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, 2004.
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ____________ TO _____________
Commission File Number 0-21931
AMPLIDYNE, INC.
---------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-3440510
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
59 LaGrange Street
Raritan, New Jersey 08869
-------------------------
(Address of principal executive offices)
(908) 253-6870
--------------
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
The number of shares outstanding of the Issuer's Common Stock, $.0001 Par Value,
as of November 19, 2004 was 10,376,500.
AMPLIDYNE, INC.
FORM 10-QSB
NINE MONTHS ENDED September 30, 2004
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS (UNAUDITED):
Balance Sheets......................................1-2
Statements of Operations..............................3
Statement of Cash Flows...............................4
Statement of Changes in Stockholder's Deficiency......5
Notes to Financial Statements......................6-10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...............11-14
Item 3. Controls and Procedures..............................15
Item 6. Exhibits.............................................14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................15
Signatures...................................................18
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMPLIDYNE, INC.
BALANCE SHEETS
ASSETS (UNAUDITED)
September 30 December 31
2004 2003
--------- ---------
CURRENT ASSETS
Cash $ -- $ --
Accounts receivable, net of allowance for doubtful accounts of
$262,000 and $143,000 in 2004 and 2003, respectively 25,862 91,482
Inventories 321,637 407,709
Prepaid expenses and other -- 12,307
--------- ---------
Total current assets 347,499 511,498
PROPERTY AND EQUIPMENT - AT COST
Machinery and equipment 565,629 565,629
Furniture and fixtures 43,750 43,750
Autos and trucks 66,183 66,183
Leasehold improvements 8,141 8,141
--------- ---------
683,703 683,703
Less accumulated depreciation and amortization (676,627) (646,627)
--------- ---------
7,076 37,076
--------- ---------
SECURITY DEPOSITS AND OTHER NON-CURRENT ASSETS -- 35,625
--------- ---------
TOTAL ASSETS $ 354,575 $ 584,199
========= =========
Note: The balance sheet at December 31, 2003 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the Unites
States for complete financial statements.
1
AMPLIDYNE, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIENCY RECLASSIFIED FOR
COMPARABILITY TO
(UNAUDITED) CURRENT PERIOD
September 30 December 31,
2004 2003
------------ ------------
CURRENT LIABILITIES
Overdraft $ 4,315 $ 17,855
Note payable in connection with Phoenix investor recision agreement 40,000 --
Convertible notes payable pursuant to financing agreement 350,000 --
Customer advances 29,834 60,000
Accounts payable 468,832 411,169
Accrued expenses and other current liabilities 139,268 251,486
Accrued settlement of litigation 95,000 --
Loans payable - officers 377,911 256,997
------------ ------------
Total current liabilities 1,505,160 997,507
Other convertible notes payable 21,873 20,973
------------ ------------
TOTAL LIABILITIES 1,527,033 1,018,480
STOCKHOLDERS' DEFICIENCY
Commonstock - authorized, 25,000,000 shares of $.0001 par value;
shares 10,376,500 and 10,376,500 shares issued and
outstanding at September 30, 2004 and December 31, 2003,
respectively 1,038 1,038
Additional paid-in capital 22,503,014 22,494,854
Accumulated deficit (23,676,510) (22,930,173)
------------ ------------
(1,172,458) (434,281)
------------ ------------
$ 354,575 $ 584,199
============ ============
Note: The balance sheet at December 31, 2003 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the Unites
States for complete financial statements.
2
AMPLIDYNE, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30
Three Months Ended Nine Months Ended
September 30 September 30
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net sales $ 114,899 356,834 $ 670,492 $ 1,230,344
Cost of goods sold (net of inventory
write-down of $233,995 in 2002) 154,532 183,730 666,299 741,512
------------ ------------ ------------ ------------
Gross profit (loss) (39,633) 173,104 4,193 488,832
Operating expenses
Selling, general and administrative 180,922 154,309 503,029 565,050
Research, engineering and development 11,159 93,114 174,338 287,629
Litigation settlement costs 300 -- 20,460 --
------------ ------------ ------------ ------------
Operating loss (232,014) (74,319) (693,634) (363,847)
Nonoperating income (expenses)
Interest income and other income 4,535 -- 4,535 3
Loss incurred on rescission of prior year
agreements with Phoenix to invest in the
Company -- -- (40,780) --
Interest expense (300) -- (900) --
Gain on sale of property and equipment -- -- 4,000 --
------------ ------------ ------------ ------------
Loss before income taxes (227,779) (74,319) (726,779) (363,844)
Provision for income taxes 13,696 -- 19,558 698
------------ ------------ ------------ ------------
NET LOSS $ (241,475) $ (74,319) $ (746,337) $ (364,542)
============ ============ ============ ============
Net loss per share - basic and diluted $ (0.02) $ (0.01) $ (0.07) $ (0.04)
============ ============ ============ ============
Weighted average number of shares outstanding 10,376,500 10,143,167 10,376,500 10,143,167
============ ============ ============ ============
3
AMPLIDYNE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
Nine Months Ended
September 30
2004 2003
--------- ---------
Cash flows from operating activities:
Net Loss $(746,337) $(364,542)
--------- ---------
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 30,000 22,200
Provision for doubtful accounts 15,260 74,702
Litigation settlement costs 20,460 --
Deferred officer compensation 85,925 51,416
Interest accrued on other convertible promissory note 900 --
Issuance of secured promissory in connection with
loss incurred on rescission of agreements with
Phoenix to invest in the Company 40,000 --
Changes in assets and liabilities
Accounts receivable 50,360 133,568
Inventories 86,072 (25,553)
Prepaid expenses and other assets 12,307 (2,088)
Customer advances 30,166 --
Accounts payable and accrued expense 185,143 (61,824)
--------- ---------
Total adjustments 496,261 192,421
--------- ---------
Net cash (used) for operating activities (250,076) (172,121)
--------- ---------
Cash flows from investing activities:
Change in security deposits 35,625 11,086
--------- ---------
Net cash provided by (used for) investing activities 35,625 11,086
--------- ---------
Cash flows from financing activities:
Change in overdraft (13,540) (11,939)
Payment of lease obligations -- (2,041)
Officer loans 34,991 163,466
Proceeds from convertible notes received directly in cash
pursuant to Lee financing agreement 193,000 --
Proceeds from other convertible promissory note -- 20,000
--------- ---------
Net cash provided by financing activities 214,451 169,486
--------- ---------
NET INCREASE (DECREASE) IN CASH 8,451
Cash at beginning of period -- --
--------- ---------
Cash at end of period $ -- $ 8,451
========= =========
Supplemental disclosures of cash flow information:
Cash paid for: Interest $ -- $ --
Income taxes $ 19,558 $ 698
Noncash financing activities:
Convertible notes issued by Company pursuant to Lee financing agreement $ 350,000 $ --
Less: Proceeds received directly in cash by Company 193,000 --
--------- ---------
Payment of Company obligations by lender in connection with
financing agreement in exchange for convertible notes $ 157,000 $ --
========= =========
4
AMPLIDYNE, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
YEAR ENDED DECEMBER 31, 2003 AND NINE MONTHS ENDED SEPTEMBER 30, 2004
PREFERRED STOCK COMMON STOCK
------------------------------- ------------------------------
SHARES PAR VALUE SHARES PAR VALUE
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2002 -- $ -- 9,676,500 $ 968
Net loss for the year ended December 31, 2003
Issuance of common stock in connection with
litigation settled in the year ended December 31, 2002 700,000 70
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2003 -- -- 10,376,500 1,038
THE FOLLOWING INFORMATION IS UNAUDITED:
Net loss for the nine months ended September 30, 2004
Litigation settlement to be paid through the
issuance of common stock
------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 2004 -- $ -- 10,376,500 $ 1,038
============ ============ ============ ============
ADDITIONAL
PAID-IN ACCUMULATED SUBSCRIPTIONS
CAPITAL DEFICIT RECEIVABLE TOTAL
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2002 $ 22,494,924 $(21,949,679) $ -- $ 546,213
Net loss for the year ended December 31, 2003 (980,494) (980,494)
Issuance of common stock in connection with
litigation settled in the year ended December 31, 2002 (70)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2003 22,494,854 (22,930,173) -- (434,281)
THE FOLLOWING INFORMATION IS UNAUDITED:
Net loss for the nine months ended September 30, 2004 (746,337) (746,337)
Litigation settlement to be paid through the
issuance of common stock 8,160 8,160
------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 2004 $ 22,503,014 $(23,676,510) $ -- $ (1,172,458)
============ ============ ============ ============
5
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 nine month periods ended September 30, 2004 and
2003, (b) the financial position at September 30, 2004, (c) the statements of
cash flows for the nine month period ended September 30, 2004 and 2003 , and (d)
the changes in stockholders' deficiency for the nine month period ended
September 30, 2004 have been made. The results of operations for the three or
nine months ended September 30, 2004 are not necessarily indicative of the
results to be expected for the full year.
NOTE B - UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for financial statements.
For further information, refer to the audited financial statements and notes
thereto for the year ended December 31, 2003 included in the Company's Form
10-KSB filed with the Securities and Exchange Commission on April 14, 2004.
The Company's financial statements have been presented on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The liquidity of the Company has
been adversely affected in recent years by significant losses from operations.
As further discussed in Note F, the Company incurred losses of $746,337 for the
nine months ended September 30, 2004, has limited cash reserves and has seen its
working capital decline by $671,652 to a deficiency of $(1,157,661) since the
beginning of the fiscal year. Current liabilities exceed cash and receivables by
$1,479,298 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 John Lee, Hye Joung Lee and
Joong Bin Lee 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, restructure the Company and its
operations and, 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
NOTE C - STOCKHOLDERS' EQUITY
1. WARRANTS AND OPTIONS
At September 30, 2004, the following 696,000 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) 55,000 exercisable at $1.20 through September 30, 2004
(8) 300,000 exercisable at $2.00 through December 31, 2005
(9) 75,000 exercisable at $.96 through March 2007
(10) 80,000 exercisable at $1.50 through December 2004.
At September 30, 2004, the Company had employee stock options outstanding
to acquire 1,971,000 shares of common stock at exercise prices of $0.15 to
$3.25.
2. STOCK PURCHASE AND FINANCING AGREEMENTS
On January 28, 2004, the Company entered into a Subscription Agreement (the
"Agreement") with Phoenix Opportunity Fund II, L.P. ("Phoenix"), a limited
partnership organized under the laws of the State of Delaware, pursuant to which
Phoenix agreed to make an aggregate investment of $100,000 in exchange for
282,700 shares of a newly created class of Series C Convertible Preferred Stock,
representing approximately 80% of the Company's outstanding stock on a fully
diluted basis. As the Company was required to amend its certificate of
incorporation or effect a reverse stock split in order to have sufficient
authorized shares to complete the equity financing, Phoenix made an initial
investment of $20,000 in exchange for 54,325 shares of Series C Convertible
Preferred Stock, and loaned approximately $80,000 to the Company with the
remaining portion of the equity investment to be completed after
recapitalization. Phoenix also entered into a stock restriction agreement with
Devendar S. Bains, our former Chairman of the Board, Chief Executive Officer,
and Treasurer, pursuant to which Mr. Bains issued an irrevocable proxy to
Phoenix until the recapitalization is completed, which, together with the shares
received in connection with the initial investment, would have given Phoenix
effective control over 53% of the Company's voting stock.
The preferred shares were never issued to Phoenix. Due to a dispute among the
Parties with respect to the terms of the loan transaction. The Company and
Phoenix agreed to rescind their agreement, and the Company agreed to pay
Phoenix: (i) $20,000 in cash for the funds Phoenix invested, (ii) $80,000 in
cash for the funds which Phoenix lent to the Company, and (iii) $40,000 for
expenses incurred by Phoenix on behalf of the Company. The $40,000 was paid by
delivery of a secured promissory note due March 31, 2005, and bearing interest
at the rate of eight percent per annum secured by substantially all the assets
of the Company.
In a separate transaction, John Lee of Piscataway, NJ ("Lee") entered into a
Note Purchase Agreement with the Company by which Lee has agreed to lend the
Company an initial $200,000 and up to an additional $200,000 in one or more
installments on or before October 30, 2004. The Company has agreed to deliver to
John Lee convertible promissory notes which are convertible into Series C shares
representing approximately 80% of the Company's outstanding stock on a fully
diluted basis. Such conversion will take place at such time as the Company is
able to do so. Messrs. Devendar Bains and
7
Tarlochan Bains are required to devote their full business time and attention to
the business of the Company for eight (8) years from May 25, 2004. In the event
that either Devendar Bains or Tarlochan Bains must leave the employ of the
Company for any reason, each agrees that, if requested by the Board of Directors
of the Company, he will use his best efforts to find a qualified replacement for
himself acceptable to the Board of Directors, and that he will not engage in a
business competitive with the Company for a period of eight (8) years. On May
25, 2004, Lee loaned the Company $200,000, and was issued two convertible
promissory notes which will be convertible in the aggregate into Series C shares
representing approximately 32% of the Company's outstanding stock on a fully
diluted basis, if and when converted. If not converted, the notes are payable on
demand, provided that demand cannot be made before December 31, 2004, unless the
Company is in default of the Note Purchase Agreement. Of the $200,000 loaned to
the Company, $100,000 was used to pay Phoenix in connection with the rescission
described above, $45,000 was used to make a final payment in resolution of
litigation with High Gain Antenna Co. Ltd. of Korea, and to pay associated bank
fees, $12,000 was used to pay legal fees and $43,000 was used for working
capital purposes.
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 $150,000 was received from John Lee.
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. On June 29, 2004, the Company filed a Motion to Dismiss the lawsuit of
V-Link, inc. against the Company. 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.
2. In connection with a Stipulation of Settlement and Release entered into in
January 2003 before the Superior Court of New Jersey, the Company has fulfilled
its obligations and has received a warrant of satisfaction of judgment from
opposing counsel dated June 6, 2004. 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
8
Jersey, Law Division, Somerset County, by High Gain Antenna Co., Ltd. of Korea
in November 2000.
3. In June 2004, the Company entered into a Settlement Agreement with Wayne
Fogel, et al, before the United states District court in Tampa, Florida. The
settlement provides for the following obligations by the Company to Mr. Fogel:
(1) payment of $12,000 by July 14, 2004; (2) issuance of 250,000 shares of
restricted common stock by July 14, 2004 and; (3) the shipment of specified
items of inventory valued at approximately $22,000. The agreement further calls
for the issuance of common stock of one share for each $1 of inventory not
delivered in lieu of the inventory in the event the company cannot deliver.
Since non-delivery of the specified items is definite, the financial statements
provide for the issuance of 22,000 additional shares. All shares in connection
with this transaction are valued at the publicly traded market value of $.05 on
the date of the transaction, less a discount of 40% for the restriction on sale.
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 $746,337 and $364,542 for the nine months
ended September 30, 2004 and 2003, respectively.
With little remaining cash and no near term prospects of private
placements, options or warrant exercises (other than the Convertible Notes) and
reduced revenues, we believe that we will have great difficulty meeting our
working capital needs over the next 12 months. The Company is presently
dependent on cash flows generated from sales and financing under the Note
Purchase Agreement described in Note C.2. Our failure to consummate a merger
with an appropriate partner or to substantially improve our revenues will have
serious adverse consequences and, accordingly, there is substantial doubt in our
ability to remain in business over the next 12 months. There can be no assurance
that any financing will be available to the Company on acceptable terms, or at
all. If adequate funds are not available, the Company may be required to delay,
scale back or eliminate its research, engineering and development or
manufacturing programs or obtain funds through arrangements with partners or
others that may require the Company to relinquish rights to certain of its
technologies or potential products or other assets. Accordingly, the inability
to obtain such financing could have a material adverse effect on the Company's
business, financial condition and results of operations.
Management's plans for dealing with the foregoing matters include:
o Increasing sales of its amplifier products by developing newer products
for the Multimedia Broadcast market place through both individual
customers, strategic alliances and mergers.
o Decreasing the dependency on certain major customers by aggressively
seeking other customers in the amplifier markets;
o Partnering with significant companies to jointly develop innovative
products, which has yielded orders with multinational companies to date,
and which are expected to further expand such relationships;
o Reducing costs through a more streamlined operation by using automated
machinery to produce components for our products, restructuring the
Company and its operations;
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;
9
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 September 30, 2004, the Company owes $309,284 to the former Chief
Executive Officer, Devendar S. Bains for loans and unpaid salaries. During the
three months ended September 30, 2004, the Chief Executive Officer advanced
$19,491 to the Company and was repaid $2,000. Additionally, salaries of $23,192
were deferred for this quarter
NOTE H - SEGMENT INFORMATION
The Company commenced its wireless Internet connectivity business in the
summer of 2000. The Company does not measure its operating results, assets or
liabilities by segment. However, the following limited segment information is
available:
Nine Months Ended Nine Months Ended Year Ended
September 30 September 30 December 31,
2004 2003 2003
---------- ---------- ----------
Sales - external
Amplifier $ 582,463 1,013,262 $1,128,453
Internet business 88,029 217,082 222,772
---------- ---------- ----------
$ 670,492 $1,230,344 $1,351,225
========== ========== ==========
Inventory --
Amplifier $ 281,254 $ 454,946 $ 248,575
Internet business 40,383 497,320 159,134
---------- ---------- ----------
$ 321,637 $ 952,266 $ 407,709
========== ========== ==========
NOTE I -- OTHER COMMENTS
1. NOTICE OF OPPOSITION ON TRADEMARK
The Company's registration of the Ampwave trademark was opposed at the
U.S. Patent Office. The Company has settled with the opposing party by agreeing
to stop using the Ampwave name after a period of one (1) year from the date of
signing. Sales under the Ampwave label were $88,029 for the three months ended
September 30, 2004. Management believes that the settlement will have no
material financial effect.
2. Resignation of Chief Executive Officer
Effective August 19, 2004, Devendar S. Bains stepped down from his
position as Chairman of the Board, Chief Executive Officer and President and is
now the Chief Technology Officer. Tarlochan Bains has taken over the position of
Chairman of the Board and Chief Executive Officer.
3. Acquisition of operating premises by Lee
John Lee has entered into a contract with the existing landlord of the
operating premises to purchase the building. In connection therewith, Lee
negotiated a return of the security deposit and accumulated interest thereon to
the Company in the aggregate amount of $40,160. The Company is
10
currently leasing the premises on a month to month basis and is paying rent on a
semi-monthly basis. Although there is no lease or contract presently in effect
with Lee, it is anticipated that the Company will be able to continue occupying
the premises under a lease with Lee at an as yet to be determined rent.
NOTE J -- SUBSEQUENT EVENTS
In October 2004, pursuant to the Stock Purchase and Financing Agreements, John
Lee loaned the Company an additional $150,000 (See Note C 2)
11
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, 2004 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 2003.
Revenues for the three months ended September 30, 2004 declined by $241,935 from
$356,834 to $114,899, or 68% compared to the three months ended September 30,
2003.
The majority of the amplifier sales for the three months ended September 30,
2004 were obtained from the Wireless Local Loop amplifier products to a major
European customer. Sales of amplifiers were approximately 87% of total sales
compared to 82% of total sales for the same period last year. The Ampwave high
speed wireless Internet products and broadband solutions accounted for
approximately 14% of total sales, against 18% 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 $154,532 or 134% of sales compared to 51% during the same
period for 2003. Gross margin for the three months ended September 30, 2004
amounted to $(39,633) ((34)%) compared to $173,104 or 49%, for the same period
ended September 30, 2003. The decline in gross margin was largely due to the
significant decline in sales. We have maintained a minimum manufacturing
staffing, but our sales have declined too low to support even that low staffing
level. The Company is continuing to assess cost reduction and is promoting
increased product demand to improve gross margins in 2004.
Selling, general and administrative expenses (excluding stock based
compensation) increased in 2004 by $26,613 to $180,922 from $154,309, in 2003.
Expressed as a percentage of sales, the selling, general and administrative
expenses (excluding stock based compensation) were 157% in 2004 and 43% in 2003.
The principal factors contributing to the dollar decrease in selling, general
and administrative expenses are related to the effects of our cost cutting
program implemented in 2002. In the quarter ended September 30, 2004, we
continued to maintain the lower staffing and overhead levels that we instituted
in 2002.
Research, engineering and development expenses were 10% of net sales for the
three months ended September 30, 2004 compared to 26% in 2003. In 2004 and 2003,
the principal activity of the business related to the design and production of
product for OEM manufacturers, particularly for the IMT 2000 and 3.5 GHz single
channel products and refinements to the High Speed Internet products. The
research, engineering and development expenses consist principally of salary
cost for engineers and the expenses of equipment purchases specifically for the
design and testing of the prototype products. The Company's research and
development efforts are influenced by available funds and the level of effort
required by the engineering staff on customer specific projects.
Interest income was $4,535 in 2004 and $NIL in 2003 because we received the
security deposit back from our leased facilities from the landlord with
interest. Otherwise, our cash balances which we have historically temporarily
invested in interest bearing accounts have been fully depleted.
12
Interest expense was $300 for the three months ended September 30, 2004 compared
to $300 the three months ended September 30, 2003 and was principally related to
other convertible notes.
As a result of the foregoing, the Company incurred net losses of $(241,475) or
$(0.02) per share for the quarter ended September 30, 2004 compared with net
losses of $(74,319) or $(0.01) per share for the same quarter in 2003.
RESULTS OF OPERATIONS - THE NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 2003.
Revenues for the nine months ended September 30, 2004 declined by $559,852 from
$1,230,344 to $670,492, or 46% compared to the nine months ended September 30,
2003.
The majority of the amplifier sales for the nine months ended September 30, 2004
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 $666,299 or 99% of sales compared to $741,512 or 60% of sales
during the same period for 2003. We have maintained a minimum manufacturing
staffing, but our sales have declined too low to support even that low staffing
level. The decline in gross margin was largely due to the significant decline in
sales. The Company is continuing to assess cost reduction and is promoting
increased product demand to improve gross margins in 2004.
Selling, general and administrative expenses (excluding stock based
compensation) decreased in September 30, 2004 by $62,021 to $503,029 from
$565,050, in 2003. Expressed as a percentage of sales, the selling, general and
administrative expenses (excluding stock based compensation) were 75% in 2004
and 46% in 2003. The principal factors contributing to the decrease in selling,
general and administrative expenses were related to the effects of our cost
cutting program implemented in 2002. In the quarter ended September 30, 2004, 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
nine months ended September 30, 2004 compared to 23% in 2003. In 2004 and 2003,
the principal activity of the business related to the design and production of
product for OEM manufacturers, particularly for the IMT 2000 and 3.5 GHz single
channel products and refinements to the High Speed Internet products. The
research, engineering and development expenses consist principally of salary
cost for engineers and the expenses of equipment purchases specifically for the
design and testing of the prototype products. The Company's research and
development efforts are influenced by available funds and the level of effort
required by the engineering staff on customer specific projects.
The Company had interest income and other income in 2003 of $3. Interest income
was $4,535 in 2004 because we received the security deposit back form our leased
facilities from the landlord with interest. Otherwise, our cash balances which
we have historically temporarily invested in interest bearing accounts have been
fully depleted.
Interest expense was $900 in 2004 compared to $673 in 2003 and was principally
related to other convertible notes.
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As a result of the foregoing, the Company incurred net losses of $746,337 or
$0.07 per share for the nine months ended September 30, 2004 compared with net
losses of $364,542 or $0.04 per share for the same period in 2003.
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 with
loans from John Lee, Hye Joung Lee and Joong Bin Lee, 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, 2004 we had an accumulated deficit of $23,676,510. Potential immediate
sources of liquidity are loans in connection with the Convertible Notes.
As of September 30, 2004, our current liabilities exceeded our cash and
receivables by $1,479,298. Our current ratio was 0.23 to 1.00, but our ratio of
accounts receivable to current liabilities was only 0.02 to 1.00. This indicates
that we will have difficulty meeting our obligations as they come due. We are
carrying $321,637 in inventory, of which $287,641 represents component parts.
Based on year to date usage, we are carrying 264 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, 2004, we had an overdraft of $4,315 compared to an overdraft
of $17,855 at December 31, 2003. Overall our overdraft decreased $13,540 during
2004. Our cash used for operating actives was $250,076 This year we received
loans of $34,991 and deferred salary payments to officer/stockholders of
$85,925. We also received proceeds from the issuance of convertible promissory
notes of $193,000.
The allowance for doubtful accounts on trade receivables increased from $143,000
(61% of accounts receivable of $234,482) in 2003 to $262,000 (91% of accounts
receivable of $287,862) in 2004. Additionally, in 2003, we reserved an aggregate
of $31,702 against leases receivable that we believe are uncollectible. Because
of our relatively small number of customers and low sales volume, accounts
receivable balances and allowances for doubtful accounts do not reflect a
consistent relationship to sales. We determine our allowance for doubtful
accounts based on a specific customer-by-customer review of collectiblity.
Our inventories decreased by $86,072 to $321,637 in 2004 compared to $407,709 at
December 31, 2003, a decrease of 21%.
The Company has several lease obligations for its premises and certain equipment
requiring minimum monthly payments of approximately $9,800 through 2005.
Although the Company did not convert salaries to officers through the issuance
of Common Stock in 2004 or 2003, it may to do so in 2004. To help alleviate the
cash flow difficulties, the Chief Executive Officer and the Vice President of
Operations agreed to additional salary deferrals of $23,192 and $6,538,
respectively.
The Company continues to explore strategic relationships with ISP's, customers
and others, which could involve jointly developed products, revenue-sharing
models, investments in or by the Company, or other arrangements. There can be no
assurance that a strategic relationship can be consummated.
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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 (other than the Convertible Notes) and reduced
revenues, we believe that we will have great difficulty meeting our working
capital needs over the next 12 months. We are presently dependent on cash flows
generated from sales and loans in connection with the Convertible Notes. Our
failure to substantially improve our revenues will have serious adverse
consequences and, accordingly, there is substantial doubt in our ability to
remain in business over the next 12 months. There can be no assurance that
adequate additional financing will be available to the Company on acceptable
terms, or at all. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate its research, engineering and
development or manufacturing programs or obtain funds through arrangements with
partners or others that may require the Company to relinquish rights to certain
of its technologies or potential products or other assets. Accordingly, the
inability to obtain such financing could have a material adverse effect on the
Company's business, financial condition and results of operations.
CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
the former Chief Executive and Principal Accounting officer, we have evaluated
the effectiveness of the design and operation of our disclosure controls
pursuant to Exchange Act Rule 13a-14(c) as of the end of the period covered by
this report. Based upon that evaluation, the Chief Executive and Principal
Accounting Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting him to material information required
to be included in the Company's periodic SEC filings relating to the Company.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these internal controls subsequent to
the date of my most recent evaluation.
Our management, including the former Chief Executive and Principal Accounting
officer, does not expect that our disclosure controls and internal controls will
prevent all error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their cost. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud within
the Company, if any, will be detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that a breakdown
can occur because of a simple error. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or
by management override of the control.
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-Oxley 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-Oxley Act of 2002.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note E to the Company's financial statements set forth in Part I.
*
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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: November 22, 2004 By: /S/ TARLOCHAN. BAINS
--------------------
Name: Tarlochan. Bains
Title: Chief Executive Officer,
Treasurer,
Principal Accounting
Officer and Director
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