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 MARCH 31, 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)
Check whether the issuer (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 May 18, 2005 was 10,376,500.
AMPLIDYNE, INC.
FORM 10-QSB
THREE MONTHS ENDED MARCH 31, 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 Stockholder's Deficiency...........5
Notes to Financial Statements...........................6-12
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations....................13-15
Item 3. Controls and Procedures...................................15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.........................................16
Item 2. Change in Securities......................................16
Signatures..........................................................17
Certification.......................................................18
Exhibit 99.1........................................................19
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMPLIDYNE, INC.
BALANCE SHEETS
ASSETS
March 31 December 31
2005 2004
--------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 22,288 $ 122,234
Accounts receivable, net of allowance for doubtful accounts of
$264,000 and $268,000 in 2005 and 2004, respectively 43,033 15,597
Inventories 337,101 309,633
Prepaid expenses and other -- --
--------- ---------
Total current assets 402,422 447,464
--------- ---------
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 (683,703) (681,956)
--------- ---------
-- 1,747
--------- ---------
SECURITY DEPOSITS AND OTHER NON-CURRENT ASSETS -- --
--------- ---------
$ 402,422 $ 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
March 31 December 31,
2005 2004
------------ ------------
CURRENT LIABILITIES
Secured note payable in connection with Phoenix investor
rescinded agreement - payment in default 40,000 40,000
Convertible notes payable pursuant to Lee financing
agreement, including temporary additional advance
by Lee of $98,000 at March 31, 2005 and
$6,000 at December 31, 2004 598,000 506,000
Accounts payable (as restated) -- Note J 347,431 321,064
Other convertible notes payable - payment default 22,473 22,173
Accrued expenses and other current liabilities (including
delinquent federal payroll taxes, penalties and interest
aggregating $115,705 at March 31, 2005 and
$81,353 at December 31, 2004 205,032 199,198
Accrued settlement of litigation 95,000 95,000
Advances from customers 11,267 22,008
Loans payable - officers 370,448 368,706
------------ ------------
Total current liabilities 1,689,651 1,574,149
OTHER COMMENTS - NOTE I
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 March 31, 2005 and December 31,
2004, respectively (the Lee convertible notes payable are
convertible into Series C shares representing 80% of the
outstanding stock of the Company on a fully
diluted basis) 1,038 1,038
Additional paid-in capital 22,503,014 22,503,014
Accumulated deficit (as restated) -- Note J (23,791,281) (23,628,990)
------------ ------------
(1,287,229) (1,124,938)
------------ ------------
$ 402,422 $ 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 United
States of America for complete financial statements.
The accompanying notes are an integral part of these financial statements
2
Amplidyne, Inc.
STATEMENTS OF OPERATIONS
Quarter Ended March 31
Quarter Ended
March 31
2005 2004
------------ ------------
Net sales $ 142,593 $ 315,367
Cost of goods sold 103,408 288,400
------------ ------------
Gross profit 39,185 26,967
Operating expenses
Selling, general and administrative 99,252 213,004
Research, engineering and development 101,873 79,526
------------ ------------
Operating loss (161,940) (265,563)
Nonoperating income (expenses)
Interest income and other income 3,563 --
Interest expense (300) (300)
Federal tax penalties and interest (3,000) --
Gain on sale of property and equipment -- 4,000
------------ ------------
Loss before income taxes (161,677) (261,863)
Provision for income taxes 614 3,200
------------ ------------
NET LOSS $ (162,291) $ (265,063)
============ ============
Net loss per share - basic and diluted $ (0.02) $ (0.03)
============ ============
Weighted average number of shares outstanding 10,376,500 10,376,500
============ ============
The accompanying notes are an integral part of these financial statements
3
Amplidyne, Inc.
STATEMENTS OF CASH FLOWS
Quarter Ended March 31
Quarter Ended
March 31
2005 2004
--------- ---------
Cash flows from operating activities:
Net Loss $(162,291) $(265,063)
--------- ---------
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 1,747 10,000
Gain of sale of property & equipment -- (4,000)
(Decrease) increase in allowance for doubtful accounts (4,000) 28,260
Interest accrued on convertible promissory note 300 300
Salary deferred, added to officer loans 3,942 30,692
Changes in assets and liabilities
Accounts receivable (23,436) (76,882)
Inventories (27,468) 29,306
Prepaid expenses and other assets -- 12,307
Customer advances (10,741) --
Accounts payable and accrued expense 32,201 155,108
--------- ---------
Total adjustments (27,455) 185,091
--------- ---------
Net cash (used) for operating activities (189,746) (79,972)
--------- ---------
Cash flows from investing activities:
Proceeds on sale of property & equipment -- 4,000
Purchase of property and equipment -- (2,277)
--------- ---------
Net cash provided by investing activities -- 1,723
--------- ---------
Cash flows from financing activities:
Overdraft -- (17,855)
Officer loans (2,200) 17,000
Advances pursuant to financing agreement (Note C. 2.) 92,000 99,220
--------- ---------
Net cash provided by financing activities 89,800 98,365
--------- ---------
NET INCREASE (DECREASE) IN CASH (99,946) 20,116
Cash at beginning of period 122,234 --
--------- ---------
Cash at end of period $ 22,288 $ 20,116
========= =========
Supplemental disclosures of cash flow information:
Cash paid for: Interest $ -- $ --
Income taxes $ 614 $ 3,200
The accompanying notes are an integral part of these financial statements
4
Amplidyne, Inc.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
Year Ended December 31, 2004 and Quarter Ended March 31, 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 -- Note J
---------- --------- ---------- ---------
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 -- -- 10,376,500 1,038
Net loss for the three months ended March 31, 2005
---------- --------- ---------- ---------
BALANCE AT MARCH 31, 2005 -- $ -- 10,376,500 $ 1,038
========== ======== ========== =========
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 -- Note J 135,846 135,846
---------- --------- ---------- ---------
Balance at December 31, 2003 as restated 22,494,854 (22,794,329) (298,437)
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 22,503,014 (23,628,990) -- (1,124,938)
Net loss for the three months ended March 31, 2005 (162,291) (162,291)
---------- --------- ---------- ---------
BALANCE AT MARCH 31, 2005 $22,503,014 $(23,791,281) $ -- $(1,287,229)
=========== ============ ========== ===========
The accompanying notes are an integral part of these financial statements
5
AMPLIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 month periods ended March 31, 2005 and 2004 (b) the
financial position at March 31, 2005 (c) the statements of cash flows for the
three month period ended March 31, 2005 and 2004 , and (d) the changes in
stockholders' deficiency for the three month period ended March 31, 2005 have
been made. The results of operations for the three months ended March 31, 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 $162,291 for the
three months ended March 31, 2005, has limited cash reserves and has seen its
working capital decline by $160,544 to a deficiency of $(1,287,229) since the
beginning of the fiscal year. Current liabilities exceed cash and receivables by
$1,624,330 indicating that the Company will have substantial 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.
6
AMPLIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
NOTE C - STOCKHOLDERS' EQUITY
1. Warrants and Options
At March 31, 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 March 31, 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 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.
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. As yet, no action has been taken by Phoenix concerning this default.
7
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. 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 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 during February and March 2005, an aggregate of $92,000 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 March 31, 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 March 31, 2005 and to the date of the issuance of the current
quarter's financial statements.
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.
8
AMPLIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
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 is to be paid quarterly over two years. $95,000 remained
unpaid at March 31, 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 $162,291 and $265,063 for the three months
ended March 31, 2005 and 2004, respectively.
With little remaining cash and no near term prospects of private
placements, options or warrant exercises and reduced revenues, management
believes that the Company will have great difficulty meeting its working capital
and litigation settlement obligations over the next 12 months. The Company is
presently dependent on cash flows generated from sales and loans from officers
to meet our obligations. 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.
9
AMPLIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
Management's plans for dealing with the foregoing matters include:
o Increasing sales of its high speed internet connectivity products 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 Maintaining a reduced cost structure 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.
NOTE G - OFFICER LOANS
As of March 31, 2005, the Company owes $295,149 to the Chief Technology
Officer (formerly the Chief Executive Officer) for loans and unpaid salaries.
During the three months ended March 31, 2005, that officer was repaid $2,200
from the Company. Additionally, salaries of $3,946 were deferred for this
quarter for all officers combined.
10
AMPLIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
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:
Quarter Ended Quarter Ended Year Ended
March 31 March December 31,
2005 2004 2004
-------- -------- --------
Sales - external
Amplifier $141,018 290,332 $655,679
Internet business 1,575 25,035 88,111
-------- -------- --------
$142,593 $315,367 $743,790
======== ======== ========
Inventory --
Amplifier $281,840 $262,973 $249,372
Internet business 55,261 115,430 60,261
-------- -------- --------
$337,101 $378,403 $309,633
======== ======== ========
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.
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 commences 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 $ 38,500
2006 69,000
2007 72,000
2008 30,000
--------
$209,500
========
Rent expense, including the Company's share of real estate taxes, utilities and
other occupancy costs, was $29,431 and $27,288 for the three months ended ended
March 31, 2005 and 2004, respectively.
11
AMPLIDYNE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
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.
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.
12
AMPLIDYNE, INC.
MARCH 31, 2005
PART I - FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
Financial Condition and Results of Operations
Results of Operations - The Quarter Ended March 31, 2005 Compared to Quarter
Ended March 31, 2004.
Revenues for the three months ended March 31, 2005 decreased by $172,774 from
$315,367 to $142,593, or 55% compared to the three months ended March 31, 2004.
Coupled with the increased production costs, the first quarter losses
significantly increased compared with the first quarter of last year.
The majority of the amplifier sales for the three months ended March 31, 2005
were obtained from the Wireless Local Loop amplifier products to a major
European customer.
The Company is developing W-CDMA amplifier for planned release in the second
quarter of 2005.
Cost of sales was $103,408 or 73% of sales compared to 91% during the same
period for 2004. The improvement in gross margin was principally due to
efficiencies in production and materials usage. The Company is continuing to
assess ways to achieve cost reduction for its products and sales volume
increases to improve gross margins in 2005.
Selling, general and administrative expenses (excluding stock based
compensation) decreased in 2005 by $113,752 to $99,252 from $213,004, in 2004.
Expressed as a percentage of sales, the selling, general and administrative
(SG&A) expenses (excluding stock based compensation) were 70% in 2005 and 68% in
2004. Most of the SG&A expenses are fixed and management has cut costs about as
low as operations can sustain. The actual dollar decrease in SG&A from the
previous year was $113,752 or 53%. In the quarter ended March 31, 2005, we
continued to maintain the lower staffing and overhead levels that we instituted
in 2002.
Research, engineering and development expenses were 71% of net sales for the
three months ended March 31, 2005 compared to 25% in 2004. In 2005 and 2004, the
principal activity of the business related to the design and production of
product for OEM manufacturers, particularly for the W-CDMA amplifier 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.
We had no appreciable interest income in 2005 and 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 $162,291 or
$0.02 per share for the three months ended March 31, 2005 compared with net
losses of $265,063 or $0.03 per share for the same period in 2004.
13
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 President and Chief Executive Officer of the Company,
Devendar Bains. We have incurred a loss in each year since inception. It is
possible that we will incur further losses, that the losses may fluctuate, and
that such fluctuations may be substantial. As of March 31, 2005, we had an
accumulated deficit of $23,791,281. Potential immediate sources of liquidity are
loans from Mr. Bains. Another potential source of liquidity is the sale of
restricted shares of our common stock, but there are no immediate plans for such
sale.
As of March 31, 2005, our current liabilities exceeded our cash and receivables
by $1,624,330. Our current ratio was 0.24 to 1.00, but our ratio of accounts
receivable to current liabilities was only 0.03 to 1.00. This indicates that we
will have difficulty meeting our obligations as they come due. We are carrying
$337,101 in inventory, of which $211,584 represents component parts. 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 March 31, 2005, we had cash of $22,288 compared to $122,234 at December
31, 2004. Overall our cash and cash equivalents decreased $99,946 during 2005.
Our cash used for operating actives was $189,746 We received advances pursuant
to the financing agreement of $92,000.
The allowance for doubtful accounts on trade receivables remained unchanged at
$268,000 (95% of accounts receivable of $283,597) in 2004 compared to $264,000
(86% of accounts receivable of $307,033) in 2005. 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 increased by $27,468 to $337,101 in 2005 compared to $309,633 at
December 31, 2004, an increase of 9%.
Although the Company did not convert salaries to officers through the issuance
of Common Stock in 2003 or 2004, it may to do so in 2005. To help alleviate the
cash flow difficulties, the Chief Executive Officer, the Chief Technology
Officer and corporate Secretary agreed to defer salaries of $1,538, $1,442 and
$962, 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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With little remaining cash and no near term prospects of private placements,
options or warrant exercises and reduced revenues, we believe that we will have
great difficulty meeting our working capital and litigation settlement
obligations over the next 12 months. We are presently dependent on cash flows
generated from sales and loans from officers to meet our obligations. Our
failure to consummate a merger. or substantially improve our revenues will have
fserious 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.
Item 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
Within the 90 days prior to the date of this report, Amplidyne, Inc. carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive and Principal Accounting
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. 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.
(b) Changes in Internal Controls.
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.
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AMPLIDYNE, INC.
MARCH 31, 2005
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
During the first quarter ended March 31, 2005, the Company issued no securities.
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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: May 23, 2005 By: /s/ Tarlochan S. Bains
---------------------------
Name: Tarlochan S. Bains
Title: Chief Executive Officer,
Treasurer, Principal
Accounting Officer and
Director
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