 31, 1999, mainly from the decrease in cash and and Customer Advances.
Accounts receivable at March 31, 2000 were $1,218,691 and decreased slightly
from December 31, 1999. Allowance for Doubtful accounts were recorded at $65,000
and $60,000 for March 31, 2000 and December 31, 1999, respectively.
Inventories, net of reserves in the amount of $387,000, increased to $6,881,895
on March 31, 2000 from $6,401,277 at December 31, 1999 This increase is mainly
due to the build up of equipment for the NAB2000 Show in Las Vegas.
In September of 1999, the Company, established a new $2,500,000 credit facility
(the "Credit Facility") arrangement with a bank for working capital purposes to
replace its then existing bank credit facilities. The credit facility bears
interest at LIBOR rate plus 200 basis points The new facility is now available
on a standard formula basis involving qualified Accounts Receivable and
Inventory and contain certain covenants having to do with the maintance of a
minimum tangible net worth. As of December 31, 1999, the Company was not in
compliance with the terms of the credit facility. The bank has provided a waiver
for the 1999 event of default. The credit facility is collateralized by all
personal property of the Company and expires on July 31, 2000. In connection
with this facility, the bank required as a condition of the loan that Sinclair
unconditionally and irrevocably guarantee all of the Company's obligations under
the Credit Facility. In November of 1999, Sinclair and Acrodyne entered into a
Guaranty and Lease Compensation Agreement under which, (i) in consideration for
Sinclair guaranteeing Acrodyne's loan of $2,500,000 from PNC Bank as of
September 19, 1999, Sinclair received 75,300 Shares and, (ii) in consideration
for Sinclair entering into a lease with PBP LP for the benefit of Acrodyne,
Sinclair received 36,700 additional Shares. As of March 31, 2000 Acrodyne has
$1,559,405 outstanding against this facility as compared to $1,613,404 at
December 31, 1999. The maximum available under the line of credit at March 31,
2000 based on the standard formula was $1,559,405.
Certain Relationships with Sinclair:
On January 27, 1999 Sinclair Broadcast Group acquired a significant equity
interest in Acrodyne. Pursuant to the subscription agreement, Sinclair has made
a cash infusion of $4.3 million in Acrodyne in receipt of 1,431,333 shares of
Acrodyne'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 Acrodyne's
achievement of increased product sales or sales of products with new technology.
Sinclair has also acquired an additional 800,000 shares of common stock
previously held by the Scorpion/New Light Investment Group., 112,000 shares were
recently acquired in the Lease and Loan Guarantee Agreement and 75,000 shares
were recently acquired in the exercise of 75,000 warrants from the Investor
Warrant Agreement. Sinclair now holds an aggregate of 2,418,333 shares of
Acrodyne, representing approximately 34.64% of issued common stock, assuming no
other warrants are exercised. If Sinclair were to exercise all warrants received
<PAGE>
pursuant to the Subscription Agreement, Sinclair would own 11,642,268 shares of
Common Stock, representing 71.85% of all outstanding voting stock on a fully
diluted basis.
SIGNIFICANT AND RECENT EVENTS
In February 2000, the Company terminated 18 of its employees in an effort to
control costs in anticipation of lower than forecasted sales volume and to
maintain its' working capital.
During March 2000, the Company entered into a license agreement (the License
Agreement") with Sinclair for the exclusive right to manufacture and sell
certain Sinclair designed analog and digital transmitter lines. Under the terms
of the License Agreement, the Company will pay to Sinclair an annual royalty of
$300,000 for five years. There was no royalty expense incurred during the first
quarter of 2000. Following the fifth year of the License Agreement, the Company
shall pay to Sinclair an annual royalty equal to 1.0% of revenues realized by
the Company attributable to the License Agreement.
During March 2000, the Company entered into a subordinated debenture agreement
(the "Debenture") with Sinclair. Under the terms of the Debenture, the Company
may borrow up to $2,000,000 at an interest rate of 10.5%. The first payment of
interest shall be made April 1, 2000 and on a monthly basis thereafter.
Principal is payable upon demand of Sinclair. Further, Sinclair has the right,
at any time, to convert all, but not less than all, of the principal owed to
Sinclair into the Company's common stock at $3.45 per share. As of May 8, 2000,
Acrodyne has drawn $860,000 against this Debenture to fund operating needs.
The Company has experienced net losses and incurred cash flow deficits in prior
years. These losses and cash flow deficits have continued through March of 2000.
The Company expects to fund its cash requirements in 2000 with proceeds from the
Credit Facility and a $2,000,000 subordinated debenture with Sinclair. Sinclair
has further committed to provide the necessary level of financial support to the
Company to enable it to pay its debts as they become due and fund operations and
investing needs through January 1, 2001.
<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.
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
PART II. OTHER INFORMATION
================================================================================
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
none
Item 6.
none
<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: May 15, 2000 /s/ A. Robert Mancuso
-----------------------------
A. Robert Mancuso
President and CEO
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000883296
<NAME> ACRODYNE COMMUNICATIONS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 233,332
<SECURITIES> 0
<RECEIVABLES> 1,218,691
<ALLOWANCES> 0
<INVENTORY> 6,881,895
<CURRENT-ASSETS> 8,631,846
<PP&E> 552,218
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,386,223
<CURRENT-LIABILITIES> 4,659,376
<BONDS> 0
0
6,500
<COMMON> 69,812
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,386,223
<SALES> 1,575,319
<TOTAL-REVENUES> 0
<CGS> 1,149,982
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100,565
<INCOME-PRETAX> (750,390)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (750,390)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
