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 SEPTEMBER 30, 2003.
[ ] 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 October 31, 2003 was 10,376,500.
AMPLIDYNE, INC.
FORM 10-QSB
NINE MONTHS ENDED SEPTEMBER 30, 2003
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 Equity..........5
Notes to Financial Statements......................6-11
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...............12-15
Item 3. Controls and Procedures..............................15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................16
Signatures...................................................................17
Certification................................................................18
Exhibit 99.1.................................................................19
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMPLIDYNE, INC.
BALANCE SHEETS (UNAUDITED)
ASSETS
September 30 December 31
2003 2002
------------ -----------
CURRENT ASSETS
Cash and cash equivalents $ 8,451 $ --
Accounts receivable, net of allowance for doubtful accounts of
$186,000 and $143,000 in 2003 and 2002, respectively 232,236 440,506
Inventories 952,266 926,713
Loan receivable - officer -- --
Prepaid expenses and other 26,704 24,616
----------- -----------
Total current assets 1,219,657 1,391,835
PROPERTY AND EQUIPMENT - AT COST
Machinery and equipment 725,629 725,629
Furniture and fixtures 43,750 43,750
Autos and trucks 66,183 66,183
Leasehold improvements 8,141 8,141
----------- -----------
843,703 843,703
Less accumulated depreciation and amortization (782,833) (760,633)
----------- -----------
60,870 83,070
----------- -----------
SECURITY DEPOSITS AND OTHER NON-CURRENT ASSETS 33,982 45,068
----------- -----------
TOTAL ASSETS $ 1,314,509 $ 1,519,973
=========== ===========
Note: The balance sheet at December 31, 2002 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 (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30 December 31,
2003 2002
-------------------- -------------
CURRENT LIABILITIES
Overdraft $ -- $ 11,939
Current maturities of lease obligations -- 2,041
Accounts payable 410,506 410,445
Accrued expenses 193,142 155,027
Accrued settlement of litigation 195,000 295,000
Loans payable - officers 314,190 99,308
------------- -------------
Total current liabilities 1,112,838 973,760
Convertible notes payable 20,000 --
------------- -------------
TOTAL LIABILITIES 1,132,838 973,760
------------- -------------
STOCKHOLDERS' EQUITY
Common stock - authorized, 25,000,000 shares of $.0001 par value;
shares 10,376,500 and 9,676,500 shares issued and outstanding at
September 30, 2003 and December 31,
2002, respectively 1,038 968
Additional paid-in capital 22,494,854 22,494,924
Accumulated deficit (22,314,221) (21,949,679)
------------- -------------
181,671 546,213
------------- -------------
$ 1,314,509 $ 1,519,973
============= =============
Note: The balance sheet at December 31, 2002 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 NINE MONTHS ENDED SEPTEMBER 30
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales $ 356,834 325,584 $ 1,230,344 $ 1,082,532
Cost of goods sold 183,730 213,226 741,512 1,243,116
------------ ------------ ------------ ------------
Gross profit 173,104 112,358 488,832 (160,584)
Operating expenses
Selling, general and administrative 154,309 435,058 565,050 1,671,858
Research, engineering and development 93,114 98,846 287,629 389,804
Litigation settlement costs -- -- -- 315,000
------------ ------------ ------------ ------------
Operating loss (74,319) (421,546) (363,847) (2,537,246)
Nonoperating income (expenses)
Interest income and other income -- 118 3 3,170
Interest expense -- -- -- (932)
------------ ------------ ------------ ------------
Loss before income taxes (74,319) (421,428) (363,844) (2,535,008)
Provision for income taxes -- -- 698 --
------------ ------------ ------------ ------------
NET LOSS $ (74,319) $ (421,428) $ (364,542) $ (2,535,008)
============ ============ ============ ============
Net loss per share - basic and diluted $ (0.01) $ (0.04) $ (0.04) $ (0.27)
============ ============ ============ ============
Weighted average number of shares outstanding 10,376,500 9,675,500 10,259,666 9,224,931
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
-3-
AMPLIDYNE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
Nine Months Ended
September 30
2003 2002
------------- -------------
Cash flows from operating activities:
Net Loss $ (364,542) $ (2,535,008)
------------- -------------
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 22,200 38,151
Bad debt expense 74,702 --
Litigation loss -- 315,000
Provision for inventory write-down -- 233,995
Deferred officer compensation 51,416 --
Other costs paid with restricted common stock -- 143,000
Changes in assets and liabilities
Accounts receivable 133,568 280,688
Inventories (25,553) 43,285
Prepaid expenses and other assets (2,088) 19,464
Customer advances -- --
Accounts payable and accrued expense (61,824) 153,578
------------- -------------
Total adjustments 192,421 1,227,161
------------- -------------
Net cash provided (used) for operating activities (172,121) (1,307,847)
------------- -------------
Cash flows from investing activities:
Officer loans -- 17,000
Change in security deposits 11,086 7,038
------------- -------------
Net cash provided by (used for) investing activities 11,086 24,038
------------- -------------
Cash flows from financing activities:
Payment of lease obligations (2,041) (9,271)
Officer loans 163,466 --
Proceeds from convertible promissory note 20,000 --
Proceeds from sale of common stock, net of costs -- 401,201
Subscriptions receivable preferred stock - net -- 180,000
------------- -------------
Net cash provided by financing activities 181,425 571,930
------------- -------------
NET INCREASE (DECREASE) IN CASH 20,390 (711,879)
Cash (overdraft) and cash equivalents beginning of period (11,939) 697,940
------------- -------------
Cash (overdraft) and cash equivalents at end of period $ 8,451 $ (13,939)
============= =============
Supplemental disclosures of cash flow information:
Cash paid for: Interest $ -- $ 932
Income taxes $ 698 $ --
The accompanying notes are an integral part of these financial statements
-4-
AMPLIDYNE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2002 AND NINE MONTHS ENDED SEPTEMBER 30, 2003
Preferred Stock Common Stock
---------------------------- ----------------------------
Shares Par Value Shares Par Value
------ --------- ------ ---------
BALANCE AT DECEMBER 31, 2001 55,000 $ 6 7,892,661 $ 790
Net loss for the year ended December 31, 2002
Cost of litigation to be settled
by the issuance of common stock Collection of subscription receivable
Issuance of common stock in settlement of class action 324,486 32
Issuance of common stock, net of costs 750,000 75
Conversion of preferred stock to common stock (55,000) (6) 701,194 70
Issuance of common stock for services rendered by third party 8,159 1
------------ ------------ --------- -----------
BALANCE AT DECEMBER 31, 2002 -- -- 9,676,500 968
Net loss for the nine months ended September 30, 2003
Issuance of common stock in connection with litigation settlement 700,000 70
------------ ------------ --------- -----------
BALANCE AT SEPTEMBER 30, 2003 -- $ -- 10,376,500 $ 1,038
============ ============ ========= ===========
Additional
Paid-In Accumulated Subscriptions
Capital Deficit Receivable Total
------------ ------------ --------- -----------
BALANCE AT DECEMBER 31, 2001 $ 21,921,495 $(19,569,652) $(180,000) $ 2,172,639
Net loss for the year ended December 31, 2002 (2,380,027) (2,380,027)
Cost of litigation to be settled by the issuance of common stock 29,400 29,400
Collection of subscription receivable (180,000) (180,000)
Issuance of common stock in settlement of class action (32) --
Issuance of common stock, net of costs 539,925 540,000
Conversion of preferred stock to common stock (64) --
Issuance of common stock for services rendered by third party 4,200 -- -- 4,201
------------ ------------ --------- -----------
BALANCE AT DECEMBER 31, 2002 22,494,924 (21,949,679) -- 546,213
Net loss for the nine months ended September 30, 2003 (364,542) (364,542)
Issuance of common stock in connection with litigation settlement (70) --
------------ ------------ --------- -----------
BALANCE AT SEPTEMBER 30, 2003 $ 22,494,854 $(22,314,221) $ -- $ 181,671
============ ============ ========= ===========
The accompanying notes are an integral part of these financial statements
-5-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
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 six and three month periods ended September 30, 2003 and 2002
(b) the financial position at September 30, 2003 (c) the statements of cash
flows for the six and three month period ended September 30, 2003 and 2002 , and
(d) the changes in stockholders' equity for the three month period ended
September 30, 2003 have been made. The results of operations for the three and
six months ended September 30, 2003 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, 2002 included in the Company's Form
10-KSB filed with the Securities and Exchange Commission on April 15, 2003.
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
$364,542 for the nine months ended September 30, 2003, has no cash and has seen
its working capital decline by $311,256 to $106,819 since the beginning of the
fiscal year. Current liabilities exceed cash and receivables by $872,151
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.
-6-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE C - STOCKHOLDERS' EQUITY
At September 30, 2003, 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 September 30, 2003, the Company had employee stock options
outstanding to acquire 2,251,000 shares of common stock at exercise prices of
$0.15 to $4.00.
During the first quarter ended March 31, 2003, the Company issued
700,000 shares of the Company's restricted common stock to High Gain Antenna
Co., Ltd. of Korea (see Note E.4.) in connection with the settlement of the
litigation.
In March 2003, two stockholders loaned the Company $10,000 each under a
Convertible Promissory Note due in March 2005, with interest, due at maturity,
of 6%. The note is convertible into restricted common stock at the rate of $.10
per share.
During the first quarter ended March 31, 2003, the Company re-priced
and extended employee stock options to certain employees as follows: officers
and directors, 1,150,000 options re-priced from $4.00 to $0.15 and extended to
May 2006; all other employees 145,000 options re-priced from $4.00 to $0.15 and
extended to May 2006. Additionally, the Vice President of Operations has been
granted an additional 200,000 options at $0.15 and expiring in May 2006.
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.
-7-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
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.
The Company is a party to the following matters:
1. AIRNET COMMUNICATIONS CORPORATION VS AMPLIDYNE, INC.
----------------------------------------------------
AirNet 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 AirNet at a cost of $175,000;
$25,000 is to be paid quarterly over two years. $95,000 remained unpaid at
September 30, 2003.
2. ENS ENGINEERING VS AMPLIDYNE, INC.
----------------------------------
The Company was also a defendant in a complaint filed in the United
States District Court for the District of New Jersey on May 13, 1998. The
complaint alleges breach of contract of a representative agreement between the
Company and ENS Engineering of South Korea. The Company reached oral settlement
terms and, based upon such oral settlement, the court dismissed the case in the
first quarter of 2000. The terms of the oral settlement called for the Company
to pay $85,000 in twelve equal monthly installments, none of which has been paid
as of December 31, 2000. The Company has not received any required documents and
releases from ENS. The financial statements do not include any provision for
this settlement.
3. The Company was subject to a SEC formal order of investigation relating
to the subject matter of the Class Action Lawsuit that was commenced in 1999 and
settled in 2001. On May 22, 2003, the Commission filed a settled action in the
United States District Court for the District of New Jersey against Amplidyne,
Inc. ("Amplidyne") and its President, Chairman and Chief Executive Officer,
Devendar S. Bains ("Bains"). The Commission's Complaint alleges that Amplidyne
and Bains violated the antifraud provision of the federal securities laws by
making false statements concerning Amplidyne's purported entry into the
high-speed Internet wireless access market. Simultaneously with the filing of
the Complaint, Amplidyne and Bains, without admitting or denying the allegations
in the Complaint, consented to the entry of a final judgment permanently
enjoining both from violating Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 thereunder. In addition, Bains agreed to pay a civil penalty
of $50,000.
4. HIGH GAIN ANTENNA CO., LTD. OF KOREA
------------------------------------
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. The complaint sought damages for an alleged breach of a contract for the
repair of certain equipment purchased by plaintiff from a distributor of the
Company's products and the Company. A trial commenced on May 7, 2002, and on May
13, 2002, the jury brought in a verdict against the Company for $400,000. The
Company had filed a motion in the Law Division for a new trial, which was denied
and gave notice of appeal to file an appeal of the verdict and judgment to the
Superior Court of New Jersey, Appellate Division. Management latter determined
-8-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
that pursuing the appeal would not be in the best interest of the Company and
its shareholders.
In January 2003, the Company entered into a Stipulation of Settlement
and Release before the Superior Court of New Jersey, Somerset County. The
settlement stipulates that the Company pay a total of $200,000 plus 700,000
shares of restricted common stock of the Company valued by the agreement at
$105,000 (management has determined that the discounted value of the 700,000
restricted shares was $29,400 in January 2003 based on quoted market price of
$0.07 per share discounted for lack of marketability). The stipulation calls for
an initial payment of $75,000 (paid in March 2003) with the remaining balance
payable in $25,000 increments on the following dates: June 2, 2003, August 31,
2003, November 29, 2003, February 27, 2004 and May 28, 2004. The record judgment
of $400,000 shall remain until the payment obligations are made in full. In the
event of default, the plaintiff shall have the right to execute the judgment
after crediting $105,000 for the agreed value of the shares issued plus any
payments made pursuant to the settlement. Failure by the Company to timely meet
the settlement terms will have a material adverse effect on the Company's
financial position and prospects.
5. AMPLIDYNE, INC. V. WAYNE FOGEL, DIGITAL COMMUNICATIONS NETWORK, INC.
AND INTERNET NETWORK CORPORATION
On May 30, 2002, the Company filed a two count lawsuit against the
above mentioned defendants in the Superior Court of New Jersey, Law Division,
Somerset County, seeking, among other things, declaratory relief that the
Company is not obligated to pay a finders fee (in connection with the Company's
purchase of the Darwin Assets), and that the Company is entitled to monetary
damages as a result of defendant's misrepresentations. On July 10, 2002, the
matter was removed to the United States District Court of New Jersey but later
transferred to the United States Bankruptcy Court and then transferred back to
the United States District Court of New Jersey. On July 29, 2002, defendants
filed a counterclaim seeking $200,000 in damages as a result of a finders fee
agreement. In January 2003, the matter was transferred to the United States
District Court for the Middle District of Florida. The defendants sought a
further transfer to the United States Bankruptcy Court for the Middle District
of Florida, but such motion was denied. Internet Network Corporation has a
pending motion seeking sanctions against the Company for violating the
bankruptcy automatic stay for actions against debtors in bankruptcy proceedings.
Although the Company is confident in its position, it cannot predict the outcome
of the case and any negative outcome may have a material adverse effect on the
Company's financial position or prospects.
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 $364,542 and $2,535,008 for the
nine months ended September 30, 2003 and 2002, 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
-9-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
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 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 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.
NOTE G - OTHER COMMENTS
1. Officer Loans
-------------
As of September 30, 2003, the Company owes $252,440 to the Chief
Executive Officer for loans and unpaid salaries. During the nine months ended
September 30, 2003, the Chief Executive Officer advanced $249,466 to the Company
and was repaid $87,000. During the nine months ended September 30, 2003 salaries
of $51,416 were deferred.
2. Advance payments from customer
------------------------------
In March 2003, a customer advanced $100,000 to the Company for future
orders. These orders began shipping in April 2003 and were completed in the
third quarter. No balance remains as of September 30, 2003
-10-
AMPLIDYNE, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
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:
Nine Months Nine Months
Ended Ended Year Ended
September 30 September 30 December 31,
2003 2002 2002
------------- ------------- -------------
Sales - external
Amplifier $ 1,013,262 $ 559,643 $ 992,361
Internet business 217,082 522,889 621,371
------------- ------------- -------------
$ 1,230,344 $ 1,082,532 $ 1,613,732
============= ============= =============
Inventory
Amplifier $ 454,946 $ 313,575 441,654
Internet business 497,320 590,827 485,059
------------- ------------- -------------
$ 952,266 $ 904,402 $ 926,713
============= ============= =============
-11-
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 SEPTEMBER 30, 2003 COMPARED TO
--------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2002.
--------------------------------------
Revenues for the three months ended September 30, 2003 increased by $31,250 from
$325,584 to $356,834, or 10% compared to the three months ended September 30,
2002. The sales increases were primarily in amplifiers. Coupled with the staff
reductions and other aggressive cost cuts, this quarter's losses were reduced
compared with the first 3 quarters of last year.
The majority of the amplifier sales for the three months ended September 30,
2003 were obtained from the Wireless Local Loop amplifier products to a major
European customer. The Company has also supplied 3.5GHz linear amplifiers to its
major North American customer. Sales of amplifiers were approximately 84.4% of
total sales compared to 47% of total sales for the same period last year. The
Ampwave high speed wireless Internet products and broadband solutions accounted
for approximately 15.6% of total sales, against 53% 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 amplifiers for the indoor market. Sales and marketing efforts have been
focused in the more stable United States, European and Canadian markets.
Cost of sales was $183,730 or 51% of sales compared to 65% during the same
period for 2002. The cost of sales for same quarter last year included an
inventory write-down of $233,995 representing 93% of sales for that quarter.
Gross margin for the three months ended September 30, 2003 amounted to $173,104
(48%) compared to $112,358 (34%), for the same period ended September 30, 2002.
The improvement in gross margin was principally due to improved production
efficiency from staff reductions over the past 4 quarters. The Company is
continuing to assess cost reduction and is promoting increased product demand to
improve gross margins in 2003.
Selling, general and administrative expenses (excluding stock based
compensation) decreased in 2003 by $280,749 to $154,309 from $435,058, in 2002.
Expressed as a percentage of sales, the selling, general and administrative
expenses (excluding stock based compensation) were 13% in 2003 and 40% in 2002.
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 the 3rd and 4th quarters of 2002. In the quarter ended September
30, 2003, we continued to maintain the lower staffing and overhead levels that
we instituted in 2002.
Research, engineering and development expenses were 26% of net sales for the
three months ended September 30, 2003 compared to 30% in 2002. In 2003 and 2002,
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.
-12-
AMPLIDYNE, INC.
The Company had interest income and other income in the third quarter of 2002 of
$118 due to influx of new capital during 2000 and 2001 from our private
placements and exercise of warrants and options. Interest income went down to
$NIL in 2003 because our cash balances which we have historically temporarily
invested in interest bearing accounts have been largely depleted.
As a result of the foregoing, the Company incurred net losses of $74,319 or
$0.01 per share for the quarter ended September 30, 2003 compared with net
losses of $421,428 or $0.04 per share for the same quarter in 2002.
RESULTS OF OPERATIONS - THE NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO
--------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2002.
-------------------------------------
Revenues for the nine months ended September 30, 2003 increased by $147,812 from
$1,082,532 to $1,230,344, or 14% compared to the nine months ended September 30,
2002. Coupled with the staff reductions and other aggressive cost cuts, the
first six months losses were reduced compared with the first six months of last
year.
The majority of the amplifier sales for the nine months ended September 30, 2003
were obtained from the Wireless Local Loop amplifier products to a major
European customer. The Company has also supplied 3.5GHz linear amplifiers to its
major North American 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 amplifiers for the indoor market. Sales and marketing efforts have been
focused in the more stable United States, European and Canadian markets.
Cost of sales was $741,512 or 60% of sales compared to $1,243,116 or 115% of
sales during the same period for 2002. The cost of sales for same period last
year included an inventory write-down of $233,995 representing 19% of sales for
that period. The improvement in gross margin was principally due to and due
improved production efficiency from staff reductions over the past 4 quarters.
The Company is continuing to assess cost reduction and is promoting increased
product demand to improve gross margins in 2003.
Selling, general and administrative expenses (excluding stock based
compensation) decreased in 2003 by $1,106,808 to $565,050 from $1,671,858, in
2002. Expressed as a percentage of sales, the selling, general and
administrative expenses (excluding stock based compensation) were 46% in 2003
and 154% in 2002. 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 the 3rd and 4th quarters of 2002. In the quarter
ended September 30, 2003, we continued to maintain the lower staffing and
overhead levels that we instituted in 2002.
Research, engineering and development expenses were 23% of net sales for the
nine months ended September 30, 2003 compared to 36% in 2002. In 2003 and 2002,
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.
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AMPLIDYNE, INC.
The Company had interest income and other income in 2002 of $3,170 due to influx
of new capital during 2000 and 2001 from our private placements and exercise of
warrants and options. Interest income went down to $NIL in 2003 because our cash
balances which we have historically temporarily invested in interest bearing
accounts have been largely depleted.
As a result of the foregoing, the Company incurred net losses of $364,542 or
$0.04 per share for the nine months ended September 30, 2003 compared with net
losses of $2,535,008 or $0.27 per share for the same period in 2002.
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. We expect
to incur further losses, that the losses may fluctuate, and that such
fluctuations may be substantial. As of September 30, 2003 we had an accumulated
deficit of $22,314,221. 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 September 30, 2003, our current liabilities exceeded our cash and
receivables by $872,151. Our current ratio was 1.10 to 1.00, but our ratio of
accounts receivable to current liabilities was only 0.22 to 1.00. This indicates
that we will have difficulty meeting our obligations as they come due. We are
carrying $952,266 in inventory, of which $693,418 represents component parts.
Based on year to date usage, we are carrying 675 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 September 30, 2003, we had cash of $8,451 compared to an overdraft of
$11,939 at December 31, 2002. Overall our cash and cash equivalents increased
$20,390 during 2003. Our cash used for operating actives was $172,121 This year
we received loans of $249,466 and deferred salary payments to
officer/stockholders of $51,416. We also received proceeds from the issuance of
convertible promissory notes of $20,000.
The allowance for doubtful accounts on trade receivables increased form $143,000
(25% of accounts receivable of $583,506) in 2002 to $186,000 (44% of accounts
receivable of $418,236) in 2003. Additionally, 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 increased by $25,553 to $952,266 in 2003 compared to $926,713 at
December 31, 2002, a decrease of 3%.
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 2003 or 2002, it may to do so in 2003. To help alleviate the
cash flow difficulties, the Chief Executive Officer and the Vice President of
Operations agreed to additional salary deferrals of $19,666 and $10,000,
respectively.
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AMPLIDYNE, INC.
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 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
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.
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.
-15-
AMPLIDYNE, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note E to the Company's financial statements set forth in Part I.
-16-
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: November 18, 2003 By: /s/ Devendar S. Bains
------------------------
Name: Devendar S. Bains
Title: Chief Executive Officer,
Treasurer,
Principal Accounting
Officer and Director
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