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, 2005.
[ ] 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 ___
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [ X] No
The number of shares outstanding of the Issuer's Common Stock, $.0001 Par Value,
as of August 15, 2005 was 17,778,267.
AMPLIDYNE, INC.
FORM 10-QSB
SIX MONTHS ENDED JUNE 30, 2005
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.............................6-13
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations......................14-17
Item 3. Controls and Procedures.....................................17
Item 6. Exhibits....................................................17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................18
Item 2. Change in Securities..............................................18
Signatures....................................................................19
Certification..............................................................20-21
Exhibit 99.1..................................................................22
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMPLIDYNE, INC.
BALANCE SHEETS
ASSETS - Pledged As restated
and
reclassified
for
(Unaudited) comparability
June 30 December 31
2005 2004
------------ ------------
CURRENT ASSETS
Cash $ 116,304 $ 122,234
Accounts receivable 15,976 15,597
Inventories 352,165 309,633
------------ ------------
Total current assets 484,445 447,464
------------ ------------
PROPERTY AND EQUIPMENT - AT COST
Machinery and equipment 565,629 565,629
Furniture and fixtures 43,750 43,750
Leasehold improvements 8,141 8,141
------------ ------------
683,703 683,703
Less accumulated depreciation and
amortization (683,703) (681,956)
------------ ------------
-- 1,747
------------ ------------
TOTAL ASSETS $ 484,445 $ 449,211
============ ============
Note: The balance sheet at December 31, 2004 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 As restated
and
reclassified
for
(Unaudited) comparability
June 30 December 31
2005 2004
------------ ------------
CURRENT LIABILITIES
Note payable in connection with
Phoenix investor recision
agreement $ 30,000 $ 40,000
Convertible notes payable pursuant
to Lee financing agreement 700,745 506,000
Customer advances -- 22,008
Accounts payable (as restated) --
Note J 340,342 321,064
Other convertible notes payable 22,773 22,173
Accrued expenses and other current
liabilities 80,441 117,845
Delinquent federal and state
payroll taxes, penalties &
interest 145,717 81,353
Accrued settlement of litigation 95,000 95,000
Loans payable - officers 366,948 368,706
------------ ------------
Total current liabilities 1,781,966 1,574,149
------------ ------------
STOCKHOLDERS' DEFICIENCY
Common stock - authorized,
25,000,000 shares of $.0001 par
value; shares 17,376,500 and
10,376,500 shares issued and
outstanding at June 30, 2005 and
December 31, 2004, respectively
-- Note C 1,738 1,038
Additional paid-in capital 22,772,314 22,503,014
Accumulated deficit (24,071,573) (23,628,990)
------------ ------------
(1,297,521) (1,124,938)
------------ ------------
$ 484,445 $ 449,211
============ ============
Note: The balance sheet at December 31, 2004 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
----------------------------- -----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net sales $ 150,785 240,226 $ 293,377 $ 555,593
Cost of goods sold 190,219 223,367 293,627 511,767
------------ ------------ ------------ ------------
Gross profit (loss) (39,434) 16,859 (250) 43,826
------------ ------------ ------------ ------------
Operating expenses
Selling, general and
administrative 109,893 109,033 209,144 322,106
Research, engineering and
development 128,105 83,654 229,978 163,180
Litigation settlement costs -- 20,160 -- 20,160
------------ ------------ ------------ ------------
Total operating expenses 237,998 212,847 439,122 505,446
------------ ------------ ------------ ------------
Operating loss (277,432) (195,988) (439,372) (461,620)
Nonoperating income (expenses)
Interest income and other income -- -- 3,563 --
Loss on recision of Phoenix
agreements -- (40,780) -- (40,780)
Interest expense (300) (368) (600) (600)
Federal tax penalties and
interest (2,500) -- (5,500) --
Gain on sale of property and
equipment -- -- -- 4,000
------------ ------------ ------------ ------------
Loss before income taxes (280,232) (237,136) (441,909) (499,000)
Provision for income taxes 60 2,662 674 5,862
------------ ------------ ------------ ------------
NET LOSS $ (280,292) $ (239,798) $ (442,583) $ (504,862)
============ ============ ============ ============
Net loss per share - basic and diluted $ (0.03) $ (0.02) $ (0.04) $ (0.05)
============ ============ ============ ============
Weighted average number of shares
outstanding 10,622,396 10,376,500 10,500,127 10,376,500
============ ============ ============ ============
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
-----------------------
2005 2004
--------- ---------
Cash flows from operating activities:
Net Loss $(442,583) $(504,862)
--------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 1,747 20,000
Provision for doubtful accounts (2,878) 15,260
Litigation settlement costs -- 20,160
Deferred officer compensation 3,942 55,233
Interest accrued on other convertible
promissory note 600 600
Issuance of secured promissory in connection
with loss incurred on rescission of Phoenix
agreements -- 40,000
Changes in assets and liabilities
Accounts receivable 2,498 18,368
Inventories (42,532) 59,189
Prepaid expenses and other assets -- 12,307
Customer advances (22,008) 23,122
Accounts payable and accrued expense (18,125) 210,187
Delinquent Federal and state payroll
taxes payable 64,364 --
--------- ---------
Total adjustments (12,392) 428,182
--------- ---------
Net cash (used) for operating activities (454,975) (76,680)
--------- ---------
Cash flows from financing activities:
Change in overdraft -- (17,855)
Officer loans (5,700) 17,000
Proceeds from convertible notes received directly in
cash pursuant to Lee financing agreement 194,745 93,000
Partial payment of Phoenix secured promissory note (10,000) --
Proceeds from private placement of common stock 270,000 --
--------- ---------
Net cash provided by financing activities 449,045 92,145
--------- ---------
NET INCREASE (DECREASE) IN CASH (5,930) 15,465
Cash at beginning of period 122,234 --
--------- ---------
Cash at end of period $ 116,304 $ 15,465
========= =========
Supplemental disclosures of cash flow information:
Cash paid for: Interest $ -- $ --
Income taxes $ 674 $ 5,862
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, 2004 and Six Months Ended June 30, 2005
Preferred Stock Common Stock
------------------------- -------------------------
Shares Par Value Shares Par Value
----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 2003 as originally reported -- $ -- 10,376,500 $ 1,038
Prior period adjustment -- write-off of accounts payable balances no
longer due, discovered in the first quarter of 2005
----------- ----------- ----------- -----------
Balance at December 31, 2003 as restated 10,376,500 1,038
Net loss for the year ended December 31, 2004
Litigation settlement to be paid through the issuance of common stock
----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 2004 as restated 10,376,500 1,038
Prior period adjustment -- write-off of accounts payable balances no
longer due, discovered in the first quarter of 2005
----------- ----------- ----------- -----------
Balance at December 31, 2004 as restated 10,376,500 1,038
Net loss for the six months ended June 30, 2005 Offering costs for private
Offering costs for placement settleable in authorized but
not yet issued restricted common stock
Private placement of common stock, net of costs of $26,000 7,000,000 700
----------- ----------- ----------- -----------
BALANCE AT JUNE 30, 2005 -- $ -- 17,376,500 $ 1,738
=========== =========== =========== ===========
Additional
Paid-In Accumulated Subscriptions
Capital Deficit Receivable Total
---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 2003 as originally reported $ 22,494,854 $(22,930,175) $ -- $ (434,283)
Prior period adjustment -- write-off of accounts payable balances no
longer due, discovered in the first quarter of 2005 70,061 70,061
------------ ------------ ------------ ------------
Balance at December 31, 2003 as restated 22,494,854 (22,860,114) (364,222)
Net loss for the year ended December 31, 2004 (834,661) (834,661)
Litigation settlement to be paid through the issuance of common stock (8,160) (8,160)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2004 as restated 22,503,014 (23,694,775) -- (1,190,723)
Prior period adjustment -- write-off of accounts payable balances no
longer due, discovered in the first quarter of 2005 65,785 65,785
------------ ------------ ------------ ------------
Balance at December 31, 2004 as restated 22,503,014 (23,628,990) (1,124,938)
Net loss for the six months ended June 30, 2005 (442,583) (442,583)
Offering costs for private placement settleable in authorized but
not yet issued restricted common stock 26,000 26,000
Private placement of common stock, net of costs of $26,000 243,300 244,000
------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 2005 $ 22,772,314 $(24,071,573) $ -- $ (1,297,521)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
-5-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 30, 2005
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, 2005 and 2004, (b)
the financial position at June 30, 2005, (c) the statements of cash flows for
the six month period ended June 30, 2005 and 2004 , and (d) the changes in
stockholders' deficiency for the six month period ended June 30, 2005 have been
made. The results of operations for the three or six months ended June 30, 2005
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, 2004 included in the Company's Form
10-KSB filed with the Securities and Exchange Commission on April 15, 2005.
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 $442,583 for the
six months ended June 30, 2005, has limited cash reserves and has seen its
working capital decline by $170,836 to a deficiency of $1,297,521 ($647,521
after considering conversion of the Lee notes - see Note C 2) since the
beginning of the fiscal year. Current liabilities exceed cash and receivables by
$1,649,686 ($999,686 after conversion of Lee notes) 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, 2005
NOTE C - STOCKHOLDERS' EQUITY
1. Warrants and Options
At June 30, 2005, the following 395,000 warrants, remained outstanding:
(1) 20,000 exercisable at $1.00 through May 2010
(2) 300,000 exercisable at $2.00 through December 31, 2005
(3) 75,000 exercisable at $.96 through March 2007
At June 30, 2005, the Company had employee stock options outstanding to
acquire 370,000 shares of common stock at exercise prices of $0.20 to $1.50.
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 investments in the Company in exchange for notes and
preferred shares..
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.
The Company did not make the required $40,000 payment due on March 31, 2005
under the Phoenix rescission agreement, and the Company remains currently
delinquent. However, the Company did make a payment of $10,000 during the
quarter ended June 30, 2005. As yet, no action has been taken by Phoenix
concerning this default.
In a separate transaction, John Lee of Piscataway, NJ ("Lee") entered into a
Note Purchase Agreement with the Company by which Lee agreed to lend the Company
an initial $200,000 and up to an additional $200,000 in one or more installments
on or before October 30, 2004. The Company 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 as the Company 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
$250,000, 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.
-7-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 30, 2005
Of the $250,000 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. In August 2004, an additional $50,000 was
received from each of Hye Joung Lee (A/K/A Jessica Lee) and Joong Bin Lee (an
aggregate of $100,000) in connection with the same agreement. These parties are
business associates of John Lee, but otherwise unrelated. In October 2004, an
additional $156,000 was received from John Lee, of which $6,000 represented a
temporary additional advance outside of the Series C Convertible financing.
At various times from February through May 2005, an aggregate of $194,745 was
received from John Lee in connection with the Series C Convertible financing.
No conversions to the Series C shares, pursuant to the Lee financing, have been
made as of June 30, 2005 and to the date of the issuance of the current
quarter's financial statements. In addition, no demand for payment has been made
by Lee as of June 30, 2005 and to the date of the issuance of the current
quarter's financial statements. However, on June 27, 2005, the Company entered
into an agreement with Lee whereby 130,000 of Series C Preferred shares
(convertible into 13,000,000 common shares) would be issued in full satisfaction
of $650,000 of loans made by him to the Company. These shares had not issued by
June 30, 2005 because the Company had not authorized the issuance of preferred
shares.
In June 2005 the Board of Directors consented to the following:
o Authorized and created 500,000 Series C Convertible Preferred Stock with a
par value of $.0001 with each share convertible into 100 shares of common stock;
o Amend the Certificate of Incorporation to increase the authorized shares
of common stock to 100,000,000 shares, $.0001 par value;
o Authorize the conversion of $650,000 of the Lee notes into 130,000 shares
of Series C Convertible Preferred Stock;
o Renew and amend the Stock Option Plan extending the plan for an additional
ten (10) years and increasing the number of shares from 2,250,000 to 5,000,000;
o Issue to Jessica Lee 10,000 shares of Series C Convertible Preferred Stock
convertible into 1,000,000 shares of common stock in satisfaction of $50,000 due
to her;
o Issue 185,000 shares to the holders of the convertible promissory notes
with a balance of $22,773 at June 30, 2005 at a price of $.06 per share reduced
from the $.10 per share as set forth in the promissory notes;
o Issue 200,000 shares of common stock and 200,000 cashless warrants
exercisable at $.30 per share to its lawyer for services rendered;
o Issue an aggregate of 7,000,000 shares of common stock to certain selected
individuals and entities via Private Placements with piggy-back registration
rights and;
o Settlement of the liability for unpaid officer compensation through the
issuance of common stock warrants and the establishment of new employment
agreements (See Note G).
-8-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 30, 2005
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. A customer filed a complaint in the Circuit Court of the Eighteenth
Judicial District of the State of Florida on January 23, 1997 alleging breach of
contract. During 2000, the Company settled with that customer at a cost of
$175,000; $25,000 was to be paid quarterly over two years. $95,000 remained
unpaid at June 30, 2005.
2. 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.
3. 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. Management has been in settlement discussions with the plaintiff, but
to date has not reached an accord. On June 29, 2004, the Company filed a Motion
to Dismiss the lawsuit against 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 $442,583 and $504,862 for the six months
ended June 30, 2005 and 2004, respectively.
With insufficient remaining cash 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 from private placements and under the Note Purchase Agreement
described in Note C.2. Our failure to enter into additional private placements
of securities, 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.
-9-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 30, 2005
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 Issue common and preferred stock through private placements.
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.
-10-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 30, 2005
NOTE G - OFFICER LOANS AND DEFERRED COMPENSATION
As of June 30, 2005, the Company owes $291,649 to Devendar S. Bains, the
former Chief Executive Officer for loans and unpaid salaries. During the six
months ended June 30, 2005, the Company repaid $5,700 to officers.
On June 27, 2005, the Board of Directors resolved to enter into settlement
agreements with Devendar S. Bains and Tarlochan S. Bains to settle the liability
for unpaid salaries as follows:
o Devendar S. Bains - the Company shall (a) issue a three-year warrant for
the purchase of 1,000,000 shares common stock exercisable at $.20 per share (the
"Warrant"), and (b) enter into a three-year employment agreement at $80,000 per
year. The Company will also provide an option, in lieu of the Warrant and the
employment agreement, for the payment of $250,000 in cash and a consulting
agreement at approximately $65 per hour, to be exercised within 90 days upon
successful completion of a contemplated private offering of the Company's
securities raising gross proceeds of $2,500,000 (the "Option"). Mr. Bains
beneficially owns 1,050,000 stock options that shall be extended until May 2008,
and are otherwise not affected by this settlement.
o Tarlochan Bains - the Company shall (a) issue a three-year warrant for the
purchase of 1,000,000 shares of common stock exercisable at $.20 per share (b)
enter into a three-year employment agreement at $80,000 per year, and (c) issue
500,000 employee stock options pursuant to the Plan, of which 166,667 will vest
per year for three years and be exercisable at $.20 per share.
Neither the Warrants or Options described above have as yet been issued, nor
have the Employment Agreements been executed and signed.
NOTE H - SEGMENT INFORMATION
The Company has not pursued its wireless Internet connectivity business
since 2003 and is essentially currently operating in one segment.
NOTE I - COMMITMENTS AND OTHER COMMENTS
1. OPERATING LEASES
During July 2000, the Company entered into a lease agreement for approximately
11,000 square feet of office and manufacturing space, for a five-year period
ending July 13, 2004. The annual rental was $71,000 plus the Company's share of
real estate taxes, utilities and other occupancy costs. The landlord held a
security deposit of $35,625 representing approximately 6 months rent.
-11-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 30, 2005
In July 2004, Tek, Ltd. ("Tek") a company wholly owned by John Lee, entered into
a contract with the existing landlord of the operating premises to purchase the
building. In connection therewith, Tek negotiated a return of the security
deposit and accumulated interest thereon to the Company in the aggregate amount
of $40,160. The Company was leasing the premises on a month to month basis and
paying rent on a semi-monthly basis. On April 22, 2005, concurrent with the
closing of the purchase of the building by Tek, the Company entered into a
non-cancelable operating lease with Tek which commenced on June 1, 2005 and
expires on May 31, 2008. The Company is obligated for minimum annual rental
payments as follows:
Year ending December 31
2005 $ 33,000
2006 69,000
2007 72,000
2008 30,000
-----------
$ 204,000
===========
Rent expense, including the Company's share of real estate taxes, utilities and
other occupancy costs, was $51,387 and $41,932 for the six months ended June 30,
2005 and 2004, respectively.
2. NOTES PAYABLE CONVERTIBLE INTO COMMON STOCK AT HOLDERS' OPTION In March
2003, two investors, each of which already own approximately 4% of the Company's
outstanding common stock, loaned the Company $20,000. The terms of each loan
provide for 6% interest and were due in March 2005 with accrued interest. By
their terms, the loans provide for accelerated payment under certain conditions,
and conversion prior to maturity into the Company's common stock at the holders
option at the rate of $.10 per share. As of December 31, 2004, there were no
conditions present that trigger an acceleration, nor has either holder exercised
their option to convert them into common stock.
The Company did not make the required payments due March 31, 2005 under the
notes, for principal and interest, and the Company remains currently delinquent.
As yet, no actions have been taken by the holders concerning this default.On
June 27, 2005, the Board of Directors resolved to issue 185,000 of restricted
common stock to each note holder (370,000 shares in total) at a revised
conversion price of $.06 per share.
NOTE J - RESTATEMENT OF PRIOR AND CURRENT YEAR'S FINANCIAL STATEMENTS
During the quarter ended March 31, 2005, as a result of management review of
accounts payable details, it was determined that liabilities reflected as
outstanding at both December 31, 2004 and 2003 for accounts payable were no
longer due and payable. The write-off of these liabilities resulted in the
reflection of a gain of $135,846 reflected in operations for the year ended
December 31, 2003, and reduction in Company liabilities and a reduction in its
shareholders' deficit at December 31, 2004 and 2003. Accordingly, the
accumulated deficit as originally reported at December 31, 2003 as reflected in
the Statement of Shareholders' Deficiency has been restated to reflect the
write-off of accounts payable balances as they should have occurred prior to
December 31, 2003.
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NOTE K - SUBSEQUENT EVENTS
o July 30, 2005: The Company filed a Certificate of designation of Series C
Convertible Preferred Stock with the State of Delaware, designating 500,000
shares at a par value of $.0001 per share. The shares are convertible into
Common Stock at the rate 100 shares of Common Stock per share of series C
Preferred Stock and have a liquidation preference of $750,000 per share. It has
been determined that the amount of the liquidation preference exceeds the amount
originally intended by the Board. The Company plans to amend the Certificate of
Designation to reflect the correct liquidation preference after the amount is
properly determined.
o August 11, 2005: Issued 130,000 shares of Series C Convertible Preferred
Stock to John C. Lee in satisfaction of $650,000 owed to him by the Company.
o August 11, 2005: Issued 10,000 shares of Series C Convertible Preferred
Stock to Jessica Lee in satisfaction of $50,000 owed to her by the Company.
o July 26, 2005: Issued 370,000 shares in settlement of convertible
promissory notes
-13-
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, 2005 Compared to Three
Months Ended June 30, 2004.
Revenues for the three months ended June 30, 2005 declined by $89,441 from
$240,226 to $150,785, or 37% compared to the three months ended June 30, 2004.
The sales decreases were primarily in amplifiers. The majority of the amplifier
sales for the three months ended June 30, 2005 were obtained from the Wireless
Local Loop amplifier products to a major European customer. Sales of amplifiers
were approximately 94% of total sales compared to 93% of total sales for the
same period last year. The Ampwave high speed wireless Internet products and
broadband solutions accounted for approximately 6% of total sales, against 7% 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 completed the development of its
W-CDMA amplifier with DSP control. The sale of this product is initially
targeted at Asian markets. To this end product is being submitted to potential
customers for evaluation. The company hopes this will turn into production
orders and such company is retaining its core production personnel even though
the sales of older product are declining
Cost of sales was $190,219 or 126% of sales compared to 93% during the same
period for 2004. Gross margin for the three months ended June 30, 2005 amounted
to a loss of $(39,434) ((26)%) compared to a profit of $16,859 (7%), for the
same period ended June 30, 2004. The decline in gross margin was principally due
to the lowered production while staff levels were maintained in preparation for
new product production. The Company is continuing to assess cost reduction and
is promoting increased product demand to improve gross margins in 2005.
Selling, general and administrative expenses increased in 2005 by $860 to
$109,893 from $109,033 in 2004. Expressed as a percentage of sales, the selling,
general and administrative expenses were 73% in 2005 and 45% in 2004. The
principal factors contributing to the stability of selling, general and
administrative expenses were related to the effects of our cost cutting program
implemented in 2002. In the quarter ended June 30, 2005, we continued to
maintain the lower staffing and overhead levels that we instituted in 2002.
Research, engineering and development expenses were $128,105 or 85% of net sales
for the three months ended June 30, 2005 compared to $83,654 or 35% of net sales
in 2004. In 2005, the principal activity of the business related to the design
and production of product for OEM manufacturers, particularly for the W-CDMA
with DSP control. 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.
Interest income was $NIL in 2005 and 2004 because we have not been investing our
cash balances in interest bearing accounts due to immediate cash flow needs.
-14-
AMPLIDYNE, INC.
Interest expense was $600 in 2005 compared to $600 in 2004 and was for accrued
interest on other convertible promissory notes.
As a result of the foregoing, the Company incurred net losses of $280,292 or
$0.03 per share for the quarter ended June 30, 2005 compared with net losses of
$239,798 or $0.02 per share for the same quarter in 2004.
Results of Operations - The Six Months Ended June 30, 2005 Compared to Six
Months Ended June 30, 2004.
Revenues for the six months ended June 30, 2005 declined by $262,216 from
$555,593 to $293,377, or 47% compared to the six months ended June 30, 2004.
The majority of the amplifier sales for the six months ended June 30, 2005 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. Sales and marketing efforts have been focused on
Asian markets.
Cost of sales was $293,627 or nearly 100% of sales compared to $511,767 or 92%
of sales during the same period for 2004. The decline in gross margin was
principally due to the lowered production while staff in production was retained
in anticipation rotating into new product. The Company is continuing to assess
cost reduction and is promoting increased product demand to improve gross
margins in 2005.
Selling, general and administrative expenses decreased in 2005 by $112,962 to
$209,144 from $322,106, in 2004. Expressed as a percentage of sales, the
selling, general and administrative expenses (excluding stock based
compensation) were 71% in 2005 and 58% in 2004. 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, 2005, we continued to maintain the lower staffing and
overhead levels that we instituted in 2002.
Research, engineering and development expenses were $229,978 or 78% of net sales
for the six months ended June 30, 2005 compared to $163,180 or 29% in 2004. In
2005, the principal activity of the business related to the design and
production of product for OEM manufacturers, particularly for the W-CDMA
amplifier. 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 2004 of $NIL. Interest
income was $NIL in 2005 because we have not been investing our cash balances in
interest bearing accounts due to immediate cash flow needs.
As a result of the foregoing, the Company incurred net losses of $442,583 or
$0.04 per share for the six months ended June 30, 2005 compared with net losses
of $504,862 or $0.05 per share for the same period in 2004.
-15-
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, 2005 we had an accumulated
deficit of $24,071,573. Potential immediate sources of liquidity are loans in
connection with the Convertible Notes.
As of June 30, 2005, our current liabilities exceeded our cash and receivables
by $1,649,686 ($999,686 after conversion of the Lee notes). Our current ratio
was 0.27 to 1.00, but our ratio of accounts receivable to current liabilities
was only 0.07 to 1.00. This indicates that we will have difficulty meeting our
obligations as they come due. We are carrying $352,165 in inventory, of which
$202,363 represents component parts. Based on year to date usage, we are
carrying 569 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, 2005, we had cash of $116,304 compared to an cash of $122,234 at
December 31, 2004. Overall our cash decreased $5,930 during 2005. Our cash used
for operating actives was $454,975 This year we repaid loans of $5,700 and
deferred salary payments to officer/stockholders of $3,942. We also received
proceeds from the issuance of convertible promissory notes of $194,745.
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. At
June 30, 2005 and December 31, 2004 no allowance for doubtful accounts was
required.
Our inventories increased by $42,532 to $352,165 in 2005 compared to $309,633 at
December 31, 2004, a decrease of 14%.
The Company has a lease obligation for its premises and certain equipment
requiring minimum monthly payments of approximately $5,500 to $6,000 through
2008.
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.
With insufficient remaining cash 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 from private placements and under the Note Purchase Agreement
described in Note C.2. Our failure to enter into additional private placements
of securities, 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.
-16-
AMPLIDYNE, INC.
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.
Item 6. EXHIBITS
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 Company'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.
-17-
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.
CHANGE IN SECURITIES
o During the second quarter ended June 30, 2005, the Company issued
7,000,000 shares of Common Stock through private placements.
o July 30, 2005: The Company filed a Certificate of designation of Series C
Convertible Preferred Stock with the State of Delaware, designating 500,000
shares at a par value of $.0001 per share. The shares are convertible into
Common Stock at the rate 100 shares of Common Stock per share of series C
Preferred Stock and have a liquidation preference of $750,000 per share. It has
been determined that the amount of the liquidation preference exceeds the amount
originally intended by the Board. The Company plans to amend the Certificate of
Designation to reflect the correct liquidation preference after the amount is
properly determined.
o August 11, 2005: Issued 130,000 shares of Series C Convertible Preferred
Stock to John C. Lee in satisfaction of $650,000 owed to him by the Company. o
August 11, 2005: Issued 10,000 shares of Series C Convertible Preferred Stock to
Jessica Lee in satisfaction of $50,000 owed to her by the Company.
o July 26, 2005: Issued 370,000 shares in settlement of convertible
promissory notes
-18-
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 22, 2005 By: /s/ John C. Lee
--------------------------------------------
Name: John C. Lee
Title: Chief Executive Officer,
Principal Accounting Officer and Director
Dated: August 22, 2005 By: /s/ Tarlochan S. Bains
--------------------------------------------
Name: Tarlochan S. Bains
Title: Vice President, Amplifier Division, Directors,
Former Chief Executive Officer and
Former Principal Accounting Officer
-19-