UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004.
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ____________ TO _____________
Commission File Number 0-21931
AMPLIDYNE, INC.
---------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-3440510
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
59 LaGrange Street
Raritan, New Jersey 08869
(Address of principal executive offices)
(908) 253-6870
---------------------------
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 ___
The number of shares outstanding of the Issuer's Common Stock, $.0001 Par Value,
as of August 20, 2004 was 10,376,500.
AMPLIDYNE, INC.
FORM 10-QSB
SIX MONTHS ENDED June 30, 2004
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS (UNAUDITED):
---------------------------------
Balance Sheets......................................................1-2
Statements of Operations..............................................3
Statement of Cash Flows...............................................4
Statement of Changes in Stockholders' Deficiency......................5
Notes to Financial Statements......................................6-10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................12-14
Item 3. Controls and Procedures..............................................14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................15
Item 2. Change in Securities.................................................15
Item 5. Other Information....................................................15
Item 6. Exhibits.............................................................16
Signatures....................................................................16
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMPLIDYNE, INC.
BALANCE SHEETS
ASSETS (UNAUDITED)
June 30 December 31
2004 2003
--------- ---------
CURRENT ASSETS
Cash $ 15,465 $ --
Accounts receivable, net of allowance for doubtful accounts of
$262,000 and $143,000 in 2004 and 2003, respectively 57,854 91,482
Inventories 348,520 407,709
Prepaid expenses and other -- 12,307
--------- ---------
--------- ---------
Total current assets 421,839 511,498
PROPERTY AND EQUIPMENT - AT COST
Machinery and equipment 565,629 565,629
Furniture and fixtures 43,750 43,750
Autos and trucks 66,183 66,183
Leasehold improvements 8,141 8,141
--------- ---------
683,703 683,703
Less accumulated depreciation and amortization (666,627) (646,627)
--------- ---------
17,076 37,076
--------- ---------
SECURITY DEPOSITS AND OTHER NON-CURRENT ASSETS 35,625 35,625
--------- ---------
TOTAL ASSETS $ 474,540 $ 584,199
========= =========
Note: The balance sheet at December 31, 2003 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the Unites
States for complete financial statements.
The accompanying notes are an integral part of these financial statements
-1-
AMPLIDYNE, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIENCY RECLASSIFIED FOR
COMPARABILITY TO
(UNAUDITED) CURRENT PERIOD
June 30 December 31,
2004 2003
------------ ------------
CURRENT LIABILITIES
Overdraft $ -- $ 17,855
Note payable in connection with Phoenix investor rescission agreement 40,000 --
Convertible notes payable pursuant to Lee financing agreement 250,000 --
Customer advances 36,878 60,000
Accounts payable 488,817 411,169
Accrued expenses and other current liabilities 239,027 251,486
Loans payable - officers 329,228 256,997
------------ ------------
Total current liabilities 1,383,950 997,507
Other convertible notes payable 21,573 20,973
------------ ------------
TOTAL LIABILITIES 1,405,523 1,018,480
------------ ------------
STOCKHOLDERS' DEFICIENCY
Common stock - authorized, 25,000,000 shares of $.0001 par value;
shares 10,376,500 and 10,376,500 shares issued and outstanding at
June 30, 2004 and December 31, 2003, respectively 1,038 1,038
Additional paid-in capital 22,503,014 22,494,854
------------ ------------
Accumulated deficit (23,435,035) (22,930,173)
------------ ------------
(930,983) (434,281)
------------ ------------
$ 474,540 $ 584,199
============ ============
Note: The balance sheet at December 31, 2003 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the Unites
States for complete financial statements.
The accompanying notes are an integral part of these financial statements
-2-
AMPLIDYNE, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30
Three Months Ended Six Months Ended
June 30 June 30
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net sales $ 240,226 363,904 $ 555,593 $ 873,512
Cost of goods sold 223,367 278,925 511,767 557,783
------------ ------------ ------------ ------------
Gross profit 16,859 84,979 43,826 315,729
Operating expenses
Selling, general and administrative 109,033 216,940 322,106 410,671
Research, engineering and development 83,654 97,373 163,180 194,515
Litigation settlement costs 20,160 -- 20,160 --
------------ ------------ ------------ ------------
Operating loss (195,988) (229,334) (461,620) (289,457)
Nonoperating income (expenses)
Interest income and other income -- -- -- 2
Loss incurred on rescission of prior year
agreements with Phoenix to invest in the
Company (40,780) -- (40,780) --
Interest expense (368) -- (600) (69)
Gain on sale of property and equipment -- -- 4,000 --
------------ ------------ ------------ ------------
Loss before income taxes (237,136) (229,334) (499,000) (289,524)
Provision for income taxes 2,662 698 5,862 698
------------ ------------ ------------ ------------
NET LOSS $ (239,798) $ (230,032) $ (504,862) $ (290,222)
============ ============ ============ ============
Net loss per share - basic and diluted $ (0.02) $ (0.02) $ (0.05) $ (0.03)
============ ============ ============ ============
Weighted average number of shares outstanding 10,376,500 10,143,167 10,376,500 10,143,167
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
-3-
AMPLIDYNE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30
Six Months Ended
June 30
2004 2003
--------- ---------
Cash flows from operating activities:
Net Loss $(504,862) $(290,222)
--------- ---------
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 20,000 14,800
Provision for doubtful accounts 15,260 43,000
Litigation settlement costs 20,160
Deferred officer compensation 55,233 51,416
Interest accrued on other convertible promissory note 600 --
Issuance of secured promissory in connection with
loss incurred on recision of agreements with
Phoenix to invest in the Company 40,000 --
Changes in assets and liabilities
Accounts receivable 18,368 148,784
Inventories 59,189 22,708
Prepaid expenses and other assets 12,307 (5,394)
Customer advances 23,122 47,641
Accounts payable and accrued expense 210,187 (78,324)
--------- ---------
Total adjustments 428,182 244,631
--------- ---------
Net cash (used) for operating activities (76,680) (45,591)
--------- ---------
Cash flows from investing activities:
Change in security deposits -- 1,151
--------- ---------
Net cash provided by (used for) investing activities -- 1,151
--------- ---------
Cash flows from financing activities:
Change in overdraft (17,855) 5,481
Payment of lease obligations -- (2,041)
Officer loans 17,000 21,000
Proceeds from convertible notes received directly in cash
pursuant to Lee financing agreement 93,000 --
Proceeds from other convertible promissory note -- 20,000
--------- ---------
Net cash provided by financing activities 92,145 44,440
--------- ---------
NET INCREASE (DECREASE) IN CASH 15,465 --
Cash at beginning of period -- --
--------- ---------
Cash at end of period $ 15,465 $ --
========= =========
Supplemental disclosures of cash flow information:
Cash paid for: Interest $ -- $ --
Income taxes $ 5,862 $ 698
Noncash financing activities:
Convertible notes issued by Company pursuant to Lee financing agreement $ 250,000 $ --
Less: Proceeds received directly in cash by Company 93,000 --
--------- ---------
Payment of Company obligations by lender in connection with
financing agreement in exchange for convertible notes $ 157,000 $ --
========= =========
The accompanying notes are an integral part of these financial statements
-4-
AMPLIDYNE, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
YEAR ENDED DECEMBER 31, 2003 AND SIX MONTHS ENDED JUNE 30, 2004
PREFERRED STOCK COMMON STOCK
--------------------------- ---------------------------
SHARES PAR VALUE SHARES PAR VALUE
---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 2002 -- $ -- 9,676,500 $ 968
Net loss for the year ended December 31, 2003
Issuance of common stock in connection with
litigation settled in the year ended December 31, 2002 700,000 70
---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 2003 -- -- 10,376,500 1,038
Net loss for the six months ended June 30, 2004
Litigation settlement to be paid through the
issuance of common stock
---------- ---------- ---------- ----------
BALANCE AT JUNE 30, 2004 -- $ -- 10,376,500 $ 1,038
========== ========== ========== ==========
ADDITIONAL
PAID-IN ACCUMULATED SUBSCRIPTIONS
CAPITAL DEFICIT RECEIVABLE TOTAL
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2002 $ 22,494,924 $(21,949,679) $ -- $ 546,213
Net loss for the year ended December 31, 2003 (980,494) (980,494)
Issuance of common stock in connection with
litigation settled in the year ended December 31, 2002 (70)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2003 22,494,854 (22,930,173) -- (434,281)
THE FOLLOWING INFORMATION IS UNAUDITED:
Net loss for the six months ended June 30, 2004 (504,862) (504,862)
Litigation settlement to be paid through
the issuance of common stock 8,160 8,160
------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 2004 $ 22,503,014 $(23,435,035) $ -- $ (930,983)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
-5-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2004
NOTE A - ADJUSTMENTS
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair statement of (a) results of
operations for the three and six month periods ended June 30, 2004 and 2003, (b)
the financial position at June 30, 2004, (c) the statements of cash flows for
the six month period ended June 30, 2004 and 2003 , and (d) the changes in
stockholders' deficiency for the six month period ended June 30, 2004 have been
made. The results of operations for the three or six months ended June 30, 2004
are not necessarily indicative of the results to be expected for the full year.
NOTE B - UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for financial statements.
For further information, refer to the audited financial statements and notes
thereto for the year ended December 31, 2003 included in the Company's Form
10-KSB filed with the Securities and Exchange Commission on April 14, 2004.
The Company's financial statements have been presented on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The liquidity of the Company has
been adversely affected in recent years by significant losses from operations.
As further discussed in Note F, the Company incurred losses of $504,862 for the
six months ended June 30, 2004, has limited cash reserves and has seen its
working capital decline by $476,102 to a deficiency of $(962,111) since the
beginning of the fiscal year. Current liabilities exceed cash and receivables by
$1,310,631 indicating that the Company will have difficulty meetings its
financial obligations for the balance of this fiscal year. These factors raise
substantial doubt as to the Company's ability to continue as a going concern.
Recently, operations have been funded by loans from the Chief Executive Officer
and costs have been cut through substantial reductions in labor and operations.
As further discussed in Note F, management is seeking additional financing and
intends to aggressively market its products, control operating costs and broaden
its product base through enhancements of products. The Company believes that
these measures may provide sufficient liquidity for it to continue as a going
concern in its present form. Accordingly, the financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amount and classification of liabilities or any
other adjustments that might be necessary should the Company be unable to
continue as a going concern in its present form.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any transactions, agreements or other contractual arrangements
that constitute off balance sheet arrangements.
-6-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2004
NOTE C - STOCKHOLDERS' EQUITY
1. WARRANTS AND OPTIONS
At June 30, 2004, the following 945,000 warrants, remained outstanding:
(1) 20,000 exercisable at $1.00 through May 2010
(2) 20,000 exercisable at $7.00 through December 2004
(3) 30,000 exercisable at $6.00 through November 2004
(4) 50,000 exercisable at $2.00 through December 2004
(5) 50,000 exercisable at $4.00 through December 2004
(6) 16,000 exercisable at $1.75 through December 2004
(7) 41,500 exercisable at $1.80 through July 31, 2004
(8) 207,500 exercisable at $3.00 through July 31, 2004
(9) 55,000 exercisable at $1.20 through September 30, 2004
(10) 300,000 exercisable at $2.00 through December 31, 2005
(11) 75,000 exercisable at $.96 through March 2007
(12) 80,000 exercisable at $1.50 through December 2004.
At June 30, 2004, the Company had employee stock options outstanding to
acquire 2,221,000 shares of common stock at exercise prices of $0.15 to $3.25.
2. STOCK PURCHASE AND FINANCING AGREEMENTS
On January 28, 2004, the Company entered into a Subscription Agreement (the
"Agreement") with Phoenix Opportunity Fund II, L.P. ("Phoenix"), a limited
partnership organized under the laws of the State of Delaware, pursuant to which
Phoenix agreed to make an aggregate investment of $100,000 in exchange for
282,700 shares of a newly created class of Series C Convertible Preferred Stock,
representing approximately 80% of the Company's outstanding stock on a fully
diluted basis. As the Company was required to amend its certificate of
incorporation or effect a reverse stock split in order to have sufficient
authorized shares to complete the equity financing, Phoenix made an initial
investment of $20,000 in exchange for 54,325 shares of Series C Convertible
Preferred Stock, and loaned approximately $80,000 to the Company with the
remaining portion of the equity investment to be completed after
recapitalization. Phoenix also entered into a stock restriction agreement with
Devendar S. Bains, our former Chairman of the Board, Chief Executive Officer,
and Treasurer, pursuant to which Mr. Bains issued an irrevocable proxy to
Phoenix until the recapitalization is completed, which, together with the shares
received in connection with the initial investment, would have given Phoenix
effective control over 53% of the Company's voting stock.
The preferred shares were never issued to Phoenix. Due to a dispute among the
Parties with respect to the terms of the loan transaction. The Company and
Phoenix agreed to rescind their agreement, and the Company agreed to pay
Phoenix: (i) $20,000 in cash for the funds Phoenix invested, (ii) $80,000 in
cash for the funds which Phoenix lent to the Company, and (iii) $40,000 for
expenses incurred by Phoenix on behalf of the Company. The $40,000 was paid by
delivery of a secured promissory note due March 31, 2005, and bearing interest
at the rate of eight percent per annum secured by substantially all the assets
of the company. In addition, the Company accepted the resignation of Ramesh S.
Akella, Carmen P. Akella, Venkata Maddineni from the Board of Directors of the
Company.
-7-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2004
In a separate transaction, John Lee of Piscataway, NJ ("Lee") entered into a
Note Purchase Agreement with the Company by which Lee has agreed to lend the
Company an initial $200,000 and up to an additional $300,000 in one or more
installments on or before October 30, 2004. The Company has agreed to deliver to
John Lee convertible promissory notes which are convertible into Series C shares
representing approximately 80% of the Company's outstanding stock on a fully
diluted basis. Such conversion will take place at such time is able to do so.
Messrs. Devendar Bains and Tarlochan Bains are required to devote their full
business time and attention to the business of the Company for eight (8) years
from May 25, 2004. In the event that either Devendar Bains or Tarlochan Bains
must leave the employ of the Company for any reason, each agrees that, if
requested by the Board of Directors of the Company, he will use his best efforts
to find a qualified replacement for himself acceptable to the Board of
Directors, and that he will not engage in a business competitive with the
Company for a period of eight (8) years. On May 25, 2004, Lee loaned the Company
$200,000, and was issued two convertible promissory notes which will be
convertible in the aggregate into Series C shares representing approximately 32%
of the Company's outstanding stock on a fully diluted basis, if and when
converted. If not converted, the notes are payable on demand, provided that
demand cannot be made before December 31, 2004, unless the Company is in default
of the Note Purchase Agreement. Of the $200,000 loaned to the Company, $100,000
was used to pay Phoenix in connection with the rescission described above,
$45,000 was used to make a final payment in resolution of litigation with High
Gain Antenna Co. Ltd. of Korea, and to pay associated bank fees, $12,000 was
used to pay legal fees and $43,000 was used for working capital purposes.
NOTE D - LOSS PER SHARE
The Company complies with the requirements of the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128"). SFAS No. 128 specifies the compilation,
presentation and disclosure requirements for earnings per share for entities
with publicly held common stock or potential common stock. Net loss per common
share - basic and diluted is determined by dividing the net loss by the weighted
average number of common stock outstanding.
Net loss per common share - diluted does not include potential common
shares derived from stock options and warrants (see Note C) because they are
antidilutive.
NOTE E - LITIGATION
From time to time, the Company is party to what it believes are routine
litigation and proceedings that may be considered as part of the ordinary course
of its business. Except for the proceedings noted below, the Company is not
aware of any pending litigation or proceedings that could have a material effect
on the Company's results of operations or financial condition.
1. The Company (as well as an officer and director of the
Company) is a defendant in a complaint brought in November 2003 in the Circuit
Court of the State of Florida (17th Judicial District, Broward County) alleging
fraud and seeking relief for unspecified damages and costs associated with an
aborted plan of merger. On June 29, 2004, the Company filed a Motion to Dismiss
the lawsuit of V-Link, inc. against the Company.
2. The Company (as well as an officer and director of the Company) was a
defendant in a complaint brought in the Superior Court of New Jersey, Law
Division, Somerset County, by High Gain Antenna Co., Ltd. of Korea in November
2000. In connection with a Stipulation of Settlement and Release entered into in
January 2003 before the Superior Court of New Jersey, the Company has fulfilled
its obligations and has received a warrant of satisfaction of judgment from
opposing counsel dated June 6, 2004.
-8-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2004
3. In June 2004, the Company entered into a Settlement Agreement with Wayne
Fogel, et al, before the United states District court in Tampa, Florida. The
settlement provides for the following obligations by the Company to Mr. Fogel:
(1) payment of $12,000 by July 14, 2004; (2) issuance of 250,000 shares of
restricted common stock by July 14, 2004 and; (3) the shipment of specified
items of inventory valued at approximately $22,000. The agreement further calls
for the issuance of common stock of one share for each $1 of inventory not
delivered in lieu of the inventory in the event the company cannot deliver.
Since non-delivery of the specified items is definite, the financial statements
provide for the issuance of 22,000 additional shares. All shares in connection
with this settlement are valued at the publicly traded market value of $.05 on
the date of the transaction, less a discount of 40% for the restriction on sale.
4. In April 2004, a law firm filed a judgement against the Company in the amount
of approximately $40,000 in connection with non-payment of legal fees owed to
it. Inasmuch as this is a perfection of an already recorded liability,
management does not believe that the judgement will have a material impact on
the financial position of the Company.
NOTE F - LIQUIDITY
The Company's financial statements have been presented on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The liquidity of the Company has
been adversely affected in recent years by significant losses from operations.
The Company has incurred losses of $239,798 and $230,032 for the six months
ended June 30, 2004 and 2003, respectively.
With little remaining cash and no near term prospects of private
placements, options or warrant exercises (other than the Convertible Notes) and
reduced revenues, we believe that we will have great difficulty meeting our
working capital needs over the next 12 months. The Company is presently
dependent on cash flows generated from sales and financing under the Note
Purchase Agreement described in Note C.2. Our failure to consummate a merger
with an appropriate partner or to substantially improve our revenues will have
serious adverse consequences and, accordingly, there is substantial doubt in our
ability to remain in business over the next 12 months. There can be no assurance
that any financing will be available to the Company on acceptable terms, or at
all. If adequate funds are not available, the Company may be required to delay,
scale back or eliminate its research, engineering and development or
manufacturing programs or obtain funds through arrangements with partners or
others that may require the Company to relinquish rights to certain of its
technologies or potential products or other assets. Accordingly, the inability
to obtain such financing could have a material adverse effect on the Company's
business, financial condition and results of operations.
Management's plans for dealing with the foregoing matters include:
o Increasing sales of its amplifier products by developing newer products
for the Multimedia Broadcast market place through both individual
customers, strategic alliances and mergers.
o Decreasing the dependency on certain major customers by aggressively
seeking other customers in the amplifier markets;
o Partnering with significant companies to jointly develop innovative
products, which has yielded orders with multinational companies to date,
and which are expected to further expand such relationships;
o Reducing costs through a more streamlined operation by using automated
machinery to produce components for our products;
o Deferral of payments of officers' salaries, as needed;
o Selling remaining net operating losses applicable to the State of New
Jersey, pursuant to a special government high-technology incentive program
in order to provide working capital, if possible;
o Reducing overhead costs and general expenditures.
o Merging with another company to provide adequate working capital and
jointly develop innovative products.
-9-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2004
NOTE G - OFFICER LOANS
As of June 30, 2004, the Company owes $268,101 to the now former Chief
Executive Officer for loans and unpaid salaries. During the six months ended
June 30, 2004, the Chief Executive Officer advanced $18,000 to the Company.
Additionally, salaries of $23,192 were deferred for this quarter
NOTE H - SEGMENT INFORMATION
The Company commenced its wireless Internet connectivity business in the
summer of 2000. The Company does not measure its operating results, assets or
liabilities by segment. However, the following limited segment information is
available:
Six Months Ended Six Months Ended Year Ended
June 30 June 30 December 31,
2004 2003 2003
---------- ---------- ----------
Sales - external
Amplifier $ 512,134 743,274 $1,128,453
Internet business 43,459 130,238 222,772
---------- ---------- ----------
$ 555,593 $ 873,512 $1,351,225
========== ========== ==========
Inventory --
Amplifier $ 232,513 $ 409,317 $ 248,575
Internet business 116,007 494,688 159,134
---------- ---------- ----------
$ 348,520 $ 904,005 $ 407,709
========== ========== ==========
NOTE I -- OTHER COMMENTS
1. NOTICE OF OPPOSITION ON TRADEMARK
The Company's registration of the Ampwave trademark was opposed at the
U.S. Patent Office. The Company has settled with the opposing party by agreeing
to stop using the Ampwave name after a period of one (1) year from the date of
signing. Sales under the Ampwave label were $43,459 for the three months ended
June 30, 2004. Management believes that the settlement will have no material
financial effect.
NOTE J - SUBSEQUENT EVENT
Effective August 19, 2004, Devendar S. Bains stepped down from his
position as Chairman of the Board, Chief Executive Officer and President and is
now the Chief Technology Officer. Tarlochan Bains has taken over the position of
Chairman of the Board and Chief Executive Officer.
-10-
AMPLIDYNE, INC.
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - THE THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE
MONTHS ENDED JUNE 30, 2003.
Revenues for the three months ended June 30, 2004 declined by $123,678 from
$363,904 to $240,226, or 34% compared to the three months ended June 30, 2003.
The sales decrease were primarily in amplifiers.
The majority of the amplifier sales for the three months ended June 30, 2004
were obtained from the Wireless Local Loop amplifier products to a major
European customer. Sales of amplifiers were approximately 93% of total sales
compared to 85% of total sales for the same period last year. The Ampwave high
speed wireless Internet products and broadband solutions accounted for
approximately 7% of total sales, against 15% of total sales for the same period
last year.
The Company has continued to develop and refine its amplifier products for the
wireless communications market. The Company has also refined its wireless
internet products. Sales and marketing efforts have been focused in the more
stable United States, European and Canadian markets.
Cost of sales was $223,367 or 93% of sales compared to 77% during the same
period for 2003. Gross margin for the three months ended June 30, 2004 amounted
to $16,859 (7%) compared to $84,979 (23%), for the same period ended June 30,
2003. The decline in gross margin was principally due to pricing pressures in
the telecommunications sector.
Selling, general and administrative expenses (excluding stock based
compensation) decreased in 2004 by $107,907 to $109,033 from $216,940, in 2003.
Expressed as a percentage of sales, the selling, general and administrative
expenses (excluding stock based compensation) were 45% in 2004 and 39% in 2003.
The principal factors contributing to the decrease in selling, general and
administrative expenses were related to the effects of our cost cutting program
implemented in 2002. In the quarter ended June 30, 2004, we continued to
maintain the lower staffing and overhead levels that we instituted in 2002.
Research, engineering and development expenses were 35% of net sales for the
three months ended June 30, 2004 compared to 27% in 2003. In 2004 and 2003, the
principal activity of the business related to the design and production of
product for OEM manufacturers, particularly for the IMT 2000 and 3.5 GHz single
channel products and refinements to the High Speed Internet products. The
research, engineering and development expenses consist principally of salary
cost for engineers and the expenses of equipment purchases specifically for the
design and testing of the prototype products. The Company's research and
development efforts are influenced by available funds and the level of effort
required by the engineering staff on customer specific projects.
-11-
AMPLIDYNE, INC.
Interest income was $NIL in 2004 and 2003 because our cash balances which we
have historically temporarily invested in interest bearing accounts have been
fully depleted.
Interest expense was $600 in 2004 compared to $69 in 2003 and was principally
related to financing costs in connection with the Phoenix rescission.
As a result of the foregoing, the Company incurred net losses of $(239,798) or
$(0.02) per share for the quarter ended June 30, 2004 compared with net losses
of $(230,032) or $(0.02) per share for the same quarter in 2003.
RESULTS OF OPERATIONS - THE SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX
MONTHS ENDED JUNE 30, 2003.
Revenues for the six months ended June 30, 2004 declined by $317,919 from
$873,512 to $555,593, or 36% compared to the six months ended June 30, 2003.
The majority of the amplifier sales for the six months ended June 30, 2004 were
obtained from the Wireless Local Loop amplifier products to a major European
customer.
The Company has continued to develop and refine its amplifier products for the
wireless communications market. The Company has also refined its wireless
internet products . Sales and marketing efforts have been focused in the more
stable United States, European and Canadian markets.
Cost of sales was $511,767 or 92% of sales compared to $557,783 or 64% of sales
during the same period for 2003. The decline in gross margin was principally due
to pricing pressures in the telecommunications sector. The Company is continuing
to assess cost reduction and is promoting increased product demand to improve
gross margins in 2004.
Selling, general and administrative expenses (excluding stock based
compensation) decreased in 2004 by $88,565 to $322,106 from $410,671, in 2003.
Expressed as a percentage of sales, the selling, general and administrative
expenses (excluding stock based compensation) were 58% in 2004 and 47% in 2003.
The principal factors contributing to the decrease in selling, general and
administrative expenses were related to the effects of our cost cutting program
implemented in 2002. In the quarter ended June 30, 2004, we continued to
maintain the lower staffing and overhead levels that we instituted in 2002.
Research, engineering and development expenses were 29% of net sales for the six
months ended June 30, 2004 compared to 22% in 2003. In 2004 and 2003, the
principal activity of the business related to the design and production of
product for OEM manufacturers, particularly for the IMT 2000 and 3.5 GHz single
channel products and refinements to the High Speed Internet products. The
research, engineering and development expenses consist principally of salary
cost for engineers and the expenses of equipment purchases specifically for the
design and testing of the prototype products. The Company's research and
development efforts are influenced by available funds and the level of effort
required by the engineering staff on customer specific projects.
The Company had interest income and other income in 2003 of $2. Interest income
was $NIL in 2004 because our cash balances which we have historically
temporarily invested in interest bearing accounts have been fully depleted.
As a result of the foregoing, the Company incurred net losses of $504,862 or
$0.05 per share for the six months ended June 30, 2004 compared with net losses
of $290,222 or $0.03 per share for the same period in 2003.
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AMPLIDYNE, INC.
ITEM 3. LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to our ability to generate adequate amounts of cash to meet our
needs. We have been generating the cash necessary to fund our operations from
continual loans from the former President and Chief Executive Officer of the
Company, Devendar Bains. We have incurred a loss in each year since inception.
We expect to incur further losses, that the losses may fluctuate, and that such
fluctuations may be substantial. As of June 30, 2004 we had an accumulated
deficit of $23,435,035. Potential immediate sources of liquidity are loans in
connection with the Convertible Notes.
As of June 30, 2004, our current liabilities exceeded our cash and receivables
by $1,310,631. Our current ratio was 0.30 to 1.00, but our ratio of accounts
receivable to current liabilities was only 0.05 to 1.00. This indicates that we
will have difficulty meeting our obligations as they come due. We are carrying
$348,520 in inventory, of which $299,418 represents component parts. Based on
year to date usage, we are carrying 286 days worth of parts inventory. Because
of the lead times in our manufacturing process, we will likely need to replenish
many items before we use everything we now have in stock. Accordingly, we will
need more cash to replenish our component parts inventory before we are able
realize cash from all of our existing inventories.
As of June 30, 2004, we had cash of $15,465 compared to an overdraft of $17,855
at December 31, 2003. Overall our cash increased $33,320 during 2004. Our cash
used for operating actives was $76,681. This year we received loans of $18,000
and deferred salary payments to officer/stockholders of $55,233. We also
received proceeds from the issuance of convertible promissory notes of $93,000.
The allowance for doubtful accounts on trade receivables increased from $143,000
(61% of accounts receivable of $234,482) in 2003 to $262,000 (82% of accounts
receivable of $319,854) in 2004. Additionally, in 2003, we reserved an aggregate
of $31,702 against leases that appear to be uncollectible. Because of our
relatively small number of customers and low sales volume, accounts receivable
balances and allowances for doubtful accounts do not reflect a consistent
relationship to sales. We determine our allowance for doubtful accounts based on
a specific customer-by-customer review of collectiblity.
Our inventories decreased by $59,189 to $348,520 in 2004 compared to $407,709 at
December 31, 2003, a decrease of 15%.
The Company has several lease obligations for its premises and certain equipment
requiring minimum monthly payments of approximately $9,800 through 2005.
Although the Company did not convert salaries to officers through the issuance
of Common Stock in 2004 or 2003, it may to do so in 2004. To help alleviate the
cash flow difficulties, the Chief Executive Officer and the Vice President of
Operations agreed to additional salary deferrals of $46,384 and $5,538,
respectively.
The Company continues to explore strategic relationships with ISP's, customers
and others, which could involve jointly developed products, revenue-sharing
models, investments in or by the Company, or other arrangements. There can be no
assurance that a strategic relationship can be consummated.
In the past, the officers of the Company have deferred a portion of their
salaries or provided loans to the Company to meet short-term liquidity
requirements. Where possible, the Company has issued stock or granted warrants
to certain vendors in lieu of cash payments, and may do so in the future. There
can be no assurance that any additional financing will be available to the
Company on acceptable terms, or at all. If adequate funds are not available, the
Company may be required to delay, scale back or eliminate its research,
engineering and development or manufacturing programs or obtain funds through
arrangements with partners or others that may require the Company to relinquish
rights to certain of its technologies or potential products or other assets.
Accordingly, the inability to obtain such financing could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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AMPLIDYNE, INC.
With little remaining cash and no near term prospects of private placements,
options or warrant exercises (other than the Convertible Notes) and reduced
revenues, we believe that we will have great difficulty meeting our working
capital needs over the next 12 months. We are presently dependent on cash flows
generated from sales and loans in connection with the Convertible Notes. Our
failure to substantially improve our revenues will have serious adverse
consequences and, accordingly, there is substantial doubt in our ability to
remain in business over the next 12 months. There can be no assurance that
adequate additional financing will be available to the Company on acceptable
terms, or at all. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate its research, engineering and
development or manufacturing programs or obtain funds through arrangements with
partners or others that may require the Company to relinquish rights to certain
of its technologies or potential products or other assets. Accordingly, the
inability to obtain such financing could have a material adverse effect on the
Company's business, financial condition and results of operations.
CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
the former Chief Executive and Principal Accounting officer, we have evaluated
the effectiveness of the design and operation of our disclosure controls
pursuant to Exchange Act Rule 13a-14(c) as of the end of the period covered by
this report. Based upon that evaluation, the Chief Executive and Principal
Accounting Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting him to material information required
to be included in the Company's periodic SEC filings relating to the Company.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these internal controls subsequent to
the date of my most recent evaluation.
Our management, including the former Chief Executive and Principal Accounting
officer, does not expect that our disclosure controls and internal controls will
prevent all error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their cost. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud within
the Company, if any, will be detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that a breakdown
can occur because of a simple error. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or
by management override of the control.
-14-
AMPLIDYNE, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note E to the Company's financial statements set forth in Part I.
*
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following is a list of exhibits to this Form 10-QSB:
* Certification of the Company's Chief Executive and Principal Accounting
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
302 of the Sarbanes-Oxely Act of 2002.
* Certification of the Comapny's Chief Executive and Principal Accounting
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxely Act of 2002.
(b) Reports on Form 8-K
None.
-15-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMPLIDYNE, INC.
Dated: August 23, 2004 By: /S/ TARLOCHAN. BAINS
--------------------
Name: Tarlochan. Bains
Title: Chief Executive Officer,
Treasurer, Principal
Accounting Officer and Director
16