10KSB/A 1 amend.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A-1 (Mark One) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended March 31, 2001 TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from _________ _________________ to ___________________ Commission file number 1-6299 EMCEE BROADCAST PRODUCTS, INC. (Name of small business issuer in its charter) DELAWARE 13-1926296 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) SUSQUEHANNA STREET EXTENSION, PO BOX 68, WHITE HAVEN, PA 18661-0068 (Address of principal executive (Zip Code) offices) Issuer's telephone number: (570) 443-9575 //// Securities registered under Section 12(b) of the Exchange Act: Title of each class: Name of each exchange on which registered: Common NASDAQ National Market Securities registered under Section 12(g) of the Exchange Act: None (TITLE OF CLASS) Independent Auditors' Report Board of Directors EMCEE Broadcast Products, Inc. White Haven, Pennsylvania We have audited the consolidated balance sheets of EMCEE Broadcast Products, Inc. and subsidiaries as of March 31, 2001 and 2000 and the related consoli- dated statements of loss, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Com- pany's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EMCEE Broadcast Products, Inc. and subsidiaries as of March 31, 2001 and 2000, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ KRONICK KALADA BERDY & CO. Kingston, Pennsylvania June 26, 2001
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - MARCH 31, 2001 AND 2000 ASSETS 2001 2000 --------------------------- Current assets: Cash and equivalents $ 69,210 $ 261,304 U.S. Treasury Bills 1,773,600 Accounts receivable, net of allowance for doubtful accounts (2001, $388,000; 2000, $70,000) 1,628,454 1,452,279 Inventories 4,099,919 3,080,313 Prepaid expenses 160,043 80,113 Income taxes refundable 373,000 Deferred income taxes 249,000 --------- --------- Total current assets 5,957,626 7,269,609 --------- --------- Property, plant and equipment: Land and land improvements 246,841 246,841 Building 617,475 617,475 Machinery 2,203,134 1,925,042 --------- --------- 3,067,450 2,789,358 Less accumulated depreciation 2,441,773 2,249,467 --------- --------- 625,677 539,891 --------- --------- Other assets 2,398,011 1,292,448 --------- --------- Note receivable, sale of license 540,000 525,000 Less deferred portion ( 540,000) ( 525,000) --------- --------- 0 0 --------- --------- Total assets $ 8,981,314 $ 9,101,948 ========================= See notes to consolidated financial statements
LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000 ----------------------- Current liabilities: Current portion of long-term debt $ 108,000 $ 106,000 Accounts payable 756,430 368,671 Accrued expenses: Payroll and related expenses 233,766 214,316 Other 608,113 437,836 Deposits from customers 914,796 64,247 --------- --------- Total current liabilities 2,621,105 1,191,070 --------- --------- Long-term debt, net of current portion 1,028,488 596,354 --------- --------- Shareholders' equity: Common stock, $.01 - 2/3 par; authorized 9,000,000 shares; issued 4,406,361 shares 73,450 73,450 Additional paid-in capital 3,583,484 3,583,484 Retained earnings 3,512,795 5,518,241 --------- --------- 7,169,729 9,175,175 Less shares held in treasury, at cost (396,880 shares and 401,764 shares for 2001 and 2000, respectively) 1,838,008 1,860,651 --------- --------- 5,331,721 7,314,524 --------- --------- Total liabilities and equity $8,981,314 $9,101,948 =========================
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF LOSS YEARS ENDED MARCH 31, 2001 AND 2000 2001 2000 -------------------------- Net sales $ 6,108,770 $ 4,738,493 Costs of products sold 5,707,502 3,738,735 --------- --------- Gross profit 401,268 999,758 --------- --------- Operating expenses: Selling 1,129,767 900,028 General and administrative 1,736,329 1,071,668 Research and development 454,592 430,678 --------- --------- 3,320,688 2,402,374 --------- --------- Loss from operations (2,919,420) (1,402,616) --------- --------- Other income (expense), net: Interest expense ( 126,234) ( 57,724) Interest income 111,146 168,772 Other ( 169,938) ( 9,305) --------- --------- ( 185,026) 101,743 --------- --------- Loss before income taxes (3,104,446) (1,300,873) Income taxes benefit 1,099,000 474,000 --------- --------- Net loss $(2,005,446) $( 826,873) ============================ Basic and diluted loss per share $(.50) $(.21) ====================== See notes to consolidated financial statements
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED MARCH 31, 2001 AND 2000 Common stock Additional paid-in Shares Amount capital ------------------------------------- Balance, March 31, 1999 4,384,161 $ 73,084 $ 3,502,092 Common stock issued 22,200 366 81,392 Net loss for the year --------- ------- --------- Balance, March 31, 2000 4,406,361 73,450 3,583,484 Treasury stock issued Net loss for the year --------- ------ --------- Balance, March 31, 2001 4,406,361 $ 73,450 $ 3,583,484 =================================== See notes to consolidated financial statements
Treasury stock Retained earnings Shares Amount Total ---------------------------------------------------- $ 6,345,114 401,764 $(1,860,651) $ 8,059,639 81,758 ( 826,873) ( 826,873) --------- ------- --------- --------- 5,518,241 401,764 (1,860,651) 7,314,524 ( 4,884) 22,643 22,643 (2,005,446) (2,005,446) --------- ------- --------- --------- $ 3,512,795 396,880 $(1,838,008) $ 5,331,721 ==================================================
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2001 AND 2000 2001 2000 ------------------------- Cash flows from operating activities: Net loss $(2,005,446) $( 826,873) Adjustments: Depreciation 203,730 243,577 Amortization 18,467 Provision for doubtful accounts 324,000 42,000 Treasury stock issued for directors fees 22,643 Loss on equity investments 171,040 33,800 Change in assets and liabilities, net of effect of 2001 acquisition: (Increase) decrease in: Accounts receivable ( 409,580) ( 891,031) Inventory ( 814,038) 442,266 Prepaid expenses ( 79,930) 11,729 Income taxes refundable 373,000 167,000 Deferred income taxes (1,098,000) ( 88,000) Other assets ( 111,888) ( 288,470) Increase (decrease) in: Accounts payable 343,230 80,642 Accrued expenses 169,588 354,398 Deposits from customers 850,549 ( 12,498) --------- -------- Net cash used in operating activities (2,042,635) ( 731,460) --------- -------- Cash flows from investing activities: Purchases of: Property, plant and equipment ( 71,516) ( 52,188) U.S. Treasury Bills ( 809,101) (3,197,667) Advanced Broadcast Systems ( 500,000) Proceeds from: Maturities of U.S. Treasury Bills 2,582,701 3,200,000 Sale of other assets 250,000 Other assets ( 35,677) ( 545,629) --------- --------- Net cash provided by (used in) investing activities 1,416,407 ( 595,484) --------- --------- Cash flows from financing activities: Proceeds from issuance of: Long-term debt 1,115,527 20,141 Common stock 81,758 Payments on long-term debt ( 681,393) ( 86,074) --------- --------- Net cash provided by financing activities 434,134 15,825 --------- --------- Net decrease in cash and equivalents ( 192,094) (1,311,119) Cash and equivalents, beginning 261,304 1,572,423 -------- --------- Cash and equivalents, ending $ 69,210 $ 261,304 ========================= Supplemental disclosures of cash flow information: Cash paid (refunded) during the year for: Interest $ 134,000 $ 61,000 Income taxes $( 373,000) $( 530,000) Fair value of assets acquired and liabilities assumed or settled for purchase of Advanced Broadcast Systems, Inc.: Equipment $ 245,000 Inventory 178,568 Accounts receivable 90,595 Goodwill 200,505 Accounts payable ( 44,529) Accrued liabilities ( 20,139) Inter-company payables ( 150,000) --------- Cash paid $ 500,000 ========= See notes to consolidated financial statements EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2001 AND 2000 1. Summary of significant accounting policies and significant estimates: Principles of consolidation: The consolidated financial statements include the accounts of EMCEE Broadcast Products, Inc. and its subsidiaries, all of which are wholly-owned (together, the Company). All significant intercompany accounts and transactions have been eliminated. Acquisition: On April 17, 2000, the Company completed its acquisition of Advanced Broadcast Systems, Inc. (ABS) for approximately $500,000 in cash. ABS is a manufacturer of commercial high and medium power analog and digital television transmitters for UHF broadcast markets. This acquisition was completed using the purchase method of accounting. In connection with this purchase, the Company incurred Goodwill in the amount of $272,000. This amount is being amortized over 15 years. Revenue recognition: Revenue from product sales of equipment is recognized at the time of delivery and after consideration of all the terms and conditions of the customers' contract (purchase order). Revenues on installation contracts are recorded on the basis of the estimated percentage of completion of individual contracts determined under the cost-to-cost method. Estimated losses on long-term contracts are recognized in the period in which a loss becomes apparent. During 1992, a rural cellular license was sold for $3,100,000. The initial payment was $845,000, net of closing costs of $155,000. The $2,100,000 balance, which bore interest at 7% payable at maturity, was due in December 1996. None of the deferred payment and the related interest income was recognized prior to 1997 because of their extended collection period and because there was not a reasonable basis to evaluate the likelihood of collection. On April 3, 1997 the Company collected $2,500,000 and received an unsecured $500,000 note receivable as settlement of the original note. The $540,000 note receivable is due and payable upon the occurrence of any one or more of certain specified events involving the debtor including, but not limited to, acquisition, merger, bankruptcy, and insolvency. None of the specified events relate to the debtor's normal operations. The $540,000 includes accrued interest calculated at 3%. The note receivable is fully reserved because it has no definite collection period and because there is not a reasonable basis to evaluate the likelihood of collection. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2001 AND 2000 1. Summary of significant accounting policies and significant estimates (continued): Cash equivalents and U.S. Treasury Bills: The Company considers cash equivalents to be all highly liquid investments purchased with an original maturity of three months or less. U.S. Treasury Bills with an original maturity of more than three months are considered to be investments. All U.S. Treasury Bills are stated at cost which approximates market and are considered as available for sale. All U.S. Treasury Bills not included as cash equivalents had contracted maturities of at least six months. Inventories: Inventories are stated at the lower of standard cost which approximates current actual cost (on a first-in, first-out basis) or market (net realizable value). Property, plant and equipment and depreciation: Property, plant and equipment are stated at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. Investments: Investments are accounted for under the equity method if the Company has ownership of between 20% and 50%. Investments where the Company's ownership is less than 20% are accounted for under the cost method. Advertising: These expenses are recorded when incurred. They amounted to $38,000 and $21,000 for 2001 and 2000, respectively. Use of estimates and significant estimates: Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. At March 31, 2001 and 2000, a significant portion of the inventory of one of the Company's products is in excess of the Company's current requirements based on the recent level of sales. Management has developed a program to reduce this inventory to desired levels over the near term and believes no loss will be incurred on its disposition. No estimate can be made of a range of amounts of loss that are reasonably possible should the program not be successful. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2001 AND 2000 1. Summary of significant accounting policies and significant estimates (continued): The Company has recorded a deferred tax asset of $1,347,000. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be real ized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Reclassifications: Certain amounts reported in the 2000 financial statements have been reclassi- fied to conform with the 2001 presentation. 2. Loss per share: Basic loss per share is computed by dividing loss applicable to common shareholders by the weighted average number of common shares outstanding. Diluted loss per share is similar to basic loss per share except that the weighted average of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. There were no dilutive potential common shares in 2001 because the assumed exercise of the options would be anti-dilutive. The following table presents the basic and diluted EPS computations: 2001 ----------------------------------- Per-share Net loss Shares amount ---------- -------- --------- Basic and diluted EPS Net loss which relates to common stockholders $(2,005,446) 4,004,624 $(.50) ================================ 2000 ---------------------------------- Per-share Net loss Shares amount ---------- --------- --------- Basic EPS Net loss which relates to common stockholders $(826,873) 3,983,147 $(.21) Effect of dilutive securities, stock options 10,613 -------- --------- --- Diluted EPS Net loss which relates to common stockholders $(826,873) 3,993,760 $(.21) ============================== EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2001 AND 2000 3. Segment information: In 2001, the Company has two operating segments which manufacture and sell a variety of products: EMCEE and ABS. EMCEE manufactures principally multichan- nel multipoint distribution service (MMDS). ABS manufactures medium to high power transmitters. In 2000, the Company's primary activity was in one segment which consisted primarily of the manufacturing of MMDS. The following is a summary of certain financial information relating to the two segments: Total revenue by segment: EMCEE $ 4,920,000 ABS 1,189,000 --------- $ 6,109,000 ========= Operating loss by segment: EMCEE $(2,762,000) ABS ( 157,000) --------- $ (2,919,000) ========= Identifiable assets by segment: EMCEE $ 7,462,000 ABS 880,000 --------- Total identifiable assets 8,342,000 Corporate 639,000 --------- Total assets $ 8,981,000 ========= Depreciation and amortization by segment: EMCEE $ 132,000 ABS 39,000 Corporate 51,000 ---------- $ 222,000 ========== Capital expenditures by segment: EMCEE $ 27,000 ABS 18,000 Corporate 27,000 -------- $ 72,000 ========== The Company evaluates segment performance based on profit or loss from operations before interest, other income/expense and taxes. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2001 AND 2000 3. Segment information (continued): Major customers are those that individually account for more than 10% of the Company's consolidated revenues. For the years ended March 31, 2001 and 2000, one customer with total EMCEE sales of $1,221,000 and $1,122,000, respectively, qualified as a major customer. At March 31, 2001 and 2000, the major customer accounted for 67% and 72%, respectively, of the Company's consolidated current accounts receivable. As of March 31, 2001, the Company is aggressively pursuing through legal action collection of the amounts outstanding from the major customer. These amounts are not supported by letters of credit. The Company has a specific reserve for this customer in the amount of $384,000. ABS did not have sales to any individual customer greater than 10% of total revenues. The Company performs ongoing credit evaluations of its customers and, when deemed necessary and when possible, requires deposits and a letter of credit on foreign sales and deposits on domestic sales. Historically, the Company's uncollectible accounts receivable have been immaterial. Foreign sales amounted to $3,513,000 and $2,962,000 for 2001 and 2000,respectively. Sales by foreign geographic regions are as follows: 2001 2000 -------------------------- Asia/Pacific Rim $ 1,705,000 $ 1,516,000 South America 614,000 698,000 Caribbean 167,000 104,000 Middle East 8,000 393,000 North America 130,000 47,000 Europe 495,000 83,000 Central America 309,000 26,000 Africa 20,000 Other 65,000 95,000 --------- --------- $ 3,513,000 $ 2,962,000 ============================ Revenues are attributed to regions based on location of customers. All long- lived assets and deferred tax assets are attributable to the United States. All foreign sales are contracted in United States currency; therefore, there is no impact from foreign currency rates. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2001 AND 2000 4. Inventories: 2001 2000 --------------------------- Finished goods $ 433,000 $ 440,000 Work-in-process 731,000 468,000 Raw materials 1,225,000 728,000 Manufactured components 1,710,919 1,444,313 --------- --------- $ 4,099,919 $ 3,080,313 =========================== 5. Long-term debt: At March 31, 2001, substantially all of the Company's assets were pledged as collateral for a line of credit and other indebtedness which totaled approxi- mately $1,107,041. The line of credit consisted of advances under a line of credit agreement with commitments aggregating $2,000,000. The maximum amount of any month end and average amount outstanding during the year ended March 31, 2001 were $1,100,000 and $825,000, respectively. The average amount outstanding was computed using total daily borrowings divided by the number of days such borrowings were outstanding. The weighted average interest rate during the year ended March 31, 2001 was 8.26%. On October 30, 2000, the Company received written notice from its primary lending institution that its working capital line of credit would not be renewed. As a result, the bank made a demand for the entire outstanding principal balance of the line of credit with all accrued and unpaid interest and all reimbursable fees and expenses of the bank. Under the provisions of the bank's notice, these sums had to be paid on or before November 10, 2000. The Company is, therefore, in default of such payment. Because the line of credit is cross defaulted under the bank's loan documents with other indebtedness of the Company to the bank, the bank had the right to accelerate the maturity of such other indebtedness and, if not timely paid, hold the Company in default. Subsequent to the written notice, the Company and the bank entered into a forbearance agreement under which, among other things, the bank agreed to forbear from exercising its rights and remedies under the loan documents and permit the Company to repay the line of credit during a specific period of time and maintain scheduled payments on the other bank debt with final payment being made in June 2001. Subsequent to March 31, 2001, this indebtedness was refinanced with $1,500,000 and $500,000 term loans. The notes mature in 2016 and 2006, and require monthly payments of $15,214 and $10,379, respectively. Interest is calculated at 9% for the $500,000 term loan and 2.0% above the national prime rate for the $1,500,000 term loan. The interest rate of the $1,500,000 note adjusts every three years. These loans are collateralized by principally all assets of the Company and contain certain financial and restrictive covenants. In addition, both loans contain prepayment penalties. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2001 AND 2000 5. Long-term debt (continued): Principal repayment of the refinanced loans and other debt is as follows: 2002 $ 108,000 2003 149,000 2004 158,000 2005 173,000 2006 188,000 Thereafter 1,250,654 --------- $ 2,026,654 ========== 6. Other assets: 2001 2000 ------------------------------ Investments, equity method $ 444,656 $ 233,265 Investments, cost method 480,639 Notes receivable 266,115 Accounts receivable 355,574 289,243 Goodwill 250,781 23,186 Deferred income taxes 1,347,000 0 --------- --------- $ 2,398,011 $ 1,292,448 ============================== The investments are in companies who own and/or operate businesses that provides rapid access to the internet, wireless cable television, and other types of telecommunication service. Notes receivable of $116,000 were settled in 2001 by the transfer to the Company of an additional equity investment. This addition resulted in a transfer of $346,000 (including the $116,000) from a cost method to equity method investment. 7. Common stock: Nonqualified stock option plans provide for the grant of options to purchase up to 300,000 shares. Upon the termination or expiration of any stock options granted, the shares covered by such terminated or expired stock options will be available for further grant; 31,075 options were available for grant at March 31, 2001. The Board of Directors, at the date of grant of an option, determines the number of shares subject to the grant and the terms of such option. All outstanding options granted expire after 5 years and vest over two years. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2001 AND 2000 7. Common stock (continued): Changes in outstanding common stock options granted are summarized below: 2001 2000 ------------------ ------------------- Number Average Number Average of exercise of exercise shares price shares price -------- -------- ------- ------- Balance at beginning of year 126,675 $5.81 151,875 $5.50 Options exercised 22,200 3.68 Options forfeited 27,275 4.52 3,000 6.16 ------- ---- ------- ---- Balance at end of year 99,400 $6.16 126,675 $5.81 ======================================= Options exercisable at year-end 99,400 $6.16 126,675 $5.81 At March 31, 2001, the options had remaining contractual lives of .67 years. During 1997, warrants to purchase 200,000 shares of common stock at $9.76 a share were issued and remain outstanding at March 31, 2001. These warrants expire in May 2001. The Company in accordance with an election under generally accepted accounting principles for stock options has recorded no compensation cost. 8. Income taxes: The following table sets forth the current and deferred amounts of the provisions for income tax benefit for the years ended March 31, 2001 and 2000: 2001 2000 -------------------- Current $ 0 $ 386,000 Deferred 1,099,000 88,000 --------- ------- $1,099,000 $ 474,000 ====================== EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2001 AND 2000 8. Income taxes (continued): The provisions for income taxes at the Company's effective rate differed from the provision for income taxes at the statutory Federal rate of 34% for the years ended March 31, 2001 and 2000 as follows: 2001 2000 -------------------------- Federal income tax benefit at the statutory rate $1,055,000 $ 441,000 Foreign sales corporation benefit 13,000 Federal income tax credit 21,000 18,000 Other 23,000 2,000 ------- ------- Benefit for income taxes $1,099,000 $ 474,000 ======================== The tax effects of net operating loss carryforwards and temporary differences that give rise to deferred income taxes at March 31, 2001 and 2000 are presented in the table below: 2001 2000 ------------------------ Deferred tax assets: Net operating loss carryforwards $ 879,000 $ 29,000 Inventory 212,000 121,000 Accounts receivable 131,000 24,000 Employee benefits 59,000 47,000 Investments 34,000 0 Property and equipment 28,000 26,000 Other differences 4,000 2,000 ------- ------- Total deferred tax assets $1,347,000 $ 249,000 ========================= The net operating loss carryforwards reflect the federal income tax benefit of $2,585,000 in loss carryforwards, which expire in varying amounts between 2020 and 2021. 9. Fair value of financial instruments: Many of the Company's financial instruments lack an available trading market as characterized by a willing buyer and a willing seller engaging in an exchange transaction. The Company's fair value estimates for those instru- ments are based upon subjective assumptions and involve significant uncertain- ties resulting in estimates that vary with changes in assumptions. Any changes in assumptions or estimation methodologies may have a material effect on the estimated fair values disclosed. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2001 AND 2000 9. Fair value of financial instruments (continued): A summary at March 31, 2001 and 2000 is as follows: 2001 2000 -------------------------------------------- Carrying Fair Carrying Fair value value value value -------------------------------------------- Short-term assets $1,697,664 $1,697,664 $3,860,183 $3,860,183 Notes receivables 266,1152 66,115 Other long-term assets 355,574 355,574 289,243 289,243 Short-term liabilities 2,513,105 2,513,105 1,085,070 1,085,070 Debt 1,136,488 1,136,488 702,354 702,354 Short-term asset and liabilities (exclusive of bank debt): The fair values of cash and equivalents, U.S. Treasury Bills, accounts and tax refund receivables, accounts payable and other short-term financial liabili- ties approximate their carrying values due to the short-term nature of these financial instruments. Other long-term assets: Fair value of long-term accounts receivable is estimated to approximate carrying value. Fair value of cost method investment in 2000 is not disclosed because it was not practicable to estimate those values Notes receivables: The carrying value of notes receivable included in other assets is estimated to approximate fair values. Although there are no quoted market prices available for these instruments, the fair value estimates were based on the change in interest rate and risk related interest rate spreads since the notes origination date. It was not practicable to estimate the fair value of the note receivable, sale of license, because the Company was unable to estimate the timing and form of the ultimate settlement of the amount due to it. The Company has fully provided for any potential loss resulting from the non- payment of this receivable. Debt: The fair value of debt that is variable rate debt that reprices regularly or was refinanced subsequent to year end at principal amounts using comparable interest rate methodology approximates the carrying amounts. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2001 AND 2000 10. Fourth quarter adjustments (unaudited): Year end adjustments, which affected the results of operations for the fourth quarter of 2001, relating principally to inventory, accounts receivable and income taxes, resulted in fourth quarter losses of $352,000, which is $.09 per share. Had the adjustments been reported in prior quarters, results of operations for the fourth quarter would have been a net loss of $801,000 ($.20 per share). 11. Issuance of shares: Subsequent to March 31, 2001, the Company entered into two stock option agreements which were exercised and provided for the issuance of 800,000 shares of common stock at $.75 per share. In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EMCEE BROADCAST PRODUCTS, INC. /s/ JAMES L. DESTEFANO James L. DeStefano, President/CEO Date: July 6, 2001 /s/ KERRY TURNER Kerry Turner, Controller Date: July 6, 2001 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ JAMES L. DESTEFANO Date: July 6, 2001 James L. DeStefano, Director /s/ ROBERT HOSTETLER Date: July 6, 2001 Robert Hostetler, Director /s/ TIMOTHY P. HULICK, Ph.D Date: July 6, 2001 Timothy P. Hulick, Ph.D, Director /s/ MICHAEL J. LEIB Date: July 6, 2001 Michael J. Leib, Director /s/ RANDALL P. MARX Date: July 6, 2001 Randall P. Marx, Director /s/ RICHARD J. NARDONE Date: July 6, 2001 Richard J. Nardone, Director /s/ EVAGELIA ROGIOKOS Date: July 6, 2001 Evagelia Rogiokos, Director