-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L+1tCotxa5/Bes3RArAFFa7fS62aukJFBkOoYI1MHKr/TiXoUuH/sl6z6tQPamnt 4CKXwfqa9D6fEsu7Zm65rw== 0000032312-02-000008.txt : 20020414 0000032312-02-000008.hdr.sgml : 20020414 ACCESSION NUMBER: 0000032312-02-000008 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMCEE BROADCAST PRODUCTS INC CENTRAL INDEX KEY: 0000032312 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 131926296 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-06299 FILM NUMBER: 02539769 BUSINESS ADDRESS: STREET 1: PO BOX 68 STREET 2: SUSQUEHANNA ST. EXTENSION WEST CITY: WHITE HAVEN STATE: PA ZIP: 18661-0068 BUSINESS PHONE: 570-443-9575 MAIL ADDRESS: STREET 1: PO BOX 68 CITY: WHITE HAVEN STATE: PA ZIP: 18661-0068 FORMER COMPANY: FORMER CONFORMED NAME: ELECTRONICS MISSILES & COMMUNICATIONS INC DATE OF NAME CHANGE: 19920703 10QSB 1 draft.txt FISCAL 2002 THIRD QUARTER UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended December 31, 2001 Commission file number 1-6299 EMCEE Broadcast Products, Inc. (Exact name of registrant as specified in its charter) Delaware 13-1926296 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) Registrant's telephone number, including area code: 570-443-9575 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Common stock, $ .01-2/3 par value - 4,839,245 shares as of February 13, 2002. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES I N D E X PART I. FINANCIAL INFORMATION: PAGE (S) CONSOLIDATED BALANCE SHEETS - December 31, 2001 and March 31, 2001 3 CONSOLIDATED STATEMENTS OF LOSS - Three months and nine months ended December 31, 2001 and 2000 4 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - Nine months ended December 31, 2001 5 CONSOLIDATED STATEMENTS OF CASH FLOW - Nine months ended December 31, 2001 and 2000 6 - 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 8 - 10 INDEPENDENT ACCOUNTANTS' REPORT 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 - 15 PART II. OTHER INFORMATION: LEGAL PROCEEDINGS 16 SIGNATURES 16 NOTE: Any questions concerning this report should be addressed to Ms. Joan Pecora, Controller. PART I. FINANCIAL INFORMATION EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 2001 and MARCH 31, 2001 - DEC. 31, 2001 MARCH 31, 2001 (Unaudited) ----------------------------------- ASSETS: CURRENT ASSETS: Cash and cash equivalents $ 420,931 $ 69,210 Cash - restricted 100,000 0 Accounts receivable, net of allowance for doubtful accounts, Dec. - $598,000 / March - $388,000 584,674 1,628,454 Note Receivable 50,000 0 Inventories 3,630,757 4,099,919 Prepaid expenses 229,101 160,043 --------- --------- TOTAL CURRENT ASSETS 5,015,463 5,957,626 --------- --------- PROPERTY, PLANT AND EQUIPMENT: Land & land improvements 235,141 246,841 Building 617,475 617,475 Machinery and equipment 2,203,134 2,203,134 --------- --------- 3,055,750 3,067,450 Less accumulated depreciation 2,589,400 2,441,773 --------- --------- NET PROPERTY, PLANT AND EQUIPMENT 466,350 625,677 --------- -------- OTHER ASSETS 807,167 2,398,011 -------- --------- NOTE RECEIVABLE 552,000 540,000 Less deferred portion (552,000) (540,000) --------- --------- 0 0 ---------- --------- TOTAL ASSETS $6,288,980 $8,981,314 ========= ========= SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. DEC. 31, 2001 MARCH 31, 2001 (Unaudited) ---------------------------------- LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 108,000 $ 108,000 Accounts payable 740,209 756,430 Accrued expenses: Payroll and related expenses 271,340 233,766 Other 109,807 608,113 Deposits from customers 593,785 914,796 --------- --------- TOTAL CURRENT LIABILITIES 1,823,141 2,621,105 --------- --------- LONG-TERM DEBT, net of current portions 1,848,357 1,028,488 --------- --------- SHAREHOLDERS' EQUITY: Common stock issued, $.01-2/3 par; authorized 9,000,000 shares; issued 5,206,361 and 4,406,361 shares for December 31, 2001 and March 31,2001, respectively 86,783 73,450 Additional paid-in capital 4,034,709 3,583,484 Retained earnings 196,156 3,512,795 --------- --------- 4,317,648 7,169,729 --------- --------- Less shares held in treasury at cost: 367,116 shares December 31, 2001 and 396,880 shares March 31, 2001 1,700,166 1,838,008 --------- --------- TOTAL SHAREHOLDERS' EQUITY 2,617,482 5,331,721 --------- --------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 6,288,980 $ 8,981,314 ========= ========= SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF LOSS THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 2001 AND 2000 (Unaudited) NINE (9) MONTHS THREE (3)MONTHS 12/31/01 12/31/00 12/31/01 12/31/00 ----------------------------------------------- NET SALES $ 4,343,481 $ 5,232,294 $ 1,259,795 $ 1,780,839 COST OF PRODUCTS SOLD 4,080,628 4,226,411 1,268,782 1,516,059 ---------- --------- --------- --------- GROSS PROFIT (LOSS) 262,853 1,005,883 (8,987) 264,780 OPERATING EXPENSES: Selling expenses 726,084 844,295 236,569 269,362 General and Admin. 1,238,446 1,039,988 322,382 337,489 Research and development 223,982 318,730 58,345 70,262 --------- --------- -------- -------- TOTAL OPERATING EXPENSES 2,188,512 2,203,013 617,296 677,113 --------- --------- -------- -------- LOSS FROM OPERATIONS (1,925,659) (1,197,130) (626,283) (412,333) --------- --------- ------- ------- OTHER INCOME (EXPENSE) Interest expense (120,636) (102,321) (44,638) (34,049) Interest income 6,263 95,437 0 31,004 Other 70,393 (1,510) (21,402) (411) ------- ------- ------ ------ TOTAL OTHER INCOME (EXPENSE) (43,980) (8,394) (66,040) (3,456) ------ ------ ------ ----- NET LOSS BEFORE INCOME TAXES (1,969,639) (1,205,524) (692,323) (415,789) INCOME TAX BENEFIT (EXP) (1,347,000) 353,000 0 113,000 --------- -------- ------- ------- NET LOSS $(3,316,639) $(852,524) $(692,323) $(302,789) ========= ======= ======= ======= COMMON STOCK AND COMMON STOCK EQUIVALENT OUTSTANDING: Basic 4,593,903 4,039,550 4,827,969 4,041,709 Diluted 4,593,903 4,039,550 4,827,969 4,041,709 LOSS PER COMMON SHARE AND COMMON SHARE EQUIVALENT: Basic $ (.72) $ (.21) $ (.14) $ (.07) Diluted $ (.72) $ (.21) $ (.14) $ (.07) SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY NINE MONTHS ENDED DECEMBER 31, 2001 (Unaudited) ADDITIONAL COMMON STOCK PAID-IN RETAINED TREASURY STOCK SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL ---------------- ---------- -------- ---------------- ------- BALANCE - 3/31/01 4,406,361 $73,450 $3,583,484 $3,512,795 396,880$(1,838,008)$5,331,721 COMMON STOCK ISSUED, NET 800,000 13,333 564,567 577,900 TREASURY STOCK ISSUED (113,342) (29,764) 137,842 24,500 NET LOSS FOR THE PERIOD (3,316,639) (3,316,639) --------- ------ --------- --------- ------- --------- --------- BALANCE - 12/31/01 5,206,361 $86,783 $4,034,709 $ 196,156 367,116$(1,700,166)$2,617,482 ========= ====== ========= ======= ======= ========= ========= SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE (9) MONTHS ENDED DECEMBER 31, 2001 AND 2000 (Unaudited) NINE (9)MONTHS 12/31/01 2/31/00 -------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $(3,316,639) $(852,524) Adjustments: Depreciation 147,627 201,515 Amortization 22,942 10,800 Provision for doubtful accounts 210,000 40,000 Gain on sale of assets (61,645) 0 Treasury stock issued for directors fees 24,500 0 (Increase) decrease in (net of effect of acquisition): Accounts receivable 231,410 (934,379) Note Receivable (50,000) 0 Inventories 469,162 (1,510,727) Prepaid expenses (69,058) (50,688) Income taxes refundable 0 13,000 Deferred income taxes 1,347,000 8,000 Other assets 44,247 27,210 Increase (decrease) in: Accounts payable (16,221) 277,115 Accrued expenses 2,660 6,543 Deposits from customers (182,033) 371,400 --------- -------- NET CASH USED IN OPERATING ACTIVITIES (1,196,048) (2,392,735) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment 0 (43,373) Purchase of U. S. Treasury Bills 0 (809,101) Proceeds from: Maturities of U.S. Treasury Bills 0 2,582,701 Proceeds from sale of Other Assets 150,000 250,000 Sale of land 100,000 0 Purchase of Advanced Broadcast Systems, Inc. 0 (400,000) Increase in restricted cash (100,000) (103,656) ------- --------- NET CASH PROVIDED BY INVESTING ACTIVITIES 150,000 1,476,571 ------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on: Long-term debt (1,180,131) (79,286) Line of Credit 0 (375,000) Issuance of: Long-term debt 2,000,000 15,527 Common stock 577,900 0 Proceeds from line of credit borrowing 0 1,100,000 ---------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,397,769 661,241 --------- -------- NET INCREASE (DECREASE) IN CASH 351,721 (254,923) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 69,210 261,304 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 420,931 $ 6,381 ======= ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period: Interest expense $ 114,375 $ 92,127 Income taxes $ 0 $(373,000) ======= ======= Fair value of assets acquired and liabilities assumed 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 ======= Non-Cash Transaction Decrease in: Accounts receivables $ 602,370 Accrued expenses (463,392) Customer deposits (138,978) -------- $ 0 ======== SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of EMCEE Broadcast Products, Inc. (the "Company") have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments and accruals that management believes is necessary to fairly state the operating resultss for the respective periods. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations of the Securities and Exchange Commission under item 310 of Regulation S-B. The notes to the condensed financial statements should be ready in conjunction with the notes to the consolidated financials contained in the Company's Form 10- KSB for the year ended March 31, 2001. The Company's management believes that the disclosures are sufficient for interim financial reporting purposes. The results of operations for any interim period are not necessarily indicative of the results for the year. 2. The results of operations for the nine-month periods ended December 31, 2001 and 2000 are not necessarily indicative of the results to be expected for the full year. 3. At December 31, 2001, cash equivalents included $100,000 invested in a money market portfolio. 4. INVENTORIES consisted of the following: Dec. 31, 2001 March 31, 2001 (UNAUDITED) FINISHED GOODS $ 372,000 $ 433,000 WORK-IN-PROCESS $ 642,000 $ 731,000 RAW MATERIALS $1,470,000 $1,225,000 MANUFACTURED COMPONENTS $1,146,757 $1,710,919 -------- --------- $3,630,757 $4,099,919 ========= ========= 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). 5. SEGMENT INFORMATION. The Company has two operating segments which manufacture and sell a variety of products; EMCEE and ABS. EMCEE manufactures principally multi-channel multipoint distribution service (MMDS) equipment. ABS manufactures medium to high power UHF television transmitters. The following is a summary of certain financial information relating to the two segments: Dec. 31, 2001 Dec. 31, 2000 -------------------------------------- Total Revenue by Segment: EMCEE $ 2,241,886 $ 4,126,937 ABS $ 2,101,595 $ 1,105,357 Operating Income (Loss) by Segment: EMCEE $(1,951,453) $(1,123,352) ABS $ 25,797 $ (73,778) Identifiable Assets by Segment: EMCEE $ 5,431,000 $ 7,294,000 ABS $ 588,000 $ 972,000 Corporate $ 270,000 $ 836,000 ---------- ---------- Total Assets $ 6,289,000 $ 9,112,000 ========== ========== Depreciation and Amortization by Segment: EMCEE $ 96,000 $ 139,000 ABS $ 75,000 $ 74,000 ------ ------- Total $ 171,000 $ 213,000 ======= ======= Capital Expenditures by Segment: EMCEE $ 43,000 ====== The Company evaluates segment performance based on profit or loss from operations before interest, other income/expense and taxes. 6. 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 the period ended December 31, 2001 and 2000 because the assumed exercise of the options would be anti-dilutive. 7. DEFERRED TAX ASSET. The Company has recorded a deferred tax asset of $1,667,000. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. The Company has suffered significant losses during the last few years. The ability to generate future taxable income of levels significant enough to realize any portion of the benefit of tax asset has become questionable. As such, the Company has established a valuation allowance covering 100% of the deferred tax asset. 8. LONG-TERM DEBT. On June 7, 2001, the Company's indebtedness was refinanced with $1,500,00 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. 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 1,180,357 --------- $1,956,357 ========= 9. Issuance of shares: In June, 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. 10. Operations: As reported in the accompanying financial statement, the Company has incurred a net loss from operations of $1,926,000 for the nine months ended December 31, 2001. Cash and cash equivalent balances are being maintained through aggressive cash flow. The Company has limited ability to secure additional funds from debt or equity transactions. These factors, as well as inactivity in both the broadcast and MMDS industries, create a level of doubt concerning the Company's ability to continue as a going concern. Management believes that, despite the financial, operational and market condition burdens, it has the expertise, talent and skill to significantly improve operating results. The Company, with the resignation of the President/CEO, is undergoing an organizational restructuring. Additionally, a new business plan and a redefinition of corporate goals and objectives is currently under development. Independent Accountants' Report Officers and Directors EMCEE Broadcast Products, Inc. We have reviewed the accompanying condensed consolidated financial statements of EMCEE Broadcast Products, Inc. and subsidiaries as listed in the accompanying index at December 31, 2001 and for the periods ended December 31, 2001 and 2000. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit con- ducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of EMCEE Broadcast Products, Inc. and subsidiaries as of March 31, 2001, and the related consolidated statements of loss, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated June 26, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2001 is fairly stated, in all material respects to the consolidated balance sheet from which it has been derived. /s/ KRONICK KALADA BERDY & CO. Kingston, Pennsylvania February 12, 2002 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Any statements contained in this report which are not historical facts are forwarding looking statements; and, therefore, many important facts could cause actual results to differ materially from those in the forward looking statements. Such factors include, but not limited to, changes (legislative, regulatory and otherwise) in the Multi-Channel Multipoint Distribution Service (MMDS) or Low Power Television (LPTV)industries or medium to high power high definition television (HDTV) products, demand for the Company's products (both domestically and internationally), the development of competitive products, competitive pricing, the timing of foreign shipments, market acceptance of new product introductions (including, but not limited to, the Company's digital and internet products), technological changes, economic conditions, litigation and other factors, risks and uncertainties identified in the Company's Securities and Exchange Commission filings. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales for the third quarter of fiscal 2002, which ended December 31, 2001, were $1,260,000 compared to $1,781,000 for the third quarter of fiscal 2001. Sales for the nine months ended December 31, 2001 and 2000 were $4,343,000 and $5,232,000, respectively. Sales attributable to the subsidiary Advanced Broadcast Systems, Inc. (ABS), which was acquired in April 2000,were $2,102,000 and $1,105,000 for the nine months ended December 31, 2001 and 2000, respectively. The improvement in ABS sales was offset by a decline in foreign sales. Foreign sales declined from $2,962,000 for the nine months ended December 31, 2000 to $784,000 for the nine months ended December 31, 2001. For the last several years, foreign sales have been more than half of total sales for the Company. However, foreign sales have declined due primarily to international economic conditions and the credit worthiness of our historical customer base. A comparison of export shipments by region for the quarters and nine-month period ended December 31, 2001, 2000 and 1999 are as follows: Quarter Ended Dec. 31, Nine-Months Ending Dec. 31, 2001* 2000* 1999* 2001* 2000* 1999* Region (000's omitted) (000's omitted) - ------- ----------------------------------------------------- Asia/Pacific Rim $117 $151 $740 $122 $1,516 $1,015 Middle East 0 385 172 0 393 372 South America 121 269 0 363 698 140 North America 4 0 341 4 47 368 Central America 5 2 83 17 26 102 Caribbean 43 35 332 144 104 423 Europe 13 0 342 79 83 365 Africa 11 0 52 11 0 52 Other 0 15 112 44 95 155 -- --- ---- --- ----- ---- $314 $857 $2,174 $784 $2,962 $2,992 === === ===== === ===== ===== *Based on customers with $2,500 or more of sales. Management anticipates that domestic demand, especially for medium and high power products, will be the significant component of sales for the next year or two. Gross profit (loss) totaled $(9,000) and $263,000 for the quarter and nine months ended December 31, 2001, respectively. Margin on sales was (0.7%) and 6.1% for the three and nine months ended December 31, 2001 compared with 14.9% and 19.2% for the three and nine months ended December 31, 2000. The significant erosion of margin in the third quarter of fiscal 2002 is primarily the result of low shipping volume and a change in the anticipated margin on a significant installation contract. The Company recognizes revenues on installation contracts on the basis of the estimated percentage of completion of individual contracts determined under the cost-to-cost method of accounting. During the third quarter additional unanticipated costs were incurred on a transmitter installation contract and the revenue previously recognized on this contract required adjustment. Additionally, during the quarter, the Company closed a manufacturing facility for three weeks. This had a negative impact on margins for the quarter in that volume generated did not allow for absorption of overhead incurred. The industry wide stagnation in the multi-channel multipoint distribution service (MMDS) is continuing. Manufacturers and distributors of MMDS equipment continue to compromise profit in order to retain market share. Sales volume and production levels are still below acceptable levels. Selling expenses for the nine months ended December 31, 2001 and 2000 were $726,000 and $844,000, respectively. The decline in expense is consistent with the decline in sales volume. General and administrative expenses increased approximately 19% from $1,040,000 for the nine months ended December 31, 2000 to $1,238,000 for the nine months ended December 31, 2001. The increase is primarily due to an increase in the reserve for doubtful accounts in the amount of $210,000. The reserve increased due to management's concern over the collection of foreign accounts. Research and development expenses declined as the engineering department dedicated more time to sales support and specific customer orders rather than new product development for the nine months ended December 31, 2001. As a result of the aforementioned, losses from operations increased from $1,197,000 for the nine months ended December 31, 2000 to $1,926,000 for the nine months ended December 31, 2001. Interest income declined significantly from $95,000 to $6,000 for the nine months ended December 31, 2000 and 2001, respectively. Investments in U.S. Treasury Bills and cash and cash equivalent balances were depleted during fiscal 2001 to meet operating needs. The increase in other income (expense) from ($1,510) for the nine months ended December 31, 2000 to $70,393 for the nine months ended December 31, 2001 is due to the sale of a non-operating assets for a net profit of approximately $61,000. The Company has recorded a deferred tax asset of $1,667,000. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. The Company has suffered significant losses during the last few years. The ability to generate future taxable income of levels significant enough to realize any portion of the benefit of tax asset has become questionable. Accordingly, the Company has established a valuation allowance covering 100% of the deferred tax asset. The Registrant has incurred a net loss from operations of $1,926,000 for the nine months ended December 31, 2001. The Registrant has limited ability to secure additional funds from debt or equity transactions. These factors, as well as inactivity in both the broadcast and MMDS industries, create a level of doubt concerning the company's ability to continue as a going concern. Management believes that, despite the financial, operational and market condition burdens, it has the expertise, talent and skill to significantly improve operating results. The Registrant, with the resignation of the President/CEO, is undergoing an organizational restructuring. A good portion of the third quarter ended December 31, 2001 was spent evaluating core business strategies, marketing approaches and lines of business to pursue. The Company is now realigning itself to the extent possible to implement a plan to stabilize finances and position itself for profitability. A new business plan and a redefinition of corporate goals and objectives are currently under development. Financial condition Cash and cash equivalents increased from $69,000 as of March 31,2001 to $421,000 as of December 31, 2001. In June 2001, the Company's indebtedness was refinanced. The refinancing net of fees, loan closing costs and debt reserve fund requirement of $100,000 provided a cash infusion of approximately $804,000. Additionally, in June, 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. The loan proceeds and proceeds from stock issuance were used to pay trade vendors and to fund current operating losses. Net increase in cash and cash equivalents excluding the restricted balance was $352,000 at December 31, 2001. Accounts receivable net of reserve for doubtful accounts decreased from $1,628,000 at March 31, 2001 to $584,674 at December 31, 2001. A settlement agreement with a defaulting Korean customer, among other items, permitted offsetting certain deposits and commissions payable with the amounts receivable from this Korean customer. These offsets accounted for the majority of the decline in accounts receivable. Another factor was the $210,000 increase to the allowance for doubtful accounts. The Company entered into an agreement with a Brazilian customer for extended payment terms. The receivable amount of $355,574 has been reclassified as an Other Asset. That customer is fulfilling their obligations under the agreement. Prepaid expenses increased from $160,000 as of March 31, 2001 to $229,000 as of December 31, 2001. The increase is due to payments for insurance coverage. Land and land improvements decreased by $11,000 as approximately 6 acres of land was sold for $100,000 to provide cash to meet operating needs. Other assets decreased from $2,398,000 at March 31, 2001 to $807,167 at December 31, 2001. The decrease is due to the valuation allowance established on the deferred tax asset during the second quarter of fiscal 2002 and the sale of the Company's 50% ownership in Grand Forks Wireless at the exercise of the other partner's purchase option. This sale allowed for the reallocation of resources to our core business. Other Assets also includes the receivable of the Brazilian customer discussed above. Accounts payable decreased from $756,000 at March 31, 2001 to $740,000 at December 31, 2001. Continued loss from operations and timing of customer deposits on orders has affected our cash flow. Customer deposits decreased from $915,000 at March 31, 2001 to $594,000. Of this decrease, approximately $140,000 relates to the offset of deposits from a defaulting Korean customer with the outstanding receivable balance. The remaining decrease is largely due to the stage of contracts at month end and the extent of progress billing on long-term contracts. Other accrued expenses declined from $608,000 at March 31, 2001 to $110,000 at December 31, 2001. As previously discussed, a settlement agreement was reached with the Korean customer and allowed for netting of certain amounts due against the outstanding receivable. Approximately $450,000 in commissions payable were offset against the corresponding receivable. Long term debt increased approximately $820,000 as the Company refinanced its debt. On June 7, 2001, the Registrant entered into a guaranteed loan agreement with First Federal Bank of Hazleton and the United States Department of Agriculture Rural Development Division. The Registrant secured a $500,000 term loan and a $1,500,000 mortgage loan. Of the aggregate $2,000,000, approximately $1,035,000 was used to satisfy outstanding debt including approximately $25,000 in legal fees to First Union. One hundred thousand dollars ($100,000) is being held by First Federal Bank and Rural Development in a debt reserve fund as cash collateral. The remaining balance of $804,000 provided an infusion of cash to meet working capital demand. Shares of treasury stock decreased during the first nine months of fiscal 2002 by 29,764 and a value of $24,500. These unregistered shares were issued to directors in lieu of cash for payment of directors fees. As previously discussed, during the first quarter of 2002, the Company entered into two stock option agreements which were exercised and provided $600,000 in equity in exchange for 800,000 shares of common stock with a par value of $13,333. The back log of unsold orders for the Company totaled $2,655,594 as of December 31, 2001, compared to $2,047,000 as of March 31, 2001. Employment for the Company totaled 45 full-time employees and 2 part-time employees as of December 31, 2001. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company filed a collection lawsuit in the Court of Common Pleas of Luzerne County, Pennsylvania, on April 3, 2001, against Korea Multinet, Inc. and John and Jungon Jung (No. 2233-C of 2001). The suit relates primarily to outstanding indebtedness which Korea Multinet, Inc. owes the Company for the purchase of the Company's MMDS products. The Jungs are parties to the suit because they are sureties (guarantors) of this indebtedness. The Company is seeking damages in the amount of $1,400,758.03 plus interest and costs of suit. During August and September 2001, the Company reached a settlement agreement with this Korean customer. The settlement agreement offset certain deposits and commissions payable on these sales against the outstanding receivable balance and called for scheduled monthly payments on the remaining balance. The defendant made the first scheduled payment of $50,000, but has failed to make any additional payments. Accordingly, they are in default of the settlement agreement. The Registrant is currently evaluating options to pursue collection of the remaining balance. Given the Registrant's understanding of the current financial status of the defendants in this case, collection of this receivable is questionable. In anticipation of this event, the Registrant has already increased its reserve for bad debts to $598,000 and offset $602,000 of certain deposits and commissions payable against this receivable. 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 thereto duly authorized. EMCEE BROADCAST PRODUCTS, INC. Date: February 13, 2002 /s/ Richard J. Nardone RICHARD J. NARDONE President/CEO Date: February 13, 2002 /s/ Joan H. Pecora JOAN H. PECORA Controller -----END PRIVACY-ENHANCED MESSAGE-----